LOZANA vs.

DEPAKAKIBO Facts: Lozana and Depakakibo established a partnership, wherein Lozana contributed 60% and Depakakibo 40%, for the purpose of maintaining, operating and distributing electric light and power in Dumangas, Iloilo, under a franchise issued to Mrs. Piadosa Buenaflor. The Public Service Commission revoked the franchise or certificate of public necessity and convenience for Buenaflor. The revocation was appealed. A temporary certificate was issued to Olimpia Decolongon. Due the cancellation of the franchise of Buenaflor, Lozana sold a generator, Buda (diesel), to Decolongon, while Depakakibo, on the other hand, sold one Crossly Diesel Engine, to the spouses Harder. Lozana brought an action against Depakakibo for unlawfully detaining his (Lozanas) Buda generator and 70 wooden posts with the wires connecting the generator to the different houses supplied by electric current. Lozana prayed said properties be delivered back to him. Three days after the filing of the complaint, the judge authorized the sheriff to take possession of the generator and 70 wooden posts. Defendant alleged that he contributed the wires to the partnership while the plaintiff contributed the generator and equipment; that the plaintiff sold his contribution to the partnership, in violation of the terms of their agreement. Note: there was no liquidation of partnership and that at the time plaintiff sold the generator. TC: plaintiff is owner of the equipment and entitled to the possession thereof. CA: contract of partnership was null and void, because by the contract of partnership, the parties thereto have become dummies of the owner of the franchise.

Furnishing the current to the holder of the franchise alone, without the previous approval of the Public Service Commission, does not make the contract of partnership null and void. Thus, parties to the partnership are not bound therefor, such that the contribution of the plaintiff to the partnership did not pass to it as its property. The claim of the defendant in his counterclaim that the partnership be dissolved and its assets liquidated is the proper remedy, not for each contributing partner to claim back what he had contributed. KIEL vs. ESTATE OF P.S. SABERT FACTS: In 1907, Kiel and Milfeil began work on public lands in the Parang Plantation Co. Kiel later took over the interest of Milfeil. In 1910, Kiel and Sabert entered into an agreement to develop the Parang Plantation Co.: Sabert was to furnish the capital to run the plantation and Kiel was to manage it. They were to share in the property. It seems this partnership was formed so that Sabert could acquire the land, Kiel being a German citizen and ineligible to acquire public lands in the Philippines. From 1910 to 1917, Kiel worked upon and developed the plantation. During the World War, he was deported from the Philippines. In 1919, five persons, including Sabert, organized the Nituan Plantation Co. In 1922, Sabert transferred all of his rights in two parcels of land situated in Parang in consideration of the sum of P1, to the Nituan Plantation Co. In this same period, Kiel tried to secure a settlement from Sabert. In a letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell all property that I have for P40,000 or take in a partner who is willing to develop the plantation, to take up the K. & S. debt no matter which way I will straiten out with you." Sabert died before any arrangement could be reached and before an action by Kiel against Sabert could be decided. Hence, these proceedings against the estate of Sabert.

RULING: Depakakibo wins. ISSUE/HELD: 1. W/N parties violated the Anti-Dummy Law? NO. Although the defendant admitted that he and the plaintiff are dummies, this admission is an error of law, not a statement of a fact. The AntiDummy law has not been violated as parties plaintiff and defendant are Filipinos. The AntiDummy law refers to aliens only. 2. W/N partnership was void ab initio pursuant to an illegal agreement? NO.

RULING: Sabert wins. ISSUE/HELD: 1. W/N a co-partnership existed between Kiel and Sabert? YES. Though no partnership agreement in writing was entered into by Kiel and Sabert, the testimony of the plaintiff's witnesses, together with the documentary evidence, show that Kiel and Sabert did enter into a partnership, and that they were to share equally. Competent evidence

exists establishing the partnership. Kiel is not entitled to any share in the land, but he has the right to half of the value of the improvements and personal property on the land as to the date upon which he left the plantation. AGAD vs. MABATO FACTS: Agad alleges that he and defendant Severino Mabato are partners in a fishpond business, wherein Agad contributed P1,000, with the right to receive 50% of the profits. From 1952 up to and including 1956, Mabato who handled the partnership funds and had yearly rendered accounts of the partnership. However, despite repeated demands, Mabato failed and refused to render accounts from 1957 to 1963. Agad prayed in his complaint against Mabato and Mabato & Agad Company for the dissolution of the partnership and winding up its affairs by an appointed receiver. Agad prayed that judgment be rendered sentencing Mabato to pay him P14,000, as his share in the profits of the partnership for the period from 1957 to 1963 in addition to attorney's fees. Mabato admitted the formal allegations of the complaint but denied the existence of the partnership (though a contract had been signed), on the ground that the contract had not been perfected because Agad had failed to give his P1,000 contribution to the partnership capital. Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the lower court had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights over public lands. TC ruled for Mabato on the theory that the contract of partnership is null and void, pursuant to Art. 1773 because an inventory of the fishpond referred in said instrument had not been attached thereto.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties; and attached to the public instrument. Mabato alleged and the lower court held that the answer should be in the affirmative, because a partnership engaged in the fishpond business could exist without said fishpond property being contributed to the partnership. However, the contract states that the partnership was established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of the partners contributed either a fishpond or a real right to any fishpond. Their contributions were limited to the sum of P1,000 each. AURBACH vs. SANITARY WARES MFTG. CO. FACTS: In 1961, Saniwares was incorporated for the manufacturing and marketing sanitary wares. One of the incorporators, Baldwin Young went abroad to look for European or American partners who could help in its expansion plans. In 1962, American Standard, a foreign corporation in Delaware, entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise called Sanitary Wares Manufacturing Corp., which would manufacture vitreous china and sanitary wares in the Philippines and sell it locally and abroad. The Board of Directors was to consist of 9 individuals with ASI owning at least 30% of the outstanding stock and allowed to designate 3 directors, while the other 6 to be designated by the other stockholders. The capital stock of ASI was increased to 40%. The joint enterprise prospered. However, the Filipino group to expand the export operations of the company to which ASI objected because it had other joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held to elect the members of the board of directors. Chairman Benjamin Young ruled out two nominations on the basis that they were contrary to the agreement which stated there could only be 9 directors.

RULING: Agad wins. ISSUE/HELD: 1. W/N a partnership existed pursuant to Art. 1773? (W/N "immovable property or real rights" have been contributed to the partnership under consideration) Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. -

There were protests against the action of the Chairman. An appeal was made by the ASI representative that a vote be taken on the ruling of the Chairman. Young declared the appeal out of order. He then instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus excluding the 2 additional persons nominated, Luciano E. Salazar and Charles Chamsay. (ASI representative) Mr. Jaqua protested and announced that all votes accruing to ASI shares were being cumulatively voted for the three ASI nominees Aurbach, Wittingham and Griffin - and Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or represented by them were being voted cumulatively in favor of Luciano E. Salazar. Young, nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI nominees and the six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the Aurbach, Griffin, Whittingham, Lagdameo, Sr., Lagdameo, Jr., Enrique Lagdameo, Lee, Boncan and Young. ASI representative moved to recess the meeting which was duly seconded. There was also a motion to adjourn. This motion to adjourn was accepted by the Chairman, who announced that the motion was carried and declared the meeting adjourned. Protests against the adjournment were registered and having been ignored, the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting would be reconvened in the next room. The Chairman threatened to have the stockholders who did not agree to the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Salazar and other stockholders, representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its

four nominees: Aurbach, Griffin, Whittingham and Chamsay. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4) remaining positions of directors and that the body decided not to break the tie. This triggered off the filing of separate petitions by the parties with the SEC. The petitions were consolidated and tried jointly. The decision of the hearing officer upheld the results of the first election. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision. Two separate appeals were filed with the IAC which ordered the remand of the case to the SEC with the directive that a new stockholders' meeting of Saniwares be ordered convoked. wins (Young and

RULING: First election Lagdameo Group) ISSUES/HELD:

Who were the duly elected Saniwares for the year 1983?

directors

of

To answer this question the following factors should be determined: 1. W/N the nature of the business established by the parties whether it was a joint venture or a corporation? IT WAS A JV / PARTNERSHIP Whether the parties to a particular contract have thereby established among themselves a joint venture or some other relation depends upon their actual intention which is determined in through the interpretation and construction of contracts. Petitioners: "Agreement" stated that the parties' intention was to form a corporation and not a joint venture. Respondent: Agreement failed to express the true intent of the parties. The intention of the Philippine Investors and ASI in entering into the Agreement is to enter into a joint venture enterprise and in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be considered. Important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation.

Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the same. Under the Agreement there are two groups of stockholders who established a corporation with provisions for a special contractual relationship between the parties. The provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder. Moreover, ASI in its communications referred to the enterprise as joint venture. As correctly held by the SEC Hearing Officer: It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of corporation management. A noted authority has pointed out that just as in close corporations, shareholders' agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders power to select a specified number of directors; (3) give to the shareholders control over the selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration. 2. W/N the ASI group may vote their additional equity during elections of Saniwares' board of directors? NO. The extent of ASI's participation in the management of the corporation is spelled out in the Agreement: three of the nine directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders. Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights and obligations thereunder. This Court should recognize and uphold the division of the stockholders into two groups, and at the same time uphold the right of the stockholders within each group to cumulative voting in the process of determining who the group's nominees would be. As suggested by

Salazar himself, this means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act. The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether or not that provision is applicable to a joint venture with clearly defined agreements: A joint venture is of common law origin. It has no precise legal definition but it has been generally understood to mean an organization formed for some temporary purpose. It is hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. The main distinction is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others.