the gap, the evolution of its statutory definition has produced
Eriks Pte. Ltd. vs. CA Case Digest
Eriks Pte. Ltd. vs. Court of Appeals
[GR 118843, 6 February 1997]
Facts: Eriks Pte. Ltd. is a non-resident foreign corporation
engaged in the manufacture and sale of elements used in
sealing pumps, valves and pipes for industrial purposes, valves
and control equipment used for industrial fluid control and
PVC pipes and fittings for industrial uses. On various dates
covering the period January 17 — August 16, 1989, Delfin
Enriquez, Jr., doing business under the name and style of
Delrene EB Controls Center and/or EB Karmine Commercial,
ordered and received from Eriks Pte. Ltd. various elements
used in sealing pumps, valves, pipes and control equipment,
PVC pipes and fittings. The transfers of goods were perfected
in Singapore, for Enriquez's account, F.O.B. Singapore, with a
90-day credit term. Subsequently, demands were made by
Eriks upon Enriquez to settle his account, but the latter
failed/refused to do so. On 28 August 1991, Eriks filed with the
Regional Trial Court of Makati, Branch 138, Civil Case 91-2373
for the recovery of S$41,939.63 or its equivalent in Philippine
currency, plus interest thereon and damages. Enriquez
responded with a Motion to Dismiss, contending that Eriks had
no legal capacity to sue. In an Order dated 8 March 1993, the
trial court dismissed the action on the ground that Eriks is a
foreign corporation doing business in the Philippines without a
license.
On appeal and on 25 January 1995, the appellate court (CA GR
CV 41275) affirmed said order as it deemed the series of
transactions between Eriks and Enriquez not to be an "isolated
or casual transaction." Thus, the appellate court likewise found
Eriks to be without legal capacity to sue. Eriks filed the petition
for review.
Issue: Whether a foreign corporation which sold its products
16 times over a five-month period to the same Filipino buyer
without first obtaining a license to do business in the
Philippines, is prohibited from maintaining an action to collect
payment therefor in Philippine courts.
Held: Section 133 of the Corporation Code provides that "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 provision prohibits, not merely absence of the prescribed
license, but it also bars a foreign corporation "doing business"
in the Philippines without such license access to Philippine
courts. A foreign corporation without such license is not ipso
facto incapacitated from bringing an action. A license is
necessary only if it is "transacting or doing business" in the
country. However, there is no definitive rule on what
constitutes "doing," "engaging in," or "transacting" business.
The Corporation Code itself does not define such terms. To fill
a rather all-encompassing concept in Republic Act 7042 in this
wise: "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 totaling one
hundred eight(y) (180) days or more; participating in the
management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution
of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase
'doing business' shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such
corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own
name and for its own account." The accepted rule in
jurisprudence is that each case must be judged in the light of
its own environmental circumstances. It should be kept in
mind that the purpose of the law is to subject the foreign
corporation doing business in the Philippines to the jurisdiction
of Philippine courts. It is not to prevent the foreign corporation
from performing single or isolated acts, but to bar it from
acquiring a domicile for the purpose of business without first
taking the steps necessary to render it amenable to suits in the
local courts. Herein, more than the sheer number of
transactions entered into, a clear and unmistakable intention
on the part of Eriks to continue the body of its business in the
Philippines is more than apparent. As alleged in its complaint,
it is engaged in the manufacture and sale of elements used in
sealing pumps, valves, and pipes for industrial purposes, valves
and control equipment used for industrial fluid control and
PVC pipes and fittings for industrial use.
Thus, the sale by Eriks of the items covered by the receipts,
which are part and parcel of its main product line, was actually
carried out in the progressive prosecution of commercial gain
and the pursuit of the purpose and object of its business, pure
and simple. Further, its grant and extension of 90-day credit
terms to Enriquez for every purchase made, unarguably shows
an intention to continue transacting with Enriquez, since in the
usual course of commercial transactions, credit is extended
only to customers in good standing or to those on whom there
is an intention to maintain long-term relationship. The series
of transactions in question could not have been isolated or
casual transactions. What is determinative of "doing business"
is not really the number or the quantity of the transactions, but
more importantly, the intention of an entity to continue the
body of its business in the country. The number and quantity
are merely evidence of such intention. The phrase "isolated
transaction" has a definite and fixed meaning, i.e. a transaction
or series of transactions set apart from the common business
of a foreign enterprise in the sense that there is no intention
to engage in a progressive pursuit of the purpose and object of
the business organization. Whether a foreign corporation is
"doing business" does not necessarily depend upon the
frequency of its transactions, but more upon the nature and
character of the transactions. Given the facts of the case, the
Court cannot see how Eriks' business dealings will fit the
category of "isolated transactions" considering that its
intention to continue and pursue the corpus of its business in
the country had been clearly established. It has not presented
any convincing argument with equally convincing evidence for
the Court to rule otherwise. Accordingly and ineluctably, Eriks
must be held to be incapacitated to maintain the action a quo
against Enriquez.
G.R. No. L-44944 August 9, 1985
TOP-WELD MANUFACTURING, INC., petitioner,
vs.
ECED, S.A., IRTI, S.A., EUTECTIC CORPORATION, VICTOR C.
GAERLAN, and THE HON. COURT OF APPEALS, respondents.
Angara, Conception, Regula & Cruz Law Office for petitioner.
Alonzo Q. Ancheta for respondents.
GUTIERREZ, JR., J.:
This is a petition to review the decision of the Court of
Appeals now Intermediate Appellate Court annulling portions
of the orders issued by Judge Gregorio Pineda of the Court of
First Instance of Rizal.
Petitioner Top-weld Manufacturing, Inc. (Top-weld) is a
Philippine corporation engaged in the business of
manufacturing and selling welding supplies and equipment.
In pursuance of its business, the petitioner entered into
separate contracts with two different foreign entities. One
contract, entitled a "LICENSE AND TECHNICAL ASSISTANCE
AGREEMENT" and dated January 2, 1972 was entered into
with IRTI, S.A., (IRTI), a corporation organized and existing
under the laws of Switzerland with principal office at
Fribourg, Switzerland. By virtue of this agreement, the
petitioner was constituted a licensee of IRTI to manufacture
welding products under certain specifications, with raw
materials to be purchased by the former from suppliers
designated by IRTI, for a period of three (3) years or up to
January 1, 1975. This contract was later extended up to
December 31, 1975 in a subsequent agreement.
The other contract was a "DISTRIBUTOR AGREEMENT" dated
January 1, 1975 entered into with ECED, S.A., (ECED), a
company organized and existing under the laws of Panama
with principal office at Apartado 1903, Panama I, City of
Panama. Under this agreement, the petitioner was
designated as ECED's distributor in the Philippines of certain
welding products and equipment. By its terms, the contract
was to remain effective until terminated by either party upon
giving six (6) months or 180 days written notice to the other.
Upon learning that the two foreign entities were negotiating
with another group to replace the petitioner as their licensee
and distributor, the latter instituted on June 16, 1975, Civil
Case No. 21409 against IRTI, ECED another corporation
named EUTECTIC Corporation, organized under the laws of
the State of New York, U.S.A., and an individual named Victor
C. Gaerlan, a Filipino citizen alleged to be the representative
and employee of these three corporations.
In its complaint, the petitioner sought the issuance of a writ
of preliminary injunction to restrain the corporations from
negotiating with third persons or from actually carrying out
the transfer of its distributorship and franchising rights, It also
asked the court to prohibit the defendants from terminating
their contracts with the petitioner, and if said termination
had already been accomplished, from putting into effect and
carrying out the terms and the consequences of said
termination until after good faith negotiations on existing
contracts between them had been carried out and
completed.
On June 17, 1975, the lower court issued a restraining order
against the corporation pending the hearing on the issuance
of a writ of preliminary injunction.
On July 25,1975, IRTI and ECED wrote Top-weld separate
notices about the termination of their respective contracts.
On September 3,1975, Top-weld filed an amended complaint
together with a supplemental complaint which embodied a
new application for a preliminary mandatory injunction to
compel ECED to ship and deliver various items covered by the
distributorship contract, and to prohibit the corporations
from importing into the Philippines directly or indirectly any
EUTECTIC materials, supplies or equipment except to and/or
through the petitioner.
Among others, the petitioner invoked the provisions of No. 9.
Section 4 of Republic Act 5455 on alien firms doing business
in the Philippines.
The corporations filed their answers setting up as affirmative
defenses violations of the contracts allegedly committed by
the petitioner consisting of the following:
a) Failure to pay respondent IRTI the
stipulated 3% royalties;
 b) The use of other wrong materials in the
manufacture of welding products bearing
the Eutectic label;
c) The use of the wrong core wire in the
manufacture of Eutectic 680;
d) The use of obsolete and antiquated
equipment;
e) Rebranding of other manufactured
welding products or non-Eutectic products
with the Eutectic label;
f) The manufacture and sale of inferior and
substandard quality products bearing the
Eutectic label resulting in numerous
complaints from customers such as Saulog
Transit and Manila Mining Corporation;
g) The falsification of ECED pro-forma
invoices in order to procure Eutectic goods
at lower prices;
h) The illegal channeling of sales of Eutectic
products through the Que Pe Hardware
Store; and
i) The sale of welding products bearing
brands other than Eutectic, such as
Fujiweld, and even Eutectic products not
included in its authority and for which it has
never been supplied by respondent
EUTECTIC with the raw materials for its
manufacture nor with finished products
thereof.
The respondent corporation further alleged that Section 4 (9)
of R.A. No. 5455 cannot possibly apply to the instant case
because:
a) With the violations of the contracts by
the plaintiff and "other just causes" earlier
mentioned, the defendants IRTI and ECED
are fully justified in terminating them
without being obliged to pay any
compensation nor to reimburse plaintiff of
investment or other expenses;
b) In fact, the defendants have sent written
notices dated July 25, 1975 of the
termination of their respective agreements
with plaintiffs; and
c) Since no written certificate was applied
for nor obtained by defendant entities from
the Board of Investments, the latter cannot
legally require of them compliance with No.
9, Section 4, R.A. No, 5455.
On October 9, 1975, the trial court issued an order granting
the petitioner's application for preliminary injunction
embodied in the amended complaint and its application for a
writ of mandatory preliminary injunction embodied in the
supplemental complaint,
The corporations filed with the trial court a motion for
reconsideration.
On December 18, 1975, the trial court issued another order
denying the said motion for reconsideration with respect to
the lifting of the writ of preliminary injunction but granting
the prayer for the lifting of the writ of preliminary mandatory
injunction.
The case was elevated to the Court of Appeals on a petition
for certiorari with preliminary injunction filed by the
corporations. In setting aside the questioned orders, the
appelate court held that:
The determinative question defined by the
contentions of the parties in this case is,
whether or not TOP-WELD may rightfully
invoke the provisions of Sec. 4, Republic Act
No. 5455 to enjoin petitioner corporations
from terminating the subject licensing and
distributorship contracts they have with
TOP-WELD. The pertinent portion of the
provision reads:
Section 4. Licenses to do
business.-No alien, and no
firm, association,
partnership, corporation,
or any other form of
business organization
formed, organized,
chartered or existing
under any laws other than
those of the Philippines,
or which is not a
Philippine National, or
more than thirty per cent
of the outstanding capital
of which is owned or
controlled by aliens shall
do business or engage in
any economic activity in
alien the Philippines, or be
registered, licensed, or
permitted by the
Securities and Exchange
Commission, or by any
other bureau, office,
agency, political
 subdivision, or
instrumentality of the
government, to do
business, or engage in an
economic activity in the
Philippines without first
securing a written
certificate from the Board
of Investments to the
effect ... .
Upon granting said
certificate, the Board shall
impose the following
requirements on the alien
or the firm, association,
partnership, corporation,
or other form of business
organization that is not
organized or existing
under the laws of the
Philippines. ... .
(9) Not to terminate any
franchise, licensing or
other agreement that
applicant may have with a
resident of the
Philippines, authorizing
the latter to assemble,
manufacture or sell within
the Philippines the
products of the applicant,
except for violation
thereof or other just
cause and upon payment
of compensation and
reimbursement and other
expenses incurred by the
licensee in developing a
market for the said
products; Provided.
however, That in case of
disagreement, the
amount of compensation
or reimbursement shall be
determined by the court
where the licensee is
domiciled or has its
principal office who shall
require the applicant to
file a bond in such amount
as, in its opinion, is
sufficient for this purpose.
By the licensing and distributorship
arrangements had with TOPWELD, there is
no doubt that IRTI and ECED were doing
business and engaging in economic activity
in the Philippines (see Sections 1 and 4, R.A.
No. 5455), as a prerequisite to which they
should have first secured a written
certificate from the Board of Investments. It
is not disputed, however, that IRTI and
ECED have not secured such written
certificate in consequence of which there
was no occasion for the Board of
Investments to impose the requirements
prescribed in the aforequoted provisions of
Sec. 4, R.A. No. 5455, among which is that
the grantee of the certificate shall not
terminate any franchise, licensing or other
agreement it may have with a resident of
the Philippines for the assembly,
manufacture or sale within the country of
the products of said grantee, except for
violation thereof or other just cause and
upon payment of compensation and
reimbursement and other expenses
incurred by the resident licensee in
developing a market for said products. In
this case, while the parties are in dispute as
to the existence of a violation of the
contracts involved or of other just cause,
there is no quarrel over the fact that IRTI
and ECED have not paid, and do not intend
to pay, such compensation or
reimbursement contemplated in the law,
maintaining that TOPWELD is not entitled to
the same.
Under the particular situation obtaining in
this case, this Court is of the opinion that
petitioner corporations are not bound by
the requirement on termination, and
TOPWELD cannot invoke the same against
the former. The reason is not simply
because IRTI and ECED, by failing to get the
required certificate from the Board of
Investment, were not made subject by the
said Board to the requirement on
termination, as maintained by petitioners.
To impose such requirement on petitioners
would be to perpetuate, and force them to
remain in, an unlawful business operation.
Moreover, it was incumbent upon
TOPWELD to know whether or not IRTI and
ECED were properly authorized to engage
into the licensing and distributorship
agreements. At the very least TOPWELD has
not come to court with clear hands, and
cannot be heard to invoke the equitable
remedy of injunction to perpetuate an
illegal situation it voluntarily helped bring
about.
 If only for the foregoing considerations,
there appears a grave abuse of discretion
on the part of respondent Judge in issuing
the orders complained of.
Petitioner, TOP-WELD filed this present petition putting in
issue the following assignments of errors:
I foreign corporation's intention to do other business in the
Respondent Court of Appeals committed a
grave error when it held that a foreign
corporation, which is admittedly 'doing
business in the Philippines' but which has
failed to secure the required certificate and
license to do business in the Philippines, is
not subject to the stricture imposed by Sec.
4 (9) of Republic Act No. 5455.
Respondent Court of Appeals committed a
grave error when it held that the failure of
petitioner to know at the outset whether or
not respondents were properly authorized
to engage in business in the Philippines
stops petitioner to invoke the protection of
Sec. 4 (9) of Republic Act No. 5455.
Respondent Court of Appeals committed a
grave error when it held that petitioner
cannot invoke the remedy of injunction
against respondents.
At the vortex of the controversy is the issue whether or not
respondent corporations can be considered as "doing
business" in the Philippines and, therefore, subject to the
provisions of R.A. No. 5455. There is no dispute that
respondents are foreign corporations not licensed to do
business in the Philippines. More important, however, there
is no serious objection interposed by the respondents as to
their amenability to the jurisdiction of our courts.
There is no general rule or governing principle laid down as to
what constitutes "doing" or engaging in" or "transacting"
business in the Philippines. Each case must be judged in the
light of its peculiar circumstances. (Mentholatum Co. V.
Mangaliman, 72 Phil. 524). Thus, a foreign corporation with a
settling agent in the Philippines which issued twelve marine
policies covering different shipments to the Philippines
(General Corporation of the Philippines v. Union Insurance
Society of Canton, Ltd., 87 Phil. 313) and a foreign
corporation which had been collecting premiums on
outstanding policies (Manufacturing Life Insurance Co. v.
Meer, 89 Phil. 351) were regarded as doing business here.
The acts of these corporations should be distinguished from a
single or isolated business transaction or occasional,
incidental and casual transactions which do not come within
the meaning of the law. Where a single act or transaction,
however, is not merely incidental or casual but indicates the
Philippines, said single act or transaction constitutes "doing"
or "engaging in" or "transacting" business in the Philippines.
(Far East International Import and Export Corporation v.
Nankai Kogyo, Co., 6 SCRA 725).
In the Mentholatum Co. v. Mangaliman case earlier cited, this
Court held:
xxx xxx xxx
...
I The true test, however, seems to be
whether
I the foreign corporation is
continuing the body or substance of the
business or enterprise for which it was
organized or whether it has substantially
retired from it and turned it over to
another. (Traction Cos. v. Collectors of Int.
Revenue [C.C.A. Ohio], 223 F. 984, 987.) The
term implies a continuity of commercial
dealings and arrangements, and
contemplates, to that extent, the
performance of acts or works or the
I
exercise of some of the functions normally
I
incident to, and in progressive prosecution
I
of, the purpose and object of its
organization. (Griffin v. Implement Dealers'
Mut. Fire Ins. Co., 241 N.W. 75, 77, Pauline
Oil & Gas Co. v. Mutual Tank Line Co., 246 P.
851, 852, 118 Okl. 111 Automotive Material
Co. v. American Standard Metal Products
Corp., 158 N.E. 698, 703, 327 111. 367.)
Judged by the foregoing standards, we agree with the Court
of Appeals in considering the respondents as "doing business"
in the Philippines. When the respondents entered into the
disputed contracts with the petitioner, they were carrying out
the purposes for which they were created, i.e. to
manufacture and market welding products and equipment.
The terms and conditions of the contracts as well as the
respondents' conduct indicate that they established within
our country a continuous business, and not merely one of a
temporary character. This fact is even more strengthened by
the admission of the respondents that they are negotiating
with another group for the transfer of the distributorship and
franchising rights from the petitioner.
Respondents' acts enabled them to enter into the
mainstream of our economic life in competition with our local
business interests. This necessarily brings them under the
provisions of R.A. No. 5455.
The respondents contend that they should be exempted from
the requirements of R.A. 5455 because the petitioner
maintained an independent status during the existence of the
disputed contracts.
This may be true if the petitioner is an independent entity
which buys and distributes products not only of the petitioner
but also of other manufacturers or transacts business in its
name and for its account and not in the name or for the
account of the foreign principal.
A perusal of the agreements between the petitioner and the
respondents shows that they are highly restrictive in nature.
The agreements provide in part the following terms:
xxx xxx xxx
10. No Sales in Territory by IRTI
IRTI shall not solicitor or cause or permit its
employees, licensees or agents to solicit or
make any sales, directly or indirectly, of
WELDING PRODUCTS within or to the
Philippines. IRTI agrees to refer to LICENSEE
all product inquiries received by IRTI for
WELDING PRODUCTS destined for
Philippines.
xxx xxx xxx
16. x x x x x x x x x
Restrictive Covenant
LICENSEE will not, directly or indirectly,
without the written consent of IRTI at any
time during the continuance of this
Agreement and for a period of two years
after the date of the termination of this
Agreement, engage either directly or
indirectly in the business of selling products
similar to said WELDING PRODUCTS, either
as principal, agent, employee or through
stock or proprietary interests in a third part
entity.
xxx xxx xxx
RESTRICTI
VE COVENANT
6. DISTRIBUTOR shall not during the
continuance of this agreement distribute
products of any other manufacturer or
supplier in the Territory assigned to him,
which are similar to the Products.
Upon the termination of this agreement by
either party, DISTRIBUTOR agrees not to
engage, directly or indirectly, in the
commercialization, distribution and/or
manufacture of products competing with
any EUTECTIC + CASTOLIN products covered
by this agreement, or of products likely to
affect the sale of any EUTECTIC + CASTOLIN
products, either as principal, agent or
employee in the Territory, this prohibition
to extend for a period of two (2) years from
the date of termination, except for the
explicit purpose of selling any remaining
Products still in DISTRIBUTOR's possession
on the date of termination of this
agreement which sales shall not be below
the DISTRIBUTOR's pretermination selling
price for such Products unless such sale is to
ECED or its nominee in which case Clause 19
hereof shall govern.
xxx xxx xxx
We can conclude that assuming the petitioner maintains an
independent status, in essence it merely extends to the
Philippines the business of the foreign corporations.
On the basis of the foregoing, we uphold the appellate court's
finding that "IRTI AND ECED were doing business and
engaging in economic activity in the Philippines ... as a
prerequisite to which they should have first secured a written
certificate from the Board of Investments."
The respondent court, however, erred in holding that "IRTI
and ECED have not secured such written certificate in
consequence of which there is no occasion for the Board of
Investments to impose the requirements prescribed in the
aforequoted provisions of Sec. 4, R.A. No. 5455 ... ." To accept
this view would open the way for an interpretation that by
doing business in the country without first securing the
required written certificate from the Board of Investments, a
foreign corporation may violate or disregard the safeguards
which the law, by its provisions, seeks to establish.
We agree, however, that there is a more compelling reason
behind the finding that the "corporations are not bound by
the requirement on termination, and TOP-WELD cannot
invoke the same against the former."
As between the parties themselves, R.A. No. 5455 does not
declare as void or invalid the contracts entered into without
first securing a license or certificate to do business in the
Philippines. Neither does it appear to intend to prevent the
courts from enforcing contracts made in contravention of its
licensing provisions. There is no denying, though, that an
"illegal situation," as the appellate court has put it, was
created when the parties voluntarily contracted without such
license.
The parties are charged with knowledge of the existing law at
the time they enter into the contract and at the time it is to
become operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall
v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to
be more knowledgeable about his own state law than his
alien or foreign contemporary. In this case, the record shows
that, at least, petitioner had actual knowledge of the
applicability of R.A. No. 5455 at the time the contract was
executed and at all times thereafter. This conclusion is
compelled by the fact that the same statute is now being
propounded by the petitioner to bolster its claim. We,
therefore, sustain the appellate court's view that "it was
incumbent upon TOP-WELD to know whether or not IRTI and
ECED were properly authorized to engage in business in the
Philippines when they entered into the licensing and
distributorship agreements." The very purpose of the law was
circumvented and evaded when the petitioner entered into
said agreements despite the prohibition of R.A. No. 5455. The
parties in this case being equally guilty of violating R.A, No.
5455, they are in pari delicto, in which case it follows as a
consequence that petitioner is not entitled to the relief
prayed for in this case.
In Bough v. Cantiveros (40 Phil. 210), the principle is laid
down in these words: "The rule of pari delicto is expressed in
the maxims "ex dolo malo non eritur actio" and "in pari
delicto potior est conditio defedentis." The law will not aid
either party to an illegal agreement. It leaves the parties
where it finds them."
No remedy could be afforded to the parties because of their
presumptive knowledge that the transaction was tainted with
illegality. (Soriano v. Ong Hoo, 103 Phil. 829). Equity cannot
lend its aid to the enforcement of an alleged right claimed by
virtue of an agreement entered into in contravention of law.
Lastly, we come to the issue of "just cause" for the
termination of the contracts or the alleged violations of the
contracts made by petitioner. Though properly ventilated
below, this factual issue was not determined by both the trial
court and the appellate court.
The record shows that respondents, in opposing the
injunction suit and alleging the violations of the contracts,
submitted and relied on their affidavits. The petitioner,
however, to refute these charges, submitted a "Reply to
Opposition" which is neither verified nor supported by
counter-affidavits. There is no showing in the records before
us whether oral testimony was presented by any of the
parties or whether the affiants were subjected to the test of
cross-examination and if any, what was stated during the oral
testimony.
The burden of overcoming the responsive effect of the
answer is upon the petitioner. He who alleges a fact has the
burden of proving it and a mere allegation is not evidence.
(Legasca v. De Vera, 79 Phil. 376) Hearsay evidence alone may
be insufficient to establish a fact in an injunction suit (Parker
v. Furlong, 62 P. 490) but, when no objection is made thereto,
it is, like any other evidence, to be considered and given the
importance it deserves. (Smith v. Delaware & Atlantic
Telegraph & Telephone Co., 51 A 464). Although we should
warn of the undesirability of issuing judgments solely on the
basis of the affidavits submitted, where as here, said
affidavits are overwhelming, uncontroverted by competent
evidence and not inherently improbable, we are constrained
to uphold the allegations of the respondents regarding the
multifarious violations of the contracts made by the
petitioner. Accordingly, we rule that there exists a just cause
for respondents to move for the termination of their
contracts with the petitioner.
Moreover, the facts on record show that the "License and
Technical Assistance Agreement" between petitioner and
respondent IRTI was extended only for a period of one year or
to be precise, from January 1, 1975 to December 31, 1975.
The original injunction suit was brought in the court a quo in
June1975, the purpose being to stop the respondent from
terminating the contract. This purpose was realized when the
court granted the injunction. By the time respondents' appeal
was decided by the Court of Appeals, it was already past the
extended period. The dispute between the parties had been
rendered moot and academic. It should be stated that the
courts be it the original trial court or the appellate court have
no power to make contracts for the parties. No court would
be justified in extending the life of the contracts, subject of
this controversy, since that would do violence to the basic
principle that contracts must be the voluntary agreements of
parties,
Parties can not be coerced to enter into a contract where no
agreement is had between them as to the principal terms and
condition of the contract (Republic v. Philippine Long Distance
Telephone Co., 26 SCRA 620).
With the above observations, there is nothing more for this
Court to do except to dismiss the petition.
ACCORDINGLY, the petition is hereby dismissed. The
appealed decision of the Court of Appeals is AFFIRMED,
SO ORDERED.
EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and
DELFIN J. WENCESLAO, petitioners, vs.
INGENIEUBURO BIRKHAHN + NOLTE,
Ingeniurgesellschaft mbh and HEERS & BROCKSTEDT
GMBH & CO., respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this Petition for Review under Rule 45 of the
Rules of Court is the Decision[1] of the Court of Appeals dated
May 15, 2003, which sustained the Order of the Regional Trial
Court of Angeles City, Branch 61, dated June 28, 2001, and its
subsequent Resolution dated August 3, 2003 denying
petitioners motion for reconsideration.
European Resources and Technologies Inc. (hereinafter
ERTI), a corporation organized and existing under the laws of
the Republic of the Philippines, is joined by Delfin J. Wenceslao
as petitioner in this case.Ingenieuburo Birkhan + Nolte
Ingiurgesellschaft mbh and Heers & Brockstedt Gmbh & Co.
are German corporations who are respondents in this case and
shall be collectively referred to as the German Consortium.
The German Consortium tendered and submitted its bid
to the Clark Development Corporation (CDC) to construct,
operate and manage
the Integrated Waste Management Center at the Clark Special
Economic Zone (CSEZ). CDC accepted the German Consortiums
bid and awarded the contract to it. On October 6, 1999, CDC
and the German Consortium executed the Contract for
Services[2] which embodies the terms and conditions of their
agreement.
The Contract for Services provides that the German
Consortium shall be empowered to enter into a contract or
agreement for the use of the integrated waste management
center by corporations, local government units, entities, and
persons not only within the CSEZ but also outside. For waste
collected within the CSEZ, the German Consortium may
impose a tipping fee per ton of waste collected from locators
and residents of the CSEZ, which fees shall be subject to the
schedule agreed upon by the parties and specified in the
Contract for Services. For its operations outside of the CSEZ,
the German Consortium shall pay CDC US$1.50 per ton of non-
hazardous solid waste collected.[3] The CDC shall guarantee
that nineteen thousand eighteen hundred (19,800) tons per
year of solid waste volume shall be collected from inside and
outside the CSEZ.[4] The contract has a term of twenty-five (25)
years,[5] during which time the German Consortium shall
operate the waste management center on a day-to-day
basis.[6]
Article VIII, Section 7 of the Contract for Services provides
that the German Consortium shall undertake to organize a
local corporation as its representative for this project. On April
18, 2000, the German Consortium entered into a Joint Venture
with D.M. Wenceslao and Associates, Inc. (DMWAI) and Ma.
Elena B. Villarama (doing business as LBV and Associates),
embodied in a Memorandum of Understanding[7](MOU)
signed by the parties. Under the MOU, the parties agreed to
jointly form a local corporation to which the German
Consortium shall assign its rights under the Contract for
Services. Pursuant to this agreement, petitioner European
Resources and Technologies, Inc. was incorporated. The
parties likewise agreed to prepare and finalize a Shareholders
Agreement within one (1) month from the execution of the
MOU, which shall provide that the German Consortium shall
own fifteen percent (15%) of the equity in the joint venture
corporation, DMWAI shall own seventy percent (70%) and
LBV&A shall own fifteen percent (15%). In the event that the
parties fail to execute the Shareholders Agreement, the MOU
shall be considered null and void.[8]
On August 1, 2000, without the Shareholders Agreement
having been executed, the German Consortium and petitioner
ERTI entered into a Memorandum of Agreement
(MOA)[9] whereby the German Consortium ceded its rights and
obligations under the Contract for Services in favor of ERTI and
assigned unto ERTI, among others, its license from CDC to
engage in the business of providing environmental services
needed in the CSEZ in connection with the waste management
within the CSEZ and other areas.[10] Likewise, the parties
agreed that should there be a disagreement between or
among them relative to the interpretation or implementation
of the MOA and the collateral documents including but not
limited to the Contract for Services between the German
Consortium and CDC, the dispute shall be referred to a panel
of arbitrators.[11]
On December 11, 2000, ERTI received a letter from BN
Consultants Philippines, Inc., signed by Mr. Holger Holst for
and on behalf of the German Consortium,[12] stating that the
German Consortiums contract with DMWAI, LBV&A and ERTI
has been terminated or extinguished on the following grounds:
(a) the CDC did not give its approval to the Consortiums
request for the approval of the assignment or transfer by the
German Consortium in favor of ERTI of its rights and interests
under the Contract for Services; (b) the parties failed to
prepare and finalize the Shareholders Agreement pursuant to
the provision of the MOU; (c) there is no more factual or legal
basis for the joint venture to continue; and (d) with the
termination of the MOU, the MOA is also deemed terminated
or extinguished.
Attached to the letter was a copy of the letter of the
CDC,[13] stating that the German Consortiums assignment of an
eighty-five percent (85%) majority interest to another party
violated its representation to undertake both the financial and
technical aspects of the project. The dilution of the
Consortiums interest in ERTI is a substantial modification of the
Consortiums representations which were used as bases for the
award of the project to it.
On February 20, 2001, petitioner ERTI, through counsel,
sent a letter to CDC requesting for the reconsideration of its
disapproval of the agreement between ERTI and the German
Consortium.
 Before CDC could act upon petitioner ERTIs letter, the
German Consortium filed a complaint for injunction against
herein petitioners before
the Regional Trial Court of Angeles City, Branch 61, docketed
as Civil Case No. 10049. The German Consortium claimed that
petitioner ERTIs continued misrepresentation as to their right
to accept solid wastes from third parties for processing at the
waste management center will cause irreparable damage to
the Consortium and its exclusive right to operate the waste
management center at the CSEZ. Moreover, petitioner ERTIs
acts destroy the Consortiums credibility and undermine
customer confidence in it. Hence, the German Consortium
prayed that a writ of temporary restraining order be issued
against petitioner ERTI and, after hearing, a writ of preliminary
injunction be likewise issued ordering petitioner ERTI to cease
and desist from misrepresenting to third parties or the public
that it has any right or interest in the waste management
center at CSEZ.[14]
Petitioners filed their Opposition to the application for
preliminary injunction on February 7, 2001. The following
day, February 8, 2001, petitioners sent respondents, through
Mr. Holger Holst, a letter demanding that the parties proceed
to arbitration in accordance with Section 17 of the MOA. At the
hearings on the application for injunction, petitioners objected
to the presentation of evidence on the ground that the trial
court had no jurisdiction over the case since the German
Consortium was composed of foreign corporations doing
business in the country without a license. Moreover, the MOA
between the parties provides that the dispute should be
referred to arbitration.
The trial court overruled the objection and proceeded
with the hearing. On June 28, 2001, the trial court issued an
Order granting the writ of preliminary
injunction.[15] Petitioners filed a motion for reconsideration,
which was denied in a Resolution dated November 21, 2001.
On January 17, 2002, petitioners filed a petition for
certiorari and prohibition under Rule 65 of the Rules of Court
before the Court of Appeals, assailing the trial courts Orders
dated June 28, 2001 and November 21, 2001.
Meanwhile, on February 11, 2002, the temporary
restraining order issued was lifted in view of respondents
failure to file sufficient bond.[16] On September 6, 2002, all
proceedings in Civil Case No. 10049 were suspended until the
petition for certiorari pending before the Court of Appeals shall
have been resolved.[17]
On May 15, 2003, the Court of Appeals dismissed the
petition for certiorari. Petitioners Motion for Reconsideration
was denied in a Resolution dated August 25, 2003.
Hence, this petition arguing that the Court of Appeals
committed reversible error in:
(a) Ruling that petitioners are estopped from assailing
the capacity of the respondents to institute
the suit for injunction
(b) Ruling that respondents are entitled to an
injunctive writ.
(c) Not holding that the dispute is covered by the
arbitration clause in the memorandum of
agreement.
(d) Issuing the writ of preliminary injunction that is
tantamount to a decision of the case on the
merits.[18]
The petition is partly meritorious.
There is no general rule or governing principle laid down
as to what constitutes doing or engaging in or transacting
business in the Philippines. Thus, it has often been held that a
single act or transaction may be considered as doing business
when a corporation performs acts for which it was created or
exercises some of the functions for which it was
organized.[19] We have held that the act of participating in a
bidding process constitutes doing business because it shows
the foreign corporations intention to engage in business in
the Philippines. In this regard, it is the performance by a
foreign corporation of the acts for which it was created,
regardless of volume of business, that determines whether a
foreign corporation needs a license or not.[20]
Consequently, the German Consortium is doing business
in the Philippines without the appropriate license as required
by our laws. By participating in the bidding conducted by the
CDC for the operation of the waste management center, the
German Consortium exhibited its intent to transact business in
the Philippines. Although the Contract for Services provided
for the establishment of a local corporation to serve as
respondents representative, it is clear from the other
provisions of the Contract for Services as well as the letter by
the CDC containing the disapproval that it will be the German
Consortium which shall manage and conduct the operations of
the waste management center for at least twenty-five
years. Moreover, the German Consortium was allowed to
transact with other entities outside the CSEZ for solid waste
collection.Thus, it is clear that the local corporation to be
established will merely act as a conduit or extension of the
German Consortium.
As a general rule, unlicensed foreign non-resident
corporations cannot file suits in the Philippines. Section 133 of
the Corporation Code specifically provides:
SECTION 133. No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action, suit
or proceeding in any court or administrative agency of the
Philippines, but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
A corporation has legal status only within the state or
territory in which it was organized. For this reason, a
corporation organized in another country has no personality to
file suits in the Philippines. In order to subject a foreign
corporation doing business in the country to the jurisdiction of
our courts, it must acquire a license from the Securities and
Exchange Commission (SEC) and appoint an agent for service
of process. Without such license, it cannot institute a suit in
the Philippines.[21]
However, there are exceptions to this rule. In a number
of cases,[22] we have declared a party estopped from
challenging or questioning the capacity of an unlicensed
foreign corporation from initiating a suit in our courts. In the
case of Communication Materials and Design, Inc. v. Court of
Appeals,[23] a foreign corporation instituted an action before
our courts seeking to enjoin a local corporation, with whom it
had a Representative Agreement, from using its corporate
name, letter heads, envelopes, sign boards and business
dealings as well as the foreign corporations trademark. The
case arose when the foreign corporation discovered that the
local corporation has violated certain contractual
commitments as stipulated in their agreement. In said case,
we held that a foreign corporation doing business in
the Philippines without license may sue in Philippine Courts a
Philippine citizen or entity that had contracted with and
benefited from it.
Hence, the party is estopped from questioning the
capacity of a foreign corporation to institute an action in our
courts where it had obtained benefits from its dealings with
such foreign corporation and thereafter committed a breach
of or sought to renege on its obligations. The rule relating to
estoppel is deeply rooted in the axiom of commodum ex injuria
sua non habere debetno person ought to derive any advantage
from his own wrong.
In the case at bar, petitioners have clearly not received
any benefit from its transactions with the German
Consortium. In fact, there is no question that petitioners were
the ones who have expended a considerable amount of money
and effort preparatory to the implementation of the
MOA. Neither do petitioners seek to back out from their
obligations under both the MOU and the MOA by challenging
respondents capacity to sue. The reverse could not be any
more accurate. Petitioners are insisting on the full validity and
implementation of their agreements with the German
Consortium.
To rule that the German Consortium has the capacity to
institute an action against petitioners even when the latter
have not committed any breach of its obligation would be
tantamount to an unlicensed foreign corporation gaining
access to our courts for protection and redress. We cannot
allow this without violating the very rationale for the law
prohibiting a foreign corporation not licensed to do business in
the Philippinesfrom suing or maintaining an action in
Philippine courts. The object of requiring a license is not to
prevent the foreign corporation from performing single acts,
but to prevent it from acquiring domicile for the purpose of
business without taking the steps necessary to render it
amenable to suits in the local courts.[24] In other words, the
foreign corporation is merely prevented from being in a
position where it takes the good without accepting the bad.
On the issue of whether the respondents were entitled to
the injunctive writ, the petitioners claim that respondents right
is not in esse but is rather a future right which is contingent
upon a judicial declaration that the MOA has been validly
rescinded. The Court of Appeals, in its decision, held that the
MOA should be deemed subject to a suspensive condition, that
is, that CDCs prior written consent must be obtained for the
validity of the assignment.
This issue must be resolved in a separate proceeding. It
must be noted that the hearing conducted in the trial court
was merely a preliminary hearing relating to the issuance of
the injunctive writ. In order to fully appreciate the facts of this
case and the surrounding circumstances relating to the
agreements and contract involved, further proof should be
presented for consideration of the court. Likewise, corollary
matters, such as whether either of the parties is liable for
damages and to what extent, cannot be resolved with absolute
certainty, thus rendering any decision we might make
incomplete as to fully dispose of this case.
More importantly, it is evident that CDC must be made a
proper party in any case which seeks to resolve the effectivity
or ineffectivity of its disapproval of the assignment made
between petitioners and respondent German
Consortium. Where, as in the instant case, CDC is not
impleaded as a party, any decision of the court which will
inevitably affect or involve CDC cannot be deemed binding on
it.
For the same reason, petitioners assertion that the
instant case should be referred to arbitration pursuant to the
provision of the MOA is untenable.
We have ruled in several cases that arbitration
agreements are valid, binding, enforceable and not contrary to
public policy such that when there obtains a written provision
for arbitration which is not complied with, the trial court
should suspend the proceedings and order the parties to
proceed to arbitration in accordance with the terms of their
agreement.[25] In the case at bar, the MOA between petitioner
ERTI and respondent German Consortium provided:
17. Should there be a disagreement between or among the
Parties relative to the interpretation or implementation of
this Agreement and the collateral documents including but
not limited to the Contract for Services between GERMAN
CONSORTIUM and CDC and the Parties cannot resolve the
same by themselves, the same shall be endorsed to a panel of
arbitrators which shall be convened in accordance with the
process ordained under the Arbitration Law of the Republic of
the Philippines.[26]
Indeed, to brush aside a contractual agreement calling for
arbitration in case of disagreement between parties would be
a step backward.[27] But there are exceptions to this rule. Even
if there is an arbitration clause, there are instances when
referral to arbitration does not appear to be the most prudent unmistakable and that there is an urgent and paramount
action. The object of arbitration is to allow the expeditious necessity for the writ to prevent serious damage.[31] At the
determination of a dispute. Clearly, the issue before us could time of its application for an injunctive writ, respondents right
not be speedily and efficiently resolved in its entirety if we to operate and manage the waste management center, to the
allow simultaneous arbitration proceedings and trial, or exclusion of or without any participation by petitioner ERTI,
suspension of trial pending arbitration.[28] cannot be said to be clear and unmistakable. The MOA
executed between respondents and petitioner ERTI has not yet
As discussed earlier, the dispute between respondent
been judicially declared as rescinded when the complaint was
German Consortium and petitioners involves the disapproval
lodged in court.[32] Hence, a cloud of doubt exists over
by the CDC of the assignment by the German Consortium of its
respondent German Consortiums exclusive right relating to the
rights under the Contract for Services to petitioner waste management center.
ERTI. Admittedly, the arbitration clause is contained in the
MOA to which only the German Consortium and petitioner WHEREFORE, the decision of the Court of Appeals in CA-
ERTI were parties. Even if the case is brought before an G.R. SP No. 68923 dated May 15, 2003 is REVERSED and SET
arbitration panel, the decision will not be binding upon CDC ASIDE. The Orders of the trial court dated June 28,
who is a non-party to the arbitration agreement. What is more, 2001 and November 21, 2001are ANNULLED and SET ASIDE
the arbitration panel will not be able to completely dispose of and Civil Case No. 10049 is DISMISSED for lack of legal capacity
all the issues of this case without including CDC in its of respondents to institute the action. Costs against
proceedings. Accordingly, the interest of justice would only be respondents.
served if the trial court hears and adjudicates the case in a
SO ORDERED.
single and complete proceeding.
Lastly, petitioners question the propriety of the issuance
of writ of preliminary injunction claiming that such is already
tantamount to granting the main prayer of respondents
complaint without the benefit of a trial. Petitioners point out
that the purpose of a preliminary injunction is to prevent
threatened or continuous irremediable injury to some of the
parties before their claims can be thoroughly studied and
decided. It cannot be used to railroad the main case and seek
a judgment without a full-blown trial as in the instant case.
The Court of Appeals ruled that since petitioners did not
raise this issue during the hearing on the application for
preliminary injunction before the trial court, the same cannot
be raised for the first time on appeal and even in special civil
actions for certiorari as in this case.
At the outset, it must be noted that with the finding that
the German Consortium is without any personality to file the
petition with the trial court, the propriety of the injunction writ
issued is already moot and academic. Even assuming for the
sake of argument that respondents have the capacity to file
the petition, we find merit in the issue raised by petitioners
against the injunction writ issued.
Before an injunctive writ can be issued, it is essential that
the following requisites are present: (1) there must be a right
in esse or the existence of a right to be protected; and (2) the
act against which injunction to be directed is a violation of such
right.[29] The onus probandi is on movant to show that there
exists a right to be protected, which is directly threatened by
the act sought to be enjoined. Further, there must be a
showing that the invasion of the right is material and
substantial and that there is an urgent and paramount
necessity for the writ to prevent a serious damage.[30]
Thus, it is clear that for the issuance of the writ of
preliminary injunction to be proper, it must be shown that the
invasion of the right sought to be protected is material and
substantial, that the right of complainant is clear and