G.R. No.

L-19342 May 25, 1972

LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B.
OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,

vs.

THE COMMISSIONER OF INTERNAL REVENUE, respondent.

FACTS:

In 1944, Julia Buñales died and left her as heirs her surviving spouse, Lorenzo T. Oña and her five
children. Lorenzo was appointed as administrator of the estate of Julia. Lorenzo submitted the project
of partition, which was approved by the Court in 1949. Because three of the heirs, namely Luz, Virginia
and Lorenzo, Jr., all surnamed Oña, were still minors when the project of partition was approved,
Lorenzo T. Oña, their father and administrator of the estate, filed a petition the Court for appointment
as guardian of said minors and appointed as guardian. The project of partition shows that the heirs have
undivided one-half (1/2) interest in ten parcels of land, six houses and an undetermined amount to be
collected from the War Damage Commission. Later, they received from said Commission the amount of
P50,000.00, more or less. This amount was not divided among them but was used in the rehabilitation
of properties owned by them in common. Although the project of partition was approved by the Court,
no attempt was made to divide the properties therein listed. Instead, the properties remained under the
management of Lorenzo T. Oña who used said properties in business by leasing or selling them and
investing the income derived therefrom and the proceeds from the sales thereof in real properties and
securities. As a result, petitioners' properties and investments gradually increased from P105,450.00 in
1949 to P480,005.20 in 1956.

From said investments and properties petitioners derived such incomes as profits from installment sales
of subdivided lots, profits from sales of stocks, dividends, rentals and interests . The said incomes are
recorded in the books of account kept by Lorenzo T. Oña where the corresponding shares of the
petitioners in the net income for the year are also known. Every year, petitioners returned for income
tax purposes their shares in the net income derived from said properties and securities and/or from
transactions involving them.However, petitioners did not actually receive their shares in the yearly
income. ). The income was always left in the hands of Lorenzo T. Oña who, as heretofore pointed out,
invested them in real properties and securities.

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax..
Accordingly, he assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate
income taxes for 1955 and 1956, respectively. Petitioners protested against the assessment and asked
for reconsideration of the ruling of respondent that they have formed an unregistered partnership.
Finding no merit in petitioners' request, respondent denied it.
Issue:

1. Whether or not petitioners be considered as co-owners of the properties inherited by them

from the deceased Julia Buñales and the profits derived from transactions involving the same,
or, must they be deemed to have formed an unregistered partnership subject to tax under
Sections 24 and 84(b) of the National Internal Revenue Code? (Unregistered partnership)

HELD:

The Tax Court found that instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the properties remained under the management
of Lorenzo T. Oña who used said properties in business by leasing or selling them and investing the
income derived therefrom and the proceed from the sales thereof in real properties and securities," as a
result of which said properties and investments steadily increased yearly. And all these became possible
because, admittedly, petitioners never actually received any share of the income or profits from Lorenzo
T. Oña and instead, they allowed him to continue using said shares as part of the common fund for their
ventures, even as they paid the corresponding income taxes on the basis of their respective shares of
the profits of their common business as reported by the said Lorenzo T. Oña.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves
to holding the properties inherited by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit, and that with said profit,
petitioners engaged, thru Lorenzo T. Oña, in the purchase and sale of corporate securities. It is likewise
admitted that all the profits from these ventures were divided among petitioners proportionately in
accordance with their respective shares in the inheritance. In these circumstances, it is Our considered
view that from the moment petitioners allowed not only the incomes from their respective shares of the
inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña as a common
fund in undertaking several transactions or in business, with the intention of deriving profit to be shared
by them proportionally, such act was tantamonut to actually contributing such incomes to a common
fund and, in effect, they thereby formed an unregistered partnership within the purview of the above-
mentioned provisions of the Tax Code.

It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as
co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of the deceased, all the income
thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered
co-partners, but it does not necessarily follow that such status as co-owners continues until the
inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after
knowing their respective shares in the partition, they might decide to continue holding said shares under
the common management of the administrator or executor or of anyone chosen by them and engage in
business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal
Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that "it was not a property inherited by them pro
indiviso," but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all
instances where an inheritance is not actually divided, there can be no unregistered co-partnership. As
already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted
into an unregistered partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.
The reason for this is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them to manage and
dispose of as exclusively his own without the intervention of the other heirs, and, accordingly he
becomes liable individually for all taxes in connection therewith. If after such partition, he allows his
share to be held in common with his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is
formed. This is exactly what happened to petitioners in this case.

In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that:
"The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are
derived," and, for that matter, on any other provision of said code on partnerships is unavailing. In
Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code
from that of unregistered partnerships which are considered as "corporations" under Sections 24 and
84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships," which constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in confirmity with the usual
requirements of the law on partnerships, in order that one could be deemed constituted for purposes of
the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes, among
others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a legal
personality of its own, independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the partnerships therein referred
to. In fact, as above stated, "duly registered general co-partnerships" — which are possessed of the
aforementioned personality — have been expressly excluded by law (sections 24 and 84[b]) from the
connotation of the term "corporation.

Similarly, the American Law

... provides its own concept of a partnership. Under the term "partnership" it includes not only a
partnership as known in common law but, as well, a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any business, financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal
Income Taxation, p. 789; emphasis ours.)

The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried on. ...
. (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)

For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships
— with the exception only of duly registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar
as said Code is concerned, and are subject to the income tax for corporations.

We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R.
Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership
pursued by appellants therein.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with
costs against petitioners.

G.R. No. L-47045 November 22, 1988

NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.
Facts: Sardane is the owner of a Sardane Trucking Services. One day Sardane borrowed money from the
Acojedo by making promises and issuing several promissory notes. Acojedo brought an action in the City
Court of Dipolog for collection of a sum of P5,217.25 based on promissory notes executed by Nobio
Sardane in favor of the Acojedo. Acojedo bases his right to collect on Exhibits B, C, D, E, F, and G
executed on different dates and signed by Nobio Sardane. Exhibit B is a printed promissory note
involving Pl,117.25. Exhibit C is likewise a printed promissory note and denotes on its face that the
sum loaned was Pl,400.00. Exhibit D is also a printed promissory note involving an amount of P100.00.
Exhibit E is what is commonly known to the layman as 'vale' which reads: 'Good for: two hundred
pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor: 'Received from Mr. Romeo
Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00) ONLY, to be paid on or before
December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales' involving the same amount
of one hundred pesos. It has been established in the trial court that on many occasions, the Acojedo
demanded the payment of the total amount of P5,217.25. The failure of the private respondent to pay
the said amount prompted the petitioner to seek the services of lawyer who made a letter formally
demanding the return of the sum loaned. Because of the failure of the Sardane to heed the demands
extrajudicially made by the Acojedo, the latter was constrained to bring an action for collection of sum
of money.

City Court of Dipolog ruled in favor of the Acojedo and against the Sardane ordering the latter to pay
unto the plaintiff the sum of P5,217.25 Sardane appealed to the Court of First Instance of Zamboanga
del Norte which reversed the decision of the lower court by dismissing the complaint.

Hence, the appeal.

Issue:

1. Whether the oral testimony of Acojedo that a partnership existed is admissible admissible.
(No.) (ETO YUNG ISSUE SA CASE)
2. Assuming arguendo that aliunde may be admitted, whether or not partnership existed between
Sardane and Acojedo (No.) (ETO YUNG RELEVANT SA PARTNERSHIP)

Held:

(1) The parol evidence rule in Rule 130 provides:

Sec. 7. Evidence of written agreements.—When the terms of an agreement have been

reduced to writing, it is to be considered as containing all such terms, and, therefore,
there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing except in the following
cases:

(a) Where a mistake or imperfection of the writing or its failure to express the
the true intent and agreement of the parties, or the validity of the agreement is
put in issue by the pleadings;

(b) When there is an intrinsic ambiguity in the writing.

As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case
as there is no ambiguity in the writings in question, thus:
 In the case at bar, Exhibits B, C, and D are printed promissory notes containing a
promise to pay a sum certain in money, payable on demand and the promise to bear
the costs of litigation in the event of the private respondent's failure to pay the amount
loaned when demanded extrajudicially. Likewise, the vales denote that the private
respondent is obliged to return the sum loaned to him by the petitioner. On their face,
nothing appears to be vague or ambigous, for the terms of the promissory notes clearly
show that it was incumbent upon the private respondent to pay the amount involved in
the promissory notes if and when the petitioner demands the same. It was clearly the
intent of the parties to enter into a contract of loan for how could an educated man like
the private respondent be deceived to sign a promissory note yet intending to make
such a writing to be mere receipts of the petitioner's supposed contribution to the
alleged partnership existing between the parties? It has been established in the trial
court that, the private respondent has been engaged in business for quite a long period
of time--as owner of the Sardane Trucking Service, entering into contracts with the
government for the construction of wharfs and seawall; and a member of the City
Council of Dapitan It indeed puzzles us how the private respondent could have been
1àw>

misled into signing a document containing terms which he did not mean them to be.The
private respondent admitted during the cross-examination made by petitioner's
counsel that he was the one who was responsible for the printing of Exhibits B, C, and
D. How could he purportedly rely on such a flimsy pretext that the promissory notes
were receipts of the petitioner's contribution?

(2) The Court of Appeals held, and We agree, that even if evidence aliunde other than the
promissory notes may be admitted to alter the meaning conveyed thereby, still the evidence
is insufficient to prove that a partnership existed between the private parties hereto.

As manager of the basnig Sarcado naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner. The fact that he had received
50% of the net profits does not conclusively establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person
of a share of the profits of a business is prima facie evidence that he is a partner in the
business, no such inference shall be drawn if such profits were received in payment as wages
of an employee. Furthermore, herein petitioner had no voice in the management of the affairs
of the basnig.

The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the same factual
and legal milieu.

There are other considerations noted by respondent Court which negate herein petitioner's
pretension that he was a partner and not a mere employee indebted to the present private
respondent. Thus, in an action for damages filed by herein private respondent against the
North Zamboanga Timber Co., Inc. arising from the operations of the business, herein
petitioner did not ask to be joined as a party plaintiff. Also, although he contends that herein
private respondent is the treasurer of the alleged partnership, yet it is the latter who is
demanding an accounting. The advertence of the Court of First Instance to the fact that the
casco bears the name of herein petitioner disregards the finding of the respondent Court that
it was just a concession since it was he who obtained the engine used in the Sardaco from the
Department of Local Government and Community Development. Further, the use by the
parties of the pronoun "our" in referring to "our basnig, our catch", "our deposit", or "our
boseros" was merely indicative of the camaraderie and not evidentiary of a partnership,
between them.
 WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs
against herein petitioner.

G.R. No. 21639 September 25, 1924

ALBERT F. KIEL, plaintiff-appellee,
vs.
ESTATE OF P. S. SABERT, defendant-appellant.

Facts:

In 1910, Kiel and P. S. Sabert entered into an agreement to develop the Parang Plantation Company.
Sabert was to furnish the capital to run the plantation and Kiel was to manage it. They were to share
and share alike in the property. It seems that this partnership was formed so that the land could be
acquired in the name of Sabert, Kiel being a German citizen and not deemed eligible to acquire public
lands in the Philippines. By virtue of the agreement, from 1910 to 1917, Kiel worked upon and
developed the plantation. During the World War, he was deported from the Philippines.

Five persons, including P. S. Sabert, organized the Nituan Plantation Company, with a subscribed
capital of P40,000. P. S. Sabert transferred all of his rights in two parcels of land situated in the
municipality of Parang, Province of Cotabato, embraced within his homestead application No. 21045
and his purchase application No. 1048, in consideration of the sum of P1, to the Nituan Plantation
Company.In this same period, Kiel appears to have tried to secure a settlement from Sabert. At least
in a letter, 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." But Sabert's death came before any amicable arrangement could be reached
and before an action by Kiel against Sabert could be decided. So these proceedings against the estate
of Sabert.

Issue: Whether or not co-partnership existed between plaintiff and the deceased Sabert. (Yes.)

Held:

No partnership agreement in writing was entered into by Kiel and Sabert. The question consequently
is whether or not the alleged verbal copartnership formed by Kiel and Sabert has been proved, if we
eliminate the testimony of Kiel and only consider the relevant testimony of other witnesses. In
performing this task, we are not unaware of the rule of partnership that the declarations of one partner,
not made in the presence of his copartner, are not competent to prove the existence of a partnership
between them as against such other partner, and that the existence of a partnership cannot be
established by general reputation, rumor, or hearsay.

The testimony of the plaintiff's witnesses, together with the documentary evidence, leaves the firm
impression with us that Kiel and Sabert did enter into a partnership, and that they were to share
equally. Applying the tests as to the existence of partnership, we feel that competent evidence exists
establishing the partnership. Even more primary than any of the rules of partnership above announced,
is the injunction to seek out the intention of the parties, as gathered from the facts and as ascertained
from their language and conduct, and then to give this intention effect.

The judgment appealed from is set aside and the record is returned to the lower court where the
plaintiff, if he so desires, may proceed further to prove his claim against the estate of P. S. Sabert.

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

Facts:

Alleging that Agad and defendant Severino Mabato are — pursuant to a public instrument “Annex A”
— partners in a fishpond business, to the capital of which Agad contributed P1,000, with the right to
receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the
partnership funds, had yearly rendered accounts of the operations of the partnership; and that, despite
repeated demands, Mabato had failed and refused to render accounts for the years 1957 to 1963,
Agad prayed in his complaint against Mabato and Mabato & Agad Company, that judgment be
rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of
said partnership, upon the ground that the contract therefor had not been perfected, despite the
execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the
partnership capital. Mabato prayed, therefore, that the complaint be dismissed;

Subsequently, 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. After due hearing, the court issued
the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of
action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is
null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in
said instrument had not been attached thereto. A reconsideration of this order having been denied,
Agad brought the matter to us for review by record on appeal.

Issue: Whether or not "immovable property or real rights" have been contributed to the partnership
under consideration (No.)

Held:

Articles 1771 and 1773 of said Code provide:

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.

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 "it is
really inconceivable how a partnership engaged in the fishpond business could exist without said
fishpond property (being) contributed to the partnership." It should be noted, however, that, as stated
in Annex "A" 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. Indeed, Paragraph 4 of Annex "A" provides:
 That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino
Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither
said fishpond nor a real right thereto was contributed to the partnership or became part of the capital
thereof, even if a fishpond or a real right thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for further
proceedings, with the costs of this instance against defendant-appellee, Severino Mabato.

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES

CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUZ, respondents.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE

B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.

G.R. Nos. 75975-76 December 15, 1989

LUCIANO E. SALAZAR, petitioner,

vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-
G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then
Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary
Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more
than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and
in the event they cannot agree on the six (6) nominees, they shall vote only among themselves to
determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing
and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for
foreign partners, European or American who could help in its expansion plans. On August 15, 1962,
ASI, a foreign corporation domiciled in Delaware, United States 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 which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that
the business operations in the Philippines shall be carried on by an incorporated enterprise and that
the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the nomination
and election of the directors of the corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which
shall consist of nine individuals. As long as American-Standard shall own at least 30%
of the outstanding stock of the Corporation, three of the nine directors shall be
designated by American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as a minority group,
including the grant of veto powers over a number of corporate acts and the right to designate certain
officers, such as a member of the Executive Committee whose vote was required for important
corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with
the Board of Investments for availment of incentives with the condition that at least 60% of the capital
stock of the corporation shall be owned by Philippine nationals.

The joint enterprise thus entered into by the Filipino investors and the American corporation prospered.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious
relations between the two groups. According to the Filipino group, a basic disagreement was due to
their desire to expand the export operations of the company to which ASI objected as it apparently
had other subsidiaries of joint joint venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting was held. The meeting was
presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing
of the preliminary items in the agenda, the stockholders then proceeded to the election of the members
of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo,
Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R,
Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The
chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of
the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors, and the legal advice
of Saniwares' legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman 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 effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua
protested the decision of the Chairman and announced that all votes accruing to ASI
shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles 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 467,197 shares (p. 27, Rollo, AC-
G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
and David Whittingham 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
following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr.,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin
Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned. Protests
against the adjournment were registered and having been ignored, Mr. Jaqua 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 then 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, Luciano E. Salazar and other stockholders,
allegedly 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 Luciano E. 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; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E. 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. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the Securities and
Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares,
Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo
and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as
SEC Case No. 2417. The second petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay
against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz.
The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed
to be the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision
upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar
and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed
the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP
No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were
consolidated and the appellate court in its decision ordered the remand of the case to the Securities
and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court
of Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin,
David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF

PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM

EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF
SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS

INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH
ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following
grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual

agreements entered into by stockholders and the replacement of the conditions of such
agreements with terms never contemplated by the stockholders but merely dictated by
the CA .

11.2. The Amended decision would likewise sanction the deprivation of the property
rights of stockholders without due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a continuing monopoly of the
control of a corporation. (pp. 14-15, Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

I
 THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO
TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE

PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8
MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24,
Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during
its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors
should be determined: (1) the nature of the business established by the parties whether it was a joint
venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares' board of directors.

The rule is that 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 accordance with the rules governing the interpretation and construction of contracts.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the
parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated
that the parties' intention was to form a corporation and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR
No. 75875)

They object to the admission of other evidence which tends to show that the parties' agreement was
to establish a joint venture presented by the Lagdameo and Young Group on the ground that it
contravenes the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court.
According to them, the Lagdameo and Young Group never pleaded in their pleading that the
"Agreement" failed to express the true intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have been reduced

to writing, it is to be considered as containing all such terms, and therefore, there can
be, between the parties and their successors in interest, no evidence of the terms of
the agreement other than the contents of the writing, except in the following cases:
 (a) Where a mistake or imperfection of the writing, or its failure to express the true
intent and agreement of the parties or the validity of the agreement is put in issue by
the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer
to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the
parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third
parties and is not inconsistent with, and does not preclude, the existence of two distinct
groups of stockholders in Saniwares one of which (the Philippine Investors) shall
constitute the majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in entering into the
Agreement is to enter into ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former (Art. 1370, New Civil Code). The various stipulations of a
contract shall be interpreted together attributing to the doubtful ones that sense which
may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order
to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I,
Original Records, SEC Case No. 2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question whether
they intended by their agreement to create a joint adventure, or to assume some other
relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y
S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423,
200 P 96 33 C.J. p. 871)

In the instant cases, our examination of 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. The history of the organization of Saniwares and the
unusual arrangements which govern its policy making body are all consistent with a joint venture and
not with an ordinary corporation. As stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the

Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed
to accept the role of minority vis-a-vis the Philippine National group of investors, on the
condition that the Agreement should contain provisions to protect ASI as the minority.

An examination of the Agreement shows that certain provisions were included to

protect the interests of ASI as the minority. For example, the vote of 7 out of 9 directors
is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement].
ASI is contractually entitled to designate a member of the Executive Committee and
the vote of this member is required for certain transactions [Sec. 3 (b) (i)].
 The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the
right to designate the president and plant manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be that which is normally followed by
ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise
than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI
agreed to provide technology and know-how to Saniwares and the latter paid royalties
for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes
of the board of directors for certain actions, in effect gave ASI (which designates 3
directors under the Agreement) an effective veto power. Furthermore, the grant to ASI
of the right to designate certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most significantly to the
issues of tms case, 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.

Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of
directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes
and liabilities to third parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing
capacities of a local firm are constrained to seek the technology and marketing assistance of huge
multinational corporations of the developed world. Arrangements are formalized where a foreign group
becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand
names, and other such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic operations and
merely uses the joint venture arrangement to gain a foothold or test the Philippine waters, so to speak.
Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes
profitable, the foreign group undermines the local majority ownership and actively tries to completely
or predominantly take over the entire company. This undermining of joint ventures is not consistent
with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented,
the courts should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed by the

parties thereto, may provide that in exercising any voting rights, the shares held by
them shall be voted as therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.

Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because
it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
etc. If the members of one family and/or business or interest group are considered as
one (which, it is respectfully submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees'
Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close corporation

because it has more than 20 stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint venturers
(Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M
& St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v.
Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with legal
questions as to the extent to which the requirements arising from the corporate form
of joint venture corporations should control, and the courts ruled that substantial justice
lay with those litigants who relied on the joint venture agreement rather than the
litigants who relied on the orthodox principles of corporation law.

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
(See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does this provision
necessarily imply that these agreements can be valid only in close corporations as
defined by the Code? Suppose that a corporation has twenty five stockholders, and
therefore cannot qualify as a close corporation under section 96, can some of them
enter into an agreement to vote as a unit in the election of directors? It is submitted
that there is no reason for denying stockholders of corporations other than close ones
the right to enter into not voting or pooling agreements to protect their interests, as
long as they do not intend to commit any wrong, or fraud on the other stockholders not
parties to the agreement. Of course, voting or pooling agreements are perhaps more
useful and more often resorted to in close corporations. But they may also be found
necessary even in widely held corporations. Moreover, since the Code limits the legal
meaning of close corporations to those which comply with the requisites laid down by
section 96, it is entirely possible that a corporation which is in fact a close corporation
will not come within the definition. In such case, its stockholders should not be
precluded from entering into contracts like voting agreements if these are otherwise
valid. (Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by the SEC, is valid and binding
upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)

In regard to the question as to whether or not the ASI group may vote their additional equity during
elections of Saniwares' board of directors, the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in the

management of the corporation is spelled out in the Agreement. Section 5(a) hereof
says that three of the nine directors shall be designated by ASI and the remaining six
by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats
is obviously in consonance with the minority position of ASI.

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.
Appellants seem to contend that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may interfere with the
stockholder's rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement which curtails in
any way cumulative voting should be struck down, even if such agreement has been
freely entered into by experienced businessmen and do not prejudice those who are
 not parties thereto. It may well be that it would be more cogent to hold, as the Securities
and Exchange Commission has held in the decision appealed from, that cumulative
voting rights may be voluntarily waived by stockholders who enter into special
relationships with each other to pursue and implement specific purposes, as in joint
venture relationships between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.

In any event, it is believed that we are not here called upon to make a general rule on
this question. Rather, all that needs to be done is to give life and effect to the particular
contractual rights and obligations which the parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.

In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. 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. In practical terms, as
suggested by appellant Luciano E. 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.

Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)

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 (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board of directors or
governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in the
capital of such entities. (amendments introduced by Presidential Decree 715, section
1, promulgated May 28, 1975)

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:
 The legal concept of ajoint 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. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact 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.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdictions 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. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
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. (Art. 1783, Civil Code). 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. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts generally apply to
a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the question of
whether or not the ASI Group may vote their additional equity lies in the agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the
allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of
stockholders to cumulative voting in the process of determining who the group's nominees would be
under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.

This is the proper interpretation of the Agreement of the parties as regards the election of members of
the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would
be beholden to them would obliterate their minority status as agreed upon by the parties. As aptly
stated by the appellate court:

... 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.

Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
 nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the consideration as
regards the possible domination by the foreign investors of the enterprise in violation of the
nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act.
In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect
board directors in proportion to their share in the capital of the entity. It is to be noted, however, that
the same law also limits the election of aliens as members of the board of directors in proportion to
their allowance participation of said entity. In the instant case, the foreign Group ASI was limited to
designate three directors. This is the allowable participation of the ASI Group. Hence, in future
dealings, this limitation of six to three board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board seats in the 9-man board of directors
there are provisions already agreed upon and embodied in the parties' Agreement to protect the
interests arising from the minority status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly
affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P
Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr.,
Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March 8,1983
annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a
cumulative voting during the election of the board of directors of the enterprise as ruled by the appellate
court and submits that the six (6) directors allotted the Filipino stockholders should be selected by
consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."

They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino
stockholders are allowed to select their nominees separately and not as a common slot determined
by the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors
should not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the
Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees
which is cumulative voting while section 5(a) relates to the manner of nominating the members of the
board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot
now impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent
on the directors thus elected being genuine members of the Filipino group, not voters whose interest
is to increase the ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under its original
agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial safeguards in the Agreement
which are intended to preserve the majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed. They should be maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the
petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is
MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo,
Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee
are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders'
meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in
G.R. Nos. 75975-76 and G.R. No. 75875.

SO ORDERED.