AGENCY,

 PARTNERSHIP  AND  TRUSTS  DIGESTS  (2013  –  2014)                      ATTY.  JOAQUIN  OBIETA  

 
G.R.  No.  75875                            December  15,  1989   At   the   annual   stockholders   meeting   in   1983,   disagreement   arose   after  
WOLRGANG   AURBACH,   JOHN   GRIFFIN,   DAVID   P.   WHITTINGHAM   and   two   directors   nominated   for   the   Philippine   Investors   were   struck   out  
CHARLES  CHAMSAY,  petitioners,     since   6   were   already   voted   for.     ASI   then   claimed   that   since   they   had  
vs.   40%  of  shares,  their  cumulative  voting  power  allowed  to  them  vote  for  a  
SANITARY   WARES   MANUFACTURING   CORPORATOIN,   ERNESTO   V.   4th  director,  and  thus  supported  Chamsay  who  was  one  of  the  2  names  
LAGDAMEO,   ERNESTO   R.   LAGDAMEO,   JR.,   ENRIQUE   R.   LAGDAMEO,   struck  out.  This  was  denied  by  Chairman  Young  who  then  adjourned  the  
GEORGE  F.  LEE,  RAUL   A.  BONCAN,  BALDWIN  YOUNG  and  AVELINO  V.   meeting.  ASI,  along  with  Luciano  Salazar  and  other  Philippine  Investors  
CRUZ,  respondents.   (whose  total  shares  were  equivalent  to  53-­‐54%)  voted  for  5  directors  (4  
  by  ASI  and  Salazar)  in  a  meeting  held  by  the  elevator  lobby.  
G.R.  No.  75951                            December  15,  1989    
SANITARY   WARES   MANUFACTURING   CORPORATION,   ERNESTO   R.   This   consists   of   three   petitions   consolidated   and   tried   together.   Both  
LAGDAMEO,   ENRIQUE   B.   LAGDAMEO,   GEORGE   FL   .EE   RAUL   A.   the   Lagdameo   group   (those   who   were   voted   DURING   the   stockholders  
BONCAN,  BALDWIN  YOUNG  and  AVELINO  V.  CRUX,  petitioners,     meeting)   and   Salazar’s   group   (those   who   were   voted   at   the   elevator  
vs.   lobby   meeting).   The   Supreme   Court   ruled   that   the   Lagdameo   group  
THE  COURT  OF  APPEALS,  WOLFGANG  AURBACH,  JOHN  GRIFFIN,  DAVID   were  duly  elected  board  of  directors,  and  said  that  since  the  Agreement  
P.   WHITTINGHAM,   CHARLES   CHAMSAY   and   LUCIANO   SALAZAR,   clearly   states   the   manner   of   voting   for   directors,   ASI   cannot   claim   to  
respondents.   have  the  power  to  designate  4  directors  when  they  were  only  allowed  3.  
  The   ASI   cannot   claim   that   cumulative   voting   should   be   applied   due   to  
G.R.  Nos.  75975-­‐76                          December  15,  1989   their   corporate   character,   because   Saniwares   is   clearly   a   joint   venture  
LUCIANO  E.  SALAZAR,  petitioner,   and  not  an  ordinary  corporation.  As  such,  the  cumulative  voting  rule  of  
vs.   Section   3(a)   is   applicable   only   within   the   group   (e.g.   amongst   the  
SANITARY   WARES   MANUFACTURING   CORPORATION,   ERNESTO   V.   Philippine   Investors   choosing   their   6   members),   and   not   amongst   both  
LAGDAMEO,   ERNESTO   R.   LAGDAMEO,   JR.,   ENRIQUE   R.   LAGDAMEO,   groups.   To   rule   otherwise   would   be   to   allow   the   ASI   to   circumvent   their  
GEORGE  F.  LEE,  RAUL  A.  BONCAN,  BALDWIN  YOUNG,  AVELINO  V.  CRUZ   minority  status,  which  the  parties  had  agreed  on.  
and  the  COURT  OF  APPEALS,  respondents.    
  BACKGROUND:  
CASE:    Sanitary  Wares  Manufacturing  Corporation  was  established  by  an   !  1961  !  Saniwares,  a  domestic  corporation  was  incorporated  to  
agreement   between   American   Standard   Inc.   (ASI)   and   a   group   of   manufacture   and   market   sanitary   wares.   One   of   the  
Philippine   Investors.   Section   3(a)   of   their   Agreement   provides   for   incorporators,   Mr.   Baldwin   Young,   went   abroad   in   search   of  
cumulative   voting   of   the   directors.   Section   5(a)   provides   that   ASI   will   foreign  partners  to  help  in  expansion.  
designate   3   directors,   and   the   Philippine   Investors   will   designate   6   ! August   15,   1962   !   American   Standard   Inc.   (ASI)   entered   an  
directors.  In  light  of  their  minority  status,  the  ASI  asked  for  provisions  to   agreement  with  Saniwares  and  some  Filipino  investors  whereby  
protect  them  as  a  minority  group.  Later,  the  ASI  shares  increased  from   ASI   and   the   Filipino   investors   agreed   to   participate   in   the  
30%  to  40%.     ownership  of  Sanitary  Wares  Manufacturing  Corporation  which  
  would  engage  primarily  in  the  business  of  manufacturing  in  the  

 
RACHELLE  ANNE  GUTIERREZ  
AGENCY,  PARTNERSHIP  AND  TRUSTS  DIGESTS  (2013  –  2014)                      ATTY.  JOAQUIN  OBIETA  
 
Philippines   and   selling   here   and   abroad   vitreous   china   and   • After  the  meeting  was  adjourned  under  protest,  The  ASI  group,  
sanitary  wares.   Luciano  E.  Salazar  and  other  stockholders  allegedly  representing  
o Section   3(a)   (Article   of   Incorporation)   of   their   53-­‐54%   of   Saniware   shared   continued   the   meeting   at   the  
Agreement  provides  for  cumulative  voting  for  directors.   elevator   lobby   where   (on   the   basis   of   the   cumulative   votes   case  
o Section   5(a)   (Management)   provides   that   the   Board   of   in   the   earlier   meeting)   ASI   voted   its   four   nominees;   Wolfgang  
Directors  will  be  composed  of  3  members  designated  by   Aurbach,  John  Griffin,  David  Whittingham  and  Charles  Chamsay.  
ASI  and  6  members  designated  by  other  stockholders.   Luciano  E.  Salazar  voted  for  himself,  thus  the  said  five  directors  
! At   the   request   of   ASI,   the   agreement   contained   provisions   were   certified   as   elected   directors   by   the   Acting   Secretary,  
designated  to  protect  it  as  a  minority  group,  such  as:   Andres   Gatmaitan,   with   the   explanation   that   there   was   a   tie  
o Veto  power  over  a  number  of  corporate  acts   among   the   other   6   nominees   for   the   4   remaining   positions   of  
o Right  to  designate  certain  officers  such  as  a  member  of   directors  and  that  the  body  decided  not  to  break  the  tie.  
the   Executive   Committee   whose   vote   was   required   for   Petition  in  the  Securities  and  Exchange  Commission  (SEC)  
important  corporate  transactions.   • Two  petitions  were  filed  in  the  SEC  by  two  groups  claiming  to  be  
! Later  the  30%  shares  of  ASI  was  increased  to  40%.   legitimate  directors  of  the  corporation:  
“Deterioration  of  the  initially  harmonious  relations”  begins…   o Preliminary   Injunction   !   Saniwares,   Emesto   V.  
• March   8,   1983   !   the   annual   stockholder’s   meeting   was   held   Lagdameo,   Baldwin   Young,   Raul   A.   Bonean   Ernesto   R.  
and  presided  by  Chairman  Baldwin  Young.   Lagdameo,   Jr.,   Enrique   Lagdameo   and   George   F.   Lee  
o ASI   group   nominated:   Wolfgang   Aurbach,   John   Griffin   against  Luciano  Salazar  and  Charles  Chamsay  
and  David  P.  Whittingham   o Quo   warranto   and   application   for   receivership   !  
o Philippine   investors   group   nominated:   Ernesto   Wolfgang   Aurbach,   John   Griffin,   David   Whittingham,  
Lagdameo,   Sr.,   Raul   Boncan,   Ernesto   Lagdameo,   Jr.,   Luciano   E.   Salazar   and   Charles   Chamsay   against   the  
Enrique  Lagdameo,  George  F.  Lee,  and  Baldwin  Young.   group  of  Young  and  Lagdameo  and  Avelino  F.  Cruz  
• THEN  Eduardo  Ceniza  nominated  Luciano  E.  Salazar,  who  in  turn   • The   two   petitions   were   consolidated   and   tried   jointly   by   a  
nominated   Charles   Chamsay.   These   two   were   struck   down   by   hearing  officer  who  upheld  the  election  of  the  Lagdameo  group.  
Baldwin   Young   on   the   basis   of   Section   5(a)   of   the   Agreement,   • SEC  en  banc  affirmed.  
resulting  in  protests  and  heated  arguments.   Intermediate  Appellate  Court  
• Chairman  Young  then  instructed  the  Corporate  Secretary  to  cast   • Two  separate  appeals  were  filed.  
all   the   votes   present   and   represented   by   proxy   equally   for   the   6   • The  Court  ordered  the  case  remanded  to  SEC  with  the  directive  
nominees  of  the  Philippine  Investors  and  the  3  nominees  of  ASI   that   a   new   stockholders'   meeting   of   Saniwares   be   ordered  
• ASI  representative,  Mr.  Jaqua,  protested  and  said  that  all  the  ASI   convoked   as   soon   as   possible,   under   the   supervision   of   the  
shares   were   being   cumulatively   voted   for   the   3   ASI   nominees   Commission.  
AND   Charles   Chamsay.   Luciano   E.   Salazar   and   other   proxy   Court  of  Appeals  
holders  said  that  all  their  votes  (according  to  their  shares)  were   • Lagdameo  Group  filed  for  a  motion  of  reconsideration,  
being  voted  cumulatively  in  favor  of  Luciano  E.  Salazar   • Court   of   Appeas   upheld   the   election   of   the   respondents  
• Nevertheless,  Chairman  Young  stuck  to  his  first  instruction.   (Lagdameo  group).    
 
RACHELLE  ANNE  GUTIERREZ  
AGENCY,  PARTNERSHIP  AND  TRUSTS  DIGESTS  (2013  –  2014)                      ATTY.  JOAQUIN  OBIETA  
 
• Petitioners  now  question  this  decision  adding  that:   Personal  Note:  In  this  case,  they  held  the  acts  of  the  parties  are  
o The  CA  prohibits  the  stockholders  from  exercising  their   indicators  of  their  intentions.  
full   voting   rights   as   represented   by   the   number   of   o The  provisions  of  the  Agreement  does  not  preclude  the  
shares   in   Saniwares,   thus   depriving   petitioners   and   the   existence  of  two  distinct  groups  of  stockholders:  ASI  as  
corporation   they   represent   of   their   property   rights   the   minority   and   the   Philippine   Investors   as   the  
without  due  process  of  law.   majority.  
o The   CA   imposes   conditions   and   reads   provisions   into   o As   the   SEC   Hearing   Officer   held:   Joint   venture  
the   agreement   of   the   parties   which   were   not   there,   corporations   often   contain   provisions   which   do   one   or  
which  action  it  cannot  legally  do.   more  of  the  following:  (1)  require  greater  than  majority  
  vote  for  shareholder  and  director  action;  (2)  give  certain  
ISSUES  TO  BE  RESOLVED:   shareholders  or  groups  of  shareholders  power  to  select  
1. Whether   or   not   the   Lagdameo   group   was   duly   elected   as   a   specified   number   of   directors;   (3)   give   to   the  
directors   of   Saniwares   for   the   year   1983   during   the   March   8,   shareholders  control  over  the  selection  and  retention  of  
1983  annual  stockholders  meeting.   employees;   and   (4)   set   up   a   procedure   for   the  
a. Whether   or   not   the   nature   of   the   business   was   a   joint   settlement  of  disputes  by  arbitration.  
venture  or  a  corporation   • In   an   action   at   law,   where   there   is   evidence   tending   to   prove  
b. Whether   or   not   the   ASI   Group   may   vote   their   additional   that   the   parties   joined   their   efforts   in   furtherance   of   an  
10%  equity  during  elections  of  Saniwares.   enterprise   for   their   joint   profit,   the   question   whether   they  
  intended   by   their   agreement   to   create   a   joint   adventure,   or   to  
RESOLUTIONS  AND  ARGUMENTS   assume  some  other  relation  is  a  question  of  fact  for  the  jury.  
ISSUE   1   !   Whether   or   not   the   Lagdameo   group   was   duly   elected   as   o An   examination   of   important   provisions   of   the  
directors   of   Saniwares   for   the   year   1983   during   the   March   8,   1983   Agreement   as   well   as   the   testimonial   evidence  
annual   stockholders   meeting.   !   YES.   The   Court   uphold   their   election   as   presented   by   the   Lagdameo   and   Young   Group   shows  
board  of  directors  of  Saniwards  for  1983.   that  the  parties  agreed  to  establish  a  joint  venture  and  
  not   a   corporation.   The   history   of   the   organization   of  
Major   Point   1:   Whether   or   not   the   nature   of   the   business   was   a   joint   Saniwares  and  the  unusual  arrangements  which  govern  
venture   or   a   corporation   !   Saniwares   is   a   joint   venture   as   proven   by   its   policy   making   body   are   all   consistent   with   a   joint  
the   presence   of   two   distinct   stockholder   groups,   and   as   evidenced   by   venture   and   not   with   an   ordinary   corporation.   (See  
contracts  of  the  parties.   third  bullet  in  “Background)  
• The  rule  is  that  whether  the  parties  to  a  particular  contract  have   o Moreover,   ASI   in   its   communications   referred   to   the  
thereby  established  among  themselves  a  joint  venture  or  some   enterprise  as  a  joint  venture.  
other   relation   depends   upon   their   actual   intention   which   is   o Side  Note:  Baldwin  Young  testified  that  Section  16(c)1  of  
determined   in   accordance   with   the   rules   governing   the   the  Agreement  that  "Nothing  herein  contained  shall  be  
interpretation  and  construction  of  contracts.                                                                                                                  
1  Section  16(c)  –  Miscellaneous  Provisions  
x  x  x  
 
RACHELLE  ANNE  GUTIERREZ  
AGENCY,  PARTNERSHIP  AND  TRUSTS  DIGESTS  (2013  –  2014)                      ATTY.  JOAQUIN  OBIETA  
 
construed   to   constitute   any   of   the   parties   hereto   FINAL  VERDICT:  The  foreign  group,  ASI,  was  limited  to  designate  three  
partners  or  joint  venturers  in  respect  of  any  transaction   directors.  This  is  the  allowable  participation  of  the  ASI  Group.  Hence,  in  
hereunder"  was  merely  to  obviate  the  possibility  of  the   future  dealings,  this  limitation  of  six  to  three  board  seats  should  always  
enterprise  being  treated  as  partnership  for  tax  purposes   be   maintained   as   long   as   the   joint   venture   agreement   exists   considering  
and  liabilities  to  third  parties.   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  
Major  Point  2:  Whether  or  not  the  ASI  Group  may  vote  their  additional   to   protect   the   interests   arising   from   the   minority   status   of   the   foreign  
10%   equity   during   elections   of   Saniwares.   !   NO.   The   extent   of   ASI’s   investors.  
participation  in  the  management  of  the  corporation  is  spelled  out  in  the    
Agreement.   They   cannot   be   allowed   to   interfere   under   the   guise   of    
cumulative   voting,   for   to   allow   the   ASI   Group   to   vote   their   additional   NO  SEPARATE  OPINIONS  
equity   to   help   elect   even   a   Filipino   director   (who   would   then   be    
beholden   to   them)   would   obliterate   their   minority   status,   which   had  
been  agreed  upon  by  the  parties.  
• 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.    
• 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  order  to  unite  the  two  in  this  case,  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.  
 

                                                                                                                                                                                                                                                       
c)   nothing   herein   contained   shall   be   construed   to   constitute   any   of   the   parties   hereto   partners  
or  joint  venturers  in  respect  of  any  transaction  hereunder.    
 
RACHELLE  ANNE  GUTIERREZ