IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS

(IEMELIF) (Corporation Sole), INC., REV. NESTOR PINEDA,

REV. ROBERTO BACANI, BENJAMIN BORLONGAN, JR.,
DANILO SAUR, RICHARD PONTI, ALFREDO MATABANG and
all the other members of the IEMELIF TONDO
CONGREGATION of the IEMELIF CORPORATION SOLE,
Petitioners,
vs.
BISHOP NATHANAEL LAZARO, REVERENDS HONORIO
RIVERA, DANIEL MADUCDOC, FERDINAND MERCADO,
ARCADIO CABILDO, DOMINGO GONZALES, ARTURO LAPUZ,
ADORABLE MANGALINDAN, DANIEL VICTORIA and DAKILA
CRUZ, and LAY LEADER LINGKOD MADUCDOC and CESAR
DOMINGO, acting individually and as members of the
Supreme Consistory of Elders and those claiming under the
Corporation Aggregate, Respondents.

DECISION

ABAD, J.:

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 amendment of its articles of
incorporation without first going through the process of dissolution.

The Facts and the Case

In 1909, Bishop Nicolas Zamora established the petitioner Iglesia

Evangelica 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 Elders (the Consistory), made up of church ministers,
who were to serve for four years. The by-laws empowered the
Consistory to elect a General Superintendent, a General Secretary,
a General Evangelist, and a Treasurer General who would manage
the affairs of the organization. For all intents and purposes, the
Consistory served as the IEMELIF’s board of directors.

Apparently, although the IEMELIF remained a corporation sole on

paper (with all corporate powers theoretically lodged in the hands
of one member, the General Superintendent), it had always acted
like a corporation aggregate. The Consistory exercised IEMELIF’s
decision-making powers without ever being challenged.
Subsequently, during its 1973 General Conference, the general
membership voted to put things right by changing IEMELIF’s
organizational structure from a corporation sole to a corporation
aggregate. On May 7, 1973 the Securities and Exchange
Commission (SEC) approved the vote. For some reasons,
however, the corporate papers of the IEMELIF remained unaltered
as a corporation sole.

Only in 2001, about 28 years later, did the issue reemerge. In

answer to a query from the IEMELIF, the SEC replied on April 3,
2001 that, although the SEC Commissioner did not in 1948 object
to the conversion of the IEMELIF into a corporation aggregate, that
conversion was not properly carried out and documented. The SEC
said that the IEMELIF needed to amend its articles of incorporation
for that purpose.1

Acting on this advice, the Consistory resolved to convert the

IEMELIF to a corporation aggregate. Respondent Bishop
Nathanael Lazaro, its General Superintendent, instructed all their
congregations to take up the matter with their respective members
for resolution. Subsequently, the general membership approved
the conversion, prompting the IEMELIF to file amended articles of
incorporation with the SEC. Bishop Lazaro filed an affidavit-
certification in support of the conversion.2

Petitioners Reverend Nestor Pineda, et al., which belonged to a

faction that 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 IEMELIF’s
name against respondent members of its Consistory before the
Regional Trial Court (RTC) of Manila.3 Petitioners claim that a
complete shift from IEMELIF’s status as a corporation sole to a
corporation aggregate required, not just an amendment of the
IEMELIF’s articles of incorporation, but a complete dissolution of
the existing corporation sole followed by a re-incorporation.

Unimpressed, the RTC dismissed the action in its October 19, 2005
decision.4 It held that, while the Corporation Code on Religious
Corporations (Chapter 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 governed
additionally "by the provisions on non-stock corporations insofar as
they may be applicable." The RTC thus held that Section 16 of the
Code5 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 Court’s 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.1avvphi1

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 IEMELIF’s 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.1avvphi1

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
Code10 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 latter’s 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 SEC’s 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.

METROPOLITAN BANK & TRUST COMPANY, INC. (as

successor-in-interest of the banking operations of Global
Business Bank, Inc. formerly known as PHILIPPINE BANKING
CORPORATION), Petitioner,
vs.
THE BOARD OF TRUSTEES OF RIVERSIDE MILLS
CORPORATION PROVIDENT AND RETIREMENT FUND,
represented by ERNESTO TANCHI, JR., CESAR SALIGUMBA,
AMELITA SIMON, EVELINA OCAMPO and CARLITOS Y. LIM,
RMC UNPAID EMPLOYEES ASSOCIATION, INC., and THE
INDIVIDUAL BENEFICIARIES OF THE PROVIDENT AND
RETIREMENT FUND OF RMC, Respondents.
 DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari under Rule 45 of the 1997

Rules of Civil Procedure, as amended, prays for the reversal of the
Decision1 dated November 7, 2006 and Resolution2 dated March
5, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 76642.
The CA had affirmed the Decision3 dated June 27, 2002 of the
Regional Trial Court (RTC), Branch 137, Makati City in Civil Case
No. 97-997 which declared invalid the reversion or application of
the Riverside Mills Corporation Provident and Retirement Fund
(RMCPRF) to the outstanding obligation of Riverside Mills
Corporation (RMC) with Philippine Banking Corporation (Philbank).

The facts are as follows:

On November 1, 1973, RMC established a Provident and

Retirement Plan4 (Plan) for its regular employees. Under the Plan,
RMC and its employees shall each contribute 2% of the employee’s
current basic monthly salary, with RMC’s contribution to increase
by 1% every five (5) years up to a maximum of 5%. The
contributions shall form part of the provident fund (the Fund) which
shall be held, invested and distributed by the Commercial Bank and
Trust Company. Paragraph 13 of the Plan likewise provided that
the Plan "may be amended or terminated by the Company at any
time on account of business conditions, but no such action shall
operate to permit any part of the assets of the Fund to be used for,
or diverted to purposes other than for the exclusive benefit of the
members of the Plan and their … beneficiaries. In no event shall
any part of the assets of the Fund revert to [RMC] before all
liabilities of the Plan have been satisfied."5

On October 15, 1979, the Board of Trustees of RMCPRF (the

Board) entered into an Investment Management Agreement6
(Agreement) with Philbank (now, petitioner Metropolitan Bank and
Trust Company). Pursuant to the Agreement, petitioner shall act as
an agent of the Board and shall hold, manage, invest and reinvest
the Fund in Trust Account No. 1797 in its behalf. The Agreement
shall be in force for one (1) year and shall be deemed automatically
renewed unless sooner terminated either by petitioner bank or by
the Board.

In 1984, RMC ceased business operations. Nonetheless, petitioner

continued to render investment services to respondent Board. In a
letter7 dated September 27, 1995, petitioner informed respondent
Board that Philbank’s Board of Directors had decided to apply the
remaining trust assets held by it in the name of RMCPRF against
part of the outstanding obligations of RMC.

Subsequently, respondent RMC Unpaid Employees Association,

Inc. (Association), representing the terminated employees of RMC,
learned of Trust Account No. 1797. Through counsel, they
demanded payment of their share in a letter8 dated February 4,
1997. When such demand went unheeded, the Association, along
with the individual members of RMCPRF, filed a complaint for
accounting against the Board and its officers, namely, Ernesto
Tanchi, Jr., Carlitos Y. Lim, Amelita G. Simon, Evelina S. Ocampo
and Cesar Saligumba, as well as petitioner bank. The case was
docketed as Civil Case No. 97-997 in the RTC of Makati City,
Branch 137.

On June 2, 1998, during the trial, the Board passed a Resolution9

in court declaring that the Fund belongs exclusively to the
employees of RMC. It authorized petitioner to release the proceeds
of Trust Account No. 1797 through the Board, as the court may
direct. Consequently, plaintiffs amended their complaint to include
the Board as co-plaintiffs.

On June 27, 2002, the RTC rendered a decision in favor of

respondents. The trial court declared invalid the reversion and
application of the proceeds of the Fund to the outstanding
obligation of RMC to petitioner bank. The fallo of the decision
reads:

WHEREFORE, judgment is hereby rendered:

1. Declaring INVALID the reversion or application of the

Riverside Mills Corporation Provident and Retirement Fund
as payment for the outstanding obligation of Riverside Mills
Corporation with defendant Philippine Banking Corporation.

2. Defendant Philippine Banking Corporation (now [Global

Bank]) is hereby ordered to:

a. Reverse the application of the Riverside Mills

Corporation Provident and Retirement Fund as
payment for the outstanding obligation of Riverside
Mills Corporation with defendant Philippine Banking
Corporation;

b. Render a complete accounting of the Riverside Mills

Corporation Provident and Retirement Fund; the Fund
will then be subject to disposition by plaintiff Board of
Trustees in accordance with law and the Provident
Retirement Plan;

c. Pay attorney’s fees equivalent to 10% of the total

amounts due to plaintiffs Riverside Mills Unpaid
Employees Association and the individual beneficiaries
of the Riverside Mills Corporation Provident and
Retirement Fund; and costs of suit.

3. The Riverside Mills Corporation Provident and Retirement

Fund is ordered to determine the beneficiaries of the FUND
entitled to benefits, the amount of benefits per beneficiary,
and pay such benefits to the individual beneficiaries.

SO ORDERED.10
On appeal, the CA affirmed the trial court. It held that the Fund is
distinct from RMC’s account in petitioner bank and may not be used
except for the benefit of the members of RMCPRF. Citing
Paragraph 13 of the Plan, the appellate court stressed that the
assets of the Fund shall not revert to the Company until after the
liabilities of the Plan had been satisfied. Further, the Agreement
was specific that upon the termination of the Agreement, petitioner
shall deliver the Fund to the Board or its successor, and not to RMC
as trustor. The CA likewise sustained the award of attorney’s fees
to respondents.11

Hence, this petition.

Before us, petitioner makes the following assignment of errors:

I.

THE HONORABLE COURT OF APPEALS ERRED IN RULING

THAT THE REVERSION AND APPLICATION BY PHILBANK OF
THE FUND IN PAYMENT OF THE LOAN OBLIGATIONS OF
RIVERSIDE MILLS CORPORATION WERE INVALID.12

II.

THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIBLE ERROR IN DECLARING THAT "BY HAVING
ENTERED INTO AN AGREEMENT WITH THE BOARD,
(PHILBANK) IS NOW ESTOPPED TO QUESTION THE
LATTER’S AUTHORITY AS WELL AS THE TERMS AND
CONDITIONS THEREOF."13

III.

THE HONORABLE COURT COMMITTED REVERSIBLE ERROR

IN AWARDING ATTORNEY’S FEES TO PLAINTIFFS-
APPELLEES ON THE BASIS THAT "[PHILBANK] WAS REMISS
IN ITS DUTY TO TREAT RMCPRF’S ACCOUNT WITH THE
HIGHEST DEGREE OF CARE CONSIDERING THE FIDUCIARY
NATURE OF THEIR RELATIONSHIP, PERFORCE, THE
PLAINTIFFS-APPELLEES WERE COMPELLED TO LITIGATE
TO PROTECT THEIR RIGHT."14

The fundamental issue for our determination is whether the

proceeds of the RMCPRF may be applied to satisfy RMC’s debt to
Philbank.

Petitioner contends that RMC’s closure in 1984 rendered the

RMCPRF Board of Trustees functus officio and devoid of authority
to act on behalf of RMCPRF. It thus belittles the RMCPRF Board
Resolution dated June 2, 1998, authorizing the release of the Fund
to several of its supposed beneficiaries. Without known claimants
of the Fund for eleven (11) years since RMC closed shop, it was
justifiable for petitioner to consider the Fund to have "technically
reverted" to, and formed part of RMC’s assets. Hence, it could be
applied to satisfy RMC’s debts to Philbank. Petitioner also disputes
the award of attorney’s fees in light of the efforts taken by Philbank
to ascertain claims before effecting the reversion.

Respondents for their part, belie the claim that petitioner exerted
earnest efforts to ascertain claims. Respondents cite petitioner’s
omission to publish a notice in newspapers of general circulation to
locate claims against the Fund. To them, petitioner’s act of
addressing the letter dated September 27, 1995 to the Board is a
recognition of its authority to act for the beneficiaries. For these
reasons, respondents believe that the reversion of the Fund to
RMC is not only unwarranted but unconscionable. For being
compelled to litigate to protect their rights, respondents also defend
the award of attorney’s fees to be proper.

The petition has no merit.

A trust is a "fiduciary relationship with respect to property which

involves the existence of equitable duties imposed upon the holder
of the title to the property to deal with it for the benefit of another."
A trust is either express or implied. Express trusts are those which
the direct and positive acts of the parties create, by some writing or
deed, or will, or by words evincing an intention to create a trust.15

Here, the RMC Provident and Retirement Plan created an express

trust to provide retirement benefits to the regular employees of
RMC. RMC retained legal title to the Fund but held the same in
trust for the employees-beneficiaries. Thus, the allocation under
the Plan is directly credited to each member’s account:

6. Allocation:

a. Monthly Contributions:

1. Employee – to be credited to his account.

2. Employer – to be credited to the respective

member’s account as stated under the contribution
provision.

b. Investment Earnings – semestral valuation of the fund

shall be made and any earnings or losses shall be credited
or debited, as the case may be, to each member’s account
in proportion to his account balances based on the last
proceeding (sic) [preceding] accounting period.

c. Forfeitures – shall be retained in the fund.16 (Emphasis

supplied.)

The trust was likewise a revocable trust as RMC reserved the

power to terminate the Plan after all the liabilities of the Fund to the
employees under the trust had been paid. Paragraph 13 of the Plan
provided that "[i]n no event shall any part of the assets of the Fund
revert to the Company before all liabilities of the Plan have been
satisfied."
Relying on this clause, petitioner, as the Fund trustee, considered
the Fund to have "technically reverted" to RMC, allegedly after no
further claims were made thereon since November 1984.
Thereafter, it applied the proceeds of the Fund to RMC’s debt with
the bank pursuant to Paragraph 9 of Promissory Note No. 1618-
8017 which RMC executed on May 12, 1981. The pertinent
provision of the promissory note reads:

IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY

OR WHEN THE SAME BECOMES DUE UNDER ANY OF THE
PROVISIONS HEREOF, I/WE HEREBY AUTHORIZE THE BANK
AT ITS OPTION AND WITHOUT NOTICE, TO APPLY TO THE
PAYMENT OF THIS NOTE, ANY AND ALL MONEYS,
SECURITIES AND THINGS OF VALUE WHICH MAY BE IN ITS
HAND OR ON DEPOSIT OR OTHERWISE BELONGING TO
ME/US AND, FOR THIS PURPOSE, I/WE HEREBY, JOINTLY
AND SEVERALLY, IRREVOCABLY CONSTITUTE AND
APPOINT THE SAID BANK TO BE MY/OUR TRUE ATTORNEY-
IN-FACT WITH FULL POWER AND AUTHORITY FOR ME/US
AND IN MY/OUR NAME AND BEHALF, AND WITHOUT PRIOR
NOTICE, TO NEGOTIATE, SELL AND TRANSFER ANY
MONEYS, SECURITIES AND THINGS OF VALUE WHICH IT
MAY HOLD, BY PUBLIC OR PRIVATE SALE, AND APPLY THE
PROCEEDS THEREOF TO THE PAYMENT OF THIS NOTE.
(Emphasis supplied.)

Petitioner contends that it was justified in supposing that reversion

had occurred because its efforts to locate claims against the Fund
from the National Labor Relations Commission (NLRC), the lower
courts, the CA and the Supreme Court proved futile.

We are not convinced.

Employees’ trusts or benefit plans are intended to provide

economic assistance to employees upon the occurrence of certain
contingencies, particularly, old age retirement, death, sickness, or
disability. They give security against certain hazards to which
members of the Plan may be exposed. They are independent and
additional sources of protection for the working group and
established for their exclusive benefit and for no other purpose.18
Here, while the Plan provides for a reversion of the Fund to RMC,
this cannot be done until all the liabilities of the Plan have been
paid. And when RMC ceased operations in 1984, the Fund became
liable for the payment not only of the benefits of qualified retirees
at the time of RMC’s closure but also of those who were separated
from work as a consequence of the closure. Paragraph 7 of the
Retirement Plan states:

Separation from Service:

A member who is separated from the service of the Company

before satisfying the conditions for retirement due to resignation or
any reason other than dismissal for cause shall be paid the balance
of his account as of the last day of the month prior to separation.
The amount representing the Company’s contribution and income
thereon standing to the credit of the separating member shall be
paid to him as follows:

Completed % of Company’s Contribution and Earnings

Years Thereon Payable
of Membership
0–5 NIL
6 – 10 20%
11 – 15 40%
16 – 20 60%
21 – 25 80%
25 – over 100%
A member who is separated for cause shall not be entitled to
withdraw the total amount representing his contribution and that of
the Company including the earned interest thereon, and the
employer’s contribution shall be retained in the fund. 19 (Emphasis
supplied.)

The provision makes reference to a member-employee who is

dismissed for cause. Under the Labor Code, as amended, an
employee may be dismissed for just or authorized causes. A
dismissal for just cause under Article 28220 of the Labor Code, as
amended, implies that the employee is guilty of some misfeasance
towards his employer, i.e. the employee has committed serious
misconduct in relation to his work, is guilty of fraud, has perpetrated
an offense against the employer or any immediate member of his
family, or has grossly and habitually neglected his duties.
Essentially, it is an act of the employee that sets off the dismissal
process in motion.

On the other hand, a dismissal for an authorized cause under

Article 28321 and 28422 of the Labor Code, as amended, does not
entail any wrongdoing on the part of the employee. Rather, the
termination of employment is occasioned by the employer’s
exercise of management prerogative or by the illness of the
employee – matters beyond the worker’s control.

The distinction between just and authorized causes for dismissal

lies in the fact that payment of separation pay is required in
dismissals for an authorized cause but not so in dismissals for just
cause. The rationale behind this rule was explained in the case of
Phil. Long Distance Telephone Co. v. NLRC23 and reiterated in San
Miguel Corporation v. Lao,24 thus:

We hold that henceforth separation pay shall be allowed as a

measure of social justice only in those instances where the
employee is validly dismissed for causes other than serious
misconduct or those reflecting on his moral character. Where the
reason for the valid dismissal is, for example, habitual intoxication
or an offense involving moral turpitude, like theft or illicit sexual
relations with a fellow worker, the employer may not be required to
give the dismissed employee separation pay, or financial
assistance, or whatever other name it is called, on the ground of
social justice.

xxx xxx xxx

The policy of social justice is not intended to countenance

wrongdoing simply because it is committed by the underprivileged.
At best[,] it may mitigate the penalty but it certainly will not condone
the offense.

In San Miguel Corporation v. Lao, we reversed the CA ruling which

granted retirement benefits to an employee who was found by the
Labor Arbiter and the NLRC to have been properly dismissed for
willful breach of trust and confidence.

Applied to this case, the penal nature of the provision in Paragraph

7 of the Plan, whereby a member separated for cause shall not be
entitled to withdraw the contributions made by him and his
employer, indicates that the "separation for cause" being referred
to therein is any of the just causes under Article 282 of the Labor
Code, as amended.

To be sure, the cessation of business by RMC is an authorized

cause for the termination of its employees. Hence, not only those
qualified for retirement should receive their total benefits under the
Fund, but those laid off should also be entitled to collect the balance
of their account as of the last day of the month prior to RMC’s
closure. In addition, the Plan provides that the separating member
shall be paid a maximum of 40% of the amount representing the
Company’s contribution and its income standing to his credit. Until
these liabilities shall have been settled, there can be no reversion
of the Fund to RMC.
Under Paragraph 625 of the Agreement, petitioner’s function shall
be limited to the liquidation and return of the Fund to the Board
upon the termination of the Agreement. Paragraph 14 of said
Agreement further states that "it shall be the duty of the Investment
Manager to assign, transfer, and pay over to its successor or
successors all cash, securities, and other properties held by it
constituting the fund less any amounts constituting the charges and
expenses which are authorized [under the Agreement] to be
payable from the Fund."26 Clearly, petitioner had no power to effect
reversion of the Fund to RMC.

The reversion petitioner effected also could hardly be said to have

been done in good faith and with due regard to the rights of the
employee-beneficiaries. The restriction imposed under Paragraph
13 of the Plan stating that "in no event shall any part of the assets
of the Fund revert to the Company before all liabilities of the Plan
have been satisfied," demands more than a passive stance as that
adopted by petitioner in locating claims against the Fund. Besides,
the beneficiaries of the Fund are readily identifiable – the regular
or permanent employees of RMC who were qualified retirees and
those who were terminated as a result of its closure. Petitioner
needed only to secure a list of the employees concerned from the
Board of Trustees which was its principal under the Agreement and
the trustee of the Plan or from RMC which was the trustor of the
Fund under the Retirement Plan. Yet, petitioner notified respondent
Board of Trustees only after Philbank’s Board of Directors had
decided to apply the remaining trust assets of RMCPRF to the
liabilities of the company.

Petitioner nonetheless assails the authority of the Board of

Trustees to issue the Resolution of June 2, 1998 recognizing the
exclusive ownership of the Fund by the employees of RMC and
authorizing its release to the beneficiaries as may be ordered by
the trial court. Petitioner contends that the cessation of RMC’s
operations ended not only the Board members’ employment in
RMC, but also their tenure as members of the RMCPRF Board of
Trustees.

Again, we are not convinced. Paragraph 13 of the Plan states that

"[a]lthough it is expected that the Plan will continue indefinitely, it
may be amended or terminated by the Company at any time on
account of business conditions." There is no dispute as to the
management prerogative on this matter, considering that the Fund
consists primarily of contributions from the salaries of members-
employees and the Company. However, it must be stressed that
the RMC Provident and Retirement Plan was primarily established
for the benefit of regular and permanent employees of RMC. As
such, the Board may not unilaterally terminate the Plan without due
regard to any accrued benefits and rightful claims of members-
employees. Besides, the Board is bound by Paragraph 13
prohibiting the reversion of the Fund to RMC before all the liabilities
of the Plan have been satisfied.

As to the contention that the functions of the Board of Trustees

ceased upon with RMC’s closure, the same is likewise untenable.

Under Section 12227 of the Corporation Code, a dissolved

corporation shall nevertheless continue as a body corporate for
three (3) years for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to
dispose and convey its property and to distribute its assets, but not
for the purpose of continuing the business for which it was
established. Within those three (3) years, the corporation may
appoint a trustee or receiver who shall carry out the said purposes
beyond the three (3)-year winding-up period. Thus, a trustee of a
dissolved corporation may commence a suit which can proceed to
final judgment even beyond the three (3)-year period of
liquidation.28

In the same manner, during and beyond the three (3)-year winding-
up period of RMC, the Board of Trustees of RMCPRF may do no
more than settle and close the affairs of the Fund. The Board
retains its authority to act on behalf of its members, albeit, in a
limited capacity. It may commence suits on behalf of its members
but not continue managing the Fund for purposes of maximizing
profits. Here, the Board’s act of issuing the Resolution authorizing
petitioner to release the Fund to its beneficiaries is still part of the
liquidation process, that is, satisfaction of the liabilities of the Plan,
and does not amount to doing business. Hence, it was properly
within the Board’s power to promulgate.

Anent the award of attorney’s fees to respondents, we find the

same to be in order. Article 2208(2) of the Civil Code allows the
award of attorney’s fees in cases where the defendant’s act or
omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest. Attorney’s fees may be
awarded by a court to one (1) who was compelled to litigate with
third persons or to incur expenses to protect his or her interest by
reason of an unjustified act or omission of the party from whom it
is sought.29

Here, petitioner applied the Fund in satisfaction of the obligation of

RMC without authority and without bothering to inquire regarding
unpaid claims from the Board of Trustees of RMCPRF. It wrote the
members of the Board only after it had decided to revert the Fund
to RMC. Upon being met with objections, petitioner insisted on the
reversion of the Fund to RMC, despite the clause in the Plan that
prohibits such reversion before all liabilities shall have been
satisfied, thereby leaving respondents with no choice but to seek
judicial relief.

WHEREFORE, the petition for review on certiorari is hereby

DENIED. The Decision dated November 7, 2006 and the
Resolution dated March 5, 2007 of the Court of Appeals in CA-G.R.
CV No. 76642 are AFFIRMED.

With costs against the petitioner.

SO ORDERED.

ALABANG DEVELOPMENT CORPORATION, Petitioner,

vs.
ALABANG HILLS VILLAGE ASSOCIATION and RAFAEL
TINIO, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari assailing the

Decision1 of the Court of Appeals (CA), dated March 27, 2009, in
CA-G.R. CV No. 88864.

The factual and procedural antecedents of the case, as

summarized by the CA, are as follows:

The case traces its roots to the Complaint for Injunction and
Damages filed [with the Regional Trial Court (RTC) of Muntinlupa
City] on October 19, 2006 by [herein petitioner, Alabang
Development Corporation] ADC against [herein respondents,
Alabang Hills Village Association, Inc.] AHVAI and Rafael Tinio
(Tinio), President of AHVAI. The Complaint alleged that [petitioner]
is the developer of Alabang Hills Village and still owns certain
parcels of land therein that are yet to be sold, as well as those
considered open spaces that have not yet been donated to [the]
local government of Muntinlupa City or the Homeowner's
Association. Sometime in September [2006], ADC learned that
AHVAI started the construction of a multi-purpose hall and a
swimming pool on one of the parcels of land still owned by ADC
without the latter's consent and approval, and that despite demand,
AHVAI failed to desist from constructing the said improvements.
ADC thus prayed that an injunction be issued enjoining defendants
from constructing the multi-purpose hall and the swimming pool at
the Alabang Hills Village.

In its Answer With Compulsory Counterclaim, AHVAI denied ADC's

asseverations and claimed that the latter has no legal capacity to
sue since its existence as a registered corporate entity was
revoked by the Securities and Exchange Commission (SEC) on
May 26, 2003; that ADC has no cause of action because by law it
is no longer the absolute owner but is merely holding the property
in question in trust for the benefit of AHVAI as beneficial owner
thereof; and that the subject lot is part of the open space required
by law to be provided in the subdivision. As counterclaim, it prayed
that an order be issued divesting ADC of the title of the property
and declaring AHVAI as owner thereof; and that ADC be made
liable for moral and exemplary damages as well as attorney's fees.

Tinio filed his separate Answer With Compulsory Counterclaim,

practically reiterating the defenses of AHVAI.2

On January 4, 2007, the RTC of Muntinlupa City, Branch 276,

rendered judgment dismissing herein petitioner's complaint on the
grounds (1) that the latter has no personality to file the same; (2)
that the subject property "is a reserved area for the beneficial use
of the homeowners, as mandated by law;" and (3) that the Housing
and Land Use Regulatory Board (HLURB), not the RTC, has
exclusive jurisdiction over the dispute between petitioner and
respondents.3

Aggrieved, herein petitioner filed a Notice of Appeal of the RTC

decision. Herein respondent AHVAI, on the other hand, moved that
it be allowed to prosecute its compulsory counterclaim praying, for
this purpose, that the RTC decision be amended accordingly.

In its Order dated February 20, 2007, the RTC approved

petitioner's notice of appeal but dismissed respondent AHVAI’s
counterclaim on the ground that it is dependent on petitioner's
complaint. Respondent AHVAI then filed an appeal with the CA.

In its assailed Decision dated March 27, 2009, the CA dismissed

both appeals of petitioner and respondent, and affirmed the
decision of the RTC. With respect to petitioner, the CA ruled that
the RTC correctly dismissed petitioner's complaint as the same
was filed when petitioner was already defunct and, as such, it no
longer had capacity to file the said complaint. As regards,
respondent AHVAI’s counterclaim, the CA held that "where there is
no claim against the [respondent], because [petitioner] is already in
existent and has no capacity to sue, the counterclaim is improper
and it must be dismissed, more so where the complaint is
dismissed at the instance of the [respondent]."

Thus, the instant petition based on the following grounds:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

RELYING ON THE CASE OF "COLUMBIA PICTURES, INC. v.
COURT OF APPEALS" IN RESOLVING PETITIONER'S LACK
OF CAPACITY

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

FINDING LACK OF CAPACITY OFTHE PETITIONER IN FILING
THE CASE CONTRARY TO THE EARLIER RULINGS OF THIS
HONORABLE COURT THE HONORABLE COURT OF
APPEALS GRAVELY ERRED WHEN IT FAILED TO RESOLVE
THE ISSUE THAT PETITIONER IS MANDATED TO CEDE
PROPERTIES TO RESPONDENT AHVAI4

Anent the first assigned error, the Court does not agree that the CA
erred in relying on the case of Columbia Pictures, Inc. v. Court of
Appeals.5 The CA cited the case for the purpose of restating and
distinguishing the jurisprudential definition of the terms "lack of
capacity to sue" and "lack of personality to sue;" and of applying
these definitions to the present case. Thus, the fact that, unlike in
the instant case, the corporations involved in the Columbia case
were foreign corporations is of no moment. The definition of the
term "lack of capacity to sue" enunciated in the said case still
applies to the case at bar. Indeed, as held by this Court and as
correctly cited by the CA in the case of Columbia: "[l]ack of legal
capacity to sue means that the plaintiff is not in the exercise of his
civil rights, or does not have the necessary qualification to appear
in the case, or does not have the character or representation he
claims[;] 'lack of capacity to sue' refers to a plaintiff's general
disability to sue, such as on account of minority, insanity,
incompetence, lack of juridical personality or any other general
disqualifications of a party. ..."6 In the instant case, petitioner lacks
capacity to sue because it no longer possesses juridical personality
by reason of its dissolution and lapse of the three-year grace period
provided under Section 122 of the Corporation Code, as will be
discussed below.

With respect to the second assigned error, Section 122 of the

Corporation Code provides as follows:

SEC. 122. Corporate liquidation.– Every corporation whose charter

expires by its own limitation or is annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in
any other manner, shall nevertheless be continued as a body
corporate for three (3) years after the time when it would have been
so dissolved, for the purpose of prosecuting and defending suits by
or against it and enabling it to settle and close its affairs, to dispose
of and convey its property and to distribute its assets, but not for
the purpose of continuing the business for which it was established.

At any time during said three (3) years, said corporation is

authorized and empowered to convey all of its property to trustees
for the benefit of stockholders, members, creditors, and other
persons in interest. From and after any such conveyance by the
corporation of its property in trust for the benefit of its stockholders,
members, creditors and others in interest, all interest which the
corporation had in the property terminates, the legal interest vests
in the trustees, and the beneficial interest in the stockholders,
members, creditors or other persons in interest.

Upon winding up of the corporate affairs, any asset distributable to

any creditor or stockholder or member who is unknown or cannot
be found shall be escheated to the city or municipality where such
assets are located.

Except by decrease of capital stock and as otherwise allowed by

this Code, no corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment of all its
debts and liabilities.

This Court has held that:

It is to be noted that the time during which the corporation, through

its own officers, may conduct the liquidation of its assets and sue
and be sued as a corporation is limited to three years from the time
the period of dissolution commences; but there is no time limit
within which the trustees must complete a liquidation placed in their
hands. It is provided only (Corp. Law, Sec. 78 now Sec. 122]) that
the conveyance to the trustees must be made within the three-year
period. It may be found impossible to complete the work of
liquidation within the three-year period or to reduce disputed claims
to judgment. The authorities are to the effect that suits by or against
a corporation abate when it ceased to be an entity capable of suing
or being sued (7 R.C.L., Corps., par. 750); but trustees to whom
the corporate assets have been conveyed pursuant to the authority
of Sec. 78 [now Sec. 122] may sue and be sued as such in all
matters connected with the liquidation...7

In the absence of trustees, this Court ruled, thus:

… Still in the absence of a board of directors or trustees, those
having any pecuniary interest in the assets, including not only the
shareholders but likewise the creditors of the corporation, acting for
and in its behalf, might make proper representations with the
Securities and Exchange Commission, which has primary and
sufficiently broad jurisdiction in matters of this nature, for working
out a final settlement of the corporate concerns.8

In the instant case, there is no dispute that petitioner's corporate

registration was revoked on May 26, 2003.1âwphi1 Based on the
above-quoted provision of law, it had three years, or until May 26,
2006, to prosecute or defend any suit by or against it. The subject
complaint, however, was filed only on October 19, 2006, more than
three years after such revocation. It is likewise not disputed that the
subject complaint was filed by petitioner corporation and not by its
directors or trustees. In fact, it is even averred, albeit wrongly, in
the first paragraph of the Complaint9 that "[p]laintiff is a duly
organized and existing corporation under the laws of the
Philippines, with capacity to sue and be sued. x x x"10

Petitioner, nonetheless, insists that a corporation may still sue,

even after it has been dissolved and the three-year liquidation
period provided under Section 122 of the Corporation Code has
passed. Petitioner cites the cases of Gelano v. Court of Appeals,11
Knecht v. United Cigarette Corporation,12 and Pepsi-Cola Products
Philippines, Inc. v. Court of Appeals,13 as authority to support its
position. The Court, however, agrees with the CA that in the
abovecited cases, the corporations involved filed their respective
complaints while they were still in existence. In other words, they
already had pending actions at the time that their corporate
existence was terminated.

The import of this Court's ruling in the cases cited by petitioner is

that the trustee of a corporation may continue to prosecute a case
commenced by the corporation within three years from its
dissolution until rendition of the final judgment, even if such
judgment is rendered beyond the three-year period allowed by
Section 122 of the Corporation Code. However, there is nothing in
the said cases which allows an already defunct corporation to
initiate a suit after the lapse of the said three-year period. On the
contrary, the factual circumstances in the abovecited cases would
show that the corporations involved therein did not initiate any
complaint after the lapse of the three-year period. In fact, as stated
above, the actions were already pending at the time that they lost
their corporate existence.

In the present case, petitioner filed its complaint not only after its
corporate existence was terminated but also beyond the three-year
period allowed by Section 122 of the Corporation Code. Thus, it is
clear that at the time of the filing of the subject complaint petitioner
lacks the capacity to sue as a corporation. To allow petitioner to
initiate the subject complaint and pursue it until final judgment, on
the ground that such complaint was filed for the sole purpose of
liquidating its assets, would be to circumvent the provisions of
Section 122 of the Corporation Code.

As to the last issue raised, the basic and pivotal issue in the instant
case is petitioner's capacity to sue as a corporation and it has
already been settled that petitioner indeed lacks such capacity.
Thus, this Court finds no cogent reason to depart from the ruling of
the CA finding it unnecessary to delve on the other issues raised
by petitioner.

WHEREFORE, the instant petition is DENIED. The assailed

Decision of the Court of Appeals in CA-G.R. CV No. 88864,
sustaining the Decision of the Regional Trial Court of Muntinlupa
City, Branch 276, in Civil Case No. 06-138, is AFFIRMED.

SO ORDERED.
CARGILL, INC., Petitioner,
vs.
INTRA STRATA ASSURANCE CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 26 May 2005 Decision2 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 NMC’s performance to deliver the
molasses during the prescribed shipment periods according to the
terms of the amended contract.

In compliance with the terms of the third amendment of the

contract, respondent Intra Strata Assurance Corporation
(respondent) issued on 10 October 1990 a performance bond 6 in
the sum of ₱11,287,500 to guarantee NMC’s delivery of the 10,500
tons of molasses, and a surety bond7 in the sum of ₱9,978,125 to
guarantee the repayment of downpayment as provided in the
contract.

NMC was only able to deliver 219.551 metric tons of molasses out
of the agreed 10,500 metric tons. Thus, petitioner sent demand
letters to respondent claiming payment under the performance and
surety bonds. When respondent refused to pay, petitioner filed on
12 April 1991 a complaint8 for sum of money against NMC and
respondent.

Petitioner, NMC, and respondent entered into a compromise

agreement,9 which the trial court approved in its Decision10 dated
13 December 1991. The compromise agreement provides that
NMC would pay petitioner ₱3,000,000 upon signing of the
compromise agreement and would deliver to petitioner 6,991
metric tons of molasses 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 which reads:

WHEREFORE, judgment is rendered in favor of plaintiff [Cargill,

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 (₱16,993,200.00),
Philippine Currency, with interest at the legal rate from October 10,
1990 until fully paid, plus attorney’s fees in the sum of TWO
HUNDRED THOUSAND PESOS (₱200,000.00), 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 court’s 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 that petitioner’s 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 12313 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 petitioner’s 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
petitioner’s 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
latter’s 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. CA18 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 one’s 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.1avvphi1

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 to to 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.

STEELCASE, INC., Petitioner,

vs.
DESIGN INTERNATIONAL SELECTIONS, INC., Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 assailing the

March 31, 2005 Decision1 of the Court of Appeals (CA) which
affirmed the May 29, 2000 Order2 of the Regional Trial Court,
Branch 60, Makati City (RTC), dismissing the complaint for sum of
money in Civil Case No. 99-122 entitled "Steelcase, Inc. v. Design
International Selections, Inc."

The Facts

Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation

existing under the laws of Michigan, United States of America
(U.S.A.), and engaged in the manufacture of office furniture with
dealers worldwide.3 Respondent Design International Selections,
Inc. (DISI) is a corporation existing under Philippine Laws and
engaged in the furniture business, including the distribution of
furniture.4

Sometime in 1986 or 1987, Steelcase and DISI orally entered into

a dealership agreement whereby Steelcase granted DISI the right
to market, sell, distribute, install, and service its products to end-
user customers within the Philippines. The business relationship
continued smoothly until it was terminated sometime in January
1999 after the agreement was breached with neither party
admitting any fault.5

On January 18, 1999, Steelcase filed a complaint6 for sum of

money against DISI alleging, among others, that DISI had an
unpaid account of US$600,000.00. Steelcase prayed that DISI be
ordered to pay actual or compensatory damages, exemplary
damages, attorney’s fees, and costs of suit.

In its Answer with Compulsory Counterclaims7 dated February 4,

1999, DISI sought the following: (1) the issuance of a temporary
restraining order (TRO) and a writ of preliminary injunction to enjoin
Steelcase from selling its products in the Philippines except
through DISI; (2) the dismissal of the complaint for lack of merit;
and (3) the payment of actual, moral and exemplary damages
together with attorney’s fees and expenses of litigation. DISI
alleged that the complaint failed to state a cause of action and to
contain the required allegations on Steelcase’s capacity to sue in
the Philippines despite the fact that it (Steelcase) was doing
business in the Philippines without the required license to do so.
Consequently, it posited that the complaint should be dismissed
because of Steelcase’s lack of legal capacity to sue in Philippine
courts.

On March 3, 1999, Steelcase filed its Motion to Admit Amended

Complaint8 which was granted by the RTC, through then Acting
Presiding Judge Roberto C. Diokno, in its Order 9 dated April 26,
1999. However, Steelcase sought to further amend its complaint
by filing a Motion to Admit Second Amended Complaint10 on March
13, 1999.

In his Order11 dated November 15, 1999, Acting Presiding Judge

Bonifacio Sanz Maceda dismissed the complaint, granted the TRO
prayed for by DISI, set aside the April 26, 1999 Order of the RTC
admitting the Amended Complaint, and denied Steelcase’s Motion
to Admit Second Amended Complaint. The RTC stated that in
requiring DISI to meet the Dealer Performance Expectation and in
terminating the dealership agreement with DISI based on its failure
to improve its performance in the areas of business planning,
organizational structure, operational effectiveness, and efficiency,
Steelcase unwittingly revealed that it participated in the operations
of DISI. It then concluded that Steelcase was "doing business" in
the Philippines, as contemplated by Republic Act (R.A.) No. 7042
(The Foreign Investments Act of 1991), and since it did not have
the license to do business in the country, it was barred from seeking
redress from our courts until it obtained the requisite license to do
so. Its determination was further bolstered by the appointment by
Steelcase of a representative in the Philippines. Finally, despite a
showing that DISI transacted with the local customers in its own
name and for its own account, it was of the opinion that any doubt
in the factual environment should be resolved in favor of a
pronouncement that a foreign corporation was doing business in
the Philippines, considering the twelve-year period that DISI had
been distributing Steelcase products in the Philippines.

Steelcase moved for the reconsideration of the questioned Order

but the motion was denied by the RTC in its May 29, 2000 Order.12

Aggrieved, Steelcase elevated the case to the CA by way of

appeal, assailing the November 15, 1999 and May 29, 2000 Orders
of the RTC. On March 31, 2005, the CA rendered its Decision
affirming the RTC orders, ruling that Steelcase was a foreign
corporation doing or transacting business in the Philippines without
a license. The CA stated that the following acts of Steelcase
showed its intention to pursue and continue the conduct of its
business in the Philippines: (1) sending a letter to Phinma,
informing the latter that the distribution rights for its products would
be established in the near future and directing other questions
about orders for Steelcase products to Steelcase International; (2)
cancelling orders from DISI’s customers, particularly Visteon,
Phils., Inc. (Visteon); (3) continuing to send its products to the
Philippines through Modernform Group Company Limited
(Modernform), as evidenced by an Ocean Bill of Lading; and (4)
going beyond the mere appointment of DISI as a dealer by making
several impositions on management and operations of DISI. Thus,
the CA ruled that Steelcase was barred from access to our courts
for being a foreign corporation doing business here without the
requisite license to do so.

Steelcase filed a motion for reconsideration but it was denied by

the CA in its Resolution dated March 23, 2006.13

Hence, this petition.

The Issues

Steelcase filed the present petition relying on the following

grounds:
 I

THE COURT OF APPEALS COMMITTED REVERSIBLE

ERROR WHEN IT FOUND THAT STEELCASE HAD BEEN
"DOING BUSINESS" IN THE PHILIPPINES WITHOUT A
LICENSE.

II

THE COURT OF APPEALS COMMITTED REVERSIBLE

ERROR IN NOT FINDING THAT RESPONDENT WAS
ESTOPPED FROM CHALLENGING STEELCASE’S LEGAL
CAPACITY TO SUE, AS AN AFFIRMATIVE DEFENSE IN ITS
ANSWER.

The issues to be resolved in this case are:

(1) Whether or not Steelcase is doing business in the

Philippines without a license; and

(2) Whether or not DISI is estopped from challenging the

Steelcase’s legal capacity to sue.

The Court’s Ruling

The Court rules in favor of the petitioner.

Steelcase is an unlicensed foreign corporation NOT doing

business in the Philippines

Anent the first issue, Steelcase argues that Section 3(d) of R.A. No.
7042 or the Foreign Investments Act of 1991 (FIA) expressly states
that the phrase "doing business" excludes the appointment by a
foreign corporation of a local distributor domiciled in the Philippines
which transacts business in its own name and for its own account.
Steelcase claims that it was not doing business in the Philippines
when it entered into a dealership agreement with DISI where the
latter, acting as the former’s appointed local distributor, transacted
business in its own name and for its own account. Specifically,
Steelcase contends that it was DISI that sold Steelcase’s furniture
directly to the end-users or customers who, in turn, directly paid
DISI for the furniture they bought. Steelcase further claims that
DISI, as a non-exclusive dealer in the Philippines, had the right to
market, sell, distribute and service Steelcase products in its own
name and for its own account. Hence, DISI was an independent
distributor of Steelcase products, and not a mere agent or conduit
of Steelcase.

On the other hand, DISI argues that it was appointed by Steelcase

as the latter’s exclusive distributor of Steelcase products. DISI
likewise asserts that it was not allowed by Steelcase to transact
business in its own name and for its own account as Steelcase
dictated the manner by which it was to conduct its business,
including the management and solicitation of orders from
customers, thereby assuming control of its operations. DISI further
insists that Steelcase treated and considered DISI as a mere
conduit, as evidenced by the fact that Steelcase itself directly sold
its products to customers located in the Philippines who were
classified as part of their "global accounts." DISI cited other
established circumstances which prove that Steelcase was doing
business in the Philippines including the following: (1) the sale and
delivery by Steelcase of furniture to Regus, a Philippine client,
through Modernform, a Thai corporation allegedly controlled by
Steelcase; (2) the imposition by Steelcase of certain requirements
over the management and operations of DISI; (3) the
representations made by Steven Husak as Country Manager of
Steelcase; (4) the cancellation by Steelcase of orders placed by
Philippine clients; and (5) the expression by Steelcase of its desire
to maintain its business in the Philippines. Thus, Steelcase has no
legal capacity to sue in Philippine Courts because it was doing
business in the Philippines without a license to do so.
The Court agrees with the petitioner.

The rule that an unlicensed foreign corporations doing business in

the Philippine do not have the capacity to sue before the local
courts is well-established. Section 133 of the Corporation Code of
the Philippines explicitly states:

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.

The phrase "doing business" is clearly defined in Section 3(d) of

R.A. No. 7042 (Foreign Investments Act of 1991), to wit:

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 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; (Emphases supplied)

This definition is supplemented by its Implementing Rules and

Regulations, Rule I, Section 1(f) which elaborates on the meaning
of the same phrase:

f. "Doing business" shall include soliciting orders, service contracts,

opening offices, whether liaison offices or branches; appointing
representatives or distributors, operating under full control of the
foreign corporation, domiciled in the Philippines or who in any
calendar year stay in the country for a period 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.

The following acts shall not be deemed "doing business" in the

Philippines:

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

interest 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. (Emphases supplied)

From the preceding citations, the appointment of a distributor in the

Philippines is not sufficient to constitute "doing business" unless it
is under the full control of the foreign corporation. On the other
hand, if the distributor is an independent entity which buys and
distributes products, other than those of the foreign corporation, for
its own name and its own account, the latter cannot be considered
to be doing business in the Philippines.14 It should be kept in mind
that the determination of whether a foreign corporation is doing
business in the Philippines must be judged in light of the attendant
circumstances.15

In the case at bench, it is undisputed that DISI was founded in 1979

and is independently owned and managed by the spouses Leandro
and Josephine Bantug.16 In addition to Steelcase products, DISI
also distributed products of other companies including carpet tiles,
relocatable walls and theater settings.17 The dealership agreement
between Steelcase and DISI had been described by the owner
himself as:

xxx basically a buy and sell arrangement whereby we would

inform Steelcase of the volume of the products needed for a
particular project and Steelcase would, in turn, give ‘special
quotations’ or discounts after considering the value of the entire
package. In making the bid of the project, we would then add out
profit margin over Steelcase’s prices. After the approval of the bid
by the client, we would thereafter place the orders to Steelcase.
The latter, upon our payment, would then ship the goods to the
Philippines, with us shouldering the freight charges and taxes. 18
[Emphasis supplied]

This clearly belies DISI’s assertion that it was a mere conduit

through which Steelcase conducted its business in the country.
From the preceding facts, the only reasonable conclusion that can
be reached is that DISI was an independent contractor, distributing
various products of Steelcase and of other companies, acting in its
own name and for its own account.

The CA, in finding Steelcase to be unlawfully engaged in business

in the Philippines, took into consideration the delivery by Steelcase
of a letter to Phinma informing the latter that the distribution rights
for its products would be established in the near future, and also its
cancellation of orders placed by Visteon. The foregoing acts were
apparently misinterpreted by the CA. Instead of supporting the
claim that Steelcase was doing business in the country, the said
acts prove otherwise. It should be pointed out that no sale was
concluded as a result of these communications. Had Steelcase
indeed been doing business in the Philippines, it would have readily
accepted and serviced the orders from the abovementioned
Philippine companies. Its decision to voluntarily cease to sell its
products in the absence of a local distributor indicates its refusal to
engage in activities which might be construed as "doing business."
Another point being raised by DISI is the delivery and sale of
Steelcase products to a Philippine client by Modernform allegedly
an agent of Steelcase. Basic is the rule in corporation law that a
corporation has a separate and distinct personality from its
stockholders and from other corporations with which it may be
connected.19 Thus, despite the admission by Steelcase that it owns
25% of Modernform, with the remaining 75% being owned and
controlled by Thai stockholders,20 it is grossly insufficient to justify
piercing the veil of corporate fiction and declare that Modernform
acted as the alter ego of Steelcase to enable it to improperly
conduct business in the Philippines. The records are bereft of any
evidence which might lend even a hint of credence to DISI’s
assertions. As such, Steelcase cannot be deemed to have been
doing business in the Philippines through Modernform.

Finally, both the CA and DISI rely heavily on the Dealer

Performance Expectation required by Steelcase of its distributors
to prove that DISI was not functioning independently from
Steelcase because the same imposed certain conditions pertaining
to business planning, organizational structure, operational
effectiveness and efficiency, and financial stability. It is actually
logical to expect that Steelcase, being one of the major
manufacturers of office systems furniture, would require its dealers
to meet several conditions for the grant and continuation of a
distributorship agreement. The imposition of minimum standards
concerning sales, marketing, finance and operations is nothing
more than an exercise of sound business practice to increase sales
and maximize profits for the benefit of both Steelcase and its
distributors. For as long as these requirements do not impinge on
a distributor’s independence, then there is nothing wrong with
placing reasonable expectations on them.

All things considered, it has been sufficiently demonstrated that

DISI was an independent contractor which sold Steelcase products
in its own name and for its own account. As a result, Steelcase
cannot be considered to be doing business in the Philippines by its
act of appointing a distributor as it falls under one of the exceptions
under R.A. No. 7042.

DISI is estopped from challenging Steelcase’s legal capacity to

sue

Regarding the second issue, Steelcase argues that assuming

arguendo that it had been "doing business" in the Philippines
without a license, DISI was nonetheless estopped from challenging
Steelcase’s capacity to sue in the Philippines. Steelcase claims
that since DISI was aware that it was doing business in the
Philippines without a license and had benefited from such
business, then DISI should be estopped from raising the defense
that Steelcase lacks the capacity to sue in the Philippines by
reason of its doing business without a license.

On the other hand, DISI argues that the doctrine of estoppel cannot
give Steelcase the license to do business in the Philippines or
permission to file suit in the Philippines. DISI claims that when
Steelcase entered into a dealership agreement with DISI in 1986,
it was not doing business in the Philippines. It was after such
dealership was put in place that it started to do business without
first obtaining the necessary license. Hence, estoppel cannot work
against it. Moreover, DISI claims that it suffered as a result of
Steelcase’s "doing business" and that it never benefited from the
dealership and, as such, it cannot be estopped from raising the
issue of lack of capacity to sue on the part of Steelcase.

The argument of Steelcase is meritorious.

If indeed Steelcase had been doing business in the Philippines

without a license, DISI would nonetheless be estopped from
challenging the former’s legal capacity to sue.
It cannot be denied that DISI entered into a dealership agreement
with Steelcase and profited from it for 12 years from 1987 until
1999. DISI admits that it complied with its obligations under the
dealership agreement by exerting more effort and making
substantial investments in the promotion of Steelcase products. It
also claims that it was able to establish a very good reputation and
goodwill for Steelcase and its products, resulting in the
establishment and development of a strong market for Steelcase
products in the Philippines. Because of this, DISI was very proud
to be awarded the "Steelcase International Performance Award" for
meeting sales objectives, satisfying customer needs, managing an
effective company and making a profit.21

Unquestionably, entering into a dealership agreement with

Steelcase charged DISI with the knowledge that Steelcase was not
licensed to engage in business activities in the Philippines. This
Court has carefully combed the records and found no proof that,
from the inception of the dealership agreement in 1986 until
September 1998, DISI even brought to Steelcase’s attention that it
was improperly doing business in the Philippines without a license.
It was only towards the latter part of 1998 that DISI deemed it
necessary to inform Steelcase of the impropriety of the conduct of
its business without the requisite Philippine license. It should,
however, be noted that DISI only raised the issue of the absence
of a license with Steelcase after it was informed that it owed the
latter US$600,000.00 for the sale and delivery of its products under
their special credit arrangement.

By acknowledging the corporate entity of Steelcase and entering

into a dealership agreement with it and even benefiting from it, DISI
is estopped from questioning Steelcase’s existence and capacity
to sue. This is consistent with the Court’s ruling in Communication
Materials and Design, Inc. v. Court of Appeals22 where it was
written:
Notwithstanding such finding that ITEC is doing business in the
country, petitioner is nonetheless estopped from raising this fact to
bar ITEC from instituting this injunction case against it.

A foreign corporation doing business in the Philippines may sue in

Philippine Courts although not authorized to do business here
against a Philippine citizen or entity who had contracted with and
benefited by said corporation. To put it in another way, a party is
estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence applies to a
foreign as well as to domestic corporations. One who has dealt with
a corporation of foreign origin as a corporate entity is estopped to
deny its corporate existence and capacity: The principle will be
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.

The rule is deeply rooted in the time-honored axiom of Commodum

ex injuria sua non habere debet — no person ought to derive any
advantage of his own wrong. This is as it should be for as mandated
by law, "every person must in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith."

Concededly, corporations act through agents, like directors and

officers. Corporate dealings must be characterized by utmost good
faith and fairness. Corporations cannot just feign ignorance of the
legal rules as in most cases, they are manned by sophisticated
officers with tried management skills and legal experts with
practiced eye on legal problems. Each party to a corporate
transaction is expected to act with utmost candor and fairness and,
thereby allow a reasonable proportion between benefits and
expected burdens. This is a norm which should be observed where
one or the other is a foreign entity venturing in a global market.

xxx

By entering into the "Representative Agreement" with ITEC,

petitioner is charged with knowledge that ITEC was not licensed to
engage in business activities in the country, and is thus estopped
from raising in defense such incapacity of ITEC, having chosen to
ignore or even presumptively take advantage of the same.23
(Emphases supplied)

The case of Rimbunan Hijau Group of Companies v. Oriental Wood

Processing Corporation24 is likewise instructive:

Respondent’s unequivocal admission of the transaction which

gave rise to the complaint establishes the applicability of estoppel
against it. Rule 129, Section 4 of the Rules on Evidence provides
that a written admission made by a party in the course of the
proceedings in the same case does not require proof. We held in
the case of Elayda v. Court of Appeals, that an admission made in
the pleadings cannot be controverted by the party making such
admission and are conclusive as to him. Thus, our consistent
pronouncement, as held in cases such as Merril Lynch Futures v.
Court of Appeals, is apropos:

The rule is that a party is estopped to challenge the personality of

a corporation after having acknowledged the same by entering into
a contract with it. And the ‘doctrine of estoppel to deny corporate
existence applies to foreign as well as to domestic corporations;’
"one who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its existence and capacity."
The principle "will be 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 . . ."
All things considered, respondent can no longer invoke petitioner’s
lack of capacity to sue in this jurisdiction.1âwphi1 Considerations
of fair play dictate that after having contracted and benefitted from
its business transaction with Rimbunan, respondent should be
barred from questioning the latter’s lack of license to transact
business in the Philippines.

In the case of Antam Consolidated, Inc. v. CA, this Court noted that
it is a common ploy of defaulting local companies which are sued
by unlicensed foreign corporations not engaged in business in the
Philippines to invoke the latter’s lack of capacity to sue. This
practice of domestic corporations is particularly reprehensible
considering that in requiring a license, the law never intended to
prevent foreign corporations from performing single or isolated acts
in this country, or to favor domestic corporations who renege on
their obligations to foreign firms unwary enough to engage in
solitary transactions with them. Rather, the law was intended to bar
foreign corporations from acquiring a domicile for the purpose of
business without first taking the steps necessary to render them
amenable to suits in the local courts. It was to prevent the foreign
companies from enjoying the good while disregarding the bad.

As a matter of principle, this Court will not step in to shield

defaulting local companies from the repercussions of their business
dealings. While the doctrine of lack of capacity to sue based on
failure to first acquire a local license may be resorted to in
meritorious cases, it is not a magic incantation. It cannot be called
upon when no evidence exists to support its invocation or the facts
do not warrant its application. In this case, that the respondent is
estopped from challenging the petitioners’ capacity to sue has been
conclusively established, and the forthcoming trial before the lower
court should weigh instead on the other defenses raised by the
respondent.25 (Emphases supplied)
As shown in the previously cited cases, this Court has time and
again upheld the principle that a foreign corporation doing business
in the Philippines without a license may still sue before the
Philippine courts a Filipino or a Philippine entity that had derived
some benefit from their contractual arrangement because the latter
is considered to be estopped from challenging the personality of a
corporation after it had acknowledged the said corporation by
entering into a contract with it.26

In Antam Consolidated, Inc. v. Court of Appeals,27 this Court had

the occasion to draw attention to the common ploy of invoking the
incapacity to sue of an unlicensed foreign corporation utilized by
defaulting domestic companies which seek to avoid the suit by the
former. The Court cannot allow this to continue by always ruling in
favor of local companies, despite the injustice to the overseas
corporation which is left with no available remedy.

During this period of financial difficulty, our nation greatly needs to

attract more foreign investments and encourage trade between the
Philippines and other countries in order to rebuild and strengthen
our economy. While it is essential to uphold the sound public policy
behind the rule that denies unlicensed foreign corporations doing
business in the Philippines access to our courts, it must never be
used to frustrate the ends of justice by becoming an all-
encompassing shield to protect unscrupulous domestic enterprises
from foreign entities seeking redress in our country. To do
otherwise could seriously jeopardize the desirability of the
Philippines as an investment site and would possibly have the
deleterious effect of hindering trade between Philippine companies
and international corporations.

WHEREFORE, the March 31, 2005 Decision of the Court of

Appeals and its March 23, 2006 Resolution are hereby
REVERSED and SET ASIDE. The dismissal order of the Regional
Trial Court dated November 15, 1999 is hereby set aside.
Steelcase’s Amended Complaint is hereby ordered REINSTATED
and the case is REMANDED to the RTC for appropriate action.

SO ORDERED.