In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica

SECOND DIVISION Metodista En Las Islas Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop
Zamora acting as its General Superintendent.Thirty-nine years later in 1948, the
IEMELIF enacted and registered a by-laws that established a Supreme Consistory of
IGLESIA EVANGELICA METODISTA G.R. No. 184088 Elders (the Consistory), made up of church ministers, who were to serve for four
EN LAS ISLAS FILIPINAS (IEMELIF) years. The by-laws empowered the Consistory to elect a General Superintendent, a
(Corporation Sole), INC., REV. NESTOR General Secretary, a General Evangelist, and a Treasurer General who would manage
PINEDA, REV. ROBERTO BACANI, the affairs of the organization. For all intents and purposes, the Consistory served as
BENJAMIN BORLONGAN, JR., the IEMELIFs board of directors.
DANILO SAUR, RICHARD PONTI,
ALFREDO MATABANG and all the Apparently, although the IEMELIF remained a corporation sole on paper (with
other members of the IEMELIF all corporate powers theoretically lodged in the hands of one member, the General
TONDO CONGREGATION of the Superintendent), it had always acted like a corporation aggregate. The Consistory
IEMELIF CORPORATION SOLE, exercised IEMELIFs decision-making powers without ever being
Petitioners, Present: challenged. Subsequently, during its 1973 General Conference, the general
CARPIO, J., Chairperson, membership voted to put things right by changing IEMELIFs organizational structure
- versus - NACHURA, from a corporation sole to a corporation aggregate. On May 7, 1973 the Securities and
PERALTA, Exchange Commission (SEC) approved the vote. For some reasons, however, the
ABAD, and corporate papers of the IEMELIF remained unaltered as a corporation sole.
MENDOZA, JJ.
BISHOP NATHANAEL LAZARO, Only in 2001, about 28 years later, did the issue reemerge. In answer to a
REVERENDS HONORIO RIVERA, query from the IEMELIF, the SEC replied on April 3, 2001 that, although the SEC
DANIEL MADUCDOC, FERDINAND Commissioner did not in 1948 object to the conversion of the IEMELIF into a
MERCADO, ARCADIO CABILDO, corporation aggregate, that conversion was not properly carried out and
DOMINGO GONZALES, ARTURO documented.The SEC said that the IEMELIF needed to amend its articles of
LAPUZ, ADORABLE MANGALINDAN, incorporation for that purpose.[1]
DANIEL VICTORIA and DAKILA
CRUZ, and LAY LEADER LINGKOD Acting on this advice, the Consistory resolved to convert the IEMELIF to a
MADUCDOC and CESAR DOMINGO, corporation aggregate.Respondent Bishop Nathanael Lazaro, its General
acting individually and as members of Superintendent, instructed all their congregations to take up the matter with their
the Supreme Consistory of Elders respective members for resolution. Subsequently, the general membership approved
and those claiming under the Promulgated: the conversion, prompting the IEMELIF to file amended articles of incorporation with
Corporation Aggregate, the SEC. Bishop Lazaro filed an affidavit-certification in support of the conversion.[2]
Respondents. July 6, 2010
Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that
x --------------------------------------------------------------------------------------- x did not support the conversion, filed a civil case for Enforcement of Property Rights of
Corporation Sole, Declaration of Nullity of Amended Articles of Incorporation from
Corporation Sole to Corporation Aggregate with Application for Preliminary Injunction
and/or Temporary Restraining Order in IEMELIFs name against respondent members
DECISION of its Consistory before the Regional Trial Court (RTC) of Manila. [3] Petitioners claim
that a complete shift from IEMELIFs status as a corporation sole to a corporation
ABAD, J.: aggregate required, not just an amendment of the IEMELIFs articles of incorporation,
but a complete dissolution of the existing corporation sole followed by a re-
incorporation.
The present dispute resolves the issue of whether or not a corporation may
change its character as a corporation sole into a corporation aggregate by mere Unimpressed, the RTC dismissed the action in its October 19, 2005
amendment of its articles of incorporation without first going through the process of decision.[4] It held that, while the Corporation Code on Religious Corporations (Chapter
dissolution. II, Title XIII) has no provision governing the amendment of the articles of incorporation
of a corporation sole, its Section 109 provides that religious corporations shall be
The Facts and the Case governed additionally by the provisions on non-stock corporations insofar as they may
be applicable. The RTC thus held that Section 16 of the Code[5] that governed
amendments of the articles of incorporation of non-stock corporations applied to
corporations sole as well. What IEMELIF needed to authorize the amendment was
merely the vote or written assent of at least two-thirds of the IEMELIF membership.
Petitioners Pineda, et al. appealed the RTC decision to the Court of Appeals
(CA).[6] On October 31, 2007 the CA rendered a decision, [7] affirming that of the
RTC. Petitioners moved for reconsideration, but the CA denied it by its resolution of
August 1, 2008,[8] hence, the present petition for review before this Court.
The Issue Presented
The only issue presented in this case is whether or not the CA erred in
affirming the RTC ruling that a corporation sole may be converted into a corporation
aggregate by mere amendment of its articles of incorporation.
The Courts Ruling
Petitioners Pineda, et al. insist that, since the Corporation Code does not have
any provision that allows a corporation sole to convert into a corporation aggregate by
mere amendment of its articles of incorporation, the conversion can take place only by
first dissolving IEMELIF, the corporation sole, and afterwards by creating a new
corporation in its place.
Religious corporations are governed by Sections 109 through 116 of the
Corporation Code. In a 2009 case involving IEMELIF, the Court distinguished a
corporation sole from a corporation aggregate.[9] Citing Section 110 of the Corporation
Code, the Court said that a corporation sole is one formed by the chief archbishop,
bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect,
or church, for the purpose of administering or managing, as trustee, the affairs,
properties and temporalities of such religious denomination, sect or
church. A corporation aggregate formed for the same purpose, on the other
hand, consists of two or more persons.
True, the Corporation Code provides no specific mechanism for amending the
articles of incorporation of a corporation sole. But, as the RTC correctly held, Section
109 of the Corporation Code allows the application to religious corporations of the
general provisions governing non-stock corporations.
For non-stock corporations, the power to amend its articles of incorporation
lies in its members. The code requires two-thirds of their votes for the approval of such
an amendment. So how will this requirement apply to a corporation sole that has
technically but one member (the head of the religious organization) who holds in his
hands its broad corporate powers over the properties, rights, and interests of his
religious organization?
Although a non-stock corporation has a personality that is distinct from those
of its members who established it, its articles of incorporation cannot be amended solely
through the action of its board of trustees. The amendment needs the concurrence of
at least two-thirds of its membership. If such approval mechanism is made to operate
in a corporation sole, its one member in whom all the powers of the corporation
technically belongs, needs to get the concurrence of two-thirds of its membership. The
one member, here the General Superintendent, is but a trustee, according to Section
110 of the Corporation Code, of its membership.
There is no point to dissolving the corporation sole of one member to enable
the corporation aggregate to emerge from it. Whether it is a non-stock corporation or a
corporation sole, the corporate being remains distinct from its members, whatever be
their number. The increase in the number of its corporate membership does not change
the complexion of its corporate responsibility to third parties. The one member, with the
concurrence of two-thirds of the membership of the organization for whom he acts as
trustee, can self-will the amendment. He can, with membership concurrence, increase
the technical number of the members of the corporation from sole or one to the greater
number authorized by its amended articles.
Here, the evidence shows that the IEMELIFs General Superintendent,
respondent Bishop Lazaro, who embodied the corporation sole, had obtained, not only
the approval of the Consistory that drew up corporate policies, but also that of the
required two-thirds vote of its membership.
The amendment of the articles of incorporation, as correctly put by the CA,
requires merely that a) the amendment is not contrary to any provision or requirement
under the Corporation Code, and that b) it is for a legitimate purpose. Section 17 of the
Corporation Code[10] provides that amendment shall be disapproved if, among others,
the prescribed form of the articles of incorporation or amendment to it is not observed,
or if the purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and regulations, or if the required percentage
of ownership is not complied with. These impediments do not appear in the case of
IEMELIF.
Besides, as the CA noted, the IEMELIF worked out the amendment of its
articles of incorporation upon the initiative and advice of the SEC. The latters
interpretation and application of the Corporation Code is entitled to respect and
recognition, barring any divergence from applicable laws. Considering its experience
and specialized capabilities in the area of corporation law, the SECs prior action on the
IEMELIF issue should be accorded great weight.
WHEREFORE, the Court DENIES the petition and AFFIRMS the October 31,
2007 decision and August 1, 2008 resolution of the Court of Appeals in CA-G.R. SP
92640.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24295 September 30, 1971
GENERAL GARMENTS CORPORATION, petitioner,
vs.
THE DIRECTOR OF PATENTS and PURITAN SPORTSWEAR
CORPORATION, respondents.
Rafael R. Lasam for petitioner.
Office of the Solicitor General Antonio A. Alafriz, Assistant Solicitor General Pacifico
P. de Castro and Solicitor Celso P. Ylagan for respondent Director of Patents.
Parades, Poblador, Cruz & Nazareno for respondent Corporation.
MAKALINTAL, J.:
The General Garments Corporation, organized and existing under the laws of the
Philippines, is the owner of the trademark "Puritan," under Registration No. 10059
issued on November 15, 1962 by the Philippine Patent Office, for assorted men's
wear, such as sweaters, shirts, jackets, undershirts and briefs.
On March 9, 1964 the Puritan Sportswear Corporation, organized and existing in and
under the laws of the state of Pennsylvania, U.S.A., filed a petition with the Philippine
Patent Office for the cancellation of the trademark "Puritan" registered in the name of
General Garments Corporation, alleging ownership and prior use in the Philippines of
the said trademark on the same kinds of goods, which use it had not abandoned; and
alleging further that the registration thereof by General Garments Corporation had
been obtained fraudulently and in violation of Section 17(c) of Republic Act No. 166,
as amended, in relation to Section 4(d) thereof.
On March 30, 1964 General Garments Corporation moved to dismiss the petition on
several grounds, all of which may be synthesized in one single issue: whether or not
Puritan Sportswear Corporation, which is a foreign corporation not licensed to do
business and not doing business in the Philippines, has legal capacity to maintain a
suit in the Philippine Patent Office for cancellation of a trademark registered therein.
The Director of Patents denied the motion to dismiss on August 6, 1964, and denied
likewise the motion for reconsideration on March 5, 1965, whereupon General
Garments Corporation, hereinafter referred to as petitioner, filed the instant petition
for review.
Section 17 (c) and Section 4 (d) of the Trademark Law provide respectively as
follows:
SEC. 17. Grounds for cancellation. — Any person, who believes
that he is or will be damaged by the registration of a mark or trade-
name, may, upon the payment of the prescribed fee, apply to
cancel said registration upon any of the following grounds:
xxx xxx xxx
(c) That the registration was obtained fraudulently or contrary to the
provisions of section four, Chapter II thereof: ...
(d) SEC. 4. Registration of trademarks, tradenames and service-
marks which shall be known as the principal register. The owner of
a trade-mark, trade-name or service-mark used to distinguish his
goods, business or services from the goods, business or services of
others shall have the right to register the same on the principal
register, unless it:
xxx xxx xxx
(d) Consists of or comprises a mark or trade-name which so
resembles a mark or trade-name registered in the Philippines or a
mark or tradename previously used in the Philippines by another
and not abandoned, as to be likely, when applied to or used in
connection with goods, business or services of the applicant, to
cause confusion or mistake or to deceive purchasers; or ...
Petitioner contends that Puritan Sportswear Corporation (hereinafter referred to as
respondent), being a foreign corporation which is not licensed to do and is not doing
business in the Philippines, is not considered as a person under Philippine laws and
consequently is not comprehended within the term "any person" who may apply for
cancellation of a mark or trade-name under Section 17(c) of the Trademark Law
aforequoted. That respondent is a juridical person should be beyond serious dispute.
The fact that it may not transact business in the Philippines unless it has obtained a
license for that purpose, nor maintain a suit in Philippine courts for the recovery of any
debt, claim or demand without such license (Secs. 68 and 69, Corporation Law) does
not make respondent any less a juridical person. Indeed an exception to the license
requirement has been recognized in this jurisdiction, namely, where a foreign
corporation sues on an isolated transaction. As first enunciated in Marshall-Wells Co.
v. Elser & Co.1"the object of the statute (Secs. 68 and 69, Corporation Law) was not
to prevent the foreign corporation from performing single acts, but to prevent it from
acquiring a domicile for the purpose of business without taking the steps necessary to
render it amenable to suit in the local courts ... the implication of the law (being) that it
was never the purpose of the legislature to exclude a foreign corporation which
happens to obtain an isolated order for business from the Philippines, from securing
redress in the Philippine Courts. ..." The principle has since then been applied in a
number of other cases.2
To recognize respondent as a juridical person, however, does not resolve the issue in
this case. It should be postulated at this point that respondent is not suing in our
courts "for the recovery of any debt, claim or demand," for which a license to transact
business in the Philippines is required by Section 69 of the Corporation Law, subject
only to the exception already noted. Respondent went to the Philippine Patent Office
on a petition for cancellation of a trademark registered by petitioner, invoking Section
17(c) in relations to Section 4(d) of the Trademark Law. A more or less analogous
question arose in Western Equipment & Supply Co. v. Reyes, 51 Phil. 115. The
syllabus of the report, which is a correct statement of the doctrine laid down in the
decision, reads as follows:
A foreign corporation which has never done ... business in the
Philippine Islands and which is unlicensed and unregistered to do
business here, but is widely and favorably known in the Islands
through the use therein of its products bearing its corporate and
trade name has a legal right to maintain an action in the Islands.
xxx xxx xxx
The purpose of such a suit is to protect its reputation, corporate name and goodwill
which has been established, through the natural development of its trade for a long
period of years, in the doing of which it does not seek to enforce any legal or contract
rights arising from, or growing out of any business which it has transacted in the
Philippine Islands.
The right to the use of the corporate or trade name is a property right, a right in rem,
which it may assert and protect in any of the courts of the world — even in
jurisdictions where it does not transact business — just the same as it may protect its
tangible property, real or personal against trespass or conversion.
In Asari Yoko Co., Ltd. v. Kee Boc (Jan. 20, 1961) 1 SCRA 1, the plaintiff, a Japanese
corporation which had acquired prior use in the Philippines of the trademark "RACE"
for men's shirts and undershirts but which had not shown prior registration thereof,
successfully maintained a suit opposing the application of the defendant, a local
businessman, to register the same trademark for similar goods produced by him. This
Court said: "The lawful entry into the Philippines of goods bearing the trademark since
1949 should entitle the owner of the trademark to the right to use the same to the
exclusion of others. Modern trade and commerce demands that depredations on
legitimate trademarks of non-nationals should not be countenanced." It may be added
here that the law against such depredations is not only for the protection of the owner
of the trademark who has acquired prior use thereof but also, and more importantly,
for the protection of purchasers from confusion, mistake or deception as to the goods
they are buying. This is clear from a reading of Section 4(d) of the Trademark Law.
Petitioner argues that the ruling in Western Equipment has been superseded by the
later decision of this Court in Mentholatum Co., Inc. v. Mangaliman (1941), 72 Phil.
524, where it was held that inasmuch as Mentholatum Co., Inc. was a foreign
corporation doing business in the Philippines without the license required by Section
68 of the Corporation Law it could not prosecute an action for infringement of its
trademark which was the subject of local registration. The court itself, however,
recognized a distinction between the two cases, in that in Western Equipment the
foreign corporation was not engaged in business in the Philippines, and observed that
if it had been so engaged without first obtaining a license "another and a very different
question would be presented."
Parenthetically, it may be stated that the ruling in the Mentholatum case was
subsequently derogated when Congress, purposely to "counteract the effects" of said
case, enacted Republic Act No. 638, inserting Section 21-A in the Trademark Law,
which allows a foreign corporation or juristic person to bring an action in Philippine
courts for infringement of a mark or trade-name, for unfair competition, or false
designation of origin and false description, "whether or not it has been licensed to do
business in the Philippines under Act Numbered Fourteen hundred and fifty-nine, as
amended, otherwise known as the Corporation Law, at the time it brings complaint."
Petitioner argues that Section 21-A militates against respondent's capacity to
maintain a suit for cancellation, since it requires, before a foreign corporation may
bring an action, that its trademark or tradename has been registered under the
Trademark Law. The argument misses the essential point in the said provision, which
is that the foreign corporation is allowed there under to sue "whether or not it has
been licensed to do business in the Philippines" pursuant to the Corporation Law
(precisely to counteract the effects of the decision in the Mentholatum case).
In any event, respondent in the present case is not suing for infringement or unfair
competition under Section 21-A, but for cancellation under Section 17, on one of the
grounds enumerated in Section 4. The first kind of action, it maybe stated, is
cognizable by the Courts of First Instance (Sec. 27); the second partakes of an
administrative proceeding before the Patent Office (Sec. 18, in relation to Sec. 8). And
while a suit under Section 21-A requires that the mark or tradename alleged to have
been infringed has been "registered or assigned" to the suing foreign corporation, a
suit for cancellation of the registration of a mark or tradename under Section 17 has
no such requirement. For such mark or tradename should not have been registered in
the first place (and consequently may be cancelled if so registered) if it "consists of or
comprises a mark or tradename which so resembles a mark or tradename ...
previously used in the Philippines by another and not abandoned, as to be likely,
when applied to or used in connection with goods, business or services of the
applicant, to cause confusion or mistake or to deceive purchasers; ..."(Sec. 4d).
Petitioner's last argument is that under Section 37 of the Trademark Law respondent
is not entitled to the benefits of said law because the Philippines is not a signatory to
any international treaty or convention relating to marks or tradenames or to the
repression of unfair competition. Section 37 reads in part:
SEC. 37. Rights of foreign registrants. — Persons who are
nationals of, domiciled in, or have a bona fide or effective business
 or commercial establishment in any foreign country which is a party
to any international convention or treaty relating to marks or
tradenames, or the repression of unfair competition to which the
Philippines may be a party, shall be entitled to the benefits and
subject to the provisions of this Act to the extent and under the
conditions essential to give effect to any such convention and
treaties so long as the Philippines shall continue to be a party
thereto, except as provided in the following paragraphs of this
section.

As correctly pointed out by respondents, this provision was incorporated in the law in
anticipation of the eventual adherence of the Philippines to any international
convention or treaty for the protection of industrial property. It speaks of persons who
are nationals of domiciled in, or have a bona fide or effective business or commercial
establishment in any foreign country, which is a party to any international convention
or treaty relating to industrial property to which the Philippines may be a party. In
other words, the provision will be operative only when the Philippines becomes a
party to such a convention or treaty. .That this was the intention of Congress is clear
from the explanatory note to House Bill No. 1157 (now Republic Act 166), in reference
to Section 37, which is the only provision in Chapter XI of the Trademark Law on
Foreign Industrial Property: "The necessary provisions to qualify the Philippines under
the international convention for the protection of industrial property have been
specifically incorporated in the Act."3 In the meantime, regardless of Section 37,
aliens or foreign corporations are accorded benefits under the law. Thus, under
Section 2, for instance, the trademarks, tradenames and service-marks owned by
persons, corporations, partnerships or associations domiciled in any foreign country
may be registered in the Philippines, provided that the country of which the applicant
for registration is a citizen grants bylaw substantially similar privileges to citizens of
the Philippines.

WHEREFORE, the petition is dismissed, and the resolution of the Director of Patents
dated August 6, 1964 is affirmed, with costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Castro, Fernando, Teehankee,

Barredo and Villamor, JJ., concur.

Makasiar, J., reserves his vote.

 FIRST DIVISION
PAUL LEE TAN, ANDREW G.R. No. 153468
LIUSON, ESTHER WONG,
STEPHEN CO, JAMES TAN, Present:
JUDITH TAN, ERNESTO
TANCHI JR., EDWIN NGO, PANGANIBAN, CJ.,Chairperson,
VIRGINIA KHOO, SABINO YNARES-SANTIAGO,
PADILLA JR., EDUARDO P. AUSTRIA-MARTINEZ,
LIZARES and GRACE CALLEJO, SR., and
CHRISTIAN HIGH SCHOOL, CHICO-NAZARIO, JJ.
Petitioners,
- versus -
PAUL SYCIP and MERRITTO
LIM, Promulgated:
Respondents. August 17, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, CJ.:
For stock corporations, the quorum referred to in Section 52 of the Corporation
Code is based on the number of outstanding voting stocks. For nonstock corporations, only
those who are actual, living members with voting rights shall be counted in determining the
existence of a quorum during members meetings. Dead members shall not be counted.
The Case
The present Petition for Review on Certiorari [1] under Rule 45 of the Rules of
Court seeks the reversal of the January 23 [2] and May 7, 2002,[3] Resolutions of the
Court of Appeals (CA) in CA-GR SP No. 68202. The first assailed Resolution dismissed
the appeal filed by petitioners with the CA. Allegedly, without the proper authorization
of the other petitioners, the Verification and Certification of Non-Forum Shopping were
signed by only one of them -- Atty. Sabino Padilla Jr. The second Resolution denied
reconsideration.
The Facts
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of
trustees.[4]During the annual members meeting held on April 6, 1998, there were only
eleven (11)[5]living member-trustees, as four (4) had already died. Out of the eleven,
seven (7)[6] attended the meeting through their respective proxies. The meeting was
convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C.
Pacis, who argued that there was no quorum.[7] In the meeting, Petitioners Ernesto
Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees.
When the controversy reached the Securities and Exchange Commission (SEC),
petitioners maintained that the deceased member-trustees should not be counted in
the computation of the quorum because, upon their death, members automatically lost
all their rights (including the right to vote) and interests in the corporation.
SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void
for lack of quorum. She held that the basis for determining the quorum in a meeting of
members should be their number as specified in the articles of incorporation, not simply
the number of living members.[8] She explained that the qualifying phrase entitled to
vote in Section 24[9] of the Corporation Code, which provided the basis for determining
a quorum for the election of directors or trustees, should be read together with Section
89.[10]
The hearing officer also opined that Article III (2) [11] of the By-Laws of GCHS,
insofar as it prescribed the mode of filling vacancies in the board of trustees, must be
interpreted in conjunction with Section 29[12] of the Corporation Code. The SEC en banc
denied the appeal of petitioners and affirmed the Decision of the hearing officer in
toto.[13] It found to be untenable their contention that the word members, as used in
Section 52[14] of the Corporation Code, referred only to the living members of a
nonstock corporation.[15]
As earlier stated, the CA dismissed the appeal of petitioners, because the
Verification and Certification of Non-Forum Shopping had been signed only by Atty.
Sabino Padilla Jr. No Special Power of Attorney had been attached to show his
authority to sign for the rest of the petitioners.
Hence, this Petition.[16]
Issues
Petitioners state the issues as follows:
Petitioners principally pray for the resolution of the legal question of
whether or not in NON-STOCK corporations, dead members should
still be counted in determination of quorum for purposed of
conducting the Annual Members Meeting.
Petitioners have maintained before the courts below that the DEAD
members should no longer be counted in computing quorum
primarily on the ground that members rights are personal and non-
transferable as provided in Sections 90 and 91 of the Corporation
Code of the Philippines.
The SEC ruled against the petitioners solely on the basis of a 1989
SEC Opinion that did not even involve a non-stock corporation as
petitioner GCHS.
The Honorable Court of Appeals on the other hand simply
refused to resolve this question and instead dismissed the petition
for review on a technicality the failure to timely submit an SPA from
the petitioners authorizing their co-petitioner Padilla, their counsel
and also a petitioner before the Court of Appeals, to sign the petition
on behalf of the rest of the petitioners.
Petitioners humbly submit that the action of both the SEC and the
Court of Appeals are not in accord with law particularly the
pronouncements of this Honorable Court in Escorpizo v. University
 of Baguio (306 SCRA 497), Robern Development Corporation v.
Quitain (315 SCRA 150,) and MC Engineering, Inc. v. NLRC, (360
SCRA 183). Due course should have been given the petition below
and the merits of the case decided in petitioners favor. [17]
In sum, the issues may be stated simply in this wise: 1) whether the CA erred in denying
the Petition below, on the basis of a defective Verification and Certification; and 2)
whether dead members should still be counted in the determination of the quorum, for
purposes of conducting the annual members meeting.
The Courts Ruling
The present Petition is partly meritorious.
Procedural Issue:
Verification and Certification
of Non-Forum Shopping
The Petition before the CA was initially flawed, because the Verification and
Certification of Non-Forum Shopping were signed by only one, not by all, of the
petitioners; further, it failed to show proof that the signatory was authorized to sign on
behalf of all of them. Subsequently, however, petitioners submitted a Special Power of
Attorney, attesting that Atty. Padilla was authorized to file the action on their behalf. [18]
In the interest of substantial justice, this initial procedural lapse may be
excused. [19]There appears to be no intention to circumvent the need for proper
verification and certification, which are aimed at assuring the truthfulness and
correctness of the allegations in the Petition for Review and at discouraging forum
shopping.[20] More important, the substantial merits of petitioners case and the purely
legal question involved in the Petition should be considered special circumstances [21] or
compelling reasons that justify an exception to the strict requirements of the verification
and the certification of non-forum shopping.[22]
Main Issue:
Basis for Quorum
Generally, stockholders or members meetings are called for the purpose of electing
directors or trustees[23] and transacting some other business calling for or requiring the
action or consent of the shareholders or members, [24] such as the amendment of the
articles of incorporation and bylaws, sale or disposition of all or substantially all
corporate assets, consolidation and merger and the like, or any other business that
may properly come before the meeting.
Under the Corporation Code, stockholders or members periodically elect the board of
directors or trustees, who are charged with the management of the corporation. [25] The
board, in turn, periodically elects officers to carry out management functions on a day-
to-day basis. As owners, though, the stockholders or members have residual powers
over fundamental and major corporate changes.
While stockholders and members (in some instances) are entitled to receive profits, the
management and direction of the corporation are lodged with their representatives and
agents -- the board of directors or trustees.[26] In other words, acts of management
pertain to the board; and those of ownership, to the stockholders or members. In the
latter case, the board cannot act alone, but must seek approval of the stockholders or
members.[27]
Conformably with the foregoing principles, one of the most important rights of a qualified
shareholder or member is the right
to vote -- either personally or by proxy -- for the directors or trustees who are to manage
the corporate affairs.[28] The right to choose the persons who will direct, manage and
operate the corporation is significant, because it is the main way in which a stockholder
can have a voice in the management of corporate affairs, or in which a member in a
nonstock corporation can have a say on how the purposes and goals of the corporation
may be achieved.[29] Once the directors or trustees are elected, the stockholders or
members relinquish corporate powers to the board in accordance with law.
In the absence of an express charter or statutory provision to the contrary, the general
rule is that every member of a nonstock corporation, and every legal owner of shares
in a stock corporation, has a right to be present and to vote in all corporate meetings.
Conversely, those who are not stockholders or members have no right to vote.[30] Voting
may be expressed personally, or through proxies who vote in their representative
capacities.[31] Generally, the right to be present and to vote in a meeting is determined
by the time in which the meeting is held.[32]
Section 52 of the Corporation Code states:
Section 52. Quorum in Meetings. Unless otherwise provided for in
this Code or in the by-laws, a quorum shall consist of the
stockholders representing a majority of the outstanding capital stock
or a majority of the members in the case of non-stock corporations.
In stock corporations, the presence of a quorum is ascertained and counted on the
basis of the outstanding capital stock, as defined by the Code thus:
SECTION 137. Outstanding capital stock defined. The term outstanding
capital stock as used in this Code, means the total shares of
stock issued under binding subscription agreements to subscribers
or stockholders, whether or not fully or partially paid, except treasury
shares. (Underscoring supplied)
The Right to Vote in
Stock Corporations
The right to vote is inherent in and incidental to the ownership of corporate stocks. [33] It
is settled that unissued stocks may not be voted or considered in determining whether
a quorum is present in a stockholders meeting, or whether a requisite proportion of the
stock of the corporation is voted to adopt a certain measure or act. Only
stock actually issued and outstanding may be voted.[34] Under Section 6 of the
Corporation Code, each share of stock is entitled to vote, unless otherwise provided in
the articles of incorporation or declared delinquent [35] under Section 67 of the Code.
Neither the stockholders nor the corporation can vote or represent shares that have
never passed to the ownership of stockholders; or, having so passed, have again been
purchased by the corporation.[36] These shares are not to be taken into consideration incorporation or bylaws.[40]We hold that when the principle for determining the quorum
in determining majorities.When the law speaks of a for stock corporations is applied by analogy to nonstock corporations, only those who
given proportion of the stock, it must be construed to mean the shares that have are actual members with voting rights should be counted.
passed from the corporation, and that may be voted.[37]
Under Section 52 of the Corporation Code, the majority of the members
Section 6 of the Corporation Code, in part, provides: representing the actual number of voting rights, not
the number or numerical constant that may originally be specified in the articles of
Section 6. Classification of shares. The shares of stock of stock corporations incorporation, constitutes the quorum.[41]
may be divided into classes or series of shares, or both, any of which
classes or series of shares may have such rights, privileges or The March 3, 1986 SEC Opinion[42] cited by the hearing officer uses the
restrictions as may be stated in the articles of phrase majority vote of the members; likewise Section 48 of the Corporation Code
incorporation: Provided, That no share may be deprived of voting refers to 50 percent of 94 (the number of registered members of the association
rights except those classified and issued as preferred or redeemable mentioned therein) plus one. The best evidence of who are the present members of the
shares, unless otherwise provided in this Code: Provided, further, corporation is the membership book; in the case of stock corporations, it is the stock
that there shall always be a class or series of shares which have and transfer book.[43]
complete voting rights.

xxxxxxxxx
Section 25 of the Code specifically provides that a majority of the directors or trustees,
Where the articles of incorporation provide for non-voting shares in the cases as fixed in the articles of incorporation, shall constitute a quorum for the transaction of
allowed by this Code, the holders of such shares shall nevertheless corporate business (unless the articles of incorporation or the bylaws provide for a
be entitled to vote on the following matters: greater majority). If the intention of the lawmakers was to base the quorum in the
meetings of stockholders or members on their absolute number as fixed in the articles
1. Amendment of the articles of incorporation; of incorporation, it would have expressly specified so. Otherwise, the only logical
2. Adoption and amendment of by-laws; conclusion is that the legislature did not have that intention.
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporation
property;
4. Incurring, creating or increasing bonded Effect of the Death
indebtedness; of a Member or Shareholder
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with Having thus determined that the quorum in a members meeting is to be
another corporation or other corporations; reckoned as the actual number of members of the corporation, the next question to
7. Investment of corporate funds in another corporation resolve is what happens in the event of the death of one of them.
or business in accordance with this Code; and In stock corporations, shareholders may generally transfer their shares. Thus, on the
8. Dissolution of the corporation. death of a shareholder, the executor or administrator duly appointed by the Court is
vested with the legal title to the stock and entitled to vote it. Until a settlement and
Except as provided in the immediately preceding paragraph, the vote division of the estate is effected, the stocks of the decedent are held by the
necessary to approve a particular corporate act as provided in this administrator or executor.[44]
Code shall be deemed to refer only to stocks with voting rights.
On the other hand, membership in and all rights arising from a nonstock corporation
Taken in conjunction with Section 137, the last paragraph of Section 6 shows are personal and non-transferable, unless the articles of incorporation or the bylaws of
that the intention of the lawmakers was to base the quorum mentioned in Section 52 the corporation provide otherwise.[45] In other words, the determination of whether or
on the number of outstanding voting stocks.[38] not dead members are entitled to exercise their voting rights (through their executor or
administrator), depends on those articles of incorporation or bylaws.
The Right to Vote in
Nonstock Corporations Under the By-Laws of GCHS, membership in the corporation shall, among others, be
terminated by the death of the member.[46] Section 91 of the Corporation Code further
provides that termination extinguishes all the rights of a member of the corporation,
In nonstock corporations, the voting rights attach to membership. [39] Members vote as unless otherwise provided in the articles of incorporation or the bylaws.
persons, in accordance with the law and the bylaws of the corporation. Each member
shall be entitled to one vote unless so limited, broadened, or denied in the articles of
Applying Section 91 to the present case, we hold that dead members who are dropped
from the membership roster in the manner and for the cause provided for in the By-
Laws of GCHS are not to be counted in determining the requisite vote in corporate
matters or the requisite quorum for the annual members meeting. With 11 remaining
members, the quorum in the present case should be 6. Therefore, there being a
quorum, the annual members meeting, conducted with six[47] members present, was
valid.
Vacancy in the
Board of Trustees
WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of
the Court of Appeals are hereby REVERSED AND SET ASIDE. The remaining
members of the board of trustees of Grace Christian High School (GCHS) may convene
and fill up the vacancies in the board, in accordance with this Decision. No
pronouncement as to costs in this instance.
SO ORDERED.

As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation
Code provides:
SECTION 29. Vacancies in the office of director or trustee.
-- Any vacancy occurring in the board of directors or trustees other
than by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the remaining
directors or trustees, if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a regular or special
meeting called for that purpose. A director or trustee so elected to fill
a vacancy shall be elected only for the unexpired term of his
predecessor in office.

Undoubtedly, trustees may fill vacancies in the board, provided that those
remaining still constitute a quorum. The phrase may be filled in Section 29 shows that
the filling of vacancies in the board by the remaining directors or trustees constituting a
quorum is merely permissive, not mandatory. [48] Corporations, therefore, may choose
how vacancies in their respective boards may be filled up -- either by the remaining
directors constituting a quorum, or by the stockholders or members in a regular or
special meeting called for the purpose.[49]

The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in
its board of directors; that is, by a majority vote of the remaining members of the
board.[50]

While a majority of the remaining corporate members were present, however,

the election of the four trustees cannot be legally upheld for the obvious reason that it
was held in an annual meeting of the members, not of the board of trustees. We are
not unmindful of the fact that the members of GCHS themselves also constitute the
trustees, but we cannot ignore the GCHS bylaw provision, which specifically prescribes
that vacancies in the board must be filled up by the remaining trustees. In other words,
these remaining member-trustees must sit as a board in order to validly elect the new
ones.
Indeed, there is a well-defined distinction between a corporate act to be done by the
board and that by the constituent members of the corporation. The board of trustees
must act, not individually or separately, but as a body in a lawful meeting. On the other
hand, in their annual meeting, the members may be represented by their respective
proxies, as in the contested annual members meeting of GCHS.

THIRD DIVISION
[G.R. No. 138104. April 11, 2002]
MR HOLDINGS, LTD., petitioner, vs. SHERIFF CARLOS P. BAJAR, SHERIFF
FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION, AND
MARCOPPER MINING CORPORATION, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
In the present Petition for Review on Certiorari, petitioner MR Holdings, Ltd.
assails the a) Decision[1] dated January 8, 1999 of the Court of Appeals in CA-G.R. SP
No. 49226 finding no grave abuse of discretion on the part of Judge Leonardo P.
Ansaldo of the Regional Trial Court (RTC), Branch 94, Boac, Marinduque, in denying
petitioners application for a writ of preliminary injunction; [2] and b) Resolution[3] dated
March 29, 1999 denying petitioners motion for reconsideration.
The facts of the case are as follows:
Under a Principal Loan Agreement[4] and Complementary Loan
[5]
Agreement, both dated November 4, 1992, Asian Development Bank (ADB), a
multilateral development finance institution, agreed to extend to Marcopper Mining
Corporation (Marcopper) a loan in the aggregate amount of US$40,000,000.00 to
finance the latters mining project at Sta. Cruz, Marinduque. The principal loan of US$
15,000,000.00 was sourced from ADBs ordinary capital resources, while the
complementary loan of US$ 25,000,000.00 was funded by the Bank of Nova Scotia, a
participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation
which owns 40% of Marcopper, executed a Support and Standby Credit Agreement
whereby the latter agreed to provide Marcopper with cash flow support for the payment
of its obligations to ADB.
To secure the loan, Marcopper executed in favor of ADB a Deed of Real Estate
and Chattel Mortgage[6] dated November 11, 1992, covering substantially all of its
(Marcoppers) properties and assets in Marinduque. It was registered with the Register
of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in
fulfillment of its undertaking under the Support and Standby Credit Agreement, and
presumably to preserve its international credit standing, agreed to have its subsidiary
corporation, petitioner MR Holding, Ltd., assumed Marcoppers obligation to ADB in the
amount of US$ 18,453,450.02. Consequently, in an Assignment Agreement[7] dated
March 20, 1997, ADB assigned to petitioner all its rights, interests and obligations under
the principal and complementary loan agreements, (Deed of Real Estate and Chattel
Mortgage, and Support and Standby Credit Agreement). On December 8, 1997,
Marcopper likewise executed a Deed of Assignment[8] in favor of petitioner. Under its
provisions, Marcopper assigns, transfers, cedes and conveys to petitioner, its assigns
and/or successors-in-interest all of its (Marcoppers) properties, mining equipment and
facilities, to wit:
Land and Mining Rights
Building and Other Structures
Other Land Improvements
Machineries & Equipment, and Warehouse Inventory
Mine/Mobile Equipment
Transportation Equipment and Furniture & Fixtures
Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation (Solidbank)
obtained a Partial Judgment[9] against Marcopper from the RTC, Branch 26, Manila, in
Civil Case No. 96-80083 entitled Solidbank Corporation vs. Marcopper Mining
Corporation, John E. Loney, Jose E. Reyes and Teodulo C. Gabor, Jr., the decretal
portion of which reads:
WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby rendered
ordering defendant Marcopper Mining Corporation, as follows:
1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine
Hundred Seventy Thousand Pesos Seven Hundred Fifty Six
and 89/100 only (PHP 52,970,756.89), plus interest and
charges until fully paid;
2. To pay an amount equivalent to Ten Percent (10%) of above-
stated amount as attorneys fees; and
3. To pay the costs of suit.
"SO ORDERED.
Upon Solidbanks motion, the RTC of Manila issued a writ of execution pending
appeal directing Carlos P. Bajar, respondent sheriff, to require Marcopper to pay the
sums of money to satisfy the Partial Judgment.[10] Thereafter, respondent Bajar issued
two notices of levy on Marcoppers personal and real properties, and over all its stocks
of scrap iron and unserviceable mining equipment.[11] Together with
sheriff Ferdinand M. Jandusay (also a respondent) of the RTC, Branch 94, Boac,
Marinduque, respondent Bajar issued two notices setting the public auction sale of the
levied properties on August 27, 1998 at the Marcopper mine site.[12]
 Having learned of the scheduled auction sale, petitioner served an Affidavit of
Third-Party Claim[13] upon respondent sheriffs on August 26, 1998, asserting its
ownership over all Marcoppers mining properties, equipment and facilities by virtue of
the Deed of Assignment.
Upon the denial of its Affidavit of ThirdParty Claim by the RTC of
Manila,[14] petitioner commenced with the RTC of Boac, Marinduque, presided by
Judge Leonardo P. Ansaldo, a complaint for reivindication of properties, etc., with
prayer for preliminary injunction and temporary restraining order against respondents
Solidbank, Marcopper, and sheriffs Bajar and Jandusay. [15] The case was docketed as
Civil Case No. 98-13.
In an Order[16]dated October 6, 1998, Judge Ansaldo
denied petitioners application for a writ of preliminary injunction on the ground
that a) petitioner has no legal capacity to sue, it being a foreign corporation doing
business in the Philippines without license; b) an injunction will amount to staying the
execution of a final judgment by a court of co-equal and concurrent jurisdiction;
and c) the validity of the Assignment Agreement and the Deed of Assignment has been
put into serious question by the timing of their execution and registration.
Unsatisfied, petitioner elevated the matter to the Court of Appeals on a Petition
for Certiorari, Prohibition and Mandamus, docketed therein as CA-G.R. SP No.
49226. On January 8, 1999, the Court of Appeals rendered a Decision holding that
Judge Ansaldo did not commit grave abuse of discretion in denying petitioners prayer
for a writ of preliminary injunction, ratiocinating as follows:
Petitioner contends that it has the legal capacity to sue and seek redress from
Philippine courts as it is a non-resident foreign corporation not doing business in the
Philippines and suing on isolated transactions.
xxxxxx
We agree with the finding of the respondent court that petitioner is not suing on an
isolated transaction as it claims to be, as it is very obvious from the deed of
assignment and its relationships with Marcopper and Placer Dome, Inc. that its
unmistakable intention is to continue the operations of Marcopper and shield its
properties/assets from the reach of legitimate creditors, even those holding valid and
executory court judgments against it. There is no other way for petitioner to recover its
huge financial investments which it poured into Marcoppers rehabilitation and the
local situs where the Deeds of Assignment were executed, without petitioner
continuing to do business in the country.
xxxxxx
While petitioner may just be an assignee to the Deeds of Assignment, it may
still fall within the meaning of doing business in light of the Supreme Court
ruling in the case of Far East International Import and Export Corporation vs.
Nankai Kogyo Co., 6 SCRA 725, that:
Where a single act or transaction however is not merely incidental or casual but
indicates the foreign corporations intention to do other business in the
Philippines, said single act or transaction constitutes doing or engaging in or
transacting business in the Philippines.
Furthermore, the court went further by declaring that even a single act may
constitute doing business if it is intended to be the beginning of a series of
transactions. (Far East International Import and Export Corporation vs. Nankai
Kogyo Co. supra).
On the issue of whether petitioner is the bona fide owner of all the mining facilities
and equipment of Marcopper, petitioner relies heavily on the Assignment Agreement
allegedly executed on March 20, 1997 wherein all the rights and interest of Asian
Development Bank (ADB) in a purported Loan Agreement were ceded and
transferred in favor of the petitioner as assignee, in addition to a subsequent Deed of
Assignment dated December 28, 1997 conveying absolutely all the properties, mining
equipment and facilities of Marcopper in favor of petitioner.
The Deeds of Assignment executed in favor of petitioner cannot be binding on the
judgment creditor, private respondent Solidbank, under the general legal principle that
contracts can only bind the parties who had entered into it, and it cannot favor or
prejudice a third person (Quano vs. Court of Appeals, 211 SCRA 40). Moreover, by
express stipulation, the said deeds shall be governed, interpreted and construed in
accordance with laws of New York.
The Deeds of Assignment executed by Marcopper, through its President, Atty.
Teodulo C. Gabor, Jr., were clearly made in bad faith and in fraud of creditors,
particularly private respondent Solidbank. The first Assignment Agreement
purportedly executed on March 20, 1997 was entered into after Solidbank had
filed on September 19, 1996 a case against Marcopper for collection of sum of
money before Branch 26 of the Regional Trial Court docketed as Civil Case No.
96-80083. The second Deed of Assignment purportedly executed on December
28, 1997 was entered into by President Gabor after Solidbank had filed its
Motion for Partial Summary Judgment, after the rendition by Branch 26 of the
Regional Trial Court of Manila of a Partial Summary Judgment and after the said
trial court had issued a writ of execution, and which judgment was later
affirmed by the Court of Appeals. While the assignments (which were not
registered with the Registry of Property as required by Article 1625 of the new Civil
Code) may be valid between the parties thereof, it produces no effect as against third
parties. The purported execution of the Deeds of Assignment in favor of petitioner
was in violation of Article 1387 of the New Civil Code x x x. (Emphasis Supplied)
Hence, the present Petition for Review on Certiorari by MR Holdings, Ltd. moored
on the following grounds:
A. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN COMPLETELY DISREGARDING AS A MATERIAL FACT OF
THE CASE THE EXISTENCE OF THE PRIOR, REGISTERED 1992
DEED OF REAL ESTATE AND CHATTEL MORTGAGE CREATING A
LIEN OVER THE LEVIED PROPERTIES, SUBJECT OF THE
ASSIGNMENT AGREEMENT DATED MARCH 20, 1997, THUS,
MATERIALLY CONTRIBUTING TO THE SAID COURTS
MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF
PETITIONERS CASE.
B. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN MAKING A FACTUAL FINDING THAT THE SAID
ASSIGNMENT AGREEMENT IS NOT REGISTERED, THE SAME BEING
CONTRARY TO THE FACTS ON RECORD, THUS, MATERIALLY
CONTRIBUTING TO THE SAID COURTS MISPERCEPTION AND
MISAPPRECIATION OF THE MERITS OF PETITIONERS CASE.
C. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN MAKING A FACTUAL FINDING ON THE EXISTENCE OF AN
ATTACHMENT ON THE PROPERTIES SUBJECT OF INSTANT CASE,
THE SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS,
MATERIALLY CONTRIBUTING TO THE SAID COURTS
MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF
PETITIONERS CASE.
D. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT THE SAID ASSIGNMENT AGREEMENT
AND THE DEED OF ASSIGNMENT ARE NOT BINDING ON
RESPONDENT SOLIDBANK WHO IS NOT A PARTY THERETO, THE
SAME BEING CONTRARY TO LAW AND ESTABLISHED
JURISPRUDENCE ON PRIOR REGISTERED MORTGAGE LIENS AND
ON PREFERENCE OF CREDITS.
E. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN FINDING THAT THE AFOREMENTIONED ASSIGNMENT
AGREEMENT AND DEED OF ASSIGNMENT ARE SHAM, SIMULATED,
OF DUBIOUS CHARACTER, AND WERE MADE IN BAD FAITH AND IN
FRAUD OF CREDITORS, PARTICULARLY RESPONDENT
SOLIDBANK, THE SAME BEING IN COMPLETE DISREGARD OF, VIZ:
(1) THE LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR,
REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF
CREDITS, BY REASON OF WHICH THERE EXISTS NO CAUSAL
CONNECTION BETWEEN THE SAID CONTRACTS AND THE
PROCEEDINGS IN CIVIL CASE NO. 96-80083; (2) THAT THE ASIAN
DEVELOPMENT BANK WILL NOT OR COULD NOT HAVE AGREED
TO A SHAM; SIMULATED, DUBIOUS AND FRAUDULENT
TRANSACTION; AND (3) THAT RESPONDENT SOLIDBANKS
BIGGEST STOCKHOLDER, THE BANK OF NOVA SCOTIA, WAS A
MAJOR BENEFICIARY OF THE ASSIGNMENT AGREEMENT IN
QUESTION.
F. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT PETITIONER IS WITHOUT LEGAL
CAPACITY TO SUE AND SEEK REDRESS FROM PHILIPPINE
COURTS, IT BEING THE CASE THAT SECTION 133 OF THE
CORPORATION CODE IS WITHOUT APPLICATION TO PETITIONER,
AND IT BEING THE CASE THAT THE SAID COURT MERELY RELIED
ON SURMISES AND CONJECTURES IN OPINING THAT PETITIONER
INTENDS TO DO BUSINESS IN THE PHILIPPINES.
G. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT RESPONDENT MARCOPPER, PLACER
DOME, INC., AND PETITIONER ARE ONE AND THE SAME ENTITY,
THE SAME BEING WITHOUT FACTUAL OR LEGAL BASIS.
H. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING PETITIONER GUILTY OF FORUM SHOPPING, IT
BEING CLEAR THAT NEITHER LITIS PENDENTIANOR RES
JUDICATA MAY BAR THE INSTANT REIVINDICATORY ACTION, AND
IT BEING CLEAR THAT AS THIRD-PARTY CLAIMANT, THE LAW
AFFORDS PETITIONER THE RIGHT TO FILE SUCH REIVINDICATORY
ACTION.
I. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN RENDERING A DECISION WHICH IN EFFECT SERVES AS
JUDGMENT ON THE MERITS OF THE CASE.
J. THE SHERIFFS LEVY AND SALE, THE SHERIFFS CERTIFICATE OF
SALE DATED OCTOBER 12, 1998, THE RTC-MANILA ORDER DATED
FEBRUARY 12, 1999, AND THE RTC-BOAC ORDER DATED
NOVEMBER 25, 1998 ARE NULL AND VOID.
K. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN AFFIRMING THE DENIAL BY THE RTC-BOAC OF
PETITIONERS APPLICATION FOR PRELIMINARY INJUNCTION, THE
SAME BEING IN TOTAL DISREGARD OF PETITIONERS RIGHT
AS ASSIGNEE OF A PRIOR, REGISTERED MORTGAGE LIEN, AND IN
DISREGARD OF THE LAW AND JURISPRUDENCE ON PREFERENCE
OF CREDIT."
In its petition, petitioner alleges that it is not doing business in the Philippines and
characterizes its participation in the assignment contracts (whereby Marcoppers assets
where transferred to it) as mere isolated acts that cannot foreclose its right to sue in
local courts. Petitioner likewise maintains that the two assignment contracts, although
executed during the pendency of Civil Case No. 96-80083 in the RTC of Manila, are
not fraudulent conveyances as they were supported by valuable
considerations. Moreover, they were executed in connection with prior transactions that
took place as early as 1992 which involved ADB, a reputable financial
institution. Petitioner further claims that when it paid Marcoppers obligation to ADB, it
stepped into the latters shoes and acquired its (ADBS) rights, titles, and interests under
the Deed of Real Estate and Chattel Mortgage. Lastly, petitioner asserts its existence
as a corporation, separate and distinct from Placer Dome and Marcopper.
In its comment, Solidbank avers that: a) petitioner is doing business in the
Philippines and this is evidenced by the huge investment it poured into the assignment
contracts; b) granting that petitioner is not doing business in the Philippines, the nature
of its transaction reveals an intention to do business or to begin a series of transaction
in the country; c) petitioner, Marcopper and Placer Dome are one and the same entity,
petitioner being then a wholly-owned subsidiary of Placer Dome, which, in turn, owns
40% of Marcopper; d) the timing under which the assignments contracts were executed
shows that petitioners purpose was to defeat any judgment favorable to it (Solidbank);
and e) petitioner violated the rule on forum shopping since the object of Civil Case No.
98-13 (at RTC, Boac, Marinduque) is similar to the other cases filed by Marcopper in
order to forestall the sale of the levied properties.
Marcopper, in a separate comment, states that it is merely a nominal party to the
present case and that its principal concerns are being ventilated in another case.
The petition is impressed with merit.
Crucial to the outcome of this case is our resolution of the following
issues: 1) Does petitioner have the legal capacity to sue? 2) Was the Deed of
Assignment between Marcopper and petitioner executed in fraud of creditors? 3) Are
petitioner MR Holdings, Ltd., Placer Dome, and Marcopper one and the same entity?
and 4) Is petitioner guilty of forum shopping?
We shall resolve the issues in seriatim.
I
The Court of Appeals ruled that petitioner has no legal capacity to sue in the
Philippine courts because it is a foreign corporation doing business here without
license. A review of this ruling does not pose much complexity as the principles
governing a foreign corporations right to sue in local courts have long been settled by
our Corporation Law.[17] These principles may be condensed in three statements, to
wit: a) if a foreign corporation does business in the Philippines without a license,
it cannot sue before the Philippine courts;[18] b) if a foreign corporation is not doing
business in the Philippines, it needs no license to sue before Philippine courts on an
isolated transaction[19]or on a cause of action entirely independent of any business
transaction;[20] and c) if a foreign corporation does business in the Philippines with the
required license, it can sue before Philippine courts on any transaction. Apparently, it
is not the absence of the prescribed license but the doing (of) business in the
Philippines without such license which debars the foreign corporation from access to
our courts.[21]
The task at hand requires us to weigh the facts vis--vis the established
principles. The question whether or not a foreign corporation is doing business is
dependent principally upon the facts and circumstances of each particular case,
considered in the light of the purposes and language of the pertinent statute or statutes
involved and of the general principles governing the jurisdictional authority of the state
over such corporations.[22]
Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the
Philippines, is silent as to what constitutes doing or transacting business in the
Philippines. Fortunately, jurisprudence has supplied the deficiency and has held that
the term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some
of the functions normally incident to, and in progressive prosecution of, the purpose
and object for which the corporation was organized. [23] In Mentholatum Co. Inc., vs.
Mangaliman,[24] this Court laid down the test to determine whether a foreign company
is doing business, thus:
x x x The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another. (Traction Cos. vs. Collectors of Int. Revenue [C.C.A., Ohio], 223 F.
984,987.) x x x.
The traditional case law definition has metamorphosed into a statutory definition,
having been adopted with some qualifications in various pieces of legislation in our
jurisdiction. For instance, Republic Act No. 7042, otherwise known as the Foreign
Investment Act of 1991, defines doing business as follows:
d) The phrase doing business shall include soliciting orders, service
contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods
totalling one hundred eight(y) (180) days or more; participating in the
management, supervision or control of any domestic business, firm, entity,
or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works; or the exercise of
some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the
business organization; Provided, however, That the phrase doing
business shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to
do business, and/or the exercise of rights as such investor, nor having a
nominee director or officer to represent its interests in such corporation,
nor appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account.
(Emphasis supplied)[25]
Likewise, Section 1 of Republic Act No. 5455,[26] provides that:
SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase doing business
shall include soliciting orders, purchases, service contracts, opening offices, whether
called liaison offices or branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay in the Philippines for a
period or periods totaling one hundred eighty days or more; participating in the
management, supervision or control of any domestic business firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the
purpose and object of the business organization.
There are other statutes[27] defining the term doing business in the same tenor as those
above-quoted, and as may be observed, one common denominator among them all is
the concept of continuity.
In the case at bar, the Court of Appeals categorized as doing business petitioners
participation under the Assignment Agreement and the Deed of Assignment. This is
simply untenable. The expression doing business should not be given such a strict and
literal construction as to make it apply to any corporate dealing whatever.[28] At this
early stage and with petitioners acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended to continue the business
for which it was organized. It may not be amiss to point out
that the purpose or business for which petitioner was organized is not
discernible in the records. No effort was exerted by the Court of Appeals to
establish the nexus between petitioners business and the acts supposed to
constitute doing business. Thus, whether the assignment contracts were
incidental to petitioners business or were continuation thereof is beyond
determination. We cannot apply the case cited by the Court of Appeals, Far East Intl
Import and Export Corp. vs. Nankai Kogyo Co., Ltd.,[29] which held that a single act may
still constitute doing business if it is not merely incidental or casual, but is of such
character as distinctly to indicate a purpose on the part of the foreign corporation to do
other business in the state. In said case, there was an express admission from an
official of the foreign corporation that he was sent to the Philippines to look into the
operation of mines, thereby revealing the foreign corporations desire to continue
engaging in business here. But in the case at bar, there is no evidence of similar desire
or intent. Unarguably, petitioner may, as the Court of Appeals suggested, decide to
operate Marcoppers mining business, but, of course, at this stage, that is a mere
speculation. Or it may decide to sell the credit secured by the mining properties to an
offshore investor, in which case the acts will still be isolated transactions. To see
through the present facts an intention on the part of petitioner to start a series of
business transaction is to rest on assumptions or probabilities falling short of
actual proof. Courts should never base its judgments on a state of facts so
inadequately developed that it cannot be determined where inference ends and
conjecture begins.
Indeed, the Court of Appeals holding that petitioner was determined to be doing
business in the Philippines is based mainly on conjectures and speculation. In
concluding that the unmistakable intention of petitioner is to continue Marcoppers
business, the Court of Appeals hangs on the wobbly premise that there is no other way
for petitioner to recover its huge financial investments which it poured into Marcoppers
rehabilitation without it (petitioner) continuing Marcoppers business in the
country.[30] This is a mere presumption. Absent overt acts of petitioner from which we
may directly infer its intention to continue Marcoppers business, we cannot give our
concurrence. Significantly, a view subscribed upon by many authorities is that the mere
ownership by a foreign corporation of a property in a certain state, unaccompanied by
its active use in furtherance of the business for which it was formed, is insufficient
in itself to constitute doing business.[31] In Chittim vs. Belle Fourche Bentonite Products
Co.,[32] it was held that even if a foreign corporation purchased
and took conveyances ofa mining claim, did some assessment work thereon,
and endeavored to sell it, its acts will not constitute the doing of business so as
to subject the corporation to the statutory requirements for the transacting of
business. On the same vein, petitioner, a foreign corporation, which becomes the
assignee of mining properties, facilities and equipment cannot be automatically
considered as doing business, nor presumed to have the intention of engaging in
mining business.
One important point. Long before petitioner assumed Marcoppers debt to ADB
and became their assignee under the two assignment contracts, there already existed
a Support and Standby Credit Agreement between ADB and Placer Dome whereby the
latter bound itself to provide cash flow support for Marcoppers payment of its obligations
to ADB. Plainly, petitioners payment of US$ 18,453, 450.12 to ADB was more of a
fulfillment of an obligation under the Support and Standby Credit Agreement rather than
an investment. That petitioner had to step into the shoes of ADB as Marcoppers creditor
was just a necessary legal consequence of the transactions that transpired. Also, we
must hasten to add that the Support and Standby Credit Agreement was executed four
(4) years prior to Marcoppers insovency, hence, the alleged intention of petitioner to
continue Marcoppers business could have no basis for at that time, Marcoppers fate
cannot yet be determined.
In the final analysis, we are convinced that petitioner was engaged only in isolated
acts or transactions. Single or isolated acts, contracts, or transactions of foreign
corporations are not regarded as a doing or carrying on of business. Typical examples
of these are the making of a single contract, sale, sale with the taking of a note and
mortgage in the state to secure payment therefor, purchase, or note, or the mere
commission of a tort.[33] In these instances, there is no purpose to do any other
business within the country.
II
Solidbank contends that from the chronology and timing of events, it is evident
that there existed a pre-set pattern of response on the part of Marcopper to defeat
whatever court ruling that may be rendered in favor of Solidbank.
We are not convinced.
While it may appear, at initial glance, that the assignment contracts are in the
nature of fraudulent conveyances, however, a closer look at the events that transpired
prior to the execution of those contracts gives rise to a different conclusion. The obvious
flaw in the Court of Appeals Decision lies in its constricted view of the facts obtaining
in the case. In its factual narration, the Court of Appeals definitely left out some
events. We shall see later the significance of those events.
Article 1387 of the Civil Code of the Philippines provides:
Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous
title are presumed to have been entered into in fraud of creditors, when the donor did
not reserve sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued. The decision or attachment need not
refer to the property alienated, and need not have been obtained by the party
seeking rescission.
In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by law and of evidence.
This article presumes the existence of fraud made by a debtor. Thus, in the
absence of satisfactory evidence to the contrary, an alienation of a property will be held
fraudulent if it is made after a judgment has been rendered against the debtor making
the alienation.[34] This presumption of fraud is not conclusive and may be rebutted by
satisfactory and convincing evidence. All that is necessary is to establish
affirmatively that the conveyance is made in good faith and for a sufficient and
valuable consideration.[35]
The Assignment Agreement and the Deed of Assignment were executed for
valuable considerations. Patent from the Assignment Agreement is the fact that
petitioner assumed the payment of US$ 18,453,450.12 to ADB in satisfaction of
Marcoppers remaining debt as of March 20, 1997.[36] Solidbank cannot deny this fact
considering that a substantial portion of the said payment, in the sum of US$
13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its major
stockholder.[37]
The facts of the case so far show that the assignment contracts were executed in
good faith. The execution of the Assignment Agreement on Macrh 20, 1997 and the
Deed of Assignment on December 8,1997 is not the alpha of this case.While the
execution of these assignment contracts almost coincided with the rendition on May 7,
1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC, however,
there was no intention on the part of petitioner to defeat Solidbanks claim. It bears
reiterating that as early as November 4, 1992, Placer Dome had already bound itself
under a Support and Standby Credit Agreement to provide Marcopper with cash flow
support for the payment to ADB of its obligations. When Marcopper ceased operations
on account of disastrous mine tailings spill into the Boac River and ADB pressed for
payment of the loan, Placer Dome agreed to have its subsidiary, herein petitioner, paid
ADB the amount of US $18,453,450.12. Thereupon, ADB and Marcopper executed,
respectively, in favor of petitioner an Assignment Agreement and a Deed of
Assignment. Obviously, the assignment contracts were connected with transactions
that happened long before the rendition in 1997 of the Partial Judgment in Civil Case
No. 96-80083 by the Manila RTC. Those contracts cannot be viewed in isolation. If we
may add, it is highly inconceivable that ADB, a reputable international financial
organization, will connive with Marcopper to feign or simulate a contract in 1992 just to
defraud Solidbank for its claim four years thereafter. And it is equally incredible for
petitioner to be paying the huge sum of US $ 18, 453, 450.12 to ADB only for the
purpose of defrauding Solidbank of the sum ofP52,970.756.89.
It is said that the test as to whether or not a conveyance is fraudulent is -- does it
prejudice the rights of creditors?[38] We cannot see how Solidbanks right was prejudiced
by the assignment contracts considering that substantially all of Marcoppers properties
were already covered by the registered Deed of Real Estate and Chattel Mortgage
executed by Marcopper in favor of ADB as early as November 11, 1992. As such,
Solidbank cannot assert a better right than ADB, the latter being a preferred creditor. It
is basic that mortgaged properties answer primarily for the mortgaged credit, not for the
judgment credit of the mortgagors unsecured creditor. Considering that petitioner
assumed Marcoppers debt to ADB, it follows that Solidbanks right as judgment creditor
over the subject properties must give way to that of the former.
III
The record is lacking in circumstances that would suggest that petitioner
corporation, Placer Dome and Marcopper are one and the same entity. While
admittedly, petitioner is a wholly-owned subsidiary of Placer Dome, which in turn,
which, in turn, was then a minority stockholder of Marcopper, however, the mere fact
that a corporation owns all of the stocks of another corporation, taken alone is
not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiarys separate existence shall be respected, and the
liability of the parent corporation as well as the subsidiary will be confined to those
arising in their respective business.[39]
The recent case of Philippine National Bank vs. Ritratto Group Inc.,[40] outlines the
circumstances which are useful in the determination of whether a subsidiary is but a
mere instrumentality of the parent-corporation, to wit:
(a) The parent corporation owns all or most of the capital stock of the
subsidiary.
(b) The parent and subsidiary corporations have common directors or
officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses
of the subsidiary.
(g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
corporation.
(h) In the papers of the parent corporation or in the statements of its officers,
the subsidiary is described as a department or division of the parent
corporation, or its business or financial responsibility is referred to as the
parent corporations own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in
the interest of the subsidiary, but take their orders from the parent
corporation.
(k) The formal legal requirements of the subsidiary are not observed.
In this catena of circumstances, what is only extant in the records is the
matter of stock ownership. There are no other factors indicative that petitioner is
a mere instrumentality of Marcopper or Placer Dome. The mere fact that Placer
Dome agreed, under the terms of the Support and Standby Credit Agreement to provide
Marcopper with cash flow support in paying its obligations to ADB, does not mean that
its personality has merged with that of Marcopper. This singular undertaking, performed
by Placer Dome with its own stockholders in Canada and elsewhere, is not a sufficient
ground to merge its corporate personality with Marcopper which has its own set of
shareholders, dominated mostly by Filipino citizens. The same view applies to
petitioners payment of Marcoppers remaining debt to ADB.
With the foregoing considerations and the absence of fraud in the transaction of
the three foreign corporations, we find it improper to pierce the veil of corporate fiction
that equitable doctrine developed to address situations where the corporate personality
of a corporation is abused or used for wrongful purposes.
IV
On the issue of forum shopping, there could have been a violation of the rules
thereon if petitioner and Marcopper were indeed one and the same entity. But since
petitioner has a separate personality, it has the right to pursue its third-party claim by
filing the independent reivindicatory action with the RTC of Boac, Marinduque, pursuant
to Rule 39, Section 16 of the 1997 Rules of Civil Procedures. This remedy has been
recognized in a long line of cases decided by this Court.[41] In Rodriguez vs. Court of
Appeals,[42] we held:
. . . It has long been settled in this jurisdiction that the claim of ownership of a third
party over properties levied for execution of a judgment presents no issue for
determination by the court issuing the writ of execution.
. . .Thus, when a property levied upon by the sheriff pursuant to a writ of execution is
claimed by third person in a sworn statement of ownership thereof, as prescribed by
the rules, an entirely different matter calling for a new adjudication arises. And
dealing as it does with the all important question of title, it is reasonable to require the
filing of proper pleadings and the holding of a trial on the matter in view of the
requirements of due process.
. . . In other words, construing Section 17 of Rule 39 of the Revised Rules of Court
(now Section 16 of the 1997 Rules of Civil Procedure), the rights of third-party
claimants over certain properties levied upon by the sheriff to satisfy the
judgment may not be taken up in the case where such claims are presented but in a
separate and independent action instituted by the claimants. (Emphasis supplied)
This reivindicatory action has for its object the recovery of ownership or
possession of the property seized by the sheriff, despite the third party claim, as well
as damages resulting therefrom, and it may be brought against the sheriff and such
other parties as may be alleged to have connived with him in the supposedly wrongful
execution proceedings, such as the judgment creditor himself. Such action is an
entirely separate and distinct action from that in which execution has been
issued.Thus, there being no identity of parties and cause of action between Civil Case
No. 98-13 (RTC, Boac) and those cases filed by Marcopper, including Civil Case No.
96-80083 (RTC, Manila) as to give rise to res judicata or litis pendentia, Solidbanks
allegation of forum-shopping cannot prosper.[43]
All considered, we find petitioner to be entitled to the issuance of a writ of
preliminary injunction. Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides:
SEC. 3 Grounds for issuance of preliminary injunction. A preliminary injunction may
be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance
of the act or acts complained of, or in requiring the performance of an
act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the acts or
acts complained of during the litigation would probably work injustice to
the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject
of the action or proceeding, and tending to render the judgment
ineffectual.
Petitioners right to stop the further execution of the properties covered by the
assignment contracts is clear under the facts so far established. An execution can be
issued only against a party and not against one who did not have his day in court. [44]The
duty of the sheriff is to levy the property of the judgment debtor not that of a third
person. For, as the saying goes, one mans goods shall not be sold for another man's
debts.[45] To allow the execution of petitioners properties would surely work injustice to
it and render the judgment on the reivindicatory action, should it be favorable,
ineffectual. In Arabay, Inc., vs. Salvador,[46]this Court held that an injunction is a proper
remedy to prevent a sheriff from selling the property of one person for the purpose of
paying the debts of another; and that while the general rule is that no court has authority
to interfere by injunction with the judgments or decrees of another court of equal or
concurrent or coordinate jurisdiction, however, it is not so when a third-party claimant
is involved. We quote the instructive words of Justice Querube C. Makalintal in Abiera
vs. Court of Appeals,[47] thus:
The rationale of the decision in the Herald Publishing Company case [48] is peculiarly
applicable to the one before Us, and removes it from the general doctrine enunciated
in the decisions cited by the respondents and quoted earlier herein.
1. Under Section 17 of Rule 39 a third person who claims property levied upon on
execution may vindicate such claim by action. Obviously a judgment rendered in his
favor, that is, declaring him to be the owner of the property, would not constitute
interference with the powers or processes of the court which rendered the judgment
to enforce which the execution was levied.If that be so and it is so because the
property, being that of a stranger, is not subject to levy then an interlocutory
order such as injunction, upon a claim and prima facie showing of ownership
by the claimant, cannot be considered as such interference either.
WHEREFORE, the petition is GRANTED. The assailed Decision dated January
8, 1999 and the Resolution dated March 29, 1999 of the Court of Appeals in CA G.R.
No. 49226 are set aside. Upon filing of a bond of P1,000,000.00, respondent sheriffs
are restrained from further implementing the writ of execution issued in
Civil Case No. 96-80083 by the RTC, Branch 26, Manila, until further orders from this
Court. The RTC, Branch 94, Boac, Marinduque, is directed to dispose of Civil Case No.
98-13 with dispatch.
SO ORDERED.

FIRST DIVISION
[G.R. No. 159586. July 26, 2004]
EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J.
WENCESLAO, petitioners, vs. INGENIEUBURO BIRKHAHN + NOLTE,
Ingeniurgesellschaft mbh and HEERS & BROCKSTEDT GMBH &
CO., respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this Petition for Review under Rule 45 of the Rules of Court is the
Decision[1] of the Court of Appeals dated May 15, 2003, which sustained the Order of
the Regional Trial Court of Angeles City, Branch 61, dated June 28, 2001, and its
subsequent Resolution dated August 3, 2003 denying petitioners motion for
reconsideration.
European Resources and Technologies Inc. (hereinafter ERTI), a corporation
organized and existing under the laws of the Republic of the Philippines, is joined by
Delfin J. Wenceslao as petitioner in this case. Ingenieuburo Birkhan + Nolte
Ingiurgesellschaft mbh and Heers & Brockstedt Gmbh & Co. are German corporations
who are respondents in this case and shall be collectively referred to as the German
Consortium.
The German Consortium tendered and submitted its bid to the Clark Development
Corporation (CDC) to construct, operate and manage
the Integrated Waste Management Center at the Clark Special Economic Zone
(CSEZ). CDC accepted the German Consortiums bid and awarded the contract to
it. On October 6, 1999, CDC and the German Consortium executed the Contract for
Services[2] which embodies the terms and conditions of their agreement.
The Contract for Services provides that the German Consortium shall be
empowered to enter into a contract or agreement for the use of the integrated waste
management center by corporations, local government units, entities, and persons not
only within the CSEZ but also outside. For waste collected within the CSEZ, the
German Consortium may impose a tipping fee per ton of waste collected from locators
and residents of the CSEZ, which fees shall be subject to the schedule agreed upon by
the parties and specified in the Contract for Services. For its operations outside of the
CSEZ, the German Consortium shall pay CDC US$1.50 per ton of non-hazardous solid
waste collected.[3] The CDC shall guarantee that nineteen thousand eighteen hundred
(19,800) tons per year of solid waste volume shall be collected from inside and outside
the CSEZ.[4] The contract has a term of twenty-five (25) years,[5] during which time the
German Consortium shall operate the waste management center on a day-to-day
basis.[6]
Article VIII, Section 7 of the Contract for Services provides that the German
Consortium shall undertake to organize a local corporation as its representative for this
project. On April 18, 2000, the German Consortium entered into a Joint Venture with
D.M. Wenceslao and Associates, Inc. (DMWAI) and Ma. Elena B. Villarama (doing
business as LBV and Associates), embodied in a Memorandum of
Understanding[7] (MOU) signed by the parties.Under the MOU, the parties agreed to
jointly form a local corporation to which the German Consortium shall assign its rights
under the Contract for Services. Pursuant to this agreement, petitioner European
Resources and Technologies, Inc. was incorporated. The parties likewise agreed to
prepare and finalize a Shareholders Agreement within one (1) month from the execution
of the MOU, which shall provide that the German Consortium shall own fifteen percent
(15%) of the equity in the joint venture corporation, DMWAI shall own seventy percent
(70%) and LBV&A shall own fifteen percent (15%). In the event that the parties fail to
execute the Shareholders Agreement, the MOU shall be considered null and void. [8]
On August 1, 2000, without the Shareholders Agreement having been executed,
the German Consortium and petitioner ERTI entered into a Memorandum of Agreement
(MOA)[9] whereby the German Consortium ceded its rights and obligations under the
Contract for Services in favor of ERTI and assigned unto ERTI, among others, its
license from CDC to engage in the business of providing environmental services
needed in the CSEZ in connection with the waste management within the CSEZ and
other areas.[10] Likewise, the parties agreed that should there be a disagreement
between or among them relative to the interpretation or implementation of the MOA and
the collateral documents including but not limited to the Contract for Services between
the German Consortium and CDC, the dispute shall be referred to a panel of
arbitrators.[11]
On December 11, 2000, ERTI received a letter from BN Consultants Philippines,
Inc., signed by Mr. Holger Holst for and on behalf of the German Consortium, [12] stating
that the German Consortiums contract with DMWAI, LBV&A and ERTI has been
terminated or extinguished on the following grounds: (a) the CDC did not give its
approval to the Consortiums request for the approval of the assignment or transfer by
the German Consortium in favor of ERTI of its rights and interests under the Contract
for Services; (b) the parties failed to prepare and finalize the Shareholders Agreement
pursuant to the provision of the MOU; (c) there is no more factual or legal basis for the
joint venture to continue; and (d) with the termination of the MOU, the MOA is also
deemed terminated or extinguished.
Attached to the letter was a copy of the letter of the CDC, [13] stating that the
German Consortiums assignment of an eighty-five percent (85%) majority interest to
another party violated its representation to undertake both the financial and technical
aspects of the project. The dilution of the Consortiums interest in ERTI is a substantial
modification of the Consortiums representations which were used as bases for the
award of the project to it.
On February 20, 2001, petitioner ERTI, through counsel, sent a letter to CDC
requesting for the reconsideration of its disapproval of the agreement between ERTI
and the German Consortium.
Before CDC could act upon petitioner ERTIs letter, the German Consortium filed
a complaint for injunction against herein petitioners before
the Regional Trial Court of Angeles City, Branch 61, docketed as Civil Case No.
10049. The German Consortium claimed that petitioner ERTIs continued
misrepresentation as to their right to accept solid wastes from third parties for
processing at the waste management center will cause irreparable damage to the
Consortium and its exclusive right to operate the waste management center at the
CSEZ. Moreover, petitioner ERTIs acts destroy the Consortiums credibility and
undermine customer confidence in it. Hence, the German Consortium prayed that a
writ of temporary restraining order be issued against petitioner ERTI and, after hearing,
a writ of preliminary injunction be likewise issued ordering petitioner ERTI to cease and
desist from misrepresenting to third parties or the public that it has any right or interest
in the waste management center at CSEZ.[14]
Petitioners filed their Opposition to the application for preliminary injunction
on February 7, 2001. The following day, February 8, 2001, petitioners sent
respondents, through Mr. Holger Holst, a letter demanding that the parties proceed to
arbitration in accordance with Section 17 of the MOA. At the hearings on the application
for injunction, petitioners objected to the presentation of evidence on the ground that
the trial court had no jurisdiction over the case since the German Consortium was
composed of foreign corporations doing business in the country without a
license. Moreover, the MOA between the parties provides that the dispute should be
referred to arbitration.
The trial court overruled the objection and proceeded with the hearing. On June
28, 2001, the trial court issued an Order granting the writ of preliminary
injunction.[15] Petitioners filed a motion for reconsideration, which was denied in a
Resolution dated November 21, 2001.
On January 17, 2002, petitioners filed a petition for certiorari and prohibition under
Rule 65 of the Rules of Court before the Court of Appeals, assailing the trial courts
Orders dated June 28, 2001 and November 21, 2001.
Meanwhile, on February 11, 2002, the temporary restraining order issued was
lifted in view of respondents failure to file sufficient bond.[16] On September 6, 2002, all
proceedings in Civil Case No. 10049 were suspended until the petition for certiorari
pending before the Court of Appeals shall have been resolved.[17]
On May 15, 2003, the Court of Appeals dismissed the petition for
certiorari. Petitioners Motion for Reconsideration was denied in a Resolution
dated August 25, 2003.
Hence, this petition arguing that the Court of Appeals committed reversible error
in:
(a) Ruling that petitioners are estopped from assailing the capacity of the
respondents to institute the suit for injunction
(b) Ruling that respondents are entitled to an injunctive writ.
(c) Not holding that the dispute is covered by the arbitration clause in the
memorandum of agreement.
(d) Issuing the writ of preliminary injunction that is tantamount to a decision of
the case on the merits.[18]
The petition is partly meritorious.
There is no general rule or governing principle laid down as to what constitutes
doing or engaging in or transacting business in the Philippines. Thus, it has often been
held that a single act or transaction may be considered as doing business when a
corporation performs acts for which it was created or exercises some of the functions
for which it was organized.[19] We have held that the act of participating in a bidding
process constitutes doing business because it shows the foreign corporations intention
to engage in business in the Philippines. In this regard, it is the performance by a
foreign corporation of the acts for which it was created, regardless of volume of
business, that determines whether a foreign corporation needs a license or not. [20]
Consequently, the German Consortium is doing business in
the Philippines without the appropriate license as required by our laws. By participating
in the bidding conducted by the CDC for the operation of the waste management center,
the German Consortium exhibited its intent to transact business in
the Philippines. Although the Contract for Services provided for the establishment of a
local corporation to serve as respondents representative, it is clear from the other
provisions of the Contract for Services as well as the letter by the CDC containing the
disapproval that it will be the German Consortium which shall manage and conduct the
operations of the waste management center for at least twenty-five years. Moreover,
the German Consortium was allowed to transact with other entities outside the CSEZ
for solid waste collection. Thus, it is clear that the local corporation to be established
will merely act as a conduit or extension of the German Consortium.
As a general rule, unlicensed foreign non-resident corporations cannot file suits
in the Philippines. Section 133 of the Corporation Code specifically provides:
SECTION 133. No foreign corporation transacting business in the Philippines without
a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines,
but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.
A corporation has legal status only within the state or territory in which it was
organized. For this reason, a corporation organized in another country has no
personality to file suits in the Philippines. In order to subject a foreign corporation doing
business in the country to the jurisdiction of our courts, it must acquire a license from
the Securities and Exchange Commission (SEC) and appoint an agent for service of
process. Without such license, it cannot institute a suit in the Philippines.[21]
However, there are exceptions to this rule. In a number of cases,[22] we have
declared a party estopped from challenging or questioning the capacity of an
unlicensed foreign corporation from initiating a suit in our courts. In the case
of Communication Materials and Design, Inc. v. Court of Appeals,[23] a foreign
corporation instituted an action before our courts seeking to enjoin a local corporation,
with whom it had a Representative Agreement, from using its corporate name, letter
heads, envelopes, sign boards and business dealings as well as the foreign
corporations trademark. The case arose when the foreign corporation discovered that
the local corporation has violated certain contractual commitments as stipulated in their
agreement. In said case, we held that a foreign corporation doing business in
the Philippines without license may sue in Philippine Courts a Philippine citizen or entity
that had contracted with and benefited from it.
Hence, the party is estopped from questioning the capacity of a foreign
corporation to institute an action in our courts where it had obtained benefits from its
dealings with such foreign corporation and thereafter committed a breach of or sought
to renege on its obligations. The rule relating to estoppel is deeply rooted in the axiom
of commodum ex injuria sua non habere debetno person ought to derive any advantage
from his own wrong.
In the case at bar, petitioners have clearly not received any benefit from its
transactions with the German Consortium. In fact, there is no question that petitioners
were the ones who have expended a considerable amount of money and effort
preparatory to the implementation of the MOA. Neither do petitioners seek to back out
from their obligations under both the MOU and the MOA by challenging respondents
capacity to sue. The reverse could not be any more accurate. Petitioners are insisting
on the full validity and implementation of their agreements with the German Consortium.
To rule that the German Consortium has the capacity to institute an action against
petitioners even when the latter have not committed any breach of its obligation would
be tantamount to an unlicensed foreign corporation gaining access to our courts for
protection and redress. We cannot allow this without violating the very rationale for the
law prohibiting a foreign corporation not licensed to do business in the Philippines from
suing or maintaining an action in Philippine courts. The object of requiring a license is
not to prevent the foreign corporation from performing single acts, but to prevent it from
acquiring domicile for the purpose of business without taking the steps necessary to
render it amenable to suits in the local courts.[24] In other words, the foreign corporation
is merely prevented from being in a position where it takes the good without accepting
the bad.
On the issue of whether the respondents were entitled to the injunctive writ, the
petitioners claim that respondents right is not in esse but is rather a future right which
is contingent upon a judicial declaration that the MOA has been validly rescinded. The
Court of Appeals, in its decision, held that the MOA should be deemed subject to a
suspensive condition, that is, that CDCs prior written consent must be obtained for the
validity of the assignment.
This issue must be resolved in a separate proceeding. It must be noted that the
hearing conducted in the trial court was merely a preliminary hearing relating to the
issuance of the injunctive writ. In order to fully appreciate the facts of this case and the
surrounding circumstances relating to the agreements and contract involved, further
proof should be presented for consideration of the court. Likewise, corollary matters,
such as whether either of the parties is liable for damages and to what extent, cannot
be resolved with absolute certainty, thus rendering any decision we might make
incomplete as to fully dispose of this case.
More importantly, it is evident that CDC must be made a proper party in any case
which seeks to resolve the effectivity or ineffectivity of its disapproval of the assignment
made between petitioners and respondent German Consortium. Where, as in the
instant case, CDC is not impleaded as a party, any decision of the court which will
inevitably affect or involve CDC cannot be deemed binding on it.
For the same reason, petitioners assertion that the instant case should be referred
to arbitration pursuant to the provision of the MOA is untenable.
We have ruled in several cases that arbitration agreements are valid, binding,
enforceable and not contrary to public policy such that when there obtains a written
provision for arbitration which is not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in accordance with the terms
of their agreement.[25] In the case at bar, the MOA between petitioner ERTI and
respondent German Consortium provided:
17. Should there be a disagreement between or among the Parties relative to the
interpretation or implementation of this Agreement and the collateral documents
including but not limited to the Contract for Services between GERMAN
CONSORTIUM and CDC and the Parties cannot resolve the same by themselves, the
same shall be endorsed to a panel of arbitrators which shall be convened in
accordance with the process ordained under the Arbitration Law of the Republic of the
Philippines.[26]
Indeed, to brush aside a contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward. [27] But there are exceptions
to this rule. Even if there is an arbitration clause, there are instances when referral to
arbitration does not appear to be the most prudent action. The object of arbitration is to
allow the expeditious determination of a dispute. Clearly, the issue before us could not
be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration
proceedings and trial, or suspension of trial pending arbitration. [28]
As discussed earlier, the dispute between respondent German Consortium and
petitioners involves the disapproval by the CDC of the assignment by the German
Consortium of its rights under the Contract for Services to petitioner ERTI. Admittedly,
the arbitration clause is contained in the MOA to which only the German Consortium
and petitioner ERTI were parties. Even if the case is brought before an arbitration panel,
the decision will not be binding upon CDC who is a non-party to the arbitration
agreement. What is more, the arbitration panel will not be able to completely dispose
of all the issues of this case without including CDC in its proceedings. Accordingly, the
interest of justice would only be served if the trial court hears and adjudicates the case
in a single and complete proceeding.
Lastly, petitioners question the propriety of the issuance of writ of preliminary
injunction claiming that such is already tantamount to granting the main prayer of
respondents complaint without the benefit of a trial. Petitioners point out that the
purpose of a preliminary injunction is to prevent threatened or continuous irremediable
injury to some of the parties before their claims can be thoroughly studied and
decided. It cannot be used to railroad the main case and seek a judgment without a full-
blown trial as in the instant case.
The Court of Appeals ruled that since petitioners did not raise this issue during
the hearing on the application for preliminary injunction before the trial court, the same
cannot be raised for the first time on appeal and even in special civil actions for certiorari
as in this case.
At the outset, it must be noted that with the finding that the German Consortium
is without any personality to file the petition with the trial court, the propriety of the
injunction writ issued is already moot and academic. Even assuming for the sake of
argument that respondents have the capacity to file the petition, we find merit in the
issue raised by petitioners against the injunction writ issued.
 Before an injunctive writ can be issued, it is essential that the following requisites
are present: (1) there must be a right in esse or the existence of a right to be protected;
and (2) the act against which injunction to be directed is a violation of such
right.[29] The onus probandi is on movant to show that there exists a right to be
protected, which is directly threatened by the act sought to be enjoined. Further, there
must be a showing that the invasion of the right is material and substantial and that
there is an urgent and paramount necessity for the writ to prevent a serious damage. [30]
Thus, it is clear that for the issuance of the writ of preliminary injunction to be
proper, it must be shown that the invasion of the right sought to be protected is material
and substantial, that the right of complainant is clear and unmistakable and that there
is an urgent and paramount necessity for the writ to prevent serious damage. [31] At the
time of its application for an injunctive writ, respondents right to operate and manage
the waste management center, to the exclusion of or without any participation by
petitioner ERTI, cannot be said to be clear and unmistakable. The MOA executed
between respondents and petitioner ERTI has not yet been judicially declared as
rescinded when the complaint was lodged in court. [32] Hence, a cloud of doubt exists
over respondent German Consortiums exclusive right relating to the waste
management center.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 68923
dated May 15, 2003 is REVERSED and SET ASIDE. The Orders of the trial court
dated June 28, 2001 and November 21, 2001 are ANNULLED and SET ASIDE and
Civil Case No. 10049 is DISMISSED for lack of legal capacity of respondents to institute
the action. Costs against respondents.
SO ORDERED.
 SECOND DIVISION
In compliance with the terms of the third amendment of the contract, respondent Intra
CARGILL, INC., G.R. No. 168266 Strata Assurance Corporation (respondent) issued on 10 October 1990 a performance
Petitioner, bond[6] in the sum of P11,287,500 to guarantee NMCs delivery of the 10,500 tons of
Present: molasses, and a surety bond[7] in the sum of P9,978,125 to guarantee the repayment
of downpayment as provided in the contract.
CARPIO, J., Chairperson,
BRION, NMC was only able to deliver 219.551 metric tons of molasses out of the agreed 10,500
- versus - ABAD, metric tons. Thus, petitioner sent demand letters to respondent claiming payment under
VILLARAMA, JR.,* and the performance and surety bonds. When respondent refused to pay, petitioner filed on
PEREZ, JJ. 12 April 1991 a complaint[8] for sum of money against NMC and respondent.

Petitioner, NMC, and respondent entered into a compromise agreement,[9] which the
INTRA STRATA ASSURANCE Promulgated: trial court approved in its Decision[10] dated 13 December 1991. The compromise
CORPORATION, agreement provides that NMC would pay petitioner P3,000,000 upon signing of the
Respondent. March 15, 2010 compromise agreement and would deliver to petitioner 6,991 metric tons of molasses
x--------------------------------------------------x from 16-31 December 1991. However, NMC still failed to comply with its obligation
under the compromise agreement. Hence, trial proceeded against respondent.

On 23 November 1994, the trial court rendered a decision, the dispositive portion of
DECISION which reads:

CARPIO, J.: WHEREFORE, judgment is rendered in favor of plaintiff [Cargill,

The Case
This petition for review[1] assails the 26 May 2005 Decision[2] of the Court of Appeals in
CA-G.R. CV No. 48447.
The Facts
Petitioner Cargill, Inc. (petitioner) is a corporation organized and existing under the laws
of the State of Delaware, United States of America. Petitioner and Northern Mindanao
Corporation (NMC) executed a contract dated 16 August 1989 whereby NMC agreed
to sell to petitioner 20,000 to 24,000 metric tons of molasses, to be delivered from
1 January to 30 June 1990 at the price of $44 per metric ton. The contract provides that
petitioner would open a Letter of Credit with the Bank of Philippine Islands. Under the
red clause of the Letter of Credit, NMC was permitted to draw up to $500,000
representing the minimum price of the contract upon presentation of some documents.
The contract was amended three times: first, on 11 January 1990, increasing the
purchase price of the molasses to $47.50 per metric ton; [3] second, on 18 June 1990,
reducing the quantity of the molasses to 10,500 metric tons and increasing the price to
$55 per metric ton;[4] and third, on 22 August 1990, providing for the shipment of 5,250
metric tons of molasses on the last half of December 1990 through the first half of
January 1991, and the balance of 5,250 metric tons on the last half of January 1991
through the first half of February 1991.[5] The third amendment also required NMC to
put up a performance bond equivalent to $451,500, which represents the value of
10,500 metric tons of molasses computed at $43 per metric ton. The performance bond
was intended to guarantee NMCs performance to deliver the molasses during the
prescribed shipment periods according to the terms of the amended contract.
Inc.], ordering defendant INTRA STRATA ASSURANCE
CORPORATION to solidarily pay plaintiff the total amount of
SIXTEEN MILLION NINE HUNDRED NINETY-THREE THOUSAND
AND TWO HUNDRED PESOS (P16,993,200.00), Philippine
Currency, with interest at the legal rate from October 10, 1990 until
fully paid, plus attorneys fees in the sum of TWO HUNDRED
THOUSAND PESOS (P200,000.00), Philippine Currency and the
costs of the suit.
The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack of
merit.
SO ORDERED.[11]
On appeal, the Court of Appeals reversed the trial courts decision and dismissed the
complaint. Hence, this petition.
The Court of Appeals Ruling
The Court of Appeals held that petitioner does not have the capacity to file this suit
since it is a foreign corporation doing business in the Philippines without the requisite
license. The Court of Appeals held thatpetitioners purchases of molasses were in
pursuance of its basic business and not just mere isolated and incidental transactions.
The Issues
Petitioner raises the following issues:
 1. Whether petitioner is doing or transacting business in the
Philippines in contemplation of the law and established
jurisprudence;
2. Whether respondent is estopped from invoking the defense that
petitioner has no legal capacity to sue in the Philippines;
3. Whether petitioner is seeking a review of the findings of fact of the
Court of Appeals; and
4. Whether the advance payment of $500,000 was released to NMC
without the submission of the supporting documents required
in the contract and the red clause Letter of Credit from which
said amount was drawn.[12]
The Ruling of the Court
We find the petition meritorious.
Doing Business in the Philippines and Capacity to Sue
The principal issue in this case is whether petitioner, an unlicensed foreign corporation,
has legal capacity to sue before Philippine courts. Under Article 123 [13] of the
Corporation Code, a foreign corporation must first obtain a license and a certificate
from the appropriate government agency before it can transact business in
the Philippines. Where a foreign corporation does business in the Philippines without
the proper license, it cannot maintain any action or proceeding
before Philippine courts as provided under Section 133 of the Corporation Code:
Sec. 133. Doing business without a license. No foreign corporation
transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency
of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.
Thus, the threshold question in this case is whether petitioner was doing business in
the Philippines. The Corporation Code provides no definition for the phrase doing
business. Nevertheless, Section 1 of Republic Act No. 5455 (RA 5455), [14] provides
that:
x x x the phrase doing business shall include soliciting orders,
purchases, service contracts, opening offices, whether called liaison
offices or branches; appointing representatives or distributors who
are domiciled in the Philippines or who in any calendar year stay in
the Philippines for a period or periods totalling one hundred eighty
days or more; participating in the management, supervision or control
of any domestic business firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works, or the exercise of some
of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of
the business organization. (Emphasis supplied)
This is also the exact definition provided under Article 44 of the Omnibus Investments
Code of 1987.
Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of
1991, which repealed Articles 44-56 of Book II of the Omnibus Investments Code of
1987, enumerated not only the acts or activities which constitute doing business but
also those activities which are not deemed doing business. Section 3(d) of RA 7042
states:
[T]he phrase doing business shall include soliciting orders, service
contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase doing business shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account.
Since respondent is relying on Section 133 of the Corporation Code to bar petitioner
from maintaining an action in Philippine courts, respondent bears the burden of proving
that petitioners business activities in the Philippines were not just casual or occasional,
but so systematic and regular as to manifest continuity and permanence of activity to
constitute doing business in the Philippines. In this case, we find that respondent failed
to prove that petitioners activities in the Philippines constitute doing business as would
prevent it from bringing an action.
The determination of whether a foreign corporation is doing business in
the Philippines must be based on the facts of each case.[15] In the case
of Antam Consolidated, Inc. v. CA,[16] in which a foreign corporation filed an action for
collection of sum of money against petitioners therein for damages and loss sustained
for the latters failure to deliver coconut crude oil, the Court emphasized the importance
of the element of continuity of commercial activities to constitute doing business in the
Philippines. The Court held:
 In the case at bar, the transactions entered into by the respondent
with the petitioners are not a series of commercial dealings which
signify an intent on the part of the respondent to do business in the
Philippines but constitute an isolated one which does not fall under
the category of doing business. The records show that the only
reason why the respondent entered into the second and third
transactions with the petitioners was because it wanted to recover
the loss it sustained from the failure of the petitioners to deliver the
crude coconut oil under the first transaction and in order to give the
latter a chance to make good on their obligation. x x x
x x x The three seemingly different transactions were entered into by
the parties only in an effort to fulfill the basic agreement and in no
way indicate an intent on the part of the respondent to engage in a
continuity of transactions with petitioners which will categorize it as a
foreign corporation doing business in the Philippines. [17]
Similarly, in this case, petitioner and NMC amended their contract three times to give
a chance to NMC to deliver to petitioner the molasses, considering that NMC already
received the minimum price of the contract. There is no showing that the transactions
between petitioner and NMC signify the intent of petitioner to establish a continuous
business or extend its operations in the Philippines.
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule
I, that doing business does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of
rights as such investor;
2. Having a nominee director or officer to represent its interests in such corporation;
3. Appointing a representative or distributor domiciled in
the Philippines which transacts business in the representative's or distributor's own
name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not
on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training domestic
workers to operate it, and similar incidental services.
Most of these activities do not bring any direct receipts or profits to the foreign
corporation, consistent with the ruling of this Court in National Sugar Trading Corp. v.
CA[18] that activities within Philippine jurisdiction that do not create earnings or profits
to the foreign corporation do not constitute doing business in the Philippines.[19] In that
case, the Court held that it would be inequitable for the National Sugar Trading
Corporation, a state-owned corporation, to evade payment of a legitimate
indebtedness owing to the foreign corporation on the plea that the latter should have
obtained a license first before perfecting a contract with the Philippine government.
The Court emphasized that the foreign corporation did not sell sugar and derive income
from the Philippines, but merely purchased sugar from the Philippine government and
allegedly paid for it in full.
In this case, the contract between petitioner and NMC involved the purchase of
molasses by petitioner from NMC. It was NMC, the domestic corporation, which derived
income from the transaction and not petitioner. To constitute doing business, the
activity undertaken in the Philippines should involve profit-making.[20]Besides, under
Section 3(d) of RA 7042, soliciting purchases has been deleted from the enumeration
of acts or activities which constitute doing business.
Other factors which support the finding that petitioner is not doing business in the
Philippines are: (1) petitioner does not have an office in the Philippines; (2) petitioner
imports products from the Philippines through its non-exclusive local broker, whose
authority to act on behalf of petitioner is limited to soliciting purchases of products from
suppliers engaged in the sugar trade in the Philippines; and (3) the local broker is an
independent contractor and not an agent of petitioner. [21]
As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries,
Inc.:[22]
An exporter in one country may export its products to many foreign
importing countries without performing in the importing countries
specific commercial acts that would constitute doing business in the
importing countries. The mere act of exporting from ones own
country, without doing any specific commercial act within the territory
of the importing country, cannot be deemed as doing business in the
importing country. The importing country does not require jurisdiction
over the foreign exporter who has not yet performed any specific
commercial act within the territory of the importing country. Without
jurisdiction over the foreign exporter, the importing country cannot
compel the foreign exporter to secure a license to do business in the
importing country.
Otherwise, Philippine exporters, by the mere act alone of exporting their products, could
be considered by the importing countries to be doing business in those countries. This
will require Philippine exporters to secure a business license in every foreign country
where they usually export their products, even if they do not perform any specific
commercial act within the territory of such importing countries. Such a legal concept
will have deleterious effect not only on Philippine exports, but also on global trade.
To be doing or transacting business in the Philippines for
purposes of Section 133 of the Corporation Code, the foreign
corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the
 Philippine territory on a continuing basis in its own name and
for its own account. Actual transaction of business within the
Philippine territory is an essential requisite for
the Philippines toto acquire jurisdiction over a foreign
corporation and thus require the foreign corporation to secure
a Philippine business license. If a foreign corporation does not
transact such kind of business in the Philippines, even if it exports its
products to the Philippines, the Philippines has no jurisdiction to
require such foreign corporation to secure a Philippine business
license.[23] (Emphasis supplied)

In the present case, petitioner is a foreign company merely importing molasses from
a Philipine exporter. A foreign company that merely imports goods from a Philippine
exporter, without opening an office or appointing an agent in the Philippines, is not
doing business in the Philippines.

Review of Findings of Fact

The Supreme Court may review the findings of fact of the Court of Appeals which are
in conflict with the findings of the trial court.[24] We find that the Court of Appeals finding
that petitioner was doing business is not supported by evidence.

Furthermore, a review of the records shows that the trial court was correct in
holding that the advance payment of $500,000 was released to NMC in accordance
with the conditions provided under the red clause Letter of Credit from which
said amount was drawn. The Head of the International Operations Department of the
Bank of Philippine Islands testified that the bank would not have paid the beneficiary if
the required documents were not complete. It is a requisite in a documentary credit
transaction that the documents should conform to the terms and conditions of the letter
of credit; otherwise, the bank will not pay. The Head of the International Operations
Department of the Bank of Philippine Islands also testified that they received
reimbursement from the issuing bank for the $500,000 withdrawn by NMC. [25] Thus,
respondent had no legitimate reason to refuse payment under the performance and
surety bonds when NMC failed to perform its part under its contract with petitioner.
WHEREFORE , we GRANT the petition. We REVERSE the Decision dated 26 May
2005 of the Court of Appeals in CA-G.R. CV No. 48447. We REINSTATE the
Decision dated 23 November 1994 of the trial court.

SO ORDERED.
 Surecomp of its decision to discontinue with the agreement and to stop further
payments thereon. Consequently, for failure of Global to pay its obligations under the
Republic of the Philippines agreement despite demands, Surecomp filed a complaint for breach of contract with
Supreme Court damages before the Regional Trial Court (RTC) of Makati. The case was docketed as
Manila Civil Case No. 01-1278.[5]

SECOND DIVISION In its complaint, Surecomp alleged that it is a foreign corporation not doing business in
the Philippines and is suing on an isolated transaction. Pursuant to the agreement, it
GLOBAL BUSINESS HOLDINGS, INC. (formerly Global G.R. No. 173463 installed the System in ABCs computers for a consideration of US$298,000.00 as
Business Bank, Inc.), license fee. ABC also undertook to pay Surecomp professional services, which
Petitioner, included on-site support and development of interfaces, and annual maintenance fees
Present: for five (5) subsequent anniversaries, and committed to purchase one (1) or two (2)
VELASCO, JR., J.,* Remote Access solutions at discounted prices. In a separate transaction, ABC
NACHURA,** requested Surecomp to purchase on its behalf a software called MF Cobol Runtime
- versus - Acting Chairperson, with a promise to reimburse its cost. Notwithstanding the delivery of the product and
LEONARDO-DE CASTRO,*** the services provided, Global failed to pay and comply with its obligations under the
BRION,**** and agreement. Thus, Surecomp demanded payment of actual damages amounting to
MENDOZA, JJ. US$319,955.00 and an additional amount of US$227,610.00 for Globals unilateral
pretermination of the agreement, exemplary damages, attorneys fees and costs of
SURECOMP SOFTWARE, B.V., Promulgated: suit.[6]
Respondent.
October 13, 2010 Instead of filing an answer, Global filed a motion to dismiss based on two grounds: (1)
that Surecomp had no capacity to sue because it was doing business in
the Philippines without a license; and (2) that the claim on which the action was founded
was unenforceable under the Intellectual Property Code of the Philippines.[7]

On the first ground, Global argued that the contract entered into was not an isolated
transaction since the contract was for a period of 20 years. Furthermore, Global
stressed that it could not be held accountable for any breach as the agreement was
x----------------------------------------------------------------------------------x entered into between Surecomp and ABC. It had not, in any manner, taken part in the
negotiation and execution of the agreement but merely took over the operations of ABC
DECISION as a result of the merger. On the second ground, Global averred that the agreement,
being a technology transfer arrangement, failed to comply with Sections 87 and 88 of
NACHURA, J.: the Intellectual Property Code of the Philippines.[8]

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court, assailing the Decision[1] dated May 5, 2006 and the Resolution [2] dated July 10,
2006 of the Court of Appeals (CA) in CA-G.R. SP No. 75524.
The facts of the case are as follows:
In the interim, Global filed a motion for leave to serve written interrogatories to
Surecomp in preparation for the hearing on the motion to dismiss, attaching thereto its
written interrogatories.
After an exchange of pleadings on the motions filed by Global, on June 18, 2002, the
RTC issued an Order,[9]the pertinent portions of which read:

On March 29, 1999, respondent Surecomp Software, B.V. (Surecomp), a foreign
corporation duly organized and existing under the laws of the Netherlands, entered into
a software license agreement with Asian Bank Corporation (ABC), a domestic
corporation, for the use of its IMEX Software System (System) in the banks computer
system for a period of twenty (20) years.[3]
In July 2000, ABC merged with petitioner Global Business Holdings, Inc.
(Global),[4] with Global as the surviving corporation. When Global took over the
operations of ABC, it found the System unworkable for its operations, and informed
After a thorough and careful deliberation of the respective arguments
advanced by the parties in support of their positions in these two (2)
incidents, and since it cannot be denied that there is indeed a
contract entered into between the plaintiff [Surecomp] and the
defendant [Global], the latter as a successor in interest of the
merging corporation Asian Bank, defendant [Global] is estopped
from denying plaintiffs [Surecomps] capacity to sue it for alleged
breach of that contract with damages. Its argument that it was not
the one who actually contracted with the plaintiff [Surecomp] as it
was the merging Asian Bank which did, is of no moment as it does
 not relieve defendant Global Bank of its contractual obligation under
the Agreement on account of its undertaking under it:
x x x shall be responsible for all the liabilities and
obligations of ASIANBANK in the same manner as
if the Merged Bank had itself incurred such
liabilities or obligations, and any pending claim,
action or proceeding brought by or against
ASIANBANK may be prosecuted by or against the
Merged Bank. The right of creditors or liens upon
the property of ASIANBANK shall not be impaired
by the merger; provided that the Merged Bank
shall have the right to exercise all defenses, rights,
privileges, set-offs and counter-claims of every
kind and nature which ASIANBANK may have, or
with the Merged Bank may invoke under existing
laws.
It appearing however that the second ground relied upon by the
defendant [Global], i.e., that the cause of action of the plaintiff is
anchored on an unenforceable contract under the provision of the
Intellectual Property Code, will require a hearing before the motion
to dismiss can be resolved and considering the established
jurisprudence in this jurisdiction, that availment of mode of discovery
by any of the parties to a litigation, shall be liberally construed to the
end that the truth of the controversy on hand, shall be ascertained at
a less expense with the concomitant facility and expeditiousness, the
motion to serve written interrogatories upon the plaintiff [Surecomp]
filed by the defendant [Global] is GRANTED insofar as the alleged
unenforceability of the subject contract is concerned. Accordingly,
the latter is directed to serve the written interrogatories upon the
plaintiff [Surecomp], which is required to act on it in accordance with
the pertinent rule on the matter.
Necessarily, the resolution of the motion to dismiss is held in
abeyance until after a hearing on it is property conducted, relative to
the second ground aforementioned.
SO ORDERED.[10]
Surecomp moved for partial reconsideration, praying for an outright denial of the motion
to dismiss, while Global filed a motion for reconsideration. [11]
On November 27, 2002, the RTC issued an Order,[12] the fallo of which reads:
WHEREFORE, the Order of this Court dated 18 June 2002 is
modified. Defendants [Globals] Motion to Dismiss dated 17 October
2001 is denied on the two grounds therein alleged. Defendant
[Global] is given five (5) days from receipt of this Order within which
to file its Answer.
The resolution of defendants [Globals] Motion to Serve Written
Interrogatories is held in abeyance pending the filing of the Answer.
SO ORDERED.[13]
In partially modifying the first assailed Order, the RTC ratiocinated, viz.:
This court sees no reason to further belabor the issue on plaintiffs
capacity to sue since there is a prima facieshowing that defendant
entered into a contract with defendant and having done so, willingly,
it cannot now be made to raise the issue of capacity to sue [Merrill
Lynch Futures, Inc. v. CA, 211 SCRA 824]. That defendant was not
aware of plaintiffs lack of capacity to sue or that defendant did not
benefit from the transaction are arguments that are hardly supported
by the evidence already presented for the resolution of the Motion to
Dismiss.
As to the issue of unenforceability of the subject contract under the
Intellectual Property Code, this court finds justification in modifying
the earlier Order allowing the further presentation of evidence. It
appearing that the subject contract between the parties is an
executed, rather than an executory, contract the statute of frauds
therefore finds no application here.
xxxx
As to defendants Motion to Serve Written Interrogatories, this court
finds that resort to such a discovery mechanism while laudable is
premature as defendant has yet to file its Answer. As the case now
stands, the issues are not yet joined and the disputed facts are not
clear.[14]
Undaunted, Global filed a petition for certiorari with prayer for the issuance of a
temporary restraining order and/or writ of preliminary injunction under Rule 65 of the
Rules of Court before the CA, contending that the RTC abused its discretion and acted
in excess of its jurisdiction.[15]
On May 5, 2006, the CA rendered a Decision,[16] the dispositive portion of which reads:
WHEREFORE, premises considered, the instant petition
is DENIED. The assailed Orders dated June 18, 2002 and November
27, 2002 of the Regional Trial Court of Makati City, Branch 146, in
Civil Case No. 01-1278 are hereby AFFIRMED.
SO ORDERED.[17]
A motion for reconsideration was filed by Global. On July 10, 2006, the CA issued a
Resolution[18] denying the motion for reconsideration for lack of merit.
Hence, this petition.
Global presents the following issues for resolution: (1) whether a special civil action
for certiorari is the proper remedy for a denial of a motion to dismiss; and (2) whether
Global is estopped from questioning Surecomps capacity to sue.[19]
The petition is bereft of merit.
I Philippine courts a Filipino citizen or a Philippine entity that had contracted with and
An order denying a motion to dismiss is an interlocutory order which neither terminates
nor finally disposes of a case as it leaves something to be done by the court before the
case is finally decided on the merits. As such, the general rule is that the denial of a
motion to dismiss cannot be questioned in a special civil action for certiorari which is a
remedy designed to correct errors of jurisdiction and not errors of judgment. [20]
To justify the grant of the extraordinary remedy of certiorari, the denial of the motion to
dismiss must have been tainted with grave abuse of discretion. By "grave abuse of
discretion" is meant such capricious and whimsical exercise of judgment that is
equivalent to lack of jurisdiction. The abuse of discretion must be grave as where the
power is exercised in an arbitrary or despotic manner by reason of passion or personal
hostility, and must be so patent and gross as to amount to an evasion of positive duty
or to a virtual refusal to perform the duty enjoined by or to act all in contemplation of
law.[21]
In the instant case, Global did not properly substantiate its claim of arbitrariness on the
part of the trial court judge that issued the assailed orders denying the motion to
dismiss. In a petition for certiorari, absent such showing of arbitrariness,
capriciousness, or ill motive in the disposition of the trial judge in the case, we are
constrained to uphold the courts ruling, especially because its decision was upheld by
the CA.
II
business in the country to the jurisdiction of our courts, it must acquire a license from
the Securities and Exchange Commission and appoint an agent for service of process.
Without such license, it cannot institute a suit in the Philippines.[24]
The exception to this rule is the doctrine of estoppel. Global is estopped from
challenging Surecomps capacity to sue.
A foreign corporation doing business in the Philippines without license may sue in
benefited from it.[25] A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering into a contract with
it.[26] The principle is applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the contract. [27]
Due to Globals merger with ABC and because it is the surviving corporation, it is as if
it was the one which entered into contract with Surecomp. In the merger of two existing
corporations, one of the corporations survives and continues the business, while the
other is dissolved, and all its rights, properties, and liabilities are acquired by the
surviving corporation.[28] This is particularly true in this case. Based on the findings of
fact of the RTC, as affirmed by the CA, under the terms of the merger or consolidation,
Global assumed all the liabilities and obligations of ABC as if it had incurred such
liabilities or obligations itself. In the same way, Global also has the right to exercise all
defenses, rights, privileges, and counter-claims of every kind and nature which ABC
may have or invoke under the law. These findings of fact were never contested by
Global in any of its pleadings filed before this Court.
WHEREFORE, in view of the foregoing, the Decision dated May 5, 2006 and
the Resolution dated July 10, 2006 of the Court of Appeals in CA-G.R. SP No. 75524
are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

The determination of a corporations capacity is a factual question that requires the

elicitation of a preponderant set of facts.[22] As a rule, unlicensed foreign non-resident
corporations doing business in the Philippines cannot file suits in
the Philippines.[23] This is mandated under Section 133 of the Corporation Code, which
reads:

Sec. 133. Doing business without a license. - No foreign corporation

transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency
of the Philippines, but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.

A corporation has a legal status only within the state or territory in which it was
organized. For this reason, a corporation organized in another country has no
personality to file suits in the Philippines. In order to subject a foreign corporation doing