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10. San Juan Structural and Steel Fabricators vs CA Case Digest signature, that of Mr.

ature, that of Mr. Reynaldo Gruenberg, President and Chairman of MSC,


is required; that SJSSFI knew this from the very beginning as it was
San Juan Structural and Steel Fabricators vs Court of Appleals presented a copy of the Transfer of Rights at the time the Agreement was
G.R. No. 129459 September 29, 1998 signed; that SJSSFI itself drafted the Agreement and insisted that Mrs.
Gruenberg accept the P100,000.00 as earnest money; that granting, without
Facts: On 14 February 1989, San Juan Structural and Steel Fabricators, Inc. admitting, the enforceability of the agreement, SJSSFI nonetheless failed to
(SJSSFI) entered into an agreement with Motorich Sales Corporation (MSC) pay in legal tender within the stipulated period (up to 2 March 1989); that it
for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the was the understanding between Mrs. Gruenberg and SJSSFI that the Transfer
Acropolis Greens Subdivision located in the District of Murphy, Quezon City, of Rights/Deed of Assignment will be signed only upon receipt of cash
Metro Manila, containing an area of 414 square meters, covered by TCT payment; thus they agreed that if the payment be in check, they will meet at
(362909) 2876 (the lot was still registered in the name of ACL Development a bank designated by SJSSFI where they will encash the check and sign the
Corporation [ADC] at that time). As stipulated in the Agreement of 14 Transfer of Rights/Deed, but that SJSSFI informed Mrs. Gruenberg of the
February 1989, SJSSFI paid the downpayment in the sum of P100,000.00, alleged availability of the check, by phone, only after banking hours.
the balance to be paid on or before 2 March 1989. On 1 March 1989, Mr.
Andres T. Co, SJSSFI president, wrote a letter to MSC requesting for a On the basis of the evidence, and on 18 June 1994, the Regional Trial Court
computation of the balance to be paid. Said letter was coursed through of Makati, Metro Manila, Branch 63 (Civil Case 89-3511) rendered judgment,
MSC's broker, Linda Aduca, who wrote the computation of the balance. On 2 dismissing SJSSFI's complaint, finding that Nenita Lee Gutenberg was not
March 1989, SJSSFI was ready with the amount corresponding to the authorized by the corporation to dispose of the property as such disposition
balance, covered by Metrobank Cashier's Check 004223, payable to MSC. is governed by the requirements of Section 40, Corporation Code; and that
SJSSFI and MSC were supposed to meet in the office of SJSSFI but MSC's Nenita Lee Gutenberg did not in anyway misrepresent herself to be
treasurer, Nenita Lee Gruenberg, did not appear. MSC, despite repeated authorized by the corporation to sell the property to SJSSFI. The trial court
demands and in utter disregard of its commitments had refused to execute also dismissed the counterclaim. SJSSFI appealed. On 18 March 1997, the
the Transfer of Rights/Deed of Assignment which is necessary to transfer the Court of Appeals (CA GR CV 46801) modified the decision of the trial court
certificate of title. by ordering Nenita Lee Gutenberg to refund or return to SJSSFI the
downpayment of P100,000.00 which she received from the latter. SJSSFI
On 6 April 1989, ADC and MSC entered into a Deed of Absolute Sale moved for reconsideration, which was denied by the appellate court on 10
whereby the former transferred to the latter the subject property. By reason June 1997. SJSSFI filed the Petition for Review on Certiorari. SJSSFI argues,
of said transfer, the Registry of Deeds of Quezon City issued a new title in among others, that the veil of corporate fiction of MSC should be pierced,
the name of MSC, represented by Nenita Lee Gruenberg and Reynaldo L because the latter is a close corporation. Since "Spouses Reynaldo L.
Gruenberg, under Transfer Certificate of Title 3571. SJSSFI filed the Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to
complaint for damages against MSC, and Nenita Lee Gruenberg, as a result be accurate, of the subscribed capital stock" 25 of Motorich, petitioner
of the latter’s alleged bad faith in refusing to execute a formal Transfer of argues that Gruenberg needed no authorization from the board to enter
Rights/Deed of Assignment. It impleaded ADC and JNM Realty & into the subject contract. It adds that, being solely owned by the Spouses
Development Corp. (JRDC) as necessary parties, since Transfer Certificate of Gruenberg the company can be treated as a close corporation which can be
Title (362909) 2876 was in the name of ADC, and that JRDC is the transferor bound by the acts of its principal stockholder who needs no specific
of right in favor of MDC. In its answer, MSC and Nenita Lee Gruenberg authority.
interposed as affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to; that Mrs. Gruenberg's
signature on the agreement is inadequate to bind MSC as the other
Issue: Whether MSC is a close corporation, based on the fact that almost all
of the shares of stock of the corporation are owned by said treasurer and
her husband.

Held: Section 96 of the Corporation Code defines a close corporation


provides that "A close corporation, within the meaning of this Code, is one
whose articles of incorporation provide that: (1) All of the corporation's
issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding
twenty (20); (2) All of the issued stock of all classes shall be subject to one or
more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering
of any of its stock of any class. Notwithstanding the foregoing, a corporation
shall be deemed not a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation
which is not a close corporation within the meaning of this Code." The
articles of incorporation of MSC does not contain any provision stating that
(1) the number of stockholders shall not exceed 20, or (2) a preemption of
shares is restricted in favor of any stockholder or of the corporation, or (3)
listing its stocks in any stock exchange or making a public offering of such
stocks is prohibited. From its articles, it is clear that MSC is not a close
corporation. MSC does not become one either, just because Spouses
Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital
stock. The mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personalities.
So, too, a narrow distribution of ownership does not, by itself, make a close
corporation.
DOCTRINE: A corporation sole, may be converted into a corporation
aggregate by a mere amendment of its articles of incorporation. Although
the Corporation Code does not provide for a manner by which a corporation
sole may amend its articles of incorporation, Sec. 109 allows the application
to religious corporations of the general provisions governing non-stock
corporations. Thus, a corporation sole may amend its articles of
11. Iglesia Evangelica v. Bishop Nathanael Lazaro incorporation by a decision of its lone member with the concurrence of 2/3
of its membership
FACTS:
July 06, 2010  1909 - Bishop Nicolas Zamora established Iglesia Evangelica Metodista
IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF) En Las Islas Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop
(CORPORATION SOLE), INC., REV. NESTOR PINEDA, REV. ROBERTO BACANI, Zamora acting as its "General Superintendent."
BENJAMIN BORLONGAN, JR., DANILO SAUR, RICHARD PONTI, ALFREDO  1948 (39 yrs. later) - IEMELIF enacted and registered a by-laws that
MATABANG AND ALL THE OTHER MEMBERS OF THE IEMELIF TONDO established a Supreme Consistory of Elders (the Consistory), made up of
CONGREGATION OF THE IEMELIF CORPORATION SOLE, petitioners, vs. church ministers, who were to serve for 4 years.
BISHOP NATHANAEL LAZARO, REVERENDS HONORIO RIVERA, DANIEL o The by-laws empowered the Consistory to elect a General
MADUCDOC, FERDINAND MERCADO, ARCADIO CABILDO, DOMINGO
Superintendent, a General Secretary, a General Evangelist, and a
GONZALES, ARTURO LAPUZ, ADORABLE MANGALINDAN, DANIEL VICTORIA
Treasurer General who would manage the affairs of the
AND DAKILA CRUZ, AND LAY LEADER LINGKOD MADUCDOC AND CESAR
organization.
DOMINGO, ACTING INDIVIDUALLY AND AS MEMBERS OF THE SUPREME
o For all intents and purposes, the Consistory served as the
CONSISTORY OF ELDERS AND THOSE CLAIMING UNDER THE CORPORATION
IEMELIF's board of directors.
AGGREGATE, respondents.
 Apparently, although the IEMELIF remained a corporation sole on paper
ABAD, J.
(with all corporate powers theoretically lodged in the hands of one
SUMMARY: While IEMELIF remained a sole corporation on paper, it had
member, the General Superintendent), it had always acted like a
always acted like a corporation aggregate, hence, in their 1973 General
corporation aggregate.
Conforence, the general membership of IEMELIF voted to have IEMELIF
o The Consistory exercised IEMELIF's decision-making powers
reorganized from a corporation sole to a corporation aggregate. In 2001,
without ever being challenged.
acting on the advice of the SEC, it amended its AOI with the approval of its
 1973 General Conference - The general membership voted to put things
general membership to effect the conversion. A faction within the IEMELIF,
right by changing IEMELIF's organizational structure from a corporation
however, opposed the conversion and filed a case in the RTC in the name of
sole to a corporation aggregate.
IEMELIF. Said opposing faction argued that to convert IEMELIF, the
 May 7, 1973 - SEC approved the vote.
corporation sole must first be dissolved and a new corporation must be
incorporated. RTC dismissed the case. CA affirmed. HELD: The amendment  For some reasons, however, the corporate papers of the IEMELIF
to the AOI and the conversion effected was valid. Although the Code does remained unaltered as a corporation sole.
not provide for a manner by which a corporation sole may amend its AOI,  2001 (28 years later) - The issue reemerged.
Sec. 109 allows the application to religious corporations of the general  Apr. 3, 2001 - In answer to a query from the IEMELIF, the SEC replied
provisions governing non-stock corporation. Thus, a corporation sole may that, although the SEC Commissioner did not in 1948 object to the
amend its AOI by a decision of its lone member with the concurrence of conversion of the IEMELIF into a corporation aggregate, that conversion
two-thirds of its membership. was not properly carried out and documented.
o IEMELIF needed to amend its articles of incorporation for that  CA: Affirmed RTC. MR denied, hence present petition for review.
purpose. ISSUE: Whether or not a corporation may change its character as a
 Acting on this advice, the Consistory resolved to convert the IEMELIF to corporation sole into a corporation aggregate by mere amendment of its
a corporation aggregate. articles of incorporation without first going through the process of
o Respondent Bishop Nathanael Lazaro, its General dissolution? (YES)
Superintendent, instructed all their congregations to take up the RATIO:
matter with their respective members for resolution.  Pineda, et al: Since the Corporation Code does not have any provision
 Subsequently, the general membership approved the conversion, that allows a corporation sole to convert into a corporation aggregate by
prompting the IEMELIF to file amended articles of incorporation with mere amendment of its articles of incorporation, the conversion can
the SEC. take place only by first dissolving IEMELIF, the corporation sole, and
o Bishop Lazaro filed an affidavit-certification in support of the afterwards by creating a new corporation in its place.
conversion.  SC: No.
 Petitioners Reverend Nestor Pineda, et al., which belonged to a faction  Religious corporations are governed by Sections 109 through 116 of the
that did not support the conversion, filed a civil case for "Enforcement of Corporation Code.
Property Rights of Corporation Sole, Declaration of Nullity of Amended  Corporation Sole v. Corporation Aggregate (2009 case involving
Articles of Incorporation from Corporation Sole to Corporation IEMELIF):
Aggregate with Application for Preliminary Injunction and/or TRO" in o Corporation Sole: one formed by the chief archbishop, bishop,
IEMELIF's name against Lazaro et al. (resp.), members of its Consistory, priest, minister, rabbi or other presiding elder of a religious
before RTC Manila. denomination, sect, or church, for the purpose of administering
o A complete shift from IEMELIF's status as a corporation sole to a or managing, as trustee, the affairs, properties and temporalities
corporation aggregate required, not just an amendment of the of such religious denomination, sect or church." (Sec. 110)
IEMELIF's articles of incorporation, but a complete dissolution of o Corporation Aggregate: formed for the same purpose; consists
the existing corporation sole followed by a re-incorporation. of 2 or more persons.
 RTC: Dismissed action. While the Corporation Code on Religious  True, the Corporation Code provides no specific mechanism for
Corporations (Chapter II, Title XIII) has no provision governing the amending the articles of incorporation of a corporation sole. But Sec.
amendment of the articles of incorporation of a corporation sole, Sec. 109 allows the application to religious corporations of the general
109 provides that religious corporations shall be governed additionally provisions governing non-stock corporations.
"by the provisions on non-stock corporations insofar as they may be  For non-stock corporations, the power to amend its articles of
applicable." incorporation lies in its members. The code requires 2/3 of their votes
o Sec. 161 that governed amendments of the articles of for the approval of such an amendment.
incorporation of non-stock corporations applied to corporations  How will this requirement apply to a corporation sole that has
sole as well. technically but one member (the head of the religious organization) who
o What IEMELIF needed, to authorize the amendment, was holds in his hands its broad corporate powers over the properties, rights,
merely the vote or written assent of at least 2/3 of the IEMELIF and interests of his religious organization?
membership.  Although a non-stock corporation has a personality that is distinct from
those of its members who established it, its articles of incorporation
1 Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code or by special cannot be amended solely through the action of its board of trustees.
law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be
amended by a majority vote of the board of directors or trustees and the vote or written assent of the The amendment needs the concurrence of at least 1/3 of its
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the
appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written
membership.
assent of at least two-thirds (2/3) of the members if it be a non-stock corporation.
 If such approval mechanism is made to operate in a corporation sole, its o if the prescribed form of the articles of incorporation or
one member in whom all the powers of the corporation technically amendment to it is not observed, or
belongs, needs to get the concurrence of two-thirds of its membership. o if the purpose or purposes of the corporation are patently
 The one member, here the General Superintendent, is but a trustee, unconstitutional, illegal, immoral, or contrary to government
according to Sec. 110, of its membership. rules and regulations, or
 As to dissolution: No point to dissolving the corporation sole of one o if the required percentage of ownership is not complied with.
member to enable the corporation aggregate to emerge from it.  CAB: These impediments do not appear in the case of IEMELIF.
o Whether it is a non-stock corporation or a corporation sole, the  Besides the IEMELIF worked out the amendment of its articles of
corporate being remains distinct from its members, whatever be incorporation upon the initiative and advice of the SEC. Considering its
their number. experience and specialized capabilities in the area of corporation law,
o The increase in the number of its corporate membership does the SEC's prior action on the IEMELIF issue should be accorded great
not change the complexion of its corporate responsibility to weight.
third parties. DISPOSITION: Petition DENIED. CA AFFIRMED.
o The 1 member, with the concurrence of 2/3 of the membership
of the organization for whom he acts as trustee, can self-will the CARPIO, J., Separate Concurring Opinion
amendment.  I concur in the result of the majority opinion that IEMELIF, a corporation
o He can, with membership concurrence, increase the technical sole, may be converted into a corporation aggregate by a mere
number of the members of the corporation from "sole" or one amendment of its articles of incorporation.
to the greater number authorized by its amended articles.  However, I maintain that the amendment can be effected by the
 CAB: IEMELIF's General Superintendent, Bishop Lazaro, who embodied corporation sole without the concurrence of 2/3 of the members of the
the corporation sole, had obtained, not only the approval of the religious denomination, sect or church that the corporation sole
Consistory that drew up corporate policies, but also that of the required represents.
2/3 vote of its membership.  First. Sec. 110 provides that a corporation sole administers and
 The amendment of the articles of incorporation requires merely that: manages, as trustee, the affairs, properties and temporalities of the
o a) the amendment is not contrary to any provision or religious denomination, sect or church.
requirement under the Corporation Code, and o As a trustee, a corporation sole can exercise such corporate
o b) it is for a legitimate purpose. powers as maybe necessary to carry out its duties of
 Sec. 172 provides that amendment shall be disapproved: administering and managing the affairs, properties and
temporalities of the religious organization, provided that such
2 Sec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. - The
powers are not inconsistent with the law and the Constitution.
Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment
thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission o One of the powers authorized under Sec. 36 is the power to
shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of
the articles or amendment. The following are grounds for such rejection or disapproval: amend the articles of incorporation.
1. That the articles of incorporation or any amendment thereto is not substantially in accordance with
the form prescribed herein;
 Second. Sec. 109 allows the application to religious corporations of the
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or general provisions governing non-stock corporations, insofar as they
contrary to government rules and regulations;
3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if may be applicable. The lack of specific provision on amendments of
4.
false;
That the percentage of ownership of the capital stock to be owned by citizens of the Philippines
articles of incorporation of a corporation sole calls for the suppletory
has not been complied with as required by existing laws or the Constitution. application of relevant provisions on non-stock corporations
No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking
institutions, building and loan associations, trust companies and other financial intermediaries, insurance o Sec. 16. Amendment of Articles of Incorporation. Unless
companies, public utilities, educational institutions, and other corporations governed by special laws shall be
accepted or approved by the Commission unless accompanied by a favorable recommendation of the otherwise prescribed by this Code or by special law, and for
appropriate government agency to the effect that such articles or amendment is in accordance with law.
legitimate purposes, any provision or matter stated in the sold or mortgaged by obtaining an order from the RTC
articles of incorporation may be amended by a majority vote of of the province where the property is situated.
the board of directors or trustees and the vote or written assent o On the other hand, the sale or other disposition of all or
of the stockholders representing at least two-thirds (2/3) of the substantially all of the properties and assets of a corporation
outstanding capital stock, without prejudice to the appraisal aggregate shall be governed by Sec. 40 which applies to stock
right of dissenting stockholders in accordance with the and non-stock corporations.
provisions of this Code, or the vote or written assent of at least  Under this section, the sale, lease, exchange, mortgage,
two-thirds (2/3) of the members if it be a non-stock corporation. pledge or disposition of all or substantially all of the
 Majority: Applying above provision, amendment can be made by the properties and assets of the corporation may generally
corporation sole with the concurrence of at least 2/3 of the members of be done through a majority vote of its board of trustees,
the religious organization it represents. and the vote of at least 2/3 of its members in a
 Carpio: No. Sec. 16 requires the majority vote of the board of trustees members' meeting duly called for that purpose.
and the vote or written assent of at least 2/3 of the members of a non-  Unlike in the case of a corporation sole, a corporation
stock corporation. Applying this, a corporation sole, as the lone trustee aggregate may not apply its own rules, regulations and
and member of the corporation, can amend its articles of incorporation. discipline in selling all or substantially all of its
 Sec. 16 refers to the members of the corporation. Again, in the case of a properties, as this process shall be governed by secular
corporation sole, there is only 1 member--the chief archbishop, bishop, principles and rules of law.
priest, minister, rabbi or presiding elder--who is also the trustee of the
corporation.
 The religious denomination, sect or church represented by the
corporation sole has members who are distinct and different from the
member of the corporation sole.
 The members of the religious organization should not be considered for
purposes of Sec. 16. Thus, the votes of those members are not
necessary in amending the articles of incorporation of the corporation
sole, the vote of the latter being sufficient in effecting the amendment
 Once the conversion from corporation sole to corporation aggregate is
perfected, the provisions specifically designed for a corporation sole
cease to apply to the corporation aggregate, and the latter shall be
governed by the relevant provisions on non-stock or even stock
corporations.
 For instance, the rules on the sale of properties of a corporation sole are
governed by Sec. 113.
o The corporation sole may sell or mortgage real properties held
by it in accordance with the rules, regulations and discipline of
the religious denomination, sect or church concerned.
 It is only in the absence of such rules that court
intervention becomes necessary, and real properties are
through Joseph Tan Yoc Su, executed a joint and several promissory note
with Carlos Gelano in favor of said bank in the amount of P8,000.00 payable
in 60 days. For failure of Carlos Gelano to pay the promissory note upon
maturity, the bank collected from the ISI the amount of P9,106.00 including
interests, by debiting it from the corporation's current account with the
bank. Carlos Gelano was able to pay ISI the amount of P5,000.00 but the
12. Gelano vs CA Case Digest balance of P4,106.00 remained unsettled. Guillermina M. Gelano refused to
pay on the ground that she had no knowledge about the accommodation
Gelano vs. Court of Appeals made by ISI in favor of her husband.
[GR L-39050, 24 February 1981]
On 29 May 1959, ISI, thru Atty. German Lee, filed a complaint for collection
Facts: Insular Sawmill, Inc. (ISI) is a corporation organized on 17 September against the spouses before the Court of First Instance of Manila. Trial was
1945 with a corporate life of 50 years, or up to 17 September 1995, with the held and when the case was at the stage of submitting memorandum, Atty.
primary purpose of carrying on a general lumber and sawmill business. To Lee retired from active law practice and Atty. Eduardo F. Elizalde took over
carry on this business, ISI leased the paraphernal property of Carlos Gelano's and prepared memorandum. In the meantime, ISI amended its Articles of
wife Guillermina Mendoza-Gelano at the corner of Canonigo and Otis, Paco, Incorporation to shorten its term of existence up to 31 December 1960 only.
Manila for P1,200.00 a month. It was while ISI was leasing the aforesaid The amended Articles of Incorporation was filed with, and approved by the
property that its officers and directors had come to know Carlos Gelano who Securities and Exchange Commission, but the trial court was not notified of
received from the corporation cash advances on account of rentals to be the amendment shortening the corporate existence and no substitution of
paid by the corporation on the land. Between 19 November 1947 to 26 party was ever made. On 20 November 1964 and almost 4 years after the
December 1950 Carlos Gelano obtained from ISI cash advances of dissolution of the corporation, the trial court rendered a decision in favor of
P25,950.00. The said sum was taken and received by Carlos Gelano on the ISI ordering Carlos Gelano to pay ISI the sum of P19,650.00 with interest
agreement that ISI could deduct the same from the monthly rentals of the thereon at the legal rate from the date of the filing of the complaint on 29
leased premises until said cash advances are fully paid. Out of the May 1959 until said sum is fully paid; and P4,106.00, with interest thereon
aforementioned cash advances in the total sum of P25,950.00, Carlos at the legal rate from the date of the filing of the complaint until said sum is
Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance of fully paid; and the sum of P2,000.00 attorney's fees. The Court also ordered
P20,000.00 which he refused to pay despite repeated demands by ISI. the spouses to solidarily pay ISI the sum of P946.46, with interest thereon at
Guillermina M. Gelano refused to pay on the ground that said amount was the agreed rate of 12% per annum from 6 October 1946, until said sum is
for the personal account of her husband asked for by, and given to him, fully paid; P550.00, with interest thereon at the legal rate from the date of
without her knowledge and consent and did not benefit the family. the filing of the complaint until the said sum is fully paid; and costs of the
suit.
On various occasions from 4 May 1948 to 11 September 1949 the Spouses
Gelano also made credit purchases of lumber materials from ISI with a total The court dismissed the counterclaims of the spouses. Both parties
price of P1,120.46 in connection with the repair and improvement of the appealed to the Court of Appeals, with ISI ppealing because it insisted that
spouses' residence. On 9 November 1949 partial payment was made by the both Carlos Gelano and Guillermina Gelano should be held liable for the
spouses in the amount of P91.00 and in view of the cash discount in favor of substantial portion of the claim. On 23 August 1973, the Court of Appeals
the spousesin the amount of P83.00, the amount due ISI on account of rendered a decision modifying the judgment of the trial court by holding the
credit purchases of lumber materials is P946.46 which the spouses failed to spouses jointly and severally liable on ISI's claim and increasing the award of
pay. On 14 July 1952, in order to accommodate and help the spouses renew P4,106.00 to P8,160.00. After the spouses received a copy of the decision on
previous loans obtained by them from the China Banking Corporation, ISI,
24 August 1973, they came to know that the ISI was dissolved way back on Section 78 of the Corporation Law and as such, ISI could still continue
31 December 1960. prosecuting the present case even beyond the period of 3 years from the
time of its dissolution. Further, the case was instituted on 29 May 1959,
Hence, the spouses filed a motion to dismiss the case and or reconsideration during the time when the corporation was still very much alive. Any
of the decision of the Court of Appeals on grounds that the case was litigation filed by or against it instituted within the period, but which could
prosecuted even after dissolution of ISI as a corporation and that a defunct not be terminated, must necessarily prolong that period until the final
corporation cannot maintain any suit for or against it without first complying termination of said litigation as otherwise corporations in liquidation would
with the requirements of the winding up of the affairs of the corporation lose what should justly belong to them or would be exempt from the
and the assignment of its property rights within the required period. payment of just obligations through a mere technicality, something that
Incidentally, after the receipt of the spouses' motion to dismiss and/or courts should prevent.
reconsideration or on 28 October 1973, ISI thru its former directors filed a
Petition for Receivership before the Court of First Instance of Manil (Special
Proceedings 92303), which petition is still pending before said court. On 5
November 1973, ISI filed a comment on the motion to dismiss and/or
reconsideration and after the parties have filed reply and rejoinder, the
Court of Appeals on 5 July 1974 issued a resolution denying the aforesaid
motion. The spouses filed the petition for review.

Issue: Whether a corporation, whose corporate life had ceased by the


expiration of its terms of existence, could still continue prosecuting and
defending suits after its dissolution and beyond the period of 3 years
provided for under Act 1459, otherwise known as the Corporation Law, to
wind up its affairs, without having undertaken any step to transfer its assets
to a trustee or assignee.

Held: When ISI was dissolved on 31 December 1960, under Section 77 of the
Corporation Law, it still has the right until 31 December 1963 to prosecute in
its name the present case. After the expiration of said period, the
corporation ceased to exist for all purposes and it can no longer sue or be
sued. However, a corporation that has a pending action and which cannot be
terminated within the 3-year period after its dissolution is authorized under
Section 78 to convey all its property to trustees to enable it to prosecute and
defend suits by or against the corporation beyond the 3-year period.
Although ISI did not appoint any trustee, yet the counsel who prosecuted
and defended the interest of the corporation in the present case and who in
fact appeared in behalf of the corporation may be considered a trustee of
the corporation at least with respect to the matter in litigation only. Said
counsel had been handling the case when the same was pending before the
trial court until it was appealed before the Court of Appeals and finally to
the Supreme Court. Therefore, there was a substantial compliance with
On November 28, 2002, Air Canada filed a written claim for refund of
alleged erroneously paid income taxes amounting to ₱5,185,676.77 before
the Bureau of Internal Revenue (BIR). It’s basis was found in the revised
definition of Gross Philippine Billings under Section 28(A)(3)(a) of the 1997
National Internal Revenue Code (NIRC)3.

13. AIR CANADA v. CIR


To prevent the running of the prescriptive period, Air Canada filed a Petition
G.R. 169507 for Review before the Court of Tax Appeals (CTA).

January 11, 2016

The CTA denied the petition. It found that Air Canada was engaged in
business in the Philippines through a local agent that sells airline tickets on
FACTS:
its behalf. As such, it held that while Air Canada was not liable for tax on its
Air Canada is a foreign corporation organized and existing under the laws of Gross Philippine Billings under Section 28(A)(3), it was nevertheless liable to
Canada. On April 24, 2000, it was granted an authority to operate as an pay the 32% corporate income tax on income derived from the sale of airline
offline carrier by the Civil Aeronautics Board, subject to certain conditions,
which authority would expire on April 24, 2005. As an off-line carrier, Air 3 SEC. 28. Rates of Income Tax on Foreign Corporations. -
Canada does not have flights originating from or coming to the Philippines (A) Tax on Resident Foreign Corporations. -
and does not operate any airplane in the Philippines.
....

(3) International Carrier. - An international carrier doing business in the Philippines


shall pay a tax of two and one-half percent (2 1/2%) on its ‘Gross Philippine Billings’
On July 1, 1999, Air Canada engaged the services of Aerotel Ltd., Corp.
as defined hereunder:
(Aerotel) as its general sales agent in the Philippines. Aerotel sells Air
Canada’s passage documents in the Philippines. (a) International Air Carrier. - ‘Gross Philippine Billings’ refers to the amount of
gross revenue derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the ticket
For the period ranging from the third quarter of 2000 to the second quarter or passage document: Provided, That tickets revalidated, exchanged and/or
of 2002, Air Canada, through Aerotel, filed quarterly and annual income tax indorsed to another international airline form part of the Gross Philippine Billings
if the passenger boards a plane in a port or point in the Philippines: Provided,
returns and paid the income tax on Gross Philippine Billings in the total
further, That for a flight which originates from the Philippines, but transshipment
amount of ₱5,185,676.77. of passenger takes place at any port outside the Philippines on another airline,
only the aliquot portion of the cost of the ticket corresponding to the leg flown
from the Philippines to the point of transshipment shall form part of Gross
Philippine Billings. (Emphasis supplied)
tickets within the Philippines pursuant to Section 28(A)(1). On appeal, the The Court in Commissioner of Internal Revenue v. British Overseas
CTA En Banc affirmed the ruling of the CTA First Division. Airways Corporation declared British Overseas Airways Corporation, an
international air carrier with no landing rights in the Philippines, as a
resident foreign corporation engaged in business in the Philippines
through its local sales agent that sold and issued tickets for the airline
ISSUES & HELD: company. According to said case, there is no specific criterion as to what
constitutes “doing” or “engaging in” or “transacting” business. Each case
1) Whether Air Canada is subject to the 2½% tax on Gross Philippine must be judged in the light of its peculiar environmental circumstances.
Billings pursuant to Section 28(A)(3). The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or
NO. Air Canada is not is not liable to tax on Gross Philippine Billings the exercise of some of the functions normally incident to, and in
under Section 28(A)(3). The tax attaches only when the carriage of progressive prosecution of commercial gain or for the purpose and
persons, excess baggage, cargo, and mail originated from the Philippines object of the business organization.
in a continuous and uninterrupted flight, regardless of where the
passage documents were sold. Not having flights to and from the An offline carrier is “any foreign air carrier not certificated by the Civil
Philippines, petitioner is clearly not liable for the Gross Philippine Aeronautics Board, but who maintains office or who has designated or
Billings tax. appointed agents or employees in the Philippines, who sells or offers for
sale any air transportation in behalf of said foreign air carrier and/or
2) If not, whether Air Canada is a resident foreign corporation engaged in others, or negotiate for, or holds itself out by solicitation, advertisement,
trade or business and thus, can be subject to the regular corporate or otherwise sells, provides, furnishes, contracts, or arranges for such
income tax of 32% pursuant to Section 28(A)(1); transportation.”

YES. Petitioner falls within the definition of resident foreign corporation Petitioner is undoubtedly “doing business” or “engaged in trade or
under Section 28(A)(1)4, thus, it may be subject to 32% tax on its taxable business” in the Philippines. In the case at hand, Aerotel performs acts
income. or works or exercises functions that are incidental and beneficial to the
purpose of petitioner’s business. The activities of Aerotel bring direct
receipts or profits to petitioner. Further, petitioner was issued by the
Civil Aeronautics Board an authority to operate as an offline carrier in
4 SEC. 28. Rates of Income Tax on Foreign Corporations. - the Philippines for a period of five years. Petitioner is, therefore, a
resident foreign corporation that is taxable on its income derived from
(A) Tax on Resident Foreign Corporations. - sources within the Philippines.

(1) In General. - Except as otherwise provided in this Code, a corporation 3) Whether the Republic of the Philippines-Canada Tax Treaty is
organized, authorized, or existing under the laws of any foreign country,
enforceable;
engaged in trade or business within the Philippines, shall be subject to an
income tax equivalent to thirty-five percent (35%) of the taxable income
YES. While petitioner is taxable as a resident foreign corporation under
derived in the preceding taxable year from all sources within the Philippines:
Provided, That effective January 1, 1998, the rate of income tax shall be thirty-
Section 28(A)(1) on its taxable income from sale of airline tickets in the
four percent (34%); effective January 1, 1999, the rate shall be thirty-three Philippines, it could only be taxed at a maximum of 1½% of gross
percent (33%); and effective January 1, 2000 and thereafter, the rate shall be revenues, pursuant to Article VIII of the Republic of the Philippines-
thirty-two percent (32%). (Emphasis supplied)
Canada Tax Treaty that applies to petitioner as a “foreign corporation business of the enterprise is wholly or partly carried on.” Specifically,
organized and existing under the laws of Canada.” Article V(4) of the Republic of the Philippines-Canada Tax Treaty states
that “a person acting in a Contracting State on behalf of an enterprise of
The second paragraph of Article VIII states that “profits from sources the other Contracting State shall be deemed to be a permanent
within a Contracting State derived by an enterprise of the other establishment in the first-mentioned State if . . . he has and habitually
Contracting State from the operation of ships or aircraft in international exercises in that State an authority to conclude contracts on behalf of
traffic may be taxed in the first-mentioned State but the tax so charged the enterprise, unless his activities are limited to the purchase of goods
shall not exceed the lesser of a) one and one-half per cent of the gross or merchandise for that enterprise.”
revenues derived from sources in that State; and b) the lowest rate of
Philippine tax imposed on such profits derived by an enterprise of a Section 3 of The Civil Aeronautics Act of the Philippines, defines a
third State.” general sales agent as “a person, not a bonafide employee of an air
carrier, who pursuant to an authority from an airline, by itself or through
“By reason of our bilateral negotiations with Canada, we have agreed to an agent, sells or offers for sale any air transportation, or negotiates for,
have our right to tax limited to a certain extent.” Thus, we are bound to or holds himself out by solicitation, advertisement or otherwise as one
extend to a Canadian air carrier doing business in the Philippines who sells, provides, furnishes, contracts or arranges for, such air
transportation.”
through a local sales agent the benefit of a lower tax equivalent to 1½%
on business profits derived from sale of international air transportation. Through the appointment of Aerotel as its local sales agent, petitioner is
deemed to have created a “permanent establishment” in the Philippines
as defined under the Republic of the Philippines-Canada Tax Treaty.
Our Constitution provides for adherence to the general principles of Aerotel is a dependent agent of petitioner pursuant to the terms of the
Passenger General Sales Agency Agreement executed between the
international law as part of the law of the land. The time-honored
parties. It has the authority or power to conclude contracts or bind
international principle of pacta sunt servanda demands the petitioner to contracts entered into in the Philippines. A third-party
performance in good faith of treaty obligations on the part of the states liability on contracts of Aerotel is to petitioner as the principal, and not
that enter into the agreement. Every treaty in force is binding upon the to Aerotel, and liability to such third party is enforceable against
parties, and obligations under the treaty must be performed by them in petitioner. While Aerotel maintains a certain independence and its
good faith. More importantly, treaties have the force and effect of law in activities may not be devoted wholly to petitioner, nonetheless, when
representing petitioner pursuant to the Agreement, it must carry out its
this jurisdiction. (Deutsche Bank AG Manila Branch v. Commissioner of
functions solely for the benefit of petitioner and according to the latter’s
Internal Revenue).
Manual and written instructions. Aerotel is required to submit its annual
sales plan for petitioner’s approval.
4) Whether the appointment of a local general sales agent in the
In essence, Aerotel extends to the Philippines the transportation
Philippines falls under the definition of “permanent establishment”
business of petitioner. It is a conduit or outlet through which petitioner’s
under Article V(2)(i) of the Republic of the Philippines-Canada Tax
airline tickets are sold.
Treaty;
Under Article VII of the Republic of the Philippines-Canada Tax Treaty,
Article V of the Republic of the Philippines-Canada Tax Treaty defines
the “business profits” of an enterprise of a Contracting State is “taxable
“permanent establishment” as a “fixed place of business in which the
only in that State, unless the enterprise carries on business in the other
Contracting State through a permanent establishment.” Thus, income
attributable to Aerotel or from business activities effected by petitioner
through Aerotel may be taxed in the Philippines.

5) Whether petitioner Air Canada is entitled to the refund.

NO. As discussed in South African Airways, the grant of a refund is founded


on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet
final, created a doubt as to and constitutes a challenge against the truth and
accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.

In this case, the P5,185,676.77 Gross Philippine Billings tax paid by


petitioner was computed at the rate of 1 ½% of its gross revenues
amounting to P345,711,806.08149 from the third quarter of 2000 to the
second quarter of 2002. It is quite apparent that the tax imposable under
Section 28(A)(l) of the 1997 NIRC 32% of taxable income, that is, gross
income less deductions will exceed the maximum ceiling of 1 ½% of gross
revenues as decreed in Article VIII of the Republic of the Philippines-Canada
Tax Treaty. Hence, no refund is forthcoming.
Because of a loss amounting to US$160,749.69 incurred in respect of three
(3) transactions, Spouses became indebted to ML FUTURES for
14. Merill Lynch Futures vs CA US$84,836.27. The Lara Spouses however refused to pay alleging that the
transactions were null and void because Merrill Lynch Philippines, Inc. had
Merrill Lynch Futures, Inc. v CA and Spouses Lara; G.R. No. 97816; 24 July no license to operate as a 'commodity and/or financial futures broker.
1992
Prepared by: Kaye Rosario In a motion to dismiss, the defendant spouses averred that: (a) ML is
prohibited by law to maintain or intervene in any action, suit or proceeding
DOCTRINE in any court or administrative agency of the Philippines because it described
The doctrine of estoppel to deny corporate existence applies to foreign as itself in the complaint as “not being licensed, but had been doing business in
well as to domestic corporations. The rule is that a party is estopped to the Philippines at least for the last four (4) years; (b) they had never been
challenge the personality of a corporation after having acknowledged the informed that Merrill Lynch Philippines, Inc. was not licensed to do business
same by entering into a contract with it. in this country; and (c) all their transactions had actually been with MERRILL
LYNCH PIERCE FENNER & SMITH, INC., and not with ML FUTURES.
FACTS
On November 23, 1987, Merrill Lynch Futures, Inc. (ML) filed a complaint RTC and CA: Dismissed the case because the plaintiff has no legal capacity to
with the QC RTC against Spouses LARA for the recovery of a debt and sue and that the complaint states no cause of action.
interest thereon, damages, and attorney's fees.
ISSUE
In ML’s complaint, it described itself as (a) a non-resident foreign Whether Merrill Lynch Futures is prohibited from suing in Philippine Courts
corporation, not doing business in the Philippines and a (b) "futures for doing business in the country without a license.
commission merchant" duly licensed in the futures markets and exchanges
in the United States. He essentially functions as a broker, executing orders to
buy and sell futures contracts received from its customers on U.S. futures
exchanges. A "futures contract" is a contractual commitment to buy and sell HELD/RULING
a standardized quantity of a particular item at a specified future settlement NO, remand to determine Spouses’ liability. Despite having no license to
date and at a price agreed upon, with the purchase or sale being executed transact business in the Philippines, the fact that the Lara Spouses had done
on a regulated futures exchange. business with ML in the Philippines through ML Philippines, the Spouses are
now estopped to impugn ML’s capacity to sue them in Philippine courts.
Petitioner alleges that on September 28, 1983 ML entered into a Futures
Customer Agreement with the defendant spouses. Pursuant to the contract, Under Sec. 133 of the Corporation Code, “no foreign corporation transacting
Spouses transmitted orders to buy and sell futures contracts to ML through business in the Philippines without a license, or its successors or assigns,
the facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a shall be permitted to maintain or intervene in any action, suit or proceeding
company servicing ML’s customers. The Spousesknew and were duly advised in any court or administrative agency in the Philippines; but such
that Merrill Lynch Philippines, Inc. was not a broker in futures contracts and corporation may be sued or proceeded against before Philippine courts or
that it did not have a license from the SEC to operate as a commodity administrative tribunals on any valid cause of action recognized under
trading advisor. The Spouses actively traded in futures contracts for four Philippine laws.”
years there being regular accounting and corresponding remittances of
money made between the parties. However, one who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its corporate existence and capacity.
This 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 Court is satisfiedthat the Spouses did transact business with ML through
its agent corporation organized in the Philippines, and that on several
occasions the latter received account documents and money in connection
with those transactions.There would seem to be no question that the
Spouses received benefits generated by their business relations with ML.
Those business relations, spanned a period of 7 years; and they evidently
found those relations to be of such profitability as warranted their
maintaining them for that not insignificant period of time; otherwise, it is
reasonably certain that they would have terminated their dealings with ML
much, much earlier.

Considerations of equity dictate that, at the very least, the issue of whether
the Spouses are in truth liable to ML and if so in what amount, and whether
they were so far aware of the absence of the requisite licenses on the part
of ML and its Philippine correspondent, as to be estopped from alleging that
fact as defense to such liability, should be ventilated and adjudicated on the
merits by the proper trial court.

WHEREFORE, the decision of the CAis REVERSED and SET ASIDE, and the RTC
is ORDERED to reinstate Civil Case No. Q-52360 and conduct a hearing to
adjudicate the issues set out on the merits.
On 1 June 2001, summons and a copy of the complaint were served on Atty.
Ramon Quisumbing, who returned these processes on the claim that he was
15. Agilent Technologies Singapore vs. Integrated Silicon Techngology not the registered agent of Agilent. Later, he entered a special appearance to
Philippines Corp. Case Digest assail the court’s jurisdiction over the person of Agilent. On 2 July 2001,
Agilent filed a separate complaint against Integrated Silicon, Teoh Kang Seng,
Agilent Technologies Singapore vs. Integrated Silicon Techngology Philippines Teoh Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M. dela
Corp. Cruz and Rolando T. Nacilla, for “Specific Performance, Recovery of
[GR 154618, 14 April 2004] Possession, and Sum of Money with Replevin, Preliminary Mandatory
Injunction, and Damages”, before the Regional Trial Court, Calamba, Laguna,
Facts: Agilent Technologies Singapore (Pte.), Ltd. is a foreign corporation, Branch 92 (Civil Case 3123-2001-C). Agilent prayed that a writ of replevin or,
which, by its own admission, is not licensed to do business in the in the alternative, a writ of preliminary mandatory injunction, be issued
Philippines. Integrated Silicon Technology Philippines Corporation is a ordering Integrated Silicon, et. al. to immediately return and deliver to
private domestic corporation, 100% foreign owned, which is engaged in the Agilent its equipment, machineries and the materials to be used for fiber-
business of manufacturing and assembling electronics components. Teoh optic components which were left in the plant of Integrated Silicon; and that
Kiang Hong, Teoh Kiang Seng and Anthony Choo, Malaysian nationals, are the latter be ordered to pay actual and exemplary damages and attorney’s
current members of Integrated Silicon’s board of directors, while Joanne fees. Integrated Silicon, et. al. filed a Motion to Dismiss in Civil Case No.
Kate M. dela Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are its 3123-2001-C, on the grounds of lack of Agilent’s legal capacity to sue; litis
former members. The juridical relation among the various parties in the case pendentia; forum shopping; and failure to state a cause of action. On 4
can be traced to a 5-year Value Added Assembly Services Agreement September 2001, the trial court denied the Motion to Dismiss and granted
(VAASA), entered into on 2 April 1996 between Integrated Silicon and the Agilent’s application for a writ of replevin.
Hewlett-Packard Singapore (Pte.) Ltd., Singapore Components Operation
(HP-Singapore). Under the terms of the VAASA, Integrated Silicon was to Without filing a motion for reconsideration, Integrated Silicon, et. al. filed a
locally manufacture and assemble fiber optics for export to HP-Singapore. petition for certiorari with the Court of Appeals. In the meantime, upon
motion filed by Integrated Silicon, et. al., Judge Antonio S. Pozas of Branch
HP-Singapore, for its part, was to consign raw materials to Integrated Silicon; 92 voluntarily inhibited himself in Civil Case 3123-2001-C. The case was re-
transport machinery to the plant of Integrated Silicon; and pay Integrated raffled and assigned to Branch 35, the same branch where Civil Case 3110-
Silicon the purchase price of the finished products. The VAASA had a five- 2001-C is pending. On 12 August 2002, the Court of Appeals granted
year term, beginning on 2 April 1996, with a provision for annual renewal by Integrated Silicon, et. al.’s petition for certiorari, set aside the assailed Order
mutual written consent. On 19 September 1999, with the consent of of the trial court dated 4 September 2001, and ordered the dismissal of Civil
Integrated Silicon, HP-Singapore assigned all its rights and obligations in the Case 3123-2001-C. Agilent filed the petition for review.
VAASA to Agilent. On 25 May 2001, Integrated Silicon filed a complaint for
“Specific Performance and Damages” against Agilent and its officers Tan Bian Issue:
Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor (Civil Case 3110-01-C),
alleging that Agilent breached the parties’ oral agreement to extend the 1. Whether a foreign corporation without a license is incapacitated
VAASA. Integrated Silicon thus prayed that Agilent be ordered to execute a from bringing an action in Philippine courts.
written extension of the VAASA for a period of five years as earlier assured
and promised; to comply with the extended VAASA; and to pay actual, 2. Whether Agilent was doing business in the Philippines.
moral, exemplary damages and attorney’s fees.
Held:
1. A foreign corporation without a license is not ipso facto incapacitated constitute doing or transacting business in the Philippines. An analysis of the
from bringing an action in Philippine courts. A license is necessary only if a relevant case law, in conjunction with Section 1 of the Implementing Rules
foreign corporation is “transacting” or “doing business” in the country. and Regulations of the Foreign Investments Act of 1991 (FIA, as amended by
Section 133 of the Corporation Code provides that "No foreign corporation RA 8179), would demonstrate that the acts enumerated in the VAASA do not
transacting business in the Philippines without a license, or its successors or constitute “doing business” in the Philippines. Section 1 of the Implementing
assigns, shall be permitted to maintain or intervene in any action, suit or Rules and Regulations of the FIA (as amended by RA 8179) provides that the
proceeding in any court or administrative agency of the Philippines; but such following shall not be deemed “doing business”: (1) Mere investment as a
corporation may be sued or proceeded against before Philippine courts or shareholder by a foreign entity in domestic corporations duly registered to
administrative tribunals on any valid cause of action recognized under do business, and/or the exercise of rights as such investor; (2) Having a
Philippine laws." The aforementioned provision prevents an unlicensed nominee director or officer to represent its interest in such corporation; (3)
foreign corporation “doing business” in the Philippines from accessing our Appointing a representative or distributor domiciled in the Philippines which
courts. In a number of cases, however, the Court held that an unlicensed transacts business in the representative’s or distributor’s own name and
foreign corporation doing business in the Philippines may bring suit in account; (4) The publication of a general advertisement through any print or
Philippine courts against a Philippine citizen or entity who had contracted broadcast media; (5) Maintaining a stock of goods in the Philippines solely
with and benefited from said corporation. Such a suit is premised on the for the purpose of having the same processed by another entity in the
doctrine of estoppel. A party is estopped from challenging the personality of Philippines; (6) Consignment by a foreign entity of equipment with a local
a corporation after having acknowledged the same by entering into a company to be used in the processing of products for export; (7) Collecting
contract with it. This doctrine of estoppel to deny corporate existence and information in the Philippines; and (8) Performing services auxiliary to an
capacity applies to foreign as well as domestic corporations. The application existing isolated contract of sale which are not on a continuing basis, such as
of this principle prevents a person contracting with a foreign corporation installing in the Philippines machinery it has manufactured or exported to
from later taking advantage of its noncompliance with the statutes chiefly in the Philippines, servicing the same, training domestic workers to operate it,
cases where such person has received the benefits of the contract. The and similar incidental services. By and large, to constitute “doing business”,
principles regarding the right of a foreign corporation to bring suit in the activity to be undertaken in the Philippines is one that is for profit-
Philippine courts may thus be condensed in four statements: (1) if a foreign making. Herein, by the clear terms of the VAASA, Agilent’s activities in the
corporation does business in the Philippines without a license, it cannot sue Philippines were confined to (1) maintaining a stock of goods in the
before the Philippine courts; (2) if a foreign corporation is not doing business Philippines solely for the purpose of having the same processed by
in the Philippines, it needs no license to sue before Philippine courts on an Integrated Silicon; and (2) consignment of equipment with Integrated Silicon
isolated transaction or on a cause of action entirely independent of any to be used in the processing of products for export. As such, Agilent cannot
business transaction; (3) if a foreign corporation does business in the be deemed to be “doing business” in the Philippines. Integrated Silicon, et.
Philippines without a license, a Philippine citizen or entity which has al.’s contention that Agilent lacks the legal capacity to file suit is therefore
contracted with said corporation may be estopped from challenging the devoid of merit. As a foreign corporation not doing business in the
foreign corporation’s corporate personality in a suit brought before Philippines, it needed no license before it can sue before our courts.
Philippine courts; and (4) if a foreign corporation does business in the
Philippines with the required license, it can sue before Philippine courts on
any transaction.

2. The challenge to Agilent’s legal capacity to file suit hinges on whether or


not it is doing business in the Philippines. However, there is no definitive
rule on what constitutes “doing”, “engaging in”, or “transacting” business in
the Philippines, the Corporation Code itself is silent as to what acts
1. Whether the mere act by a non-resident foreign corporation of
recruiting Filipino workers for its own use abroad, in law doing
16. Facilities Management Corporation vs. de la Osa Case Digest business in the Philippines.

Facilities Management Corporation vs. de la Osa 2. Whether FMC has been "doing business in the Philippines" so that
[GR L-38649, March 26, 1979] the service of summons upon its agent in the Philippines vested the
Court of First Instance of Manila with jurisdiction.
Facts: Facilities Management Corporation and J. S. Dreyer are domiciled in
Wake Island while J. V. Catuira is an employee of FMC stationed in Manila. Held:
Leonardo dela Osa was employed by FMC in Manila, but rendered work in
Wake Island, with the approval of the Department of Labor of the 1. In its motion to dismiss, FMC admits that Mr. Catuira represented it in the
Philippines. De la Osa was employed as (1) painter with an hourly rate of Philippines "for the purpose of making arrangements for the approval by the
$1.25 from March 1964 to November 1964, inclusive; (2) houseboy with an Department of Labor of the employment of Filipinos who are recruited by
hourly rate of $1.26 from December 1964 to November 1965, inclusive; (3) the Company as its own employees for assignment abroad." In effect, Mr.
houseboy with an hourly rate of $1.33 from December 1965 to August 1966, Catuira was alleged to be a liaison officer representing FMC in the
inclusive; and (4) cashier with an hourly rate of $1.40 from August 1966 to Philippines. Under the rules and regulations promulgated by the Board of
March 27 1967, inclusive. He further averred that from December, 1965 to Investments which took effect 3 February 1969, implementing RA 5455,
August, 1966, inclusive, he rendered overtime services daily, and that this which took effect 30 September 1968, the phrase "doing business" has been
entire period was divided into swing and graveyard shifts to which he was exemplified with illustrations, among them being as follows: ""(1) Soliciting
assigned, but he was not paid both overtime and night shift premiums orders, purchases (sales) or service contracts. Concrete and specific
despite his repeated demands from FMC, et al. In a petition filed on 1 July solicitations by a foreign firm, not acting independently of the foreign firm,
1967, dela Osa sought his reinstatement with full backwages, as well as the amounting to negotiation or fixing of the terms and conditions of sales or
recovery of his overtime compensation, swing shift and graveyard shift service contracts, regardless of whether the contracts are actually reduced
differentials. to writing, shall constitute doing business even if the enterprise has no
office or fixed place of business in the Philippines; (2) appointing a
Subsequently on 3 May 1968, FMC, et al. filed a motion to dismiss the representative or distributor who is domiciled in the Philippines, unless said
subject petition on the ground that the Court has no jurisdiction over the representative or distributor has an independent status, i.e., it transacts
case, and on 24 May 1968, de la Osa interposed an opposition thereto. Said business in its name and for its own account, and not in the name or for the
motion was denied by the Court in its Order issued on 12 July 1968. account of the principal; xxx (4) Opening offices, whether called 'liaison'
Subsequently, after trial, the Court of Industrial Relations, in a decision offices, agencies or branches, unless proved otherwise. xxx (10) Any other
dated 14 February 1972, ordered FMC, et al. to pay de la Osa his overtime act or acts that imply a continuity of commercial dealings or arrangements,
compensation, as well as his swing shift and graveyard shift premiums at the and contemplate to that extent the performance of acts or works, or the
rate of 50% per cent of his basic salary. FMC, et al. filed the petition for exercise of some of the functions normally incident to, or in the progressive
review on certiorari. prosecution of, commercial gain or of the purpose and objective of the
business organization."
Issue:
2. FMC may be considered as "doing business in the Philippines" within the
scope of Section 14 (Service upon private foreign corporations), Rule 14 of
the Rules of Court which provides that "If the defendant is a foreign
corporation, or a non-resident joint stock company or association, doing
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose or, if there be no such
agent, on the government official designated by law to that effect, or on any
of its officers or agents within the Philippines." Indeed, FMC, in compliance
with Act 2486 as implemented by Department of Labor Order IV dated 20
May 1968 had to appoint Jaime V. Catuira, 1322 A. Mabini, Ermita, Manila
"as agent for FMC with authority to execute Employment Contracts and
receive, in behalf of that corporation, legal services from and be bound by
processes of the Philippine Courts of Justice, for as long as he remains an
employee of FMC." It is a fact that when the summons for FMC was served
on Catuira he was still in the employ of the FMC. Hence, if a foreign
corporation, not engaged in business in the Philippines, is not barred from
seeking redress from courts in the Philippines (such as in earlier cases of
Aetna Casualty & Surety Company, vs. Pacific Star Line, etc. [GR L-26809], In
Mentholatum vs. Mangaliman, and Eastboard Navigation vs. Juan Ysmael &
Co.), a fortiori, that same corporation cannot claim exemption from being
sued in Philippine courts for acts done against a person or persons in the
Philippines.
hamper the development of trade relations and which fosters friendly
commercial intercourse among countries.
Counsel for appellant contends that at the time of the service of
summons, the appellant had not yet been authorized to do business. But,
17. THE HOME INSURANCE COMPANY, Petitioner, vs. EASTERN SHIPPING
the lack of capacity at the time of the execution of the contracts was
LINES and/or ANGEL JOSE TRANSPORTATION, INC. Respondent.
cured by the subsequent registration is also strengthened by the
G. R. L-34382, July 20, 1983
procedural aspects of the case.
The court find the general denials inadequate to attack the
FACTS:
On or about January 13, 1967, S. Kajikita & Co. on board the SS foreign corporations lack of capacity to sue in the light of its positive
‘Eastern Jupiter,’ which is owned by the respondent, from Osaka, Japan coils averment that it is authorized to do so. Section 4, Rule 8 requires
of “Black Hot Rolled Copper Wires Rods.” The shipment was covered by Bill that "a party desiring to raise an issue as to the legal existence of
of Lading with arrival notice to the Phelps Dodge Copper Products
any party or the capacity of any party to sue or be sued in a
Corporation, the consignee. It was also insured with the plaintiff against all
risks in the amount of P1,580,105.06. representative capacity shall do so by specific denial, which shall
The coils discharged from the vessel were in bad order, consisting of include such supporting particulars as are particularly within the
loose and partly cut coils which had to be considered scrap. The plaintiff pleader's knowledge. At the very least, the private respondents
paid the consignee under insurance the amount of P3,260.44 for the
should have stated particulars in their answers upon which a specific
loss/damage suffered by the cargo. Plaintiff, a foreign insurance company
duly authorized to do business in the Philippines, made demands for denial of the petitioner's capacity to sue could have been based or
payment of the aforesaid amount against the carrier and transportation which could have supported its denial for lack of knowledge. And
company for reimbursement of the aforesaid amount, but each refused to yet, even if the plaintiff's lack of capacity to sue was not properly
pay the same. The Eastern Shipping Lines filed its answer and denied the
raised as an issue by the answers, the petitioner introduced
allegations of Paragraph I which refer to the plaintiff’s capacity to sue for
lack of knowledge or information sufficient to form a belief as to the truth documentary evidence that it had the authority to engage in the
thereof. Angel Jose Transportation, on the other hand, admitted the insurance business at the time it filed the complaints.
jurisdictional averments in paragraphs 1, 2 and 3 of the heading parties.
The Court of First Instance dismissed the complaint on the ground
The Supreme Court granted the petition, reversing the
that the appellant had failed to prove its capacity to sue. The petitioner then
filed a petition for review on certiorari. decision of the lower court.

ISSUE: Whether or not that the trial court erred in dismissing the finding
that plaintiff-appellant has no capacity to sue.

RULING:
The court held that the objective of the law is to subject the foreign
corporation to the jurisdiction of our court. The Corporation Law must be
given reasonable, not an unduly harsh interpretation which does not
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
18. Eriks Pte. Ltd. vs. CA Case Digest 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
Eriks Pte. Ltd. vs. Court of Appeals
recognized under Philippine laws." The provision prohibits, not merely
[GR 118843, 6 February 1997]
absence of the prescribed license, but it also bars a foreign corporation
"doing business" in the Philippines without such license access to Philippine
Facts: Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the
courts. A foreign corporation without such license is not ipso facto
manufacture and sale of elements used in sealing pumps, valves and pipes
incapacitated from bringing an action. A license is necessary only if it is
for industrial purposes, valves and control equipment used for industrial
"transacting or doing business" in the country. However, there is no
fluid control and PVC pipes and fittings for industrial uses. On various dates
definitive rule on what constitutes "doing," "engaging in," or "transacting"
covering the period January 17 — August 16, 1989, Delfin Enriquez, Jr.,
business. The Corporation Code itself does not define such terms. To fill the
doing business under the name and style of Delrene EB Controls Center
gap, the evolution of its statutory definition has produced a rather all-
and/or EB Karmine Commercial, ordered and received from Eriks Pte. Ltd.
encompassing concept in Republic Act 7042 in this wise: "The phrase 'doing
various elements used in sealing pumps, valves, pipes and control
business' shall include soliciting orders, service contracts, opening offices,
equipment, PVC pipes and fittings. The transfers of goods were perfected in
whether called 'liaison' offices or branches; appointing representatives or
Singapore, for Enriquez's account, F.O.B. Singapore, with a 90-day credit
distributors domiciled in the Philippines or who in any calendar year stay in
term. Subsequently, demands were made by Eriks upon Enriquez to settle
the country for a period or periods totaling one hundred eight(y) (180) days
his account, but the latter failed/refused to do so. On 28 August 1991, Eriks
or more; participating in the management, supervision or control of any
filed with the Regional Trial Court of Makati, Branch 138, Civil Case 91-2373
domestic business, firm, entity or corporation in the Philippines; and any
for the recovery of S$41,939.63 or its equivalent in Philippine currency, plus
other act or acts that imply a continuity of commercial dealings or
interest thereon and damages. Enriquez responded with a Motion to
arrangements, and contemplate to that extent the performance of acts or
Dismiss, contending that Eriks had no legal capacity to sue. In an Order
works, or the exercise of some of the functions normally incident to, and in
dated 8 March 1993, the trial court dismissed the action on the ground that
progressive prosecution of, commercial gain or of the purpose and object of
Eriks is a foreign corporation doing business in the Philippines without a
the business organization: Provided, however, That the phrase 'doing
license.
business' shall not be deemed to include mere investment as a shareholder
by a foreign entity in domestic corporations duly registered to do business,
On appeal and on 25 January 1995, the appellate court (CA GR CV 41275)
and/or the exercise of rights as such investor; nor having a nominee director
affirmed said order as it deemed the series of transactions between Eriks
or officer to represent its interests in such corporation; nor appointing a
and Enriquez not to be an "isolated or casual transaction." Thus, the
representative or distributor domiciled in the Philippines which transacts
appellate court likewise found Eriks to be without legal capacity to sue. Eriks
business in its own name and for its own account." The accepted rule in
filed the petition for review.
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
Issue: Whether a foreign corporation which sold its products 16 times over a
the law is to subject the foreign corporation doing business in the
five-month period to the same Filipino buyer without first obtaining a
Philippines to the jurisdiction of Philippine courts. It is not to prevent the
license to do business in the Philippines, is prohibited from maintaining an
foreign corporation from performing single or isolated acts, but to bar it
action to collect payment therefor in Philippine courts.
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.