Case Summary (G.R. No. 75875)
Nature of the Enterprise: Joint Venture Versus Corporation
Although the Agreement disclaimed partnership status for third-party purposes, contemporaneous and subsequent conduct—board-seat allocation, veto powers, royalty payments, technology transfer and marketing controls—demonstrated a joint-venture arrangement. Under prevailing contract‐interpretation rules (Civ. Code Arts. 1370–1374), this integrated evidence manifested the parties’ true intention to form a joint venture rather than a purely corporate entity.
Disputed Election at the 1983 Stockholders’ Meeting
At the March 8, 1983 meeting, Filipino investors nominated six directors and ASI three. Salazar and Chamsay were nominated later but ruled out of order by the chairman. The chairman equally distributed all votes among the original nine nominees, denying cumulative votes cast by ASI and proxy holders for the additional two. Excluded stockholders reconvened elsewhere, certified five directors including Salazar and Chamsay, and triggered competing petitions before the SEC.
SEC Proceedings and Intermediate Appellate Decision
Consolidated SEC petitions (No. 2417 injunction; No. 2718 quo warranto) yielded a hearing officer’s ruling upholding the Filipino group’s election. The SEC En Banc affirmed. The Intermediate Appellate Court then remanded for a new meeting under Commission supervision. Upon reconsideration, the Court of Appeals amended its decision to limit ASI to three nominees and to allow intra-group cumulative voting for Filipino shareholders selecting six nominees.
Issues on Contract Enforcement and Voting Rights
Petitioners contended that the Agreement’s nomination‐designation scheme unlawfully restricted statutory cumulative voting (Corp. Code Sec. 24) and infringed property rights without due process. They argued that only nine slots should be filled by consensus among all stockholders and that ASI must be allowed to cumulate all its votes for any nominee.
Interpretation of Shareholder Voting Agreements
Under Corp. Code Sec. 100(2), written voting agreements among stockholders are valid beyond close corporations. The Supreme Court recognized that joint-venture corporations regularly modify statutory voting rules by contract. The Agreement’s Sec. 5(a) on designation and Sec. 3(a)(1) on cumulative voting must be read together to give effect both to the agreed board‐seat allocation and to cumulative voting within each group.
Board Composition and Cumulative Voting Framework
The Court held that ASI may designate only three directors as contractually fixed, preserving its minority position and complying with nationalization and Anti-Dummy Act ratios. Filipino shareholders may exercise cumulative voting among themselves to select six directors, without ASI’s interference. This dual approach respects the contractual division of seats and protects each group’s voting ri
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Antecedent Facts
- Sanitary Wares Manufacturing Corporation (“Saniwares”) was incorporated in 1961 to manufacture and market vitreous china sanitary wares in the Philippines and abroad.
- In August 1962 American Standard Inc. (“ASI”), a Delaware-domiciled foreign corporation, entered into a written agreement with Saniwares and Filipino investors to participate in a joint enterprise.
- Under that Agreement:
• Articles of Incorporation would provide cumulative voting for directors.
• Management would vest in a nine-member Board, three directors designated by ASI (so long as it owned at least 30%, later increased to 40% of capital stock) and six by the other stockholders.
• Various veto and super-majority protections were granted ASI (e.g., 7-out-of-9 votes for certain corporate acts, ASI-designated officers required for important transactions). - Saniwares obtained Board of Investments registration on the condition that at least 60% of its capital stock remain Filipino-owned.
- The enterprise prospered until strategic disagreements arose over export expansion, pitting the Filipino majority against the ASI minority.
Events at the March 8, 1983 Stockholders’ Meeting
- Meeting presided by Baldwin Young (Chairman) with Avelino Cruz as Corporate Secretary.
- Nominations for nine directorships:
• ASI group nominated Wolfgang Aurbach, John Griffin, David P. Whittingham.
• Filipino investors nominated six persons including Ernesto V. Lagdameo Sr. and Baldwin Young.
• Additional nominations of Luciano E. Salazar and Charles Chamsay were ruled out of order by the Chairman under Section 5(a) of the Agreement and past practice. - Heated protests followed; ASI representative demanded a vote on the Chairman’s ruling but was denied.
- Chairman instructed Secretary to cast all votes equally for the nine originally nominated candidates, effectively excluding Salazar and Chamsay.
- ASI and Salazar proxies attempted cumulative voting for their slates; Chairman nonetheless certified the nine: Aurbach, Griffin, Whittingham, Ernesto V. Lagdameo, Ernesto R. Lagdameo Jr., Enrique R. Lagdameo, George F. Lee, Raul A. Boncan, and Baldwin Young.
- A motion to adjourn was declared carried; ASI and Salazar groups reconvened informally and certified five directors (Aurbach, Griffin, Whittingham, Chamsay, Salazar), leading to dueling slates.
SEC Proceedings
- Two petitions filed with the Securities and Exchange Commission:
• SEC Case No. 2417 – preliminary injunction by Saniwares and Filipino directors against Salazar and Chamsay.
• SEC Case No. 2718 – quo wa