Aurbach v. Sanitary Wares Manufacturing Corporation

G.R. No. 75875, 15 December 1989


Saniwares (domestic corporation) and ASI (foreign corporation) entered into an agreement to engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares.They also 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 Corp.”

Unfortunately, with the business successes came the deterioration of the initially harmonious relationship between the two. The disagreement was allegedly due to Saniwares desire to expand the export operations which was objected by ASI as it apparently had other subsidiaries of joint venture groups in countries contemplated by Saniwares.

Several incidents in the annual stockholders’ meeting triggered the filing of separate petitions by the parties, both parties claiming to be the legitimate directors of the corporation.

According to Aurbach, the actual intention of the parties should be viewed from the agreement wherein it is clearly stated that the parties’ intention was to form a corporation and not a joint venture. No other evidence should be admitted on the ground that it contravenes the parol evidence rule under sec. 7, Rule 130, Revised Rules of Court. Saniwares on the other hand alleged that the agreement failed to express the true intent of the parties.


Whether or not the business established by the parties was a joint venture or a corporation.


It was a 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.

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.

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. 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. 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.

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.

*Case Digest by Earl M. Acoymo, JD-IV, Andres Bonifacio Law School, SY 2019-2020

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