Nautica Canning Corp. vs. YumulG.R. No. 164588; October 19,
2005
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.
ISSUE:
WON Yumul is a stockholder. (Proof of Ownership of Shares)
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 ill-gotten, 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 non-inclusion 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.-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 Philippine-American 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.
Section 4 of Republic Act 5455 on alien firms doing business in
the Philippines.
The corporations filed their answers setting up as affirmative
defenses violations of the contracts allegedly committed by the
petitioner consisting of the following:
a) Failure to pay respondent IRTI the stipulated 3%
royalties;
b) The use of other wrong materials in the manufacture
of welding products bearing the Eutectic label;
c) The use of the wrong core wire in the manufacture of
Eutectic 680;
d) The use of obsolete and antiquated equipment;
e) Rebranding of other manufactured welding products
or non-Eutectic products with the Eutectic label;
f) The manufacture and sale of inferior and substandard
quality products bearing the Eutectic label resulting in
numerous complaints from customers such as Saulog
Transit and Manila Mining Corporation;
g) The falsification of ECED pro-forma invoices in
order to procure Eutectic goods at lower prices;
h) The illegal channeling of sales of Eutectic products
through the Que Pe Hardware Store; and
i) The sale of welding products bearing brands other
than Eutectic, such as Fujiweld, and even Eutectic
products not included in its authority and for which it
has never been supplied by respondent EUTECTIC
with the raw materials for its manufacture nor with
finished products thereof.
The respondent corporation further alleged that Section 4 (9) of
R.A. No. 5455 cannot possibly apply to the instant case because:
a) With the violations of the contracts by the plaintiff
and "other just causes" earlier mentioned, the
defendants IRTI and ECED are fully justified in
terminating them without being obliged to pay any
compensation nor to reimburse plaintiff of investment
or other expenses;
b) In fact, the defendants have sent written notices dated
July 25, 1975 of the termination of their respective
agreements with plaintiffs; and
c) Since no written certificate was applied for nor
obtained by defendant entities from the Board of
Investments, the latter cannot legally require of them
compliance with No. 9, Section 4, R.A. No, 5455.
On October 9, 1975, the trial court issued an order granting the
petitioner's application for preliminary injunction embodied in
the amended complaint and its application for a writ of
mandatory preliminary injunction embodied in the supplemental
complaint,
The corporations filed with the trial court a motion for
reconsideration.
On December 18, 1975, the trial court issued another order
denying the said motion for reconsideration with respect to the
lifting of the writ of preliminary injunction but granting the
prayer for the lifting of the writ of preliminary mandatory
injunction.
The case was elevated to the Court of Appeals on a petition for
certiorari with preliminary injunction filed by the corporations.
In setting aside the questioned orders, the appelate court held
that:
The determinative question defined by the contentions
of the parties in this case is, whether or not TOP-WELD
may rightfully invoke the provisions of Sec. 4, Republic
Act No. 5455 to enjoin petitioner corporations from
terminating the subject licensing and distributorship
contracts they have with TOP-WELD. The pertinent
portion of the provision reads:
Section 4. Licenses to do business.-No alien,
and no firm, association, partnership,
corporation, or any other form of business
organization formed, organized, chartered or
existing under any laws other than those of the
Philippines, or which is not a Philippine
National, or more than thirty per cent of the
outstanding capital of which is owned or
controlled by aliens shall do business or
engage in any economic activity in alien the
Philippines, or be registered, licensed, or
permitted by the Securities and Exchange
Commission, or by any other bureau, office,
agency, political subdivision, or instrumentality
of the government, to do business, or engage in
an economic activity in the Philippines without
first securing a written certificate from the
Board of Investments to the effect ... .
Upon granting said certificate, the Board shall
impose the following requirements on the alien
or the firm, association, partnership,
corporation, or other form of business
organization that is not organized or existing
under the laws of the Philippines. ... .
(9) Not to terminate any franchise, licensing or
other agreement that applicant may have with a
resident of the Philippines, authorizing the
latter to assemble, manufacture or sell within
the Philippines the products of the applicant,
except for violation thereof or other just cause
and upon payment of compensation and
reimbursement and other expenses incurred by
the licensee in developing a market for the said
products; Provided. however, That in case of
disagreement, the amount of compensation or
reimbursement shall be determined by the
court where the licensee is domiciled or has its
principal office who shall require the applicant
to file a bond in such amount as, in its opinion,
is sufficient for this purpose.
By the licensing and distributorship arrangements had
with TOPWELD, there is no doubt that IRTI and ECED
were doing business and engaging in economic activity
in the Philippines (see Sections 1 and 4, R.A. No.
5455), as a prerequisite to which they should have first
secured a written certificate from the Board of
Investments. It is not disputed, however, that IRTI and
ECED have not secured such written certificate in
consequence of which there was no occasion for the
Board of Investments to impose the requirements
prescribed in the aforequoted provisions of Sec. 4, R.A.
No. 5455, among which is that the grantee of the
certificate shall not terminate any franchise, licensing or
other agreement it may have with a resident of the
Philippines for the assembly, manufacture or sale within
the country of the products of said grantee, except for
violation thereof or other just cause and upon payment
of compensation and reimbursement and other expenses
incurred by the resident licensee in developing a market
for said products. In this case, while the parties are in
dispute as to the existence of a violation of the contracts
involved or of other just cause, there is no quarrel over
the fact that IRTI and ECED have not paid, and do not
intend to pay, such compensation or reimbursement
contemplated in the law, maintaining that TOPWELD is
not entitled to the same.
Under the particular situation obtaining in this case, this
Court is of the opinion that petitioner corporations are
not bound by the requirement on termination, and
TOPWELD cannot invoke the same against the former.
The reason is not simply because IRTI and ECED, by
failing to get the required certificate from the Board of
Investment, were not made subject by the said Board to
the requirement on termination, as maintained by
petitioners. To impose such requirement on petitioners
would be to perpetuate, and force them to remain in, an
unlawful business operation. Moreover, it was
incumbent upon TOPWELD to know whether or not
IRTI and ECED were properly authorized to engage
into the licensing and distributorship agreements. At the
very least TOPWELD has not come to court with clear
hands, and cannot be heard to invoke the equitable
remedy of injunction to perpetuate an illegal situation it
voluntarily helped bring about.
If only for the foregoing considerations, there appears a
grave abuse of discretion on the part of respondent
Judge in issuing the orders complained of.
Petitioner, TOP-WELD filed this present petition putting in issue
the following assignments of errors:
I
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
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.
RESTRICTI
VE COVENANT
6. DISTRIBUTOR shall not during the continuance of
this agreement distribute products of any other
manufacturer or supplier in the Territory assigned to
him, which are similar to the Products.
Upon the termination of this agreement by either party,
DISTRIBUTOR agrees not to engage, directly or
indirectly, in the commercialization, distribution and/or
manufacture of products competing with any
EUTECTIC + CASTOLIN products covered by this
agreement, or of products likely to affect the sale of any
EUTECTIC + CASTOLIN products, either as principal,
agent or employee in the Territory, this prohibition to
extend for a period of two (2) years from the date of
termination, except for the explicit purpose of selling
any remaining Products still in DISTRIBUTOR's
possession on the date of termination of this agreement
which sales shall not be below the DISTRIBUTOR's
pretermination selling price for such Products unless
such sale is to ECED or its nominee in which case
Clause 19 hereof shall govern.
xxx xxx xxx
We can conclude that assuming the petitioner maintains an
independent status, in essence it merely extends to the
Philippines the business of the foreign corporations.
On the basis of the foregoing, we uphold the appellate court's
finding that "IRTI AND ECED were doing business and
engaging in economic activity in the Philippines ... as a
prerequisite to which they should have first secured a written
certificate from the Board of Investments."
The respondent court, however, erred in holding that "IRTI and
ECED have not secured such written certificate in consequence
of which there is no occasion for the Board of Investments to
impose the requirements prescribed in the aforequoted
provisions of Sec. 4, R.A. No. 5455 ... ." To accept this view
would open the way for an interpretation that by doing business
in the country without first securing the required written
certificate from the Board of Investments, a foreign corporation
may violate or disregard the safeguards which the law, by its
provisions, seeks to establish.
We agree, however, that there is a more compelling reason
behind the finding that the "corporations are not bound by the
requirement on termination, and TOP-WELD cannot invoke the
same against the former."
As between the parties themselves, R.A. No. 5455 does not
declare as void or invalid the contracts entered into without first
securing a license or certificate to do business in the Philippines.
Neither does it appear to intend to prevent the courts from
enforcing contracts made in contravention of its licensing
provisions. There is no denying, though, that an "illegal
situation," as the appellate court has put it, was created when the
parties voluntarily contracted without such license.
The parties are charged with knowledge of the existing law at
the time they enter into the contract and at the time it is to
become operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall v.
Bucher, 227 SW 2d 98). Moreover, a person is presumed to be
more knowledgeable about his own state law than his alien or
foreign contemporary. In this case, the record shows that, at
least, petitioner had actual knowledge of the applicability of
R.A. No. 5455 at the time the contract was executed and at all
times thereafter. This conclusion is compelled by the fact that the
same statute is now being propounded by the petitioner to
bolster its claim. We, therefore, sustain the appellate court's view
that "it was incumbent upon TOP-WELD to know whether or
not IRTI and ECED were properly authorized to engage in
business in the Philippines when they entered into the licensing
and distributorship agreements." The very purpose of the law
was circumvented and evaded when the petitioner entered into
said agreements despite the prohibition of R.A. No. 5455. The
parties in this case being equally guilty of violating R.A, No.
5455, they are in pari delicto, in which case it follows as a
consequence that petitioner is not entitled to the relief prayed for
in this case.
In Bough v. Cantiveros (40 Phil. 210), the principle is laid down
in these words: "The rule of pari delicto is expressed in the
maxims "ex dolo malo non eritur actio" and "in pari delicto
potior est conditio defedentis." The law will not aid either party
to an illegal agreement. It leaves the parties where it finds them."
No remedy could be afforded to the parties because of their
presumptive knowledge that the transaction was tainted with
illegality. (Soriano v. Ong Hoo, 103 Phil. 829). Equity cannot
lend its aid to the enforcement of an alleged right claimed by
virtue of an agreement entered into in contravention of law.
Lastly, we come to the issue of "just cause" for the termination
of the contracts or the alleged violations of the contracts made
by petitioner. Though properly ventilated below, this factual
issue was not determined by both the trial court and the appellate
court.
The record shows that respondents, in opposing the injunction
suit and alleging the violations of the contracts, submitted and
relied on their affidavits. The petitioner, however, to refute these
charges, submitted a "Reply to Opposition" which is neither
verified nor supported by counter-affidavits. There is no showing
in the records before us whether oral testimony was presented by
any of the parties or whether the affiants were subjected to the
test of cross-examination and if any, what was stated during the
oral testimony.
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,
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 .
