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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.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

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)
xxx

Cumulative voting for directors:


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.
G.R. No. 126881

October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,


vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY,
respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals in CAG.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint
dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon

and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit
against the decedent's brother TAN ENG LAY on February 19, 1990. The complaint,3 docketed as
Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting,
liquidation and winding up of the alleged partnership formed after World War II between Tan
Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended complaint4
impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay.
The amended complaint was admitted by the trial court in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the second World War, Tan Eng Kee and
Tan Eng Lay, pooling their resources and industry together, entered into a partnership
engaged in the business of selling lumber and hardware and construction supplies. They named
their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death.
Petitioners herein averred that the business prospered due to the hard work and thrift of
the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children
caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet
Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his
heirs of their rightful participation in the profits of the business. Petitioners prayed for
accounting of the partnership assets, and the dissolution, winding up and liquidation
thereof, and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April 12,
1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring
partnership;

that

Benguet

Lumber

is

joint

venture

which

is

akin

to

particular

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership called Benguet Lumber and as
such should share in the profits and/or losses of the business venture or particular
partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee
have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or
as partner in a particular partnership have descended to the plaintiffs who are his legal
heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company,
Inc. so the plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of
Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated are
directed to submit the name of any person they want to be appointed as receiver failing in
which this Court will appoint the Branch Clerk of Court or another one who is qualified to
act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in
filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13, 1996,
rendered the assailed decision reversing the judgment of the trial court. Petitioners'
motion for reconsideration7 was denied by the Court of Appeals in a Resolution8 dated
October 11, 1996.

Hence, the present petition.


As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng
Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding.
Petitioners complained that Exhibits "4" to "4-U" offered by the defendants before the trial
court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also
filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo,
Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by
a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1,
wherein the charges were filed, rendered judgment9 dismissing the cases for insufficiency of
evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE
LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B)
THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME
FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE
WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE DULY
SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER
COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE
SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18,
DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST BECAUSE
THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR
WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN
BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE
LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF
BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT

ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).


As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are supported by the evidence.10 Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise only questions
of law which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to analyze
the evidentiary basis on which the lower court rendered judgment. Review of factual issues
is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the case,
and such findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if properly
considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the plaintiffs mentioned
only the existence of a partnership, the Court in turn went beyond that by justifying the
existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of standing between the
parties, equal proprietary interest and the exercise by the parties equally of the conduct
of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this
is because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated
if not burned by the Japanese. After the war, because of the absence of capital to start a
lumber and hardware business, Lay and Kee pooled the proceeds of their individual businesses
earned from buying and selling military supplies, so that the common fund would be enough to
form a partnership, both in the lumber and hardware business. That Lay and Kee actually
established the Benguet Lumber in Baguio City, was even testified to by witnesses. Because
of the pooling of resources, the post-war Benguet Lumber was eventually established. That

the father of the plaintiffs and Lay were partners, is obvious from the fact that: (1) they
conducted the affairs of the business during Kee's lifetime, jointly, (2) they were the ones
giving orders to the employees, (3) they were the ones preparing orders from the suppliers,
(4) their families stayed together at the Benguet Lumber compound, and (5) all their
children were employed in the business in different capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no
firm account, no firm letterheads submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the duration of the partnership.
There was even no attempt to submit an accounting corresponding to the period after the war
until Kee's death in 1984. It had no business book, no written account nor any memorandum
for that matter and no license mentioning the existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The certification
dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered owner of
the Benguet Lumber and Hardware. His application for registration, effective 1954, in fact
mentioned that his business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber Company, on
the basis of his SSS coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to
"4-U", inclusive, for the years 1982 to 1983, Kee was similarly listed only as an employee;
precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay was
mentioned also as the proprietor.
xxx

xxx

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in
any form, but when an immovable is constituted, the execution of a public instrument becomes
necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a
public instrument is also necessary, and which is to be recorded with the Securities and
Exchange Commission. In this case at bar, we can easily assume that the business
establishment, which from the language of the appellees, prospered (pars. 5 & 9, Complaint),
definitely exceeded P3,000.00, in addition to the accumulation of real properties and to the
fact that it is now a compound. The execution of a public instrument, on the other hand, was
never established by the appellees.
And then in 1981, the business was incorporated and the incorporators were only Lay and the
members of his family. There is no proof either that the capital assets of the partnership,
assuming them to be in existence, were maliciously assigned or transferred by Lay,
supposedly to the corporation and since then have been treated as a part of the latter's
capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a room in
the bunk house in Trinidad, but within the compound of the lumber establishment, as
testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding
people" as testified to by the son, Elpidio Tan; 3) that both were supervising the laborers,
as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by
Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a contract, either
oral or written. However, if it involves real property or where the capital is P3,000.00 or
more, the execution of a contract is necessary; 2) the capacity of the parties to execute
the contract; 3) money property or industry contribution; 4) community of funds and
interest, mentioning equality of the partners or one having a proportionate share in the
benefits; and 5) intention to divide the profits, being the true test of the partnership.
The intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements from the
testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which had
adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In

this connection, we have held that whether a partnership exists is a factual matter;
consequently, since the appeal is brought to us under Rule 45, we cannot entertain inquiries
relative to the correctness of the assessment of the evidence by the court a quo.13 Inasmuch
as the Court of Appeals and the trial court had reached conflicting conclusions, perforce we
must examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.14
Thus, in order to constitute a partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or industry to a common fund, and
(2) they intend to divide the profits among themselves.15 The agreement need not be formally
reduced into writing, since statute allows the oral constitution of a partnership, save in
two instances: (1) when immovable property or real rights are contributed,16 and (2) when
the partnership has a capital of three thousand pesos or more.17 In both cases, a public
instrument is required.18 An inventory to be signed by the parties and attached to the
public instrument is also indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership.20 A particular partnership is
distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of
informal partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be individually
liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number of
years; a partnership generally relates to a continuing business of various transactions of a
certain kind.21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property
contributed, and where each party exercises equal rights in the conduct of the business."22
Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we
expressed the view that a joint venture may be likened to a particular partnership, thus:
The legal concept of 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. (Gates v. Megargel, 266 Fed. 811 [1920]) 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. (Blackner v.
McDermott, 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 jurisdiction 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 Ill. 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. Bolaos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the
articles of partnership but there is none. The alleged partnership, though, was never
formally organized. In addition, petitioners point out that the New Civil Code was not yet
in effect when the partnership was allegedly formed sometime in 1945, although the contrary
may well be argued that nothing prevented the parties from complying with the provisions of
the New Civil Code when it took effect on August 30, 1950. But all that is in the past. The
net effect, however, is that we are asked to determine whether a partnership existed based
purely on circumstantial evidence. A review of the record persuades us that the Court of
Appeals correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing a partnership.
The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng
Lay. It should be noted that it is not with the number of witnesses wherein preponderance
lies;24 the quality of their testimonies is to be considered. None of petitioners' witnesses
could suitably account for the beginnings of Benguet Lumber Company, except perhaps for
Dionisio Peralta whose deceased wife was related to Matilde Abubo.25 He stated that when he
met Tan Eng Kee after the liberation, the latter asked the former to accompany him to get 80
pieces of G.I. sheets supposedly owned by both brothers.26 Tan Eng Lay, however, denied
knowledge of this meeting or of the conversation between Peralta and his brother.27 Tan Eng
Lay consistently testified that he had his business and his brother had his, that it was
only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may,
co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of
the existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership
was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses.29 Each has the right to
demand an accounting as long as the partnership exists.30 We have allowed a scenario wherein
"[i]f excellent relations exist among the partners at the start of the business and all the
partners are more interested in seeing the firm grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly plausible."31 But in the situation in the
case at bar, the deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In the
third place, it does not appear that she has even demanded from defendant any accounting of
the expenses and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, whether the expenses were
legitimate, whether the earnings were correct, etc. She was absolutely silent with respect
to any of the acts that a partner should have done; all that she did was to receive her
share of P3,000.00 a month, which cannot be interpreted in any manner than a payment for the
use of the premises which she had leased from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which
shows that both parties considered this offer as the real contract between them.33 [emphasis
supplied]
A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan
Eng Kee appeared never to have made any such demand for accounting from his brother, Tang
Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of
payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as
it was then called. The authenticity of these documents was questioned by petitioners, to
the extent that they filed criminal charges against Tan Eng Lay and his wife and children.
As aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4"
to "4-U" in fact shows that Tan Eng Kee received sums as wages of an employee. In connection
therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:


(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;
(3) 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 which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if such
profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an
employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not present and offer evidence that
would show that Tan Eng Kee received amounts of money allegedly representing his share in
the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng
Kee, received, if any, as his share in the profits of Benguet Lumber Company for any
particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to
divide the profits of the business between themselves, which is one of the essential
features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding
the employees; that both were supervising the employees; that both were the ones who
determined the price at which the stocks were to be sold; and that both placed orders to the
suppliers of the Benguet Lumber Company. They also point out that the families of the
brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a
privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in
Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employee's position is higher in rank, it is not
unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the
owner, can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore,
even a partner does not necessarily have to perform this particular task. It is, thus, not
an indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this

privilege was not accorded to other employees, the undisputed fact remains that Tan Eng Kee
is the brother of Tan Eng Lay. Naturally, close personal relations existed between them.
Whatever privileges Tan Eng Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence of a
partnership relation between them. Even highly confidential employees and the owners of a
company sometimes argue with respect to certain matters which, in no way indicates that they
are partners as to each other.35
In the instant case, we find private respondent's arguments to be well-taken. Where
circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a
finding of the existence of the parties' intent.36 Yet, in the case at bench, even the
aforesaid circumstances when taken together are not persuasive indicia of a partnership.
They only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber,
but in what capacity is unclear. We cannot discount the likelihood that as a member of the
family, he occupied a niche above the rank-and-file employees. He would have enjoyed
liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision. It may even be that among his
duties is to place orders with suppliers. Again, the circumstances proffered by petitioners
do not provide a logical nexus to the conclusion desired; these are not inconsistent with
the powers and duties of a manager, even in a business organized and run as informally as
Benguet Lumber Company.
There being no partnership, it follows that there is
liquidation to speak of. Hence, the petition must fail.

no

dissolution,

winding

up

or

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals
is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.