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EN BANC

[G.R. No. 100152. March 31, 2000]

ACEBEDO OPTICAL COMPANY, INC., petitioner,v. THEHONORABLE COURT OF APPEALS, Hon. MAMINDIARAMANGOTARA, in his capacity as Presiding Judge of theRTC, 12th Judicial Region, Br. 1, Iligan City; SAMAHANG

OPTOMETRIST Sa PILIPINAS - Iligan City Chapter, LEOT. CAHANAP, City Legal Officer, and Hon. CAMILO P.

CABILI, City Mayor of Iligan, Respondents.

D E C I S I O N

PURISIMA, J.:

At bar is a petition for review under Rule 45 of the Rules ofCourt seeking to nullify the dismissal by the Court of Appealsof the original petition for certiorari, prohibition andmandamus filed by the herein petitioner against the City

Mayor and City Legal Officer of Iligan and the SamahangOptometrist sa Pilipinas - Iligan Chapter (SOPI, for brevity).

The antecedent facts leading to the filing of the instantpetition are as follows:

Petitioner applied with the Office of the City Mayor of Iliganfor a business permit. After consideration of petitionersapplication and the opposition interposed thereto by localoptometrists, respondent City Mayor issued Business PermitNo. 5342 subject to the following conditions:

1. Since it is a corporation, Acebedo cannot put up an opticalclinic but only a commercial store;

2. Acebedo cannot examine and/or prescribe reading andsimilar optical glasses for patients, because these arefunctions of optical clinics;

3. Acebedo cannot sell reading and similar eyeglasseswithout a prescription having first been made by anindependent optometrist (not its employee) or independentoptical clinic. Acebedo can only sell directly to the public,

without need of a prescription, Ray-Ban and similareyeglasses;

4. Acebedo cannot advertise optical lenses and eyeglasses,but can advertise Ray-Ban and similar glasses and frames;

5. Acebedo is allowed to grind lenses but only upon theprescription of an independent optometrist.1

On December 5, 1988, private respondent Samahan ngOptometrist Sa Pilipinas (SOPI), Iligan Chapter, through its

Acting President, Dr. Frances B. Apostol, lodged a complaintagainst the petitioner before the Office of the City Mayor,alleging that Acebedo had violated the conditions set forth inits business permit and requesting the cancellation and/orrevocation of such permit.

Acting on such complaint, then City Mayor Camilo P. Cabilidesignated City Legal Officer Leo T. Cahanap to conduct an

investigation on the matter. On July 12, 1989, respondentCity Legal Officer submitted a report to the City Mayor findingthe herein petitioner guilty of violating all the conditions of itsbusiness permit and recommending the disqualification ofpetitioner from operating its business in Iligan City. Thereport further advised that no new permit shall be granted topetitioner for the year 1989 and should only be given time to

wind up its affairs.

On July 19, 1989, the City Mayor sent petitioner a Notice ofResolution and Cancellation of Business Permit effective asof said date and giving petitioner three (3) months to wind up

its affairs.

On October 17, 1989, petitioner brought a petitionfor certiorari, prohibition and mandamus with prayer forrestraining order/preliminary injunction against therespondents, City Mayor, City Legal Officer and Samahan ngOptometrists sa Pilipinas-Iligan City Chapter (SOPI),docketed as Civil Case No. 1497 before the Regional TrialCourt of Iligan City, Branch I. Petitioner alleged that (1) it wasdenied due process because it was not given an opportunityto present its evidence during the investigation conducted bythe City Legal Officer; (2) it was denied equal protection of

the laws as the limitations imposed on its business permitwere not imposed on similar businesses in Iligan City; (3) theCity Mayor had no authority to impose the special conditionson its business permit; and (4) the City Legal Officer had noauthority to conduct the investigation as the matter falls

within the exclusive jurisdiction of the ProfessionalRegulation Commission and the Board of Optometry.

Respondent SOPI interposed a Motion to Dismiss thePetition on the ground of non-exhaustion of administrativeremedies but on November 24, 1989, Presiding JudgeMamindiara P. Mangotara deferred resolution of such Motion

to Dismiss until after trial of the case on the merits. However,the prayer for a writ of preliminary injunction was granted.Thereafter, respondent SOPI filed its answer.

On May 30, 1990, the trial court dismissed the petition forfailure to exhaust administrative remedies, and dissolved the

writ of preliminary injunction it earlier issued. Petitionersmotion for reconsideration met the same fate. It was deniedby an Order dated June 28, 1990.
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On October 3, 1990, instead of taking an appeal, petitionerfiled a petition for certiorari, prohibition and mandamus withthe Court of Appeals seeking to set aside the questionedOrder of Dismissal, branding the same as tainted with graveabuse of discretion on the part of the trial court.

On January 24, 1991, the Ninth Division2of the Court ofAppeals dismissed the petition for lack of merit. Petitioners

motion reconsideration was also denied in the Resolutiondated May 15, 1991.

Undaunted, petitioner has come before this court via thepresent petition, theorizing that:

A.

THE RESPONDENT COURT, WHILE CORRECTLYHOLDING THAT THE RESPONDENT CITY MAYOR ACTEDBEYOND HIS AUTHORITY IN IMPOSING THE SPECIALCONDITIONS IN THE PERMIT AS THEY HAD NO BASIS IN

ANY LAW OR ORDINANCE, ERRED IN HOLDING THATTHE SAID SPECIAL CONDITIONS NEVERTHELESSBECAME BINDING ON PETITIONER UPON ITSACCEPTANCE THEREOF AS A PRIVATE AGREEMENTOR CONTRACT.

B.

THE RESPONDENT COURT OF APPEALS ERRED INHOLDING THAT THE CONTRACT BETWEEN PETITIONERAND THE CITY OF ILIGAN WAS ENTERED INTO BY THELATTER IN THE PERFORMANCE OF ITS PROPRIETARY

FUNCTIONS.

The petition is impressed with merit.

Although petitioner agrees with the finding of the Court ofAppeals that respondent City Mayor acted beyond the scopeof his authority in imposing the assailed conditions in subjectbusiness permit, it has excepted to the ruling of the Court ofAppeals that the said conditions nonetheless became bindingon petitioner, once accepted, as a private agreement orcontract. Petitioner maintains that the said special conditionsare null and void for being ultra vires and cannot be giveneffect; and therefore, the principle of estoppel cannot applyagainst it.

On the other hand, the public respondents, City Mayor andCity Legal Officer, private respondent SOPI and the Office ofthe Solicitor General contend that as a valid exercise ofpolice power, respondent City Mayor has the authority toimpose, as he did, special conditions in the grant of businesspermits.

Police power as an inherent attribute of sovereignty is thepower to prescribe regulations to promote the health, morals,peace, education, good order or safety and general welfareof the people.3The State, through the legislature, hasdelegated the exercise of police power to local governmentunits, as agencies of the State, in order to effectivelyaccomplish and carry out the declared objects of theircreation.4This delegation of police power is embodied in the

general welfare clause of the Local Government Code whichprovides:

Sec. 16. General Welfare. - Every local government unitshall exercise the powers expressly granted, thosenecessarily implied therefrom, as well as powers necessary,appropriate, or incidental for its efficient and effectivegovernance, and those which are essential to the promotionof the general welfare. Within their respective territorial

jurisdictions, local government units shall ensure andsupport, among other things, the preservation andenrichment of culture, promote health and safety, enhance

the right of the people to a balanced ecology, encourage andsupport the development of appropriate and self-reliantscientific and technological capabilities, improve publicmorals, enhance economic prosperity and social justice,

promote full employment among their residents, maintainpeace and order, and preserve the comfort and convenienceof their inhabitants.

The scope of police power has been held to be socomprehensive as to encompass almost all matters affectingthe health, safety, peace, order, morals, comfort andconvenience of the community. Police power is essentially

regulatory in nature and the power to issue licenses or grantbusiness permits, if exercised for a regulatory and notrevenue-raising purpose, is within the ambit of this power.5

The authority of city mayors to issue or grant licenses andbusiness permits is beyond cavil. It is provided for by law.

Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337otherwise known as the Local Government Code of 1983,reads:

Sec. 171. The City Mayor shall:

x x x

n) Grant or refuse to grant, pursuant to law, city licenses orpermits, and revoke the same for violation of law orordinance or the conditions upon which they are granted.

However, the power to grant or issue licenses or businesspermits must always be exercised in accordance with law,

with utmost observance of the rights of all concerned to dueprocess and equal protection of the law.
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Succinct and in point is the ruling of this Court, that:

"x x x While a business may be regulated, such regulationmust, however, be within the bounds of reason, i. e., theregulatory ordinance must be reasonable, and its provisioncannot be oppressive amounting to an arbitrary interferencewith the business or calling subject of regulation. A lawfulbusiness or calling may not, under the guise of regulation, be

unreasonably interfered with even by the exercise of policepower. xxx

xxx xxx xxx

xxx The exercise of police power by the local government isvalid unless it contravenes the fundamental law of the landor an act of the legislature, or unless it is against public

policy or is unreasonable, oppressive, partial, discriminatingor in derogation of a common right."[6]

In the case under consideration, the business permit granted

by respondent City Mayor to petitioner was burdened withseveral conditions. Petitioner agrees with the holding by theCourt of Appeals that respondent City Mayor acted beyondhis authority in imposing such special conditions in its permitas the same have no basis in the law or ordinance. Publicrespondents and private respondent SOPI, on the otherhand, are one in saying that the imposition of said specialconditions on petitioners business permit is well within theauthority of the City Mayor as a valid exercise of policepower.

As aptly discussed by the Solicitor General in his Comment,

the power to issue licenses and permits necessarily includesthe corollary power to revoke, withdraw or cancel the same.And the power to revoke or cancel, likewise includes thepower to restrict through the imposition of certain conditions.In the case of Austin-Hardware, Inc. vs. Court of Appeals,7 it

was held that the power to license carries with it the authorityto provide reasonable terms and conditions under which thelicensed business shall be conducted. As the SolicitorGeneral puts it:

"If the City Mayor is empowered to grant or refuse to grant alicense, which is a broader power, it stands to reason that he

can also exercise a lesser power that is reasonablyincidental to his express power, i. e. to restrict a licensethrough the imposition of certain conditions, especially sothat there is no positive prohibition to the exercise of such

prerogative by the City Mayor, nor is there any particularofficial or body vested with such authority"[8]

However, the present inquiry does not stop there, as theSolicitor General believes. The power or authority of the CityMayor to impose conditions or restrictions in the businesspermit is indisputable. What petitioner assails are the

conditions imposed in its particular case which, it complains,amount to a confiscation of the business in which petitioner isengaged.

Distinction must be made between the grant of a license orpermit to do business and the issuance of a license toengage in the practice of a particular profession. The first isusually granted by the local authorities and the second is

issued by the Board or Commission tasked to regulate theparticular profession. A business permit authorizes theperson, natural or otherwise, to engage in business or someform of commercial activity. A professional license, on theother hand, is the grant of authority to a natural person toengage in the practice or exercise of his or her profession.

In the case at bar, what is sought by petitioner fromrespondent City Mayor is a permit to engage in the businessof running an optical shop. It does not purport to seek alicense to engage in the practice of optometry as a corporatebody or entity, although it does have in its employ, persons

who are duly licensed to practice optometry by the Board ofExaminers in Optometry.

The case of Samahan ng Optometrists sa Pilipinas vs.Acebedo International Corporation, G.R. No.117097,9promulgated by this Court on March 21, 1997, is inpoint. The factual antecedents of that case are similar tothose of the case under consideration and the issueultimately resolved therein is exactly the same issue posedfor resolution by this Court en banc.

In the said case, the Acebedo International Corporation filed

with the Office of the Municipal Mayor an application for abusiness permit for the operation of a branch of AcebedoOptical in Candon, Ilocos Sur. The application was opposedby the Samahan ng Optometrists sa Pilipinas-Ilocos SurChapter, theorizing that Acebedo is a juridical entity notqualified to practice optometry. A committee was created bythe Office of the Mayor to study private respondentsapplication. Upon recommendation of the said committee,Acebedos application for a business permit was denied.Acebedo filed a petition with the Regional Trial Court but thesame was dismissed. On appeal, however, the Court ofAppeals reversed the trial courts disposition, prompting the

Samahan ng Optometrists to elevate the matter to this Court.

The First Division of this Court, then composed of HonorableJustice Teodoro Padilla, Josue Bellosillo, Jose Vitug andSantiago Kapunan, with Honorable Justice ReginoHermosisima, Jr. asponente, denied the petition and ruled infavor of respondent Acebedo International Corporation,holding that "the fact that private respondent hiresoptometrists who practice their profession in the course oftheir employment in private respondents optical shops, doesnot translate into a practice of optometry by private
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spectacles, and lenses unless a duly licensed physician or aduly qualified optometrist is in charge of, and in personalattendance at the place where such articles are sold.21Insuch a case, the patients primary and essential safeguardlies in the optometrists control of the "treatment" by means ofprescription and preliminary and final examination.22

In analogy, it is noteworthy that private hospitals are

maintained by corporations incorporated for the purpose offurnishing medical and surgical treatment. In the course ofproviding such treatments, these corporations employphysicians, surgeons and medical practitioners, in the same

way that in the course of manufacturing and sellingeyeglasses, eye frames and optical lenses, optical shops hirelicensed optometrists to examine, prescribe and dispenseophthalmic lenses. No one has ever charged that thesecorporations are engaged in the practice of medicine. Thereis indeed no valid basis for treating corporations engaged inthe business of running optical shops differently.

It also bears stressing, as petitioner has pointed out, that thepublic and private respondents did not appeal from the rulingof the Court of Appeals. Consequently, the holding by theCourt of Appeals that the act of respondent City Mayor inimposing the questioned special conditions on petitionersbusiness permit is ultra vires cannot be put into issue here bythe respondents. It is well-settled that:

"A party who has not appealed from the decision may notobtain any affirmative relief from the appellate court otherthan what he had obtain from the lower court, if any, whosedecision is brought up on appeal.[23]

xxx an appellee who is not an appellant may assign errors inhis brief where his purpose is to maintain the judgment onother grounds, but he cannot seek modification or reversal ofthe judgment or affirmative relief unless he has alsoappealed."[24]

Thus, respondents submission that the imposition of subjectspecial conditions on petitioners business permit is notultravires cannot prevail over the finding and ruling by the Courtof Appeals from which they (respondents) did not appeal.

Anent the second assigned error, petitioner maintains that itsbusiness permit issued by the City Mayor is not a contractentered into by Iligan City in the exercise of its proprietaryfunctions, such that although petitioner agreed to suchconditions, it cannot be held in estoppel since ultra vires actscannot be given effect.

Respondents, on the other hand, agree with the ruling of theCourt of Appeals that the business permit in question is inthe nature of a contract between Iligan City and the hereinpetitioner, the terms and conditions of which are binding

upon agreement, and that petitioner is estopped fromquestioning the same. Moreover, in the Resolution denyingpetitioners motion for reconsideration, the Court of Appealsheld that the contract between the petitioner and the City ofIligan was entered into by the latter in the performance of itsproprietary functions.

This Court holds otherwise. It had occasion to rule that a

license or permit is not in the nature of a contract but aspecial privilege.

"xxx a license or a permit is not a contract between thesovereignty and the licensee or permitee, and is not a

property in the constitutional sense, as to which theconstitutional proscription against impairment of theobligation of contracts may extend. A license is rather in thenature of a special privilege, of a permission or authority todo what is within its terms. It is not in any way vested,

permanent or absolute."[25]

It is therefore decisively clear that estoppel cannot apply inthis case. The fact that petitioner acquiesced in the specialconditions imposed by the City Mayor in subject businesspermit does not preclude it from challenging the saidimposition, which is ultra vires or beyond the ambit ofauthority of respondent City Mayor. Ultra vires acts or acts

which are clearly beyond the scope of ones authority are nulland void and cannot be given any effect. The doctrine ofestoppel cannot operate to give effect to an act which isotherwise null and void or ultra vires.

The Court of Appeals erred in adjudging subject business

permit as having been issued by respondent City Mayor inthe performance of proprietary functions of Iligan City. Ashereinabove elaborated upon, the issuance of businesslicenses and permits by a municipality or city is essentiallyregulatory in nature. The authority, which devolved uponlocal government units to issue or grant such licenses orpermits, is essentially in the exercise of the police power ofthe State within the contemplation of the general welfareclause of the Local Government Code.

WHEREFORE , the petition is GRANTED; the Decision ofthe Court of Appeals in CA-GR SP No. 22995 REVERSED;

and the respondent City Mayor is hereby ordered to reissuepetitioners business permit in accordance with law and withthis disposition. No pronouncement as to costs.

SO ORDERED.

Bellosillo, Puno, Mendoza, Quisumbing, Buena, Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concur.

Kapunan, J., see concurring opinion.
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Vitug, J., please see dissent.

Davide, Jr., C.J., Melo, Panganiban, and Pardo, JJ.,joinedMr. Justice Vitug in his dissent.

THIRD DIVISION

AURELIO K. LITONJUA, JR.,

Petitioner,

- versus '

EDUARDO K. LITONJUA, SR., ROBERTT. YANG, ANGLO PHILS. MARITIME,INC., CINEPLEX, INC., DDMGARMENTS, INC., EDDIE K. LITONJUASHIPPING AGENCY, INC., EDDIE K.LITONJUA SHIPPING CO., INC.,LITONJUA SECURITIES, INC. (formerly

E. K. Litonjua Sec), LUNETA THEATER,INC., E & L REALTY, (formerly E & LINTL SHIPPING CORP.), FNP CO., INC.,HOME ENTERPRISES, INC.,BEAUMONT DEV. REALTY CO., INC.,GLOED LAND CORP., EQUITYTRADING CO., INC., 3D CORP., 'L DEV.CORP, LCM THEATRICALENTERPRISES, INC., LITONJUASHIPPING CO. INC., MACOIL INC.,ODEON REALTY CORP., SARATOGAREALTY, INC., ACT THEATER INC.

(formerly General Theatrical & FilmExchange, INC.), AVENUE REALTY,INC., AVENUE THEATER, INC. and LVFPHILIPPINES, INC., (Formerly VFPHILIPPINES),

Respondents.

G.R. NOS.166299-300

Present:

PANGANIBAN, J.,Chairman

SANDOVAL-GUTIERREZ,

CORONA,

CARPIOMORALES and

GARCIA, JJ.

Promulgated:

December 13,

2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - x

D E C I S I O N

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court,

petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set

aside the Decision of the Court of Appeals (CA) dated March31, 2004[1] in consolidated cases C.A. G.R. Sp. No.

76987and C.A. G.R. SP. No 78774 and its Resolution dated

December 07, 2004,[2] denying petitioner's motion for

reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein

respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers.

The legal dispute between them started when, on December

4, 2002, in the Regional Trial Court (RTC) at Pasig City,

Aurelio filed a suit against his brother Eduardo and herein

respondent Robert T. Yang (Yang) and several corporations

for specific performance and accounting. In his

complaint,[3] docketed as Civil Case No. 69235 and

eventually raffled to Branch 68 of the court,[4] Aurelio

alleged that, since June 1973, he and Eduardo are into a

joint venture/partnership arrangement in the Odeon Theater

business which had expanded thru investment in Cineplex,

Inc., LCM Theatrical Enterprises, Odeon Realty Corporation

(operator of Odeon I and II theatres), Avenue Realty, Inc.,

owner of lands and buildings, among other corporations.

Yang is described in the complaint as petitioner's and

Eduardo's partner in their Odeon Theater investment.[5] The

same complaint also contained the following material

averments:
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3.01 On or about 22 June 1973, [Aurelio]and Eduardo entered into a jointventure/partnership for the continuation oftheir family business and common familyfunds '.3.01.1 This joint venture/[partnership]agreement was contained in a

memorandum addressed by Eduardo tohis siblings, parents and otherrelatives. Copy of this memorandumis attached hereto and made an integralpart as Annex 'A and the portion referringto [Aurelio] submarked as Annex 'A-1.3.02 It was then agreed upon between[Aurelio] and Eduardo that in considerationof [Aurelio's ] retaining his share in theremaining family businesses (mostly,movie theaters, shipping and land

development) and contributing his industryto the continued operation of thesebusinesses, [Aurelio] will be given P1Million or 10% equity in all thesebusinesses and those to be subsequentlyacquired by them whichever is greater. . . .4.01 ' from 22 June 1973 to about August2001, or [in] a span of 28 years, [Aurelio]and Eduardo had accumulated in their jointventure/partnership various assetsincluding but not limited to the corporate

defendants and [their] respective assets.4.02 In addition . . . the jointventure/partnership ' had also acquired[various other assets], but Eduardo causedto be registered in the names of otherparties' .xxx xxx ' xxx4.04 The substantial assets of most of thecorporate defendants consist of realproperties '. A list of some of these realproperties is attached hereto and made anintegral part as Annex 'B.xxx ' xxx xxx5.02 Sometime in 1992, the relationsbetween [Aurelio] and Eduardo becamesour so that [Aurelio] requested for anaccounting and liquidation of his share inthe joint venture/partnership [but thesedemands for complete accounting andliquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] hasreasonable cause to believe that Eduardoand/or the corporate defendants as well asBobby [Yang], are transferring . . . variousreal properties of the corporations

belonging to the joint venture/partnershipto other parties in fraud of [Aurelio]. Inconsequence, [Aurelio] is thereforecausing at this time the annotation on thetitles of these real properties' a notice of lis

pendens'. (Emphasis in the original;underscoring and words in bracket added.)

For ease of reference, Annex 'A-1of the complaint, which

petitioner asserts to have been meant for him by his brother

Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitionerAurelio K. Litonjua]:You have now your own life to live afterhaving been married. '.

I am trying my best to mold you the way I work so you canfollow the pattern '. You will be the only one left with the

company, among us brothers and I will ask you to stay as Iwant you to run this office every time I am away. I want youto run it the way I am trying to run it because I will be allalone and I will depend entirely to you (sic). My sons will notbe ready to help me yet until about maybe 15/20 years fromnow. Whatever is left in the corporation, I will make sure thatyou get ONE MILLION PESOS (P1,000,000.00) or tenpercent (10%) equity, whichever is greater. We two willgamble the whole thing of what I have and what you areentitled to. '. It will be you and me alone on this. If ever I passaway, I want you to take care of all of this. You keep myshare for my two sons are ready take over but give them the

chance to run the company which I have built.

'xxx ' xxx xxxBecause you will need a place to stay, I

will arrange to give you first ONEHUNDRED THOUSANDS PESOS: (P100,000.00) in cash or asset, like Lt. Artiaga soyou can live better there. The rest I willgive you in form of stocks which you can


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keep. This stock I assure you is good andsaleable. I will also gladly give you theshare of Wack-Wack 'and Valley Golf 'because you have been good. The rest willbe in stocks from all the corporations whichI repeat, ten percent (10%) equity. [6]

On December 20, 2002, Eduardo and the corporate

respondents, as defendants a quo, filed a

jointANSWERWith Compulsory Counterclaim denying under

oath the material allegations of the complaint, more

particularly that portion thereof depicting petitioner and

Eduardo as having entered into a contract of partnership. As

affirmative defenses, Eduardo, et al., apart from raising a

jurisdictional matter, alleged that the complaint states no

cause of action, since no cause of action may be derived

from the actionable document, i.e., Annex 'A-1',being void

under the terms of Article 1767 in relation to Article 1773 ofthe Civil Code, infra. It is further alleged that whatever

undertaking Eduardo agreed to do, if any, under Annex 'A-1', are unenforceable under the provisions of the Statute of

Frauds.[7]

For his part, Yang - who was served with summons long after

the other defendants submitted their answer ' moved to

dismiss on the ground, inter alia, that, as to him, petitioner

has no cause of action and the complaint does not state

any.[8] Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to

Resolve Affirmative Defenses.[9]To this motion, petitioner

interposed an Opposition with ex-Parte Motion to Set the

Case for Pre-trial.[10]

Acting on the separate motions immediately adverted toabove, the trial court, in an Omnibus Order dated March 5,

2003, denied the affirmative defenses and, except for Yang,

set the case for pre-trial on April 10, 2003.[11]

In another Omnibus Order of April 2, 2003, the same court

denied the motion of Eduardo, et al ., for

reconsideration[12] and Yang's motion to dismiss. The

following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed hisANSWER, but expresslyreserved the right to seek reconsideration of the April 2, 2003Omnibus Order and to pursue his failed motion to

dismiss[13] to its full resolution.

2. On April 24, 2003, he moved for reconsideration of theOmnibus Order of April 2, 2003, but his motion was denied inan Order of July 4, 2003.[14]

3. On August 26, 2003, Yang went to the Court of Appeals(CA) in a petition for certiorariunder Rule 65 of the Rules ofCourt, docketed as CA-G.R. SP No. 78774,[15] to nullify theseparate orders of the trial court, the first denying his motionto dismiss the basic complaint and, the second, denying hismotion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the

contention that grave abuse of discretion and injudicious

haste attended the issuance of the trial court'saforementioned Omnibus Orders dated March 5, and April 2,

2003, sought relief from the CA via similar recourse. Their

petition for certiorariwas docketed as CA G.R. SP No.

76987. '

Per its resolution dated October 2, 2003,[16] the CA's

14th Division ordered the consolidation of CA G.R. SP No.

78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective

Memoranda of Authorities, the appellate court came out with

the herein assailed Decision dated March 31, 2004, findingfor Eduardo and Yang, as lead petitioners therein, disposing

as follows:
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WHEREFORE, judgment is herebyrendered granting the issuance of the writof certiorari in these consolidated casesannulling, reversing and setting aside theassailed orders of the court a quodatedMarch 5, 2003, April 2, 2003 and July 4,2003 and the complaint filed by privaterespondent [now petitioner Aurelio] against

all the petitioners [now herein respondentsEduardo, et al.] with the court a quo ishereby dismissed.SO ORDERED.[17] (Emphasis in theoriginal; words in bracket added.)

Explaining its case disposition, the appellate court

stated, inter alia, that the alleged partnership, as evidenced

by the actionable documents, Annex 'Aand 'A-1attached tothe complaint, and upon which petitioner solely predicates

his right/s allegedly violated by Eduardo, Yang and the

corporate defendants a quo is 'void or legally inexistent.

In time, petitioner moved for reconsideration but his motion

was denied by the CA in its equally assailedResolution ofDecember 7, 2004.[18] .

Hence, petitioner's present recourse, on the contention that

the CA erred:

A. When it ruled that there was no partnership created by theactionable document because this was not a publicinstrument and immovable properties were contributed to thepartnership.

B. When it ruled that the actionabledocument did not create a demandableright in favor of petitioner.

C. When it ruled that the complaint statedno cause of action against [respondent]Robert Yang; andD. When it ruled that petitioner haschanged his theory on appeal when all thatPetitioner had done was to support hispleaded cause of action by another legalperspective/argument.

The petition lacks merit.

Petitioner's demand, as defined in the petitory

portion of his complaint in the trial court, is for delivery or

payment to him, as Eduardo's and Yang's partner, of his

partnership/joint venture share, after an accounting has

been duly conducted of what he deems to be

partnership/joint venture property.[19]

A partnership exists when two or more persons

agree to place their money, effects, labor, and skill in

lawful commerce or business, with the understanding that

there shall be a proportionate sharing of the profits and

losses between them.[20] A contract of partnership is

defined by the Civil Code as one where two or more

persons bound themselves to contribute money, property,or industry to a common fund with the intention of dividing

the profits among themselves.[21] A joint venture, on the

other hand, is hardly distinguishable from, and may be

likened to, a partnership since their elements are

similar, i.e., community of interests in the business and

sharing of profits and losses. Being a form of partnership,

a joint venture is generally governed by the law on

partnership.[22]

The underlying issue that necessarily comes to mind in this

proceedings is whether or not petitioner and respondent

Eduardo are partners in the theatre, shipping and realty

business, as one claims but which the other denies. And the

issue bearing on the first assigned error relates to the

question of what legal provision is applicable under the

premises, petitioner seeking, as it were, to enforce the

actionable document - Annex 'A-1- which he depicts in hiscomplaint to be the contract of partnership/joint venture

between himself and Eduardo. Clearly, then, a look at the

legal provisions determinative of the existence, or definingthe formal requisites, of a partnership is indicated. Foremost

of these are the following provisions of the Civil Code:

Art. 1771. A partnership may beconstituted in any form, except whereimmovable property or real rights arecontributed thereto, in which case a publicinstrument shall be necessary.
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Art. 1772. Every contract of partnershiphaving a capital of three thousand pesos ormore, in money or property, shall appear ina public instrument, which must berecorded in the Office of the Securities andExchange Commission.

Failure to comply with the requirement ofthe preceding paragraph shall not affectthe liability of the partnership and themembers thereof to third persons.Art. 1773. A contract of partnership is void,

whenever immovable property iscontributed thereto, if an inventory of saidproperty is not made, signed by theparties, and attached to the publicinstrument.

Annex 'A-1', on its face, contains typewritten entries,personal in tone, but is unsigned and undated. As an

unsigned document, there can be no quibbling that Annex

'A-1does not meet the public instrumentation requirementsexacted under Article 1771 of the Civil Code. Moreover,

being unsigned and doubtless referring to a partnership

involving more than P3,000.00 in money or property, Annex

'A-1cannot be presented for notarization, let aloneregistered with the Securities and Exchange Commission

(SEC), as called for under the Article 1772 of the Code. And

inasmuch as the inventory requirement under the succeeding

Article 1773 goes into the matter of validity when immovable

property is contributed to the partnership, the next logical

point of inquiry turns on the nature of petitioner's contribution,

if any, to the supposed partnership.

The CA, addressing the foregoing query, correctly stated that

petitioner's contribution consisted of immovables and real

rights. Wrote that court:

A further examination of the allegations inthe complaint would show that[petitioner's ] contribution to the so-called'partnership/joint venture was his supposedshare in the family business that isconsisting of movie theaters, shipping andland development under paragraph 3.02 ofthe complaint. In other words, his

contribution as a partner in the allegedpartnership/joint venture consisted ofimmovable properties and real rights. '.[23]

Significantly enough, petitioner matter-of-factly concurred

with the appellate court's observation that, prescinding from

what he himself alleged in his basic complaint, his

contribution to the partnership consisted of his share in theLitonjua family businesses which owned variable immovable

properties. Petitioner's assertion in his motion for

reconsideration[24] of the CA's decision, that 'what was to

be contributed to the business [of the partnership] was

[petitioner's ] industry and his share in the family [theatre and

land development] business'leaves no room for speculation

as to what petitioner contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventoryrequirement under Article 1773 of the Civil Code applies as

long real property or real rights are initially brought into the

partnership. In short, it is really of no moment which of the

partners, or, in this case, who between petitioner and his

brother Eduardo, contributed immovables. In context, the

more important consideration is that real property was

contributed, in which case an inventory of the contributed

property duly signed by the parties should be attached to the

public instrument, else there is legally no partnership to

speak of.

Petitioner, in an obvious bid to evade the application of

Article 1773, argues that the immovables in question were

not contributed, but were acquired after the formation of the

supposed partnership. Needless to stress, the Court cannot

accord cogency to this specious argument. For, as earlier

stated, petitioner himself admitted contributing his share in

the supposed shipping, movie theatres and realty

development family businesses which already owned

immovables even before Annex 'A-1was allegedlyexecuted.

Considering thus the value and nature of petitioner's alleged

contribution to the purported partnership, the Court, even if

so disposed, cannot plausibly extend Annex 'A-1the legaleffects that petitioner so desires and pleads to be given.

Annex 'A-1, in fine, cannot support the existence of thepartnership sued upon and sought to be enforced. The legal
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and factual milieu of the case calls for this disposition. A

partnership may be constituted in any form, save when

immovable property or real rights are contributed thereto or

when the partnership has a capital of at least P3,000.00, in

which case a public instrument shall be necessary.[25] And

if only to stress what has repeatedly been articulated, 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 it.

Given the foregoing perspective, what the appellate court

wrote in its assailed Decision[26] about the probative value

and legal effect of Annex 'A-1commends itself forconcurrence:

Considering that the allegations in the complaint showed that[petitioner] contributed immovable properties to the allegedpartnership, the 'Memorandum (Annex 'A of the complaint)

which purports to establish the said 'partnership/joint ventureis NOT a public instrument and there was NO inventory ofthe immovable property duly signed by the parties. As such,the said 'Memorandum ' is null and void for purposes ofestablishing the existence of a valid contract of partnership.Indeed, because of the failure to comply with the essentialformalities of a valid contract, the purported 'partnership/jointventure is legally inexistent and it produces no effect

whatsoever. Necessarily, a void or legally inexistent contract

cannot be the source of any contractual or legal right.Accordingly, the allegations in the complaint, including theactionable document attached thereto, clearly demonstratesthat [petitioner] has NO valid contractual or legal right whichcould be violated by the [individual respondents] herein. As aconsequence, [petitioner's ] complaint does NOT state avalid cause of action because NOT all the essential elementsof a cause of action are present. (Underscoring and words inbracket added.)

Likewise well-taken are the following complementary

excerpts from the CA's equally assailed Resolution of

December 7, 2004[27] denying petitioner's motion for

reconsideration:

Further, We conclude that despite glaring defects in theallegations in the complaint as well as theactionable document attached thereto (Rollo, p.191), the [trial] court did not appreciate and applythe legal provisions which were brought to itsattention by herein [respondents] in the theirpleadings. In our evaluation of [petitioner's ]complaint, the latter alleged inter alia to have

contributed immovable properties to the allegedpartnership but the actionable document is not apublic document and there was no inventory ofimmovable properties signed by the parties. Boththe allegations in the complaint and the actionabledocuments considered, it is crystal clear that[petitioner] has no valid or legal right which could beviolated by [respondents]. (Words in bracketadded.)

Under the second assigned error, it is petitioner's posture that Annex

'A-1', assuming its inefficacy or nullity as a partnershipdocument, nevertheless created demandable rights in his

favor. As petitioner succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially itsabove-quoted provisions, established an actionablecontract even though it may not be a partnership.This actionable contract is what is known as aninnominate contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage orwhatever, but surely the contract does create rightsand obligations of the parties and which rights andobligations may be enforceable and demandable.Just because the relationship created by theagreement cannot be specifically labeled orpigeonholed into a category of nominate contractdoes not mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate

contract on this' Court - and earlier on the CA after he

experienced a reversal of fortune thereat - as an

afterthought. The appellate court, however, cannot really be

faulted for not yielding to petitioner's dubious stratagem of

altering his theory of joint venture/partnership to an

innominate contract. For, at bottom, the appellate court's

certiorari jurisdiction was circumscribed by what was alleged
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to have been the order/s issued by the trial court in grave

abuse of discretion. As respondent Yang pointedly

observed,[28] since the parties' basic position had been

well-defined, that of petitioner being that the actionable

document established a partnership/joint venture, it is on

those positions that the appellate court exercised its certiorari

jurisdiction. Petitioner's act of changing his original theory is

an impermissible practice and constitutes, as the CA aptly

declared, an admission of the untenability of such theory in

the first place.

[Petitioner] is now humming a different tune . . . . In

a sudden twist of stance, he has nowcontended that the actionable instrumentmay be considered an innominatecontract. xxx Verily, this now changes[petitioner's ] theory of the case which isnot only prohibited by the Rules but also isan implied admission that the very theoryhe himself ' has adopted, filed andprosecuted before the respondent court iserroneous.

Be that as it may . '. We hold that this new theory

contravenes [petitioner's ] theory of theactionable document being a partnershipdocument. If anything, it is so obvious wedo have to test the sufficiency of the causeof action on the basis of partnership lawxxx.[29] (Emphasis in the original; Wordsin bracket added).

But even assuming in gratia argumentithat Annex 'A-1partakes of a perfected innominate contract, petitioner'scomplaint would still be dismissible as against Eduardo and,

more so, against Yang. It cannot be over-emphasized that

petitioner points to Eduardo as the author of Annex 'A-1.Withal, even on this consideration alone, petitioner's claim

against Yang is doomed from the very start.

'As it were, the only portion of Annex 'A-1which couldperhaps be remotely regarded as vesting petitioner with a

right to demand from respondent Eduardo the observance of

a determinate conduct, reads:

' xxx You will be the only one left with the company, amongus brothers and I will ask you to stay as I want youto run this office everytime I am away. I want you torun it the way I am trying to run it because I will bealone and I will depend entirely to you, My sons willnot be ready to help me yet until about maybe 15/20years from now. Whatever is left in the corporation, I

will make sure that you get ONE MILLION PESOS

(P1,000,000.00) or ten percent (10%) equity,whichever is greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon

himself under the above passage, if he indeed wrote Annex

'A-1', is a promise which is not to be performed within oneyear from 'contract execution on June 22, 1973. Accordingly,

the agreement embodied in Annex 'A-1is covered by theStatute of Frauds and ergounenforceable for non-compliance

therewith.[30] By force of the statute of frauds, an

agreement that by its terms is not to be performed within a

year from the making thereof shall be unenforceable by

action, unless the same, or some note or memorandum

thereof, be in writing and subscribed by the party charged.

Corollarily, no action can be proved unless the requirement

exacted by the statute of frauds is complied with.[31]

Lest it be overlooked, petitioner is the intended beneficiary of the P1

Million or 10% equity of the family businesses supposedly

promised by Eduardo to give in the near future. Anysuggestion that the stated amount or the equity component

of the promise was intended to go to a common fund would

be to read something not written inAnnex 'A-1. Thus, eventhis angle alone argues against the very idea of a

partnership, the creation of which requires two or more

contracting minds mutually agreeing to contribute money,

property or industry to a common fund with the intention of

dividing the profits between or among themselves.[32]

In sum then, the Court rules, as did the CA, that petitioner's

complaint for specific performance anchored on anactionable document of partnership which is legally inexistent

or void or, at best, unenforceable does not state a cause of

action as against respondent Eduardo and the corporate

defendants. And if no of action can successfully be

maintained against respondent Eduardo because no valid

partnership existed between him and petitioner, the Court

cannot see its way clear on how the same action could

plausibly prosper against Yang. Surely, Yang could not have
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become a partner in, or could not have had any form of

business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide

the logical nexus that would tie Yang to him as his partner. In

fact, attendant circumstances would indicate the contrary.

Consider:

'1. Petitioner asserted in his complaint that his so-called jointventure/partnership with Eduardo was 'for the continuation oftheir family business and common family funds which weretheretofore being mainly managed by Eduardo. [33] ButYang denies kinship with the Litonjua family and petitionerhas not disputed the disclaimer.

2. In some detail, petitioner mentioned what he hadcontributed to the joint venture/partnership with Eduardo and

what his share in the businesses will be. No allegation ismade whatsoever about what Yang contributed, if any, letalone his proportional share in the profits. But such allegationcannot, however, be made because, as aptly observed bythe CA, the actionable document did not contain suchprovision, let alone mention the name of Yang. How, indeed,could a person be considered a partner when the documentpurporting to establish the partnership contract did not even

mention his name.

3. Petitioner states' in par. 2.01 of the complaint that '[he] andEduardo are business partners in the [respondent]corporations, while 'Bobby is his and Eduardo's partner intheir Odeon Theater investment (par. 2.03). This means thatthe partnership between petitioner and Eduardo came first;Yang became their partner in their Odeon Theaterinvestment thereafter. Several paragraphs later, however,petitioner would contradict himself by alleging that his

'investment and that of Eduardo and Yang in the Odeontheater business has expanded through a reinvestment ofprofit income and direct investments in several corporationincluding but not limited to [six] corporate respondents' Thissimply means that the 'Odeon Theatre business' camebefore the corporate respondents. Significantly enough,petitioner refers to the corporate respondents as 'progeny ofthe Odeon Theatre business.[34]

Needless to stress, petitioner has not sufficiently established

in his complaint the legal vinculum whence he sourced his

right to drag Yang into the fray. The Court of Appeals, in its

assailed decision, captured and formulated the legal situation

in the following wise:

[Respondent] Yang, ' is impleaded because, asalleged in the complaint, he is a 'partner of[Eduardo] and the [petitioner] in the Odeon TheaterInvestment which expanded through reinvestmentsof profits and direct investments in severalcorporations, thus:

xxx xxx xxx

Clearly, [petitioner's ] claim against ' Yang arosefrom his alleged partnership with petitioner and the'respondent. However, there was NO allegation inthe complaint which directly alleged how thesupposed contractual relation was created between[petitioner] and 'Yang. More importantly, however,the foregoing ruling of this Court that the purportedpartnership between [Eduardo] is void and legallyinexistent directly affects said claim against 'Yang.Since [petitioner] is trying to establish his claim

against ' Yang by linking him to the legally inexistentpartnership . . . such attempt had become futilebecause there was NOTHING that wouldcontractually connect [petitioner] and ' Yang. Toestablish a valid cause of action, the complaintshould have a statement of fact upon which toconnect [respondent] Yang to the allegedpartnership between [petitioner] and respondent[Eduardo], including their alleged investment in theOdeon Theater. A statement of facts on thosematters is pivotal to the complaint as they wouldconstitute the ultimate facts necessary to establishthe elements of a cause of action against 'Yang. [35]

Pressing its point, the CA later stated in its resolution

denying petitioner's motion for reconsideration the following:
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xxx Whatever the complaint calls it, it is theactionable document attached to the complaint thatis controlling. Suffice it to state, We have notignored the actionable document ' As a matter offact, We emphasized in our decision ' that insofar as[Yang] is concerned, he is not even mentioned inthe said actionable document. We are thereforepuzzled how a person not mentioned in a document

purporting to establish a partnership could beconsidered a partner.[36] (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not

he changed his theory of the case, as peremptorily

determined by the CA, has been discussed at length earlier

and need not detain us long. Suffice it to say that after the

CA has ruled that the alleged partnership is inexistent,

petitioner took a different tack. Thus, from a joint

venture/partnership theory which he adopted and

consistently pursued in his complaint, petitioner embraced

the innominate contract theory. Illustrative of this shift is

petitioner's statement in par. #8 of his motion for

reconsideration of the CA's decision combined with what he

said in par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates

a partnership, joint venture, or whatever, is a legalmatter. What is determinative for purposes ofsufficiency of the complainant's allegations, is

whether the actionable document bears out anactionable contract ' be it a partnership, a jointventure or whatever or some innominate contract ' Itmay be noted that one kind of innominate contractis what is known as du ut facias (I give that you maydo).[37]

43. Contrariwise, this actionable document,especially its above-quoted provisions, establishedan actionable contract even though it may not be apartnership. This actionable contract is what isknown as an innominate contract (Civil Code, Article1307).[38]

Springing surprises on the opposing party is offensive to the

sporting idea of fair play, justice and due process; hence, the

proscription against a party shifting from one theory at the

trial court to a new and different theory in the appellate

court.[39] On the same rationale, an issue which was neither

averred in the complaint cannot be raised for the first time on

appeal.[40] It is not difficult, therefore, to agree with the CA

when it made short shrift of petitioner's innominate contract

theory on the basis of the foregoing basic reasons.

Petitioner's protestation that his act of introducing the

concept of innominate contract was not a case of changing

theories but of supporting his pleaded cause of action ' that

of the existence of a partnership - by another legal

perspective/argument, strikes the Court as a strained attempt

to rationalize an untenable position. Paragraph 12 of his

motion for reconsideration of the CA's decision virtually

relegates partnership as a fall-back theory. Two paragraphs

later, in the same notion, petitioner faults the appellate court

for reading, with myopic eyes, the actionable documentsolely as establishing a partnership/joint venture. Verily, the

cited paragraphs are a study of a party hedging on whether

or not to pursue the original cause of action or altogether

abandoning the same, thus:

12. Incidentally, assuming that the actionable documentcreated a partnership between [respondent]Eduardo, Sr. and [petitioner], no immovables were

contributed to this partnership. xxx

14. All told, the Decision takes off from a falsepremise that the actionable document attached tothe complaint does not establish a contractualrelationship between [petitioner] and ' Eduardo, Sr.and Roberto T Yang simply because his documentdoes not create a partnership or a joint venture.This is ' a myopic reading of the actionabledocument.

Per the Court's own count, petitioner used in his complaint

the mixed words 'joint venture/partnership nineteen (19)

times and the term 'partnerfour (4) times. He made

reference to the 'law of joint venture/partnership [being

applicable] to the business relationship ' between [him],

Eduardo and Bobby [Yang]and to his 'rights in all specific

properties' of their joint venture/partnership. Given this
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consideration, petitioner's right of action against respondents

Eduardo and Yang doubtless pivots on the existence of the

partnership between the three of them, as purportedly

evidenced by the undated and unsigned Annex'A-1. A voidAnnex 'A-1', as' an actionable document of partnership,

would strip petitioner of a cause of action under the

premises. A complaint for delivery and accounting of

partnership property based on such void or legally non-

existent actionable document is dismissible for failure to state

of action. So, in gist, said the Court of Appeals. The Court

agrees.

WHEREFORE , the instant petition is DENIED and theimpugned Decision and Resolution of the Court of

Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

ThirD DIVISION

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.WHITTINGHAM and CHARLES CHAMSAY, Petitioners,

vs.SANITARY WARES MANUFACTURINGCORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R.LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F.

LEE, RAUL A. BONCAN, BALDWIN YOUNG andAVELINO V. CRUZ,Respondents.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION,ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO,

GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNGand 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 WARESMANUFACTURING CORPORATION, ERNESTO V.

LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R.LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,

BALDWIN YOUNG, AVELINO V. CRUZ and the COURTOF APPEALS, Respondents.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amendeddecision of the Court of Appeals in CA-G.R. SP Nos. 05604and 05617 which set aside the earlier decision dated June 5,1986, of the then Intermediate Appellate Court and directedthat in all subsequent elections for directors of SanitaryWares Manufacturing Corporation (Saniwares), AmericanStandard Inc. (ASI) cannot nominate more than three (3)

directors; that the Filipino stockholders shall not interfere inASI's choice of its three (3) nominees; that, on the otherhand, 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 todetermine who the six (6) nominees will be, with cumulativevoting to be allowed but without interference fromASI.chanroblesvirtualawlibrary chanrobles virtual law library

The antecedent facts can be summarized asfollows: chanrobles virtual law library

In 1961, Saniwares, a domestic corporation was incorporatedfor the primary purpose of manufacturing and marketingsanitary wares. One of the incorporators, Mr. Baldwin Young

went abroad to look for foreign partners, European orAmerican who could help in its expansion plans. On August15, 1962, ASI, a foreign corporation domiciled in Delaware,United States entered into an Agreement with Saniwares andsome Filipino investors whereby ASI and the Filipinoinvestors agreed to participate in the ownership of anenterprise which would engage primarily in the business ofmanufacturing in the Philippines and selling here and abroadvitreous china and sanitary wares. The parties agreed that

the business operations in the Philippines shall be carried onby an incorporated enterprise and that the name of thecorporation shall initially be "Sanitary Wares ManufacturingCorporation." chanrobles virtual law library

The Agreement has the following provisions relevant to theissues in these cases on the nomination and election of thedirectors of the corporation: chanrobles virtual law library

3.Articles of Incorporation


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(a) The Articles of Incorporation of the Corporation shall besubstantially in the form annexed hereto as Exhibit A and,insofar as permitted under Philippine law, shall specificallyprovide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in aBoard of Directors, which shall consist of nine individuals. Aslong as American-Standard shall own at least 30% of theoutstanding stock of the Corporation, three of the ninedirectors shall be designated by American-Standard, and theother six shall be designated by the other stockholders of theCorporation. (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 grantof veto powers over a number of corporate acts and the rightto designate certain officers, such as a member of theExecutive Committee whose vote was required for importantcorporate transactions.chanroblesvirtualawlibrary chanroblesvirtual law library

Later, the 30% capital stock of ASI was increased to 40%.The corporation was also registered with the Board ofInvestments for availment of incentives with the conditionthat at least 60% of the capital stock of the corporation shallbe owned by Philippine

nationals.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The joint enterprise thus entered into by the Filipino investorsand the American corporation prospered. Unfortunately, withthe business successes, there came a deterioration of theinitially harmonious relations between the two groups.According to the Filipino group, a basic disagreement wasdue to their desire to expand the export operations of thecompany to which ASI objected as it apparently had othersubsidiaries of joint joint venture groups in the countries

where Philippine exports were contemplated. On March 8,

1983, the annual stockholders' meeting was held. Themeeting was presided by Baldwin Young. The minutes weretaken by the Secretary, Avelino Cruz. After disposing of thepreliminary items in the agenda, the stockholders thenproceeded to the election of the members of the board ofdirectors. The ASI group nominated three persons namely;Wolfgang Aurbach, John Griffin and David P. Whittingham.The Philippine investors nominated six, namely; ErnestoLagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr.,George F. Lee, and Baldwin Young. Mr. Eduardo R, Cenizathen nominated Mr. Luciano E. Salazar, who in turn

nominated Mr. Charles Chamsay. The chairman, BaldwinYoung ruled the last two nominations out of order on thebasis of section 5 (a) of the Agreement, the consistentpractice of the parties during the past annual stockholders'meetings to nominate only nine persons as nominees for thenine-member board of directors, and the legal advice ofSaniwares' legal counsel. The following events then,transpired:

... There were protests against the action of the Chairmanand heated arguments ensued. An appeal was made by theASI representative to the body of stockholders present that avote be taken on the ruling of the Chairman. The Chairman,Baldwin Young, declared the appeal out of order and no voteon the ruling was taken. The Chairman then instructed theCorporate Secretary to cast all the votes present andrepresented by proxy equally for the 6 nominees of thePhilippine Investors and the 3 nominees of ASI, thuseffectively excluding the 2 additional persons nominated,namely, Luciano E. Salazar and Charles Chamsay. The ASI

representative, Mr. Jaqua protested the decision of theChairman and announced that all votes accruing to ASIshares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.05617) were being cumulatively voted for the three ASInominees and Charles Chamsay, and instructed theSecretary to so vote. Luciano E. Salazar and other proxyholders announced that all the votes owned by and orrepresented by them 467,197 shares (p. 27, Rollo, AC-G.R.SP No. 05617) were being voted cumulatively in favor ofLuciano E. Salazar. The Chairman, Baldwin Young,nevertheless instructed the Secretary to cast all votes equallyin favor of the three ASI nominees, namely, Wolfgang

Aurbach, John Griffin and David Whittingham and the sixoriginally nominated by Rogelio Vinluan, namely, ErnestoLagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,Enrique Lagdameo, George F. Lee, and Baldwin Young. TheSecretary then certified for the election of the followingWolfgang Aurbach, John Griffin, David Whittingham ErnestoLagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,George F. Lee, Raul A. Boncan, Baldwin Young. Therepresentative of ASI then moved to recess the meeting

which was duly seconded. There was also a motion toadjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion toadjourn was accepted by the Chairman, Baldwin Young, who

announced that the motion was carried and declared themeeting adjourned. Protests against the adjournment wereregistered and having been ignored, Mr. Jaqua the ASIrepresentative, stated that the meeting was not adjournedbut only recessed and that the meeting would be reconvenedin the next room. The Chairman then threatened to have thestockholders who did not agree to the decision of theChairman on the casting of votes bodily thrown out. The ASIGroup, Luciano E. Salazar and other stockholders, allegedlyrepresenting 53 or 54% of the shares of Saniwares, decidedto continue the meeting at the elevator lobby of the American


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Standard Building. The continued meeting was presided byLuciano E. Salazar, while Andres Gatmaitan acted asSecretary. On the basis of the cumulative votes cast earlierin the meeting, the ASI Group nominated its four nominees;Wolfgang Aurbach, John Griffin, David Whittingham andCharles Chamsay. Luciano E. Salazar voted for himself, thusthe said five directors were certified as elected directors bythe Acting Secretary, Andres Gatmaitan, with the explanation

that there was a tie among the other six (6) nominees for thefour (4) remaining positions of directors and that the bodydecided not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitionsby the parties with the Securities and Exchange Commission(SEC). The first petition filed was for preliminary injunction bySaniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo andGeorge F. Lee against Luciano Salazar and CharlesChamsay. The case was denominated as SEC Case No.2417. The second petition was for quo warranto and

application for receivership by Wolfgang Aurbach, JohnGriffin, David Whittingham, Luciano E. Salazar and CharlesChamsay against the group of Young and Lagdameo(petitioners in SEC Case No. 2417) and Avelino F. Cruz. Thecase was docketed as SEC Case No. 2718. Both sets ofparties except for Avelino Cruz claimed to be the legitimatedirectors of thecorporation.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The two petitions were consolidated and tried jointly by ahearing officer who rendered a decision upholding the

election of the Lagdameo Group and dismissing the quowarranto petition of Salazar and Chamsay. The ASI Groupand Salazar appealed the decision to the SEC en banc whichaffirmed the hearing officer'sdecision.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The SEC decision led to the filing of two separate appealswith 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 decisionordered the remand of the case to the Securities andExchange Commission with the directive that a newstockholders' meeting of Saniwares be ordered convoked assoon as possible, under the supervision of theCommission.chanroblesvirtualawlibrary chanrobles virtuallaw library

Upon a motion for reconsideration filed by the appelleesLagdameo Group) the appellate court (Court of Appeals)rendered the questioned amended decision. Petitioners

Wolfgang Aurbach, John Griffin, David P. Whittingham andCharles Chamsay in G.R. No. 75875 assign the followingerrors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THEALLEGED ELECTION OF PRIVATE RESPONDENTS ASMEMBERS OF THE BOARD OF DIRECTORS OFSANIWARES WHEN IN FACT THERE WAS NO ELECTION

AT ALL.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

II. THE COURT OF APPEALS PROHIBITS THESTOCKHOLDERS FROM EXERCISING THEIR FULLVOTING RIGHTS REPRESENTED BY THE NUMBER OFSHARES IN SANIWARES, THUS DEPRIVINGPETITIONERS AND THE CORPORATION THEYREPRESENT OF THEIR PROPERTY RIGHTS WITHOUTDUE PROCESS OFLAW.chanroblesvirtualawlibrary chanrobles virtual law library

III. THE COURT OF APPEALS IMPOSES CONDITIONSAND READS PROVISIONS INTO THE AGREEMENT OFTHE PARTIES WHICH WERE NOT THERE, WHICHACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assailsthe amended decision on the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregardof binding contractual agreements entered into bystockholders and the replacement of the conditions of suchagreements with terms never contemplated by the

stockholders but merely dictated by the CA.chanroblesvirtualawlibrary chanrobles virtual law library

11.2. The Amended decision would likewise sanction thedeprivation of the property rights of stockholders without dueprocess of law in order that a favored group of stockholdersmay be illegally benefitted and guaranteed a continuingmonopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contendthat:

I chanrobles virtual law library

THE AMENDED DECISION OF THE RESPONDENTCOURT, WHILE RECOGNIZING THAT THESTOCKHOLDERS OF SANIWARES ARE DIVIDED INTOTWO BLOCKS, FAILS TO FULLY ENFORCE THE BASICINTENT OF THE AGREEMENT AND THELAW.chanroblesvirtualawlibrary chanrobles virtual law library


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II chanrobles virtual law library

THE AMENDED DECISION DOES NOT CATEGORICALLYRULE THAT PRIVATE PETITIONERS HEREIN WERE THEDULY ELECTED DIRECTORS DURING THE 8 MARCH1983 ANNUAL STOCKHOLDERS MEETING OFSANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence,they are discussed

jointly.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The main issue hinges on who were the duly electeddirectors of Saniwares for the year 1983 during its annualstockholders' meeting held on March 8, 1983. To answer thisquestion the following factors should be determined: (1) thenature of the business established by the parties whether it

was a joint venture or a corporation and (2) whether or notthe ASI Group may vote their additional 10% equity during

elections of Saniwares' board ofdirectors.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The rule is that whether the parties to a particular contracthave thereby established among themselves a joint ventureor some other relation depends upon their actual intention

which is determined in accordance with the rules governingthe interpretation and construction of contracts. (TerminalShares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp678; Universal Sales Corp. v. California Press Mfg. Co. 20Cal. 2nd 751, 128 P 2nd 668) chanrobles virtual law library

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76)contend that the actual intention of the parties should beviewed strictly on the "Agreement" dated August 15,1962

wherein it is cl

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