corpo case digest

August 9, 2017 | Author: Ze Guinto | Category: Foreclosure, Debt, Mortgage Loan, U.S. Securities And Exchange Commission, Corporations
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Nautica Canning Corp. vs. YumulG.R. No. 164588; October 19, 2005

ISSUE: WON Yumul is a stockholder. (Proof of Ownership of Shares)

FACTS: Yumul was appointed Chief Operating Officer/GeneralManager of Nautica. First Dominion Prime Holdings, Inc.,Nautica’s parent company, through its Chairman Alvin Y.Dee, granted Yumul an Option to Purchase up to 15% of thetotal stocks it subscribed from Nautica. A Deed of Trust andAssignment was executed between First Dominion PrimeHoldings, Inc. and Yumul whereby the former assigned14,999 of its subscribed shares in Nautica to the latter.After Yumul’s resignation from Nautica, he wrote aletter to Dee requesting the latter to formalize his offer tobuy Yumul’s 15% share in Nautica and demanding theissuance of the corresponding certificate of shares in hisname should Dee refuse to buy the same. Dee denied therequest claiming that Yumul was not a stockholder of Nautica. Yumul requested that the Deed of Trust andAssignment be recorded in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspectits books and records. Yumul’s requests were denied. Yumulfiled a petition for mandamus praying that the Deed of Trustand Assignment be recorded in the Stock and Transfer Bookof Nautica and that the certificate of stocks correspondingthereto be issued in his name.

HELD: YES. Indeed, it is possible for a business to be whollyowned by one individual. The validity of its incorporation isnot affected when such individual gives nominal ownershipof only one share of stock to each of the other fourincorporators. This is not necessarily illegal. But, this isvalid only between or among the incorporators privy to theagreement. It does bind the corporation which, at the timethe agreement is made, was non-existent. Thus,incorporators continue to be stockholders of a corporationunless, subsequent to the incorporation, they have validlytransferred their subscriptions to the real parties in interest.A transfer of shares of stock not recorded in the stockand transfer book of the corporation is non-existent as far asthe corporation is concerned. As between the corporationon one hand, and its shareholders and third persons on theother, the corporation looks only to its books for the purposeof determining who its shareholders are. It is only when thetransfer has been recorded in the stock and transfer bookthat a corporation may rightfully regard the transferee asone of its stockholders. From this time, the consequentobligation on the part of the corporation to recognize suchrights as it is mandated by law to recognize arises.


Republic v. Estate of Hans Menzi 23 Nov. 2005| Ponente, Tinga, J.. FACTS 1. Subject of this case are three “blocks” of shares of the Bulleting Publishiong Corp., as follows: a. 154 block – 154, 472 shares b. 198 block – 198, 052.5 shares c. 214 block – 214, 424.5 shares 2) In an action for reconveyance earlier decided by the Sandiganbayan, said tribunal decided that: a. Ff. shares were ill-gotten: i. 46,000 shares (belonging to the 214 block), under the name of Danding Cojuangco, and the ii. entire 198 block, which were originally under the names of Campos, Cojuangco and Zalamea then subsequently sold to HMHMI (Hans Menzu Holdings and Mgt. Inc) b. The 154 block was not ill-gotten c. The estate of Hans Menzi must thus surrender for cancellation the certificates of stock in its possession 3) This present appeal pertains to the propriety of declaring the 154 block, on the one hand, as not illgotten, and the 198 and 214 blocks as ill-gotten. G.R. 152578 – Re 154 block (This is the more relevant half) FACTS a. In 1957, Menzi purchased the entire interest in Bulletin Publishing b. In 1961, US Automotive purchased Bulletin shares from Menzi c. In 1968, a stock option was executed between Menzi and US Automotive giving each other preferential rights in the purchase of each other’s Bulleting shares

d. Later in the same year, Bulletin’s articles of incorporation were amended to place restrictions on the transfer of Bulletin shares to non-stockholders where by stockholders seeking to sell must first make an offer to Bulleting itself. e. In 1984, Menzi sold the 154 block to US automotive. US Automotive’s VP executed a promissory note in favor of Menzi f. Days later, Menzi dies and a petition for the probate of his will was filed. In said proceedings, the executor moved for the confirmation of the sale of the 154 block; which motion the probate court granted. g. Subsequently, the executor received 2 checks representing full payment; he in turn, issues a receipt. ISSUE Is the sale of the 154 block from Menzi to US Automotive valid. YES. HELD / RATIO: 1. Requisites for a valid transfer per Sec. 63: a. Between the parties: i. Delivery ii. Indorsement b. To be valid as to third persons: i. Recorded in the books of the corporation 2. Per the above requisites, a deed of sale, as insisted by the Republic, is not required. In fact, per Rural Bank of Lipa v. CA, the execurtion of a deed of sale does not necessarily make the transfer effective as it is the delivery of the stock certificate duly indorsed by the owner which is the oprative act that transfers the shares. 3. Here, there is no dispute, that delivery and indorsement in favor of US Automotive were made. 4. Moreover, the executor’s authority to negotiate the


transfer is found in the general power of attorney executed by Menzi. Also, the former’s authority to accept payment springs from Menzi’s will and the order of the probate court confirming the sale. 5. As found by the Sandiganbayan, it was Menzi himself who sold to US Automotive, hencem the noninclusion of the subject shares in MEnzi’s will an din the inventory of his estate is attributable to the fact that at the time the aforesaid were taken, they already belonged to US Automotive. Were the covered shares validly ceded by Camps and Zalamea to the government? YES. HELD / RATIO: 1. The fact that the stock certificates covering the shares ceded to the Republic (ie, Campos and Zalamea’s portions in the 214 block), and which were under the names of Campos, Zalamea and Cojuangco


(Cojuangco did not cede his 46,000 shares) were found in Menzi’s possession does not prove that Menzi owned the shares. 2. A stock certificate is merely a tangible evidence of ownership of shares of stock. Its presence or absence does not affect the right of the registered owner to dispose of the shares. Accordingly, Campo and Zalamea, as registered owners, validly ceded their shares in favor of the Government. Doctrine: Requisites for a valid transfer per Sec. 63: a. Between the parties: i. Delivery ii. Indorsement b. To be valid as to third persons: i. Recorded in the books of the corporation * All other formalities are mere superfluities that do not add to nor detract from the validity of a transfer.


PROVIDENT INTERNATIONAL RESOURCES CORPORATION (PIRC) vs. VENUS G.R. No. 167041, June 17, 2008 Facts: Herein petitioner, PIRC, is registered with the SEC on September 20, 1979.As a group known as the Marcelo group, were its incorporators, originalstockholders, and directors. The Asistio group claimed that the Marcelo groupacquired shares in PIRC as mere trustees for the Asistio group. The Marcelo groupallegedly executed a waiver of pre-emptive right, blank deeds of assignment, and blank deeds of transfer; endorsed in blank their respective stock certificates overall of the outstanding capital stock registered in their names; and completed the blank deeds in 2002 to effect transfers to the Asistio group. On August 6, 2002, theCompany Registration and Monitoring Department (CRMD) of the SEC issued acertification stating that verification made on the available records of PIRC showedfailure to register its stock and transfer book (STB). The Asistio group registeredPIRCs STB. Upon learning of this, PIRCs assistant corporate secretary requestedthe SEC for a certification of the registration in 1979 of PIRCs STB. It presents the1979-registered STB bearing the SEC stamp and the signature of the officer incharge of book registration. Subsequently the Asistio group filed in the RTC acomplaint against the Marcelo group. The Asistio group prayed that the Marcelogroup be enjoined from acting as directors of PIRC, from physically holding officeat PIRCs office, and from taking custody of PIRCs corporate records. On October30, 2002, the CRMD of the SEC issued a letter recalling the certification it had issued on August 6, 2002 and canceling the 2002-registered STB. The Asistiogroup appealed to the SEC Board of

Commissioners. They claimed that the issueof which of the two STBs is valid is intra-corporate in nature; hence, the RTC, notthe SEC, has jurisdiction. Issue: Whether the SEC has the jurisdiction to recall andcancel a stock and transfer book which it issued in 2002? Ruling: Yes. The powersand functions of the SEC under the Securities Regulation Code (Republic Act No.8799), it can be said that the SECs regulatory authority over private corporationsencompasses a wide margin of areas, touching nearly all of a corporationsconcerns. This authority more vividly springs from the fact that a corporation owesits existence to the concession of its corporate franchise from the state. Going tothe particular facts of the instant case, the Supreme Court find that the SEC has the primary competence and means to determine and verify whether the subject 1979STB presented by the incumbent assistant corporate secretary was indeedauthentic, and duly registered by the SEC as early as September 1979. As theadministrative agency responsible for the registration and monitoring of STBs, it isthe body cognizant of the STB registration procedures, and in possession of the pertinent files, records and specimen signatures of authorized officers relating tothe registration of STBs. The evaluation of whether a STB was authorized by theSEC primarily requires an examination of the STB itself and the SEC files. Thisfunction necessarily belongs to the SEC as part of its regulatory jurisdiction. TheSupreme Court further ruled that as the regulatory body, it is the SECs duty toensure that there is only one set of STB for each corporation. The determination ofwhether or not the 1979-registered STB is


valid and of whether to cancel andrevoke the August 6, 2002 certification and the registration of the 2002 STB onthe ground that there already is an existing STB is impliedly and necessarily

withinthe regulatory jurisdiction of the SEC.

TORRES VS CA DIGEST 278 SCRA 793 Corporate Records Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty &Development Corporation (TRDC). TRDC is a small family owned corporation

and other stockholders thereof include Judge Torres’ nieces and nephews. However, even though Judge Torres owns the majority of TRDC andwas also the president thereof, he is only entitled to one vote among the 9-seatBoard of Directors, hence, his vote can be easily overridden by minoritystockholders. So in 1987, before the regular election of TRDC officers, Judge


Torres assigned one share (qualifying share) each to 5 “outsiders” for the purpose of qualifying them to be elected as directors in the board and thereby strengthen Judge Torres’ power over other family members. However, the said assignment of shares were not recorded by the corporatesecretary, Ma. Christina Carlos (niece) in the stock and transfer book of TRDC.When the validity of said assignments were questioned, Judge Torres ratiocinatedthat it is impractical for him to order Carlos to make the entries because Carlos isone of his opposition. So what Judge Torres did was to make the entries himself because he was keeping the stock and transfer book . He further ratiocinated that hecan do what a mere secretary can do because in the first place, he is the president. Since the other family members were against the inclusion of the five outsiders,they refused to take part in the election. Judge Torres and his five assignees thendecided to conduct the election among themselves considering that the 6 of themconstitute a quorum. ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or notthe subsequent election is valid. HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did not comply with the by laws of TRDC nor did itcomply with Section 74 of the Corporation Code. Section 74 provides that thestock and transfer book should be kept at the principal office of the corporation.Here, it was Judge Torres who was keeping it and was bringing it with

him.Further, his excuse of not ordering the secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the entry of said assignment inthe book, and if she refuses, Judge Torres can come to court and compel her tomake the entry. There are judicial remedies for this. Needless to say, thesubsequent election is invalid because the assignment of shares is invalid by reasonof procedural infirmity. The Supreme Court also emphasized: all corporations, bigor small, must abide by the provisions of the Corporation Code. Being a simplefamily corporation is not an exemption. Such corporations cannot have rules and practices other than those established by law.

W.G. Philpotts vs Phil. Manufacturing Corp (G.R. No. L-15568) Facts: Petitioner, W.G. Philpotts is filing a petition to inspect, by person or by some authorized agent or attorney, and examine the records of the business transacted by the company since January 1, 1918 The Phil. Manufacturing Corp. interposed a demurrer Issue: whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person Ruling: The right of inspection given to a stockholder can be exercised either by himself or by any proper representative or attorney in fact, and either with or without the attendance of the stockholder. This is in conformity with the


general rule that what a man may do in person he may do through another; and we find nothing in the statute that would justify us in qualifying the right in the manner suggested by the respondents. The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed, unless within 5 days from notification hereof the respondents answer to the merits. So ordered.

Gonzales vs PNB Case Digest [GR L-33320, 30 May 1983] Facts: Ramon A. Gonzales initially instituted several cases in the Supreme Court questioning different transactions entered into by the Bank with other parties. First among them is Civil Case 69345 filed on 27 April 1967, by Gonzales as a taxpayer versus Sec. Antonio Raquiza of Public Works and Communications, the Commissioner of Public Highways, the Bank, Continental Ore Phil., Inc., Continental Ore, Huber Corporation, Allis Chalmers and General Motors Corporation. In the course of the hearing of said case on 3 August 1967, the personality of Gonzales to sue the bank and question the letters of credit it has extended for the importation by the Republic of the Philippines of public works equipment intended for the

massive development program of the President was raised. In view thereof, he expressed and made known his intention to acquire one share of stock from Congressman Justiniano Montano which, on the following day, 30 August 1967, was transferred in his name in the books of the Bank. Subsequent to his aforementioned acquisition of one share of stock of the Bank, Gonzales, in his dual capacity as a taxpayer and stockholder, filed the following cases involving the bank or the members of its Board of Directors to wit: (1) On 18 October 1967, Civil Case 71044 versus the Board of Directors of the Bank; the National Investment and Development Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia; (2) On 11 May 1968, Civil Case 72936 versus Roberto Benedicto and other Directors of the Bank, Passi (Iloilo) Sugar Central, Inc., Calinog-Lambunao Sugar Mill Integrated Farming, Inc., Talog sugar Milling Co., Inc., Safary Central, Inc., and Batangas Sugar Central Inc.; and (3) On 8 May 1969, Civil Case 76427 versus Alfredo Montelibano and the Directors of both the PNB and DBP. On 11 January 1969, however, Gonzales addressed a letter to the President of the Bank, requesting submission to look into the records of its transactions covering the purchase of a sugar central by the Southern Negros Development Corp. to be financed by Japanese suppliers and financiers; its financing of the Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc. and the construction of the Passi Sugar Mills in Iloilo. On January 23, 1969, the Asst. Vice President and Legal Counsel of the Bank answered petitioner's letter denying his request for being not germane to his interest as a one share stockholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. In view of the Bank's refusal, Gonzales instituted the petition for mandamus. The Court of First Instance of Manila denied the prayer of Gonzales that he be allowed to examine and inspect the books and records of PNB regarding the transactions mentioned on the grounds that the right of a stockholder to inspect the record of the business transactions of a corporation granted under Section 51 of the former Corporation Law (Act No. 1459, as amended) is not absolute, but is limited to purposes reasonably related to the interest of the stockholder, must be asked for in good faith for a specific and honest purpose and not gratify curiosity or for speculative or vicious purposes; that such examination would violate the confidentiality of the records of the bank as provided in Section 16 of its charter, RA 1300, as amended; and that Gonzales has not exhausted his administrative remedies.


Gonzales filed the petition for review. Issue: Whether Gonzales' can ask for an examination of the books and records of PNB, in light of his ownership of one share in the bank. Whether the inspection sought to be exercised by Gonzales would be violative of the provisions of PNB's charter. Held: 1. The unqualified provision on the right of inspection previously contained in Section 51, Act No. 1459, as amended, no longer holds true under the provisions of the present law. The argument of Gonzales that the right granted to him under Section 51 of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of the books of PNB loses whatever validity it might have had before the amendment of the law. If there is any doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same, it is now dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Bilang 68. Although Gonzales has claimed that he has justifiable motives in seeking the inspection of the books of the PNB, he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. The circumstances under which he acquired one share of stock in the PNB purposely to exercise the right of inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry into transactions entered into by the PNB even before he became a stockholder. His obvious purpose was to arm himself with materials which he can use against the PNB for acts done by the latter when Gonzales was a total stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his purpose is germane to his interest as a stockholder. 2. Section 15 of the PNB's Charter (RA 1300, as amended) provides that "Inspection by Department of Supervision and Examination of the Central

Bank. — The National Bank shall be subject to inspection by the Department of Supervision and Examination of the Central Bank." Section 16 thereof providest that "Confidential information. — The Superintendent of Banks and the Auditor General, or other officers designated by law to inspect or investigate the condition of the National Bank, shall not reveal to any person other than the President of the Philippines, the Secretary of Finance, and the Board of Directors the details of the inspection or investigation, nor shall they give any information relative to the funds in its custody, its current accounts or deposits belonging to private individuals, corporations, or any other entity, except by order of a Court of competent jurisdiction." On the other hand, Section 30 of the same provides that "Penalties for violation of the provisions of this Act. — Any director, officer, employee, or agent of the Bank, who violates or permits the violation of any of the provisions of this Act, or any person aiding or abetting the violations of any of the provisions of this Act, shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years, or both such fine and imprisonment." The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the Corporation Code of the Philippines. The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled with the above quoted provisions of the charter of the PNB. It is not correct to claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply in a supplementary capacity to the charter of the PNB.


Poliand Industrial Limited v. National Development Company, 467 SCRA 500 (2005) FACTS: -Asian Hardwood extended credit accommodations in favor of Galleon. To augment Galleon’s working capitaldepleted as a result of the purchase of 5 new vessels and 2 second hand vessels.-To finance acquisition of vessels, galleon obtained loans from Japanese lenders.-DBP executed Deed of Undertaking to guarantee prompt and punctual payment of Galleon.-To secure DBP’s guarantee under the Deed of Undertaking, Galleon executed a first mortgage over the vessels.-Meanwhile, President Marcos issued a Letter of Instruction directing NDC to acquire the entire share holdings of Galleon.NDC assumed management and operation of Galleon.-NDC paid Asian Hardwood using its own fund as partial settlement of Galleon’s obligation.Another LOI was issued directing the foreclosure of the mortgage for faileure of Galleon to pay its debt despiterepeated demands from DBP.-DBP acquired

the vessel in the foreclosure then later sold it to NDC.-Asian Hardwood assigned its rights over the outstanding obligation of Galleon to World Universal, which in turnassigned the credit to Poliand.-President. Aquino issued Administrative Order directing NDC to transfer some of their assets to the NationalGovernment through the Asset Privatization Trust among those transferred were the 5 Galleons sold at theforeclosure proceedings.-Poliand demanded to Galleon, NDC, and DBP for the satisfaction of the outstanding balance.-Failure to heed, Poliand instituted a collection case against NDC, DBP and Galleon, claiming that under the LOIand MOA between Galleon and NDC, Galleon, NDC and DBP were solidary liable to Poliand as assignee of therights of the credit advances/loan accommodations to Galleon and also claimed it had preferred maritime lien over the proceeds of the extra judicial foreclosure sale.-By way of an alternative cause of action, Poliand sought reimbursement for the preferred maritime lien.-DBP countered that it was unaware of the Maritime Lien on the 5 vessels mortgaged. TC: -Ruled that Poliand had preference to the maritime lien over the proceeds of the extra judicial foreclosure sale of Galleon’s vessels since the loan advances/credit accommodations utilized for the payment of expenses on thevessels were obtained prior to the constitution of the mortgage in favor of DBP. CA: -NDC liable to pay preferred maritime lien. ISSUE: -Whether or not, the mortgage lien of DBP is superior over the maritime lien of Poliand (registered or which wasprior in time with the chattel mortgage.) (NDC invoking Art 580 of the Civil Code.) HELD: -Article 580 of the Civil Code providing for the order of payments of creditors in the event of sale of a vessel hadbeen repealed by PD 1521, otherwise known as the Ship Mortgage Decree of 1978. If the mortgage of the vesselconstituted for the purpose of financing the construction, acquisition, purchase or initial operation of vessels, themortgagee obtains a preferred status provided the formalities prescribed by law are complied with. Uponenforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall first beapplied to the claim of the mortgage creditor unless there are superior or preferential claims under


Section 17 of thesame law.

Babst vs. Court of Appeals [GR 99398, 26 January 2001] Facts: On 8 June 1973, ELISCON obtained from Commercial Bank and Trust Company (CBTC) a loan in theamount of P8,015,900.84, with interest at the rate of 14% per annum, evidenced by a promissory note.Elizalde Steel Consolidated, Inc. (ELISCON) defaulted in its payments, leaving an outstanding indebtednessin the amount of P2,795,240.67 as of 31 October 1982. The letters of credit, on the other hand, were openedfor ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial Corporation (MULTI) withthe said bank, pursuant to the Resolution of the Board of Directors of MULTI adopted on 31 August 1977.Subsequently, on 26 September 1978, Antonio Roxas Chua and Chester G. Babst executed a ContinuingSuretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened for

ELISCON in favor of National Steel Corporation (NSC) 3 domestic letters of credit in the amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which ELISCON used to purchase tin black plates from NSC. ELISCON defaulted in its obligation to pay the amounts of the letters of credit, leaving anoutstanding account, as of 31 October 1982, in the total amount of P3,963,372.08. On 22 December 1980, theBank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the survivingcorporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCONencountered financial difficulties and became heavily indebted to the Development Bank of the Philippines(DBP). In order to settle its obligations, ELISCON proposed to convey to DBP by way of dacion en pago allits fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16.On 28 December 1978, ELISCON and DBP executed a Deed of Cession of Property in Payment of Debt. InJune 1981, ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets. InOctober 1981, DBP formally took over the assets of ELISCON, including its indebtedness to BPI. Thereafter,DBP proposed formulas for the settlement of all of ELISCON's obligations to its creditors, but BPI expresslyrejected the formula submitted to it for not being acceptable. Consequently, on 17 January 1983, BPI, assuccessor-in-interest of CBTC, instituted with the Regional Trial Court of Makati, Branch 147, a complaintfor sum of money against ELISCON, MULTI and Babst (Civil Case 49226). On 20 February 1987, the trialcourt rendered its Decision in favor of BPI. In due time, ELISCON, MULTI and Babst filed their respectivenotices of appeal. On 29 April 1991, the Court of Appeals rendered a Decision modifying the judgment of thetrial court. ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was,however, denied in a Resolution dated 9 March 1992. Subsequently, ELISCON filed a petition for review oncertiorari (GR. 104625). Meanwhile, Babst also filed a petition for review with the Court (GR 99398). Issue [1]: Whether the BPI can institute the present case. Held [1]: There was a valid merger between BPI and CBTC. It is settled that in the merger of two existingcorporations, one of the corporations survives and continues the business, while the other is dissolved and allits rights, properties and liabilities are acquired by the surviving corporation. Hence,


BPI has a right toinstitute the present case. Issue [2]: Whether BPI, the surviving corporation in a merger with CBTC, consented to the assumption byDBP of the obligations of ELISCON. Held [2]: Due to the failure of BPI to register its objection to the take-over by DBP of ELISCON's assets, atthe creditors' meeting held in June 1981 and thereafter, it is deemed to have consented to the substitution of DBP for ELISCON as debtor. The authority granted by BPI to its account officer to attend the creditors'meeting was an authority to represent the bank, such that when he failed to object to the substitution of debtors, he did so on behalf of and for the bank. Even granting arguendo that the said account officer was notso empowered, BPI could have subsequently registered its objection to the substitution, especially after it hadalready learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure to doso can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. As repeatedlypointed out by ELISCON and MULTI, BPI's objection was to the proposed payment formula, not to thesubstitution itself. BPI gives no cogent reason in withholding its consent to the substitution, other than itsdesire to preserve its causes of action and legal recourse against the sureties of ELISCON. It must beremembered, however, that while a surety is solidarily liable with the principal debtor, his obligation to payonly arises upon the principal debtor's failure or refusal to pay. There was no indication that the principaldebtor will default in payment. In fact, DBP, which had stepped into the shoes of ELISCON, was capable of payment. Its authorized capital stock was increased by the government. More importantly, the National Development Company took over the business of ELISCON and undertook to pay ELISCON's creditors, andearmarked for that purpose the amount of P4,015,534.54 for payment to BPI. Notwithstanding the fact that areliable institution backed by government funds was offering to pay ELISCON's debts, not as mere surety butas substitute principal debtor, BPI, for reasons known only to itself, insisted in going after the sureties. BPI'sconduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence,there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose causeof action should be directed against DBP as the new debtor.

The Mentholatum Co. Inc. Vs. Mangaliman [GR 47701, 27 June 1941] Facts: The Mentholatum Co., Inc., is a Kansas corporation which manufactures "Mentholatum," amedicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectalirritation and other external ailments of the body. The Philippine-American Drug Co., Inc., is its exclusivedistributing agent in the Philippines authorized by it to look after and protect its interests. On 26 June 1919and on 21 January 1921, the Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry theword, "Mentholatum", as trade mark for its products. The Mangaliman brothers prepared a medicament andsalve named "Mentholiman" which they sold to the public packed in a container of the same size, color andshape as "Mentholatum." As a consequence of these acts of the Mangalimans, Mentholatum, etc. suffereddamages from the diminution of their sales and the loss of goodwill and reputation of their product in themarket. On 1 October 1935, the Mentholatum Co., Inc., and the Philippine-American Drug, Co.,


Inc.instituted an action in the Court of First Instance (CFI) of Manila against Anacleto Mangaliman, FlorencioMangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair competition (Civil case 48855). Mentholatum, etc. prayed for the issuance of an order restraining Anacletoand Florencio Mangaliman from selling their product "Mentholiman," and directing them to render anaccounting of their sales and profits and to pay damages. After a protracted trial, featured by the dismissal of the case on 9 March 1936 for failure of plaintiff's counsel to attend, and its subsequent reinstatement on April4, 1936, the Court of First Instance of Manila, on 29 October 1937, rendered judgment in favor of Mentholatum, etc. In the Court of Appeals (CA-GR 46067), the decision of the trial court was, on 29 June1940, reversed, said tribunal holding that the activities of the Mentholatum Co., Inc., were businesstransactions in the Philippines, and that by section 69 of the Corporation Law, it may not maintain the suit.Mentholatum, etc. filed the petition for certiorari. Issue: Whether Mentholatum, etc. could prosecute the instant action without having secured the licenserequired in section 69 of the Corporation Law. Held: No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in"or "transacting" business. Indeed, each case must be judged in the light of its peculiar environmentalcircumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired fromit and turned it over to another. The term implies a continuity of commercial dealings and arrangements, andcontemplates, to that extent, the performance of acts or works or the exercise of some of the functionsnormally incident to, and in progressive prosecution of, the purpose and object of its organization. Herein,Mentholatum Co., through its agent, the Philippine-American Drug Co., Inc., has been doing business in thePhilippines by selling its products here since the year 1929, at least. Whatever transactions the PhilippineAmerican Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc., being a foreigncorporation doing business in the Philippines without the license required by section 68 of the CorporationLaw, it may not prosecute this action for violation of trade mark and unfair competition. Neither may thePhilippine-American Drug Co., Inc., maintain the action here

for the reason that the distinguishing features of the agent being his representative character and derivative authority, it cannot now, to the advantage of itsprincipal, claim an independent standing in court. Further, the recognition of the legal status of a foreigncorporation is a matter affecting the policy of the forum, and the distinction drawn in Philippine CorporationLaw is an expression of the policy. The general statement made in Western Equipment and Supply Co. vs.Reyes regarding the character of the right involved should not be construed in the derogation of the policy-determining authority of the State. The right of Mentholatum conditioned upon compliance with therequirement of section 69 of the Corporation Law to protect its rights, is reserved.

G.R. No. L-44944 August 9, 1985 TOP-WELD MANUFACTURING, INC., petitioner, vs. ECED, S.A. 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:

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.

a) Failure to pay respondent IRTI the stipulated 3% royalties;

The respondent corporation further alleged that Section 4 (9) of R.A. No. 5455 cannot possibly apply to the instant case because:

b) The use of other wrong materials in the manufacture of welding products bearing the Eutectic label;

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;

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;

b) In fact, the defendants have sent written notices dated July 25, 1975 of the termination of their respective agreements with plaintiffs; and

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;

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.

g) The falsification of ECED pro-forma invoices in order to procure Eutectic goods at lower prices;

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,

h) The illegal channeling of sales of Eutectic products through the Que Pe Hardware Store; and


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 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. II 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. III 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 foreign corporation's intention to do other business in 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 ... The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. 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 exercise of some of the functions normally incident to, and in progressive prosecution 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: 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. 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.

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.

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

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."

in this case.

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.

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."

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

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.


Avon Insurance PLC, et al vs Court of Appeals FACTS: Respondent Yupangco Cotton Mills filed a complaint against several foreig n reinsurance companies(among which are petitioners) to collect their alleged percentage liability under contract treati es between the foreign insurance companies and the international insurancebroker C.J. Boatright, acting as agent for respondent Worldwide Surety and Insurance Company. Inasmuch as petitioners are not engaged in business in the philippines with no o ffices, places of business or agents in the Philippines, the reinsurance treaties having been entered abroad, service of sum mons upon motion of respondent Yupangco, was made upon petitioners through the office of the Insurance Commissioner. Petition ers, by counsel on special appearance, seasonably filed motions to dismiss disputing the jurisdiction of respondent Cou rt. Worldwide Surety and Insurance, in a Deed of Assignment, acknowledged a remaining balance still due Yupangco Cotton Cotton Mills, and assigned to the latter all reinsurance proceeds still collecti ble from all the foreign reinsurance companies. Thus, in its interest as assigneee and original insured, yupangco Cotton Mills i nstituted this collection suit against the petitioners. ISSUE: Whether or not the respondent court has no jurisdiction over the petitone rs being a foreign corporations not doing business in the Philippines with no office, place of business or agents in the P hilippines. LAWS: 1. Section 123 of Batasang Pambansa Blg. 68 - Definition and rights of for eign Corporations - For the purposes of this code, a foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the philippines after it shall have obtained a license to transact b usiness in this country in accordance with this code and a certificate of authority from the appropriate government agency. 2. Foreign Investment Act of 1991 (R.A. 7042) - Acts constituting "doing b usiness": a. soliciting orders, service contracts, opening offices, whether called 'liaison' offices or branches; b. Appointing representativesor distributors domiciled in the philippine s or who in any calendar year stay in the country for a period or periods totaling 180 days or more; c. participating in the management, supervision or control of any domest ic business, firm or entity or corporation in the philippines; and d. Any other act or acts that imply a continuity of commercial dealings or

arrangements, and contemplate to that extent the performanceof acts or works, or the exercise of some of the functions normal ly incidentto, and in progressive prosecution of commercial gain or of the purpose of the business organization. RULING: The court held that there is no sufficient basis in the records which w ould merit the institution of this collection suit in the philippines, More specifically, there is nothing to substantiate the private respondent's submission that the petitioners had engaged in business activities in this country. This is not an i nstance where the erroneous service of summons upon the defendant can be cured by the issuanced and service of alias summons, a s in the absence of showing that petitioners had been doing business in the country, they can not be summoned to answer for t he charges leveled against them. As the court observed, in so far as the state is concerned, such foreign corporation has no l egal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty .

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