Aurbach vs Sanitary Wares, 180 SCRA 350

Parties:
Wolrgang Aurbach, John Griffin, David Whittingham and Charels Chamsay, Petitioners
Ernesto Lagdameo, Ernesto Lagdameo, Jr., Enrique Lagdameo, George Lee, Raul Boncan, Baldwin
Young, and Avelino Cruz, repondents (referred in this case as the Lagdameo Group/Filipino Group)
Facts:
In 1961, a domestic corporation was incorporated for the primary purpose of manufacturing and
marketing sanitary wares. One of its incorporators Baldwin Young, went abroad (US and Europe) to look
for investors for its expansion plans and ASI, a foreign company domiciled in Delaware UA entered into
an Agreement with Saniwares and some Filipino investors where they then agreed to participate in the
ownership of an enterprise which would primarily engage in the business of manufacturing in the PH and
selling here and abroad vitreous china and sanitary wares.
According to the Filipino group the disagreement started when they wanted to expand the export
operations and ASI objected on the ground that it had other subsidiaries of joint venture in the countries
where PH exports were contemplated.
On March 8, 1983, the annual stockholders’ meeting presided by Baldwin Young was held and
with disagreement the Secretary certified the election of Wolrgang Aurbach, John Griffin, David
Whittingham, Ernesto Lagdameo, Ernesto Lagdameo, Jr., Enrique Lagdameo, George Lee, Raul Boncan
and Baldwin Young. The meeting was declared adjourned but the ASI contended the meeting was only on
recess, the Chairman then threatened to throw out the stockholders who did not agree to his decision on
the casting of votes. The ASI Group, Luciano Salazar and other stockholders continued the meeting at the
elevator lobby presided by Salasar with Gatmaitan as Secretary who certified the election of Wolrgang
Aurbach, John Griffin, David Whittingham, Charles Chamsay and Luciano Salazar explaining that there
was a tied among the 6 nominees for the 4 remaining positions and the body decided not to break the tie.
Note that ASI nominated 4 directors instead of just 3.
Legal Dispute:
The Lagdameo group filed a petition fir preliminary injunction before the SEC against the ASI
group and Salazar. The ASI group and Salazar also filed a petition for qui warranto and application for
receivership against the Lagdameo Group.
SEC:
Consolidated the petitions and upheld the election of the Lagdameo group and dismissing the quo
warranto.
CA:
Appeals were consolidated and ordered the remand of the case to the SEC with the directive that
the new stockholders’ meeting of Saniwares be ordered covoked as soon as possible, under the
supervision of the Commission.
Motion for reconsideration by Lagdameo group, the CA amended its earlier decision stating that:
1. In all subsequent elections for directors of Saniwares, ASI cannot nominate more than three
directors.
2. The Filipino stockholders shall not interfere in ASI’s choice of its three nominees
3. That the Filipino stockholders can nominate only six candidates and in the event that they cannot
agree on the six nominees, they shall vote only among themselves to determine the 6, with
cumulative voting to be allowed without interference from ASI.
Petitioners assailed the amended decision of the CA in GR No. 75875 by Aurbach, Griffin,
Whittingham and Cahmsay; in GR Nos. 759-76 by Salazar; and in GR No. 75951.
Issues:
1. Whether or not Saniwares is a corporation.
2. Whether or not ASI Group may vote their additional 10% equity during elections of Saniwares’
board of directors.
Ruling:
First Issue
No, the examination of the provisions of the Agreement as well as the testimonial evidence
presented by the Lagdameo Group shows that the parties agreed to establish a joint venture and not a
corporation. The grant to ASI of the right to designate certain officers of the corporation; the super-
majority voting requirements for amendments of the article and by-laws; the provisions that ASI shall
designate 3 out of 9 directors; and that ASI given certain protections as the minority stockholder, clearly
indicate that there are two distinct groups in Saiware one of which is ASI which owns 40% of the capital
stock. Furthermore, ASI, in its communications, referred to the enterprise as joint venture. Note that,
Section 5(a) of the Agreement uses the word “designated” and not “elected” or “nominated” which means
that each group is assured of a fixed number of directors in the board. Premises considered, under the
Agreement there are two groups of stockholders who established a corporation with provisions for a
special contractual relationship between parties, i.e., ASI and other stockholders.
Second Issue
No, the question of whether or not the ASI may vote their additional equity lies in the agreement
of the said parties. There is an established minority position of the ASI and the contractual allocation of
board seats. It is imperative that the parties should honor and adhere to their respective rights and
obligations. Necessarily the CA was correct in upholding the agreement of the parties as regards the
allocation of director seats, 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 of which is clearly contrary to the contractual intent of the parties. As to Salazar’s argument that
such a decision would circumvent the Anti-Dummy Act which allows the ASI group to elect board of
directors in proportion to their share in capital of the entity is incorrect for such law also limits the
election of aliens as members of the board of directors IN PROPORTION TO THEIR ALLOWANCE
PARTICIPATION (3 out of 9).
Wolrgang Aurbach, John Griffin, David Whittingham, Ernesto Lagdameo, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George Lee, Raul Boncan and Baldwin Young are declared duly elected directors of
Saniwares.