Aurbach vs Sanitary Wares Manufacturing Corporation

Facts:
American Standard Inc. (ASI), a foreign corporation domiciled in Delaware, United States entered into
an Agreement with Sanitary Wares Manufacturing Corporation (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 sanitary wares in the
Philippines and selling them here and abroad. 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 management of the Corporation shall be vested in a Board of Directors, which shall consist of
nine individuals. As long as ASI shall own at least 30% of the outstanding stock of the Corporation,
three of the nine directors shall be designated by ASI, and the other six shall be designated by the
other stockholders of the Corporation.

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.

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 or joint
venture groups in the countries where Philippine exports were contemplated.

On March 8, 1983, the annual stockholders' meeting was held.

There were protests against the action of the Chairman and heated arguments ensued.

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,
Ernesto
V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo and
George F. Lee against Luciano Salazar and Charles Chamsay.

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 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.
Issue: WON the parties agreed to establish a joint venture or a corporation

Ruling:

Joint venture.

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

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.

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.

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.

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.
Mendiola vs CA

Facts:
Petitioner Arsenio T. Mendiola (ATM) entered into a Side Agreement with Pacific Forest Resources,
Phils., Inc., to set up a representative office in the Philippines. They named said office as Pacfor Phils.
in which petitioner is president. In the agreement, petitioner’s base salary and the company’s
overhead expenditures shall be borne by the representative office and shall be funded by Pacfor/ATM
since Pacfor Phils. is equally owned on 50-50 equity by ATM and Pacfor-USA.

The Side Agreement was later amended through a Revised Operating and Profit-Sharing Agreement
where petitioner’s salary was increased. However, both agreements show that the operational
expenses will be borne by the representative office and funded by all parties “as equal partners,”
while the profits and commissions will be shared among them.

Years later, petitioner wrote Pacfor’s VP for Asia seeking confirmation of his 50% equity of Pacfor
Phils. to which Pacfor’s President replied that petitioner is not a part-owner, his office being just a
representative office, a “theoretical company with the purpose of dividing the income 50-50.” He
even stressed that the petitioner knew of this arrangement from beginning, having been the one to
propose to them the setting up of a representative office, instead of a branch office, to save on taxes.

Issue:
Whether or not a partnership or co-ownership exists between the parties.

Held:
Petitioner is an employee of Pacfor and no partnership or co-ownership exists between the parties.

In a partnership, the members become co-owners of what is contributed to the firm capital and of all
property that may be acquired thereby and through the efforts of the members. The property or
stock of the partnership forms a community of goods, a common fund, in which each party has a
proprietary interest. In fact, the New Civil Code regards a partner as a co-owner of specific
partnership property. Each partner possesses a joint interest in the whole of partnership property. If
the relation does not have this feature, it is not one of partnership.

This essential element, the community of interest, or co-ownership of, or joint interest in partnership
property is absent in the relations between petitioner and private respondent Pacfor. Petitioner is not
a part-owner of Pacfor Phils. Pacfor's President established this fact when he said that Pacfor Phils. is
simply a "theoretical company" for the purpose of dividing the income 50-50. He stressed that
petitioner knew of this arrangement from the very start, having been the one to propose to private
respondent Pacfor the setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not
make a partnership.

Besides, a corporation cannot become a member of a partnership in the absence of express

authorization by statute or charter. This doctrine is based on the following considerations: (1) that the
mutual agency between the partners, whereby the corporation would be bound by the acts of
persons who are not its duly appointed and authorized agents and officers, would be inconsistent
with the policy of the law that the corporation shall manage its own affairs separately and exclusively;
and, (2) that such an arrangement would improperly allow corporate property to become subject to
risks not contemplated by the stockholders when they originally invested in the corporation. No such
authorization has been proved in the case at bar.