Dissolution Full Case.docx

THIRD DIVISION METROPOLITAN BANK & TRUST COMPANY, INC. (as successor-ininterest of the banking operations of Global Business Bank, Inc. formerly known as PHILIPPINE BANKING CORPORATION), Petitioner,

- versus -

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, prays for the reversal of the Decision[1] dated November 7, 2006 and G.R. No. 176959 Resolution[2] dated March 5, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 76642. The CA had affirmed the Decision[3] dated June 27, 2002 of the Regional Trial Court Present: (RTC), Branch 137, Makati City in Civil Case No. 97-997 which declared invalid the reversion or application of the CARPIO MORALES, J., Riverside Mills Corporation Provident and Retirement Fund Chairperson, (RMCPRF) to the outstanding obligation of Riverside Mills BERSAMIN, Corporation (RMC) with Philippine Banking Corporation DEL CASTILLO, (Philbank). VILLARAMA, JR., and SERENO, JJ. The facts are as follows:

THE BOARD OF TRUSTEES OF RIVERSIDE MILLS CORPORATION PROVIDENT AND RETIREMENT FUND, represented by ERNESTO TANCHI, JR., CESAR SALIGUMBA, AMELITA SIMON, EVELINA OCAMPO and CARLITOS Y. LIM, RMC UNPAID EMPLOYEES Promulgated: ASSOCIATION, INC., and THE September 8, 2010 INDIVIDUAL BENEFICIARIES OF THE PROVIDENT AND RETIREMENT FUND OF RMC, Respondents. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

On November 1, 1973, RMC established a Provident and Retirement Plan[4] (Plan) for its regular employees. Under the Plan, RMC and its employees shall each contribute 2% of the employees current basic monthly salary, with RMCs contribution to increase by 1% every five (5) years up to a maximum of 5%. The contributions shall form part of the provident fund (the Fund) which shall be held, invested and distributed by the Commercial Bank and Trust Company. Paragraph 13 of the Plan likewise provided that the Plan may be amended or terminated by the Company at any time on account of business conditions, but no such action shall operate to permit any part of the assets of the Fund to be used for, or diverted to purposes other than for the exclusive benefit of the members of the Plan and their beneficiaries. In no event shall any part of the assets of the Fund revert to [RMC] before all liabilities of the Plan have been satisfied.[5]

On October 15, 1979, the Board of Trustees of RMCPRF (the Board) entered into an Investment Management Agreement[6] (Agreement) with Philbank (now, petitioner Metropolitan Bank and Trust Company). Pursuant to the Agreement, petitioner shall act as an agent of the Board and shall hold, manage, invest and reinvest the Fund in Trust Account No. 1797 in its behalf. The Agreement shall be in force for one (1) year and shall be deemed automatically renewed unless sooner terminated either by petitioner bank or by the Board. In 1984, RMC ceased business operations. Nonetheless, petitioner continued to render investment services to respondent Board. In a letter[7] dated September 27, 1995, petitioner informed respondent Board that Philbanks Board of Directors had decided to apply the remaining trust assets held by it in the name of RMCPRF against part of the outstanding obligations of RMC. Subsequently, respondent RMC Unpaid Employees Association, Inc. (Association), representing the terminated employees of RMC, learned of Trust Account No. 1797. Through counsel, they demanded payment of their share in a letter[8] dated February 4, 1997. When such demand went unheeded, the Association, along with the individual members of RMCPRF, filed a complaint for accounting against the Board and its officers, namely, Ernesto Tanchi, Jr., Carlitos Y. Lim, Amelita G. Simon, Evelina S. Ocampo and Cesar Saligumba, as well as petitioner bank. The case was docketed as Civil Case No. 97-997 in the RTC of Makati City, Branch 137.

On June 2, 1998, during the trial, the Board passed a Resolution[9] in court declaring that the Fund belongs exclusively to the employees of RMC. It authorized petitioner to release the proceeds of Trust Account No. 1797 through the Board, as the court may direct. Consequently, plaintiffs amended their complaint to include the Board as co-plaintiffs. On June 27, 2002, the RTC rendered a decision in favor of respondents. The trial court declared invalid the reversion and application of the proceeds of the Fund to the outstanding obligation of RMC to petitioner bank. The fallo of the decision reads: WHEREFORE, judgment is hereby rendered: 1. Declaring INVALID the reversion or application of the Riverside Mills Corporation Provident and Retirement Fund as payment for the outstanding obligation of Riverside Mills Corporation with defendant Philippine Banking Corporation. 2. Defendant Philippine Banking Corporation (now [Global Bank]) is hereby ordered to: a. Reverse the application of the Riverside Mills Corporation Provident and Retirement Fund as payment for the outstanding obligation of Riverside Mills Corporation with defendant Philippine Banking Corporation; b. Render a complete accounting of the Riverside Mills Corporation Provident and Retirement Fund; the Fund will then be subject to disposition by plaintiff Board of Trustees in accordance with law and the Provident Retirement Plan;

c. Pay attorneys fees equivalent to 10% of the total amounts due to plaintiffs Riverside Mills Unpaid Employees Association and the individual beneficiaries of the Riverside Mills Corporation Provident and Retirement Fund; and costs of suit. 3. The Riverside Mills Corporation Provident and Retirement Fund is ordered to determine the beneficiaries of the FUND entitled to benefits, the amount of benefits per beneficiary, and pay such benefits to the individual beneficiaries. SO ORDERED.[10]

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

Before us, petitioner makes the following assignment of errors: I. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REVERSION AND APPLICATION BY PHILBANK OF THE FUND IN PAYMENT OF THE LOAN OBLIGATIONS OF RIVERSIDE MILLS CORPORATION WERE INVALID.[12] II. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN DECLARING THAT BY HAVING ENTERED INTO AN AGREEMENT WITH THE BOARD, (PHILBANK) IS NOW ESTOPPED TO QUESTION THE LATTERS AUTHORITY AS WELL AS THE TERMS AND CONDITIONS THEREOF.[13] III. THE HONORABLE COURT COMMITTED REVERSIBLE ERROR IN AWARDING ATTORNEYS FEES TO PLAINTIFFS-APPELLEES ON THE BASIS THAT [PHILBANK] WAS REMISS IN ITS DUTY TO TREAT RMCPRFS ACCOUNT WITH THE HIGHEST DEGREE OF CARE CONSIDERING THE FIDUCIARY NATURE OF THEIR RELATIONSHIP, PERFORCE, THE PLAINTIFFS-APPELLEES WERE COMPELLED TO LITIGATE TO PROTECT THEIR RIGHT.[14]

The fundamental issue for our determination is whether the proceeds of the RMCPRF may be applied to satisfy RMCs debt to Philbank. Petitioner contends that RMCs closure in 1984 rendered the RMCPRF Board of Trustees functus officio and devoid of authority to act on behalf of RMCPRF. It thus belittles the RMCPRF Board Resolution dated June 2, 1998, authorizing the release of the Fund to several of its supposed beneficiaries. Without known claimants of the Fund for eleven (11) years since RMC closed shop, it was justifiable for petitioner to consider the Fund to have technically reverted to, and formed part of RMCs assets. Hence, it could be applied to satisfy RMCs debts to Philbank. Petitioner also disputes the award of attorneys fees in light of the efforts taken by Philbank to ascertain claims before effecting the reversion. Respondents for their part, belie the claim that petitioner exerted earnest efforts to ascertain claims. Respondents cite petitioners omission to publish a notice in newspapers of general circulation to locate claims against the Fund. To them, petitioners act of addressing the letter dated September 27, 1995 to the Board is a recognition of its authority to act for the beneficiaries. For these reasons, respondents believe that the reversion of the Fund to RMC is not only unwarranted but unconscionable. For being compelled to litigate to protect their rights, respondents also defend the award of attorneys fees to be proper. The petition has no merit.

A trust is a fiduciary relationship with respect to property which involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another. A trust is either express or implied. Express trusts are those which the direct and positive acts of the parties create, by some writing or deed, or will, or by words evincing an intention to create a trust.[15] Here, the RMC Provident and Retirement Plan created an express trust to provide retirement benefits to the regular employees of RMC. RMC retained legal title to the Fund but held the same in trust for the employees-beneficiaries. Thus, the allocation under the Plan is directly credited to each members account: 6. Allocation: a. Monthly Contributions: 1. Employee to be credited to his account. 2. Employer to be credited to the respective members account as stated under the contribution provision. b. Investment Earnings semestral valuation of the fund shall be made and any earnings or losses shall be credited or debited, as the case may be, to each members account in proportion to his account balances based on the last proceeding (sic) [preceding] accounting period. c. Forfeitures shall be retained in the fund.[16] (Emphasis supplied.)

The trust was likewise a revocable trust as RMC reserved the power to terminate the Plan after all the liabilities of the Fund to the employees under the trust had been

paid.Paragraph 13 of the Plan provided that [i]n no event shall any part of the assets of the Fund revert to the Company before all liabilities of the Plan have been satisfied. Relying on this clause, petitioner, as the Fund trustee, considered the Fund to have technically reverted to RMC, allegedly after no further claims were made thereon since November 1984. Thereafter, it applied the proceeds of the Fund to RMCs debt with the bank pursuant to Paragraph 9 of Promissory Note No. 1618-80[17] which RMC executed on May 12, 1981. The pertinent provision of the promissory note reads: IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY OR WHEN THE SAME BECOMES DUE UNDER ANY OF THE PROVISIONS HEREOF, I/WE HEREBY AUTHORIZE THE BANK AT ITS OPTION AND WITHOUT NOTICE, TO APPLY TO THE PAYMENT OF THIS NOTE, ANY AND ALL MONEYS, SECURITIES AND THINGS OF VALUE WHICH MAY BE IN ITS HAND OR ON DEPOSIT OR OTHERWISE BELONGING TO ME/US AND, FOR THIS PURPOSE, I/WE HEREBY, JOINTLY AND SEVERALLY, IRREVOCABLY CONSTITUTE AND APPOINT THE SAID BANK TO BE MY/OUR TRUE ATTORNEY-IN-FACT WITH FULL POWER AND AUTHORITY FOR ME/US AND IN MY/OUR NAME AND BEHALF, AND WITHOUT PRIOR NOTICE, TO NEGOTIATE, SELL AND TRANSFER ANY MONEYS, SECURITIES AND THINGS OF VALUE WHICH IT MAY HOLD, BY PUBLIC OR PRIVATE SALE, AND APPLY THE PROCEEDS THEREOF TO THE PAYMENT OF THIS NOTE. (Emphasis supplied.)

Petitioner contends that it was justified in supposing that reversion had occurred because its efforts to locate claims against the Fund from the National Labor Relations Commission (NLRC), the lower courts, the CA and the Supreme Court proved futile. We are not convinced. Employees trusts or benefit plans are intended to provide economic assistance to employees upon the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability. They give security against certain hazards to which members of the Plan may be exposed. They are independent and additional sources of protection for the working group and established for their exclusive benefit and for no other purpose.[18] Here, while the Plan provides for a reversion of the Fund to RMC, this cannot be done until all the liabilities of the Plan have been paid. And when RMC ceased operations in 1984, the Fund became liable for the payment not only of the benefits of qualified retirees at the time of RMCs closure but also of those who were separated from work as a consequence of the closure. Paragraph 7 of the Retirement Plan states: Separation from Service: A member who is separated from the service of the Company before satisfying the conditions for retirement due to resignation or any reason other than dismissal for cause shall be paid the balance of his account as of the last day of the month prior to separation. The amount representing the Companys contribution and income thereon standing to the credit of the separating member shall be paid to him as follows:

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

The provision makes reference to a member-employee who is dismissed for cause. Under the Labor Code, as amended, an employee may be dismissed for just or authorized causes. A dismissal for just cause under Article 282[20] of the Labor Code, as amended, implies that the employee is guilty of some misfeasance towards his employer, i.e. the employee has committed serious misconduct in relation to his work, is guilty of fraud, has perpetrated an offense against the employer or any immediate member of his family, or has grossly and habitually neglected his duties. Essentially, it is an act of the employee that sets off the dismissal process in motion. On the other hand, a dismissal for an authorized cause under Article 283[21] and 284[22] of the Labor Code, as amended, does not entail any wrongdoing on the part of the employee. Rather, the termination of employment is occasioned by the employers exercise of management

prerogative or by the illness of the employee matters beyond the workers control. The distinction between just and authorized causes for dismissal lies in the fact that payment of separation pay is required in dismissals for an authorized cause but not so in dismissals for just cause. The rationale behind this rule was explained in the case of Phil. Long Distance Telephone Co. v. NLRC[23] and reiterated in San Miguel Corporation v. Lao,[24] thus: We hold that henceforth separation pay shall be allowed as a measure of social justice only in those instances where the employee is validly dismissed for causes other than serious misconduct or those reflecting on his moral character. Where the reason for the valid dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like theft or illicit sexual relations with a fellow worker, the employer may not be required to give the dismissed employee separation pay, or financial assistance, or whatever other name it is called, on the ground of social justice. xxxxxxxxx The policy of social justice is not intended to countenance wrongdoing simply because it is committed by the underprivileged. At best[,] it may mitigate the penalty but it certainly will not condone the offense.

In San Miguel Corporation v. Lao, we reversed the CA ruling which granted retirement benefits to an employee who was found by the Labor Arbiter and the NLRC to have been properly dismissed for willful breach of trust and confidence.

Applied to this case, the penal nature of the provision in Paragraph 7 of the Plan, whereby a member separated for cause shall not be entitled to withdraw the contributions made by him and his employer, indicates that the separation for cause being referred to therein is any of the just causes under Article 282 of the Labor Code, as amended. To be sure, the cessation of business by RMC is an authorized cause for the termination of its employees. Hence, not only those qualified for retirement should receive their total benefits under the Fund, but those laid off should also be entitled to collect the balance of their account as of the last day of the month prior to RMCs closure. In addition, the Plan provides that the separating member shall be paid a maximum of 40% of the amount representing the Companys contribution and its income standing to his credit. Until these liabilities shall have been settled, there can be no reversion of the Fund to RMC. [25]

Under Paragraph 6 of the Agreement, petitioners function shall be limited to the liquidation and return of the Fund to the Board upon the termination of the Agreement. Paragraph 14 of said Agreement further states that it shall be the duty of the Investment Manager to assign, transfer, and pay over to its successor or successors all cash, securities, and other properties held by it constituting the fund less any amounts constituting the charges and expenses which are authorized [under the Agreement] to be payable from the Fund.[26] Clearly, petitioner had no power to effect reversion of the Fund to RMC. The reversion petitioner effected also could hardly be said to have been done in good faith and with due regard to

the rights of the employee-beneficiaries. The restriction imposed under Paragraph 13 of the Plan stating that in no event shall any part of the assets of the Fund revert to the Company before all liabilities of the Plan have been satisfied, demands more than a passive stance as that adopted by petitioner in locating claims against the Fund. Besides, the beneficiaries of the Fund are readily identifiable the regular or permanent employees of RMC who were qualified retirees and those who were terminated as a result of its closure. Petitioner needed only to secure a list of the employees concerned from the Board of Trustees which was its principal under the Agreement and the trustee of the Plan or from RMC which was the trustor of the Fund under the Retirement Plan. Yet, petitioner notified respondent Board of Trustees only after Philbanks Board of Directors had decided to apply the remaining trust assets of RMCPRF to the liabilities of the company. Petitioner nonetheless assails the authority of the Board of Trustees to issue the Resolution of June 2, 1998 recognizing the exclusive ownership of the Fund by the employees of RMC and authorizing its release to the beneficiaries as may be ordered by the trial court. Petitioner contends that the cessation of RMCs operations ended not only the Board members employment in RMC, but also their tenure as members of the RMCPRF Board of Trustees. Again, we are not convinced. Paragraph 13 of the Plan states that [a]lthough it is expected that the Plan will continue indefinitely, it may be amended or terminated by the Company at any time on account of business conditions. There is no dispute as to the management prerogative on this matter, considering that the Fund consists

primarily of contributions from the salaries of membersemployees and the Company. However, it must be stressed that the RMC Provident and Retirement Plan was primarily established for the benefit of regular and permanent employees of RMC. As such, the Board may not unilaterally terminate the Plan without due regard to any accrued benefits and rightful claims of members-employees. Besides, the Board is bound by Paragraph 13 prohibiting the reversion of the Fund to RMC before all the liabilities of the Plan have been satisfied. As to the contention that the functions of the Board of Trustees ceased upon with RMCs closure, the same is likewise untenable. Under Section 122[27] of the Corporation Code, a dissolved corporation shall nevertheless continue as a body corporate for three (3) years for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. Within those three (3) years, the corporation may appoint a trustee or receiver who shall carry out the said purposes beyond the three (3)-year winding-up period. Thus, a trustee of a dissolved corporation may commence a suit which can proceed to final judgment even beyond the three (3)-year period of liquidation.[28] In the same manner, during and beyond the three (3)year winding-up period of RMC, the Board of Trustees of RMCPRF may do no more than settle and close the affairs of the Fund. The Board retains its authority to act on behalf of its members, albeit, in a limited capacity. It may commence

suits on behalf of its members but not continue managing the Fund for purposes of maximizing profits. Here, the Boards act of issuing the Resolution authorizing petitioner to release the Fund to its beneficiaries is still part of the liquidation process, that is, satisfaction of the liabilities of the Plan, and does not amount to doing business. Hence, it was properly within the Boards power to promulgate. Anent the award of attorneys fees to respondents, we find the same to be in order. Article 2208(2) of the Civil Code allows the award of attorneys fees in cases where the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Attorneys fees may be awarded by a court to one (1) who was compelled to litigate with third persons or to incur expenses to protect his or her interest by reason of an unjustified act or omission of the party from whom it is sought.[29] Here, petitioner applied the Fund in satisfaction of the obligation of RMC without authority and without bothering to inquire regarding unpaid claims from the Board of Trustees of RMCPRF. It wrote the members of the Board only after it had decided to revert the Fund to RMC. Upon being met with objections, petitioner insisted on the reversion of the Fund to RMC, despite the clause in the Plan that prohibits such reversion before all liabilities shall have been satisfied, thereby leaving respondents with no choice but to seek judicial relief. WHEREFORE, the petition on certiorari is hereby DENIED. G.R. No. 187456

June 2, 2014

for

review

ALABANG DEVELOPMENT CORPORATION, Petitioner, vs. ALABANG HILLS VILLAGE ASSOCIATION and RAFAEL TINIO, Respondents.

of the property and declaring AHVAI as owner thereof; and that ADC be made liable for moral and exemplary damages as well as attorney's fees. Tinio filed his separate Answer With Compulsory Counterclaim, practically reiterating the defenses of AHVAI.2

DECISION PERALTA, J.: Before the Court is a petition for review on certiorari assailing the Decision1 of the Court of Appeals (CA), dated March 27, 2009, in CAG.R. CV No. 88864. The factual and procedural antecedents of the case, as summarized by the CA, are as follows: The case traces its roots to the Complaint for Injunction and Damages filed [with the Regional Trial Court (RTC) of Muntinlupa City] on October 19, 2006 by [herein petitioner, Alabang Development Corporation] ADC against [herein respondents, Alabang Hills Village Association, Inc.] AHVAI and Rafael Tinio (Tinio), President of AHVAI. The Complaint alleged that [petitioner] is the developer of Alabang Hills Village and still owns certain parcels of land therein that are yet to be sold, as well as those considered open spaces that have not yet been donated to [the] local government of Muntinlupa City or the Homeowner's Association. Sometime in September [2006], ADC learned that AHVAI started the construction of a multi-purpose hall and a swimming pool on one of the parcels of land still owned by ADC without the latter's consent and approval, and that despite demand, AHVAI failed to desist from constructing the said improvements. ADC thus prayed that an injunction be issued enjoining defendants from constructing the multi-purpose hall and the swimming pool at the Alabang Hills Village. In its Answer With Compulsory Counterclaim, AHVAI denied ADC's asseverations and claimed that the latter has no legal capacity to sue since its existence as a registered corporate entity was revoked by the Securities and Exchange Commission (SEC) on May 26, 2003; that ADC has no cause of action because by law it is no longer the absolute owner but is merely holding the property in question in trust for the benefit of AHVAI as beneficial owner thereof; and that the subject lot is part of the open space required by law to be provided in the subdivision. As counterclaim, it prayed that an order be issued divesting ADC of the title

On January 4, 2007, the RTC of Muntinlupa City, Branch 276, rendered judgment dismissing herein petitioner's complaint on the grounds (1) that the latter has no personality to file the same; (2) that the subject property "is a reserved area for the beneficial use of the homeowners, as mandated by law;" and (3) that the Housing and Land Use Regulatory Board (HLURB), not the RTC, has exclusive jurisdiction over the dispute between petitioner and respondents.3 Aggrieved, herein petitioner filed a Notice of Appeal of the RTC decision. Herein respondent AHVAI, on the other hand, moved that it be allowed to prosecute its compulsory counterclaim praying, for this purpose, that the RTC decision be amended accordingly. In its Order dated February 20, 2007, the RTC approved petitioner's notice of appeal but dismissed respondent AHVAI’s counterclaim on the ground that it is dependent on petitioner's complaint. Respondent AHVAI then filed an appeal with the CA. In its assailed Decision dated March 27, 2009, the CA dismissed both appeals of petitioner and respondent, and affirmed the decision of the RTC. With respect to petitioner, the CA ruled that the RTC correctly dismissed petitioner's complaint as the same was filed when petitioner was already defunct and, as such, it no longer had capacity to file the said complaint. As regards, respondent AHVAI’s counterclaim, the CA held that "where there is no claim against the [respondent], because [petitioner] is already in existent and has no capacity to sue, the counterclaim is improper and it must be dismissed, more so where the complaint is dismissed at the instance of the [respondent]." Thus, the instant petition based on the following grounds: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RELYING ON THE CASE OF "COLUMBIA PICTURES, INC. v. COURT OF APPEALS" IN RESOLVING PETITIONER'S LACK OF CAPACITY THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING LACK OF CAPACITY OFTHE PETITIONER IN FILING THE

CASE CONTRARY TO THE EARLIER RULINGS OF THIS HONORABLE COURT THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO RESOLVE THE ISSUE THAT PETITIONER IS MANDATED TO CEDE PROPERTIES TO RESPONDENT AHVAI4 Anent the first assigned error, the Court does not agree that the CA erred in relying on the case of Columbia Pictures, Inc. v. Court of Appeals.5 The CA cited the case for the purpose of restating and distinguishing the jurisprudential definition of the terms "lack of capacity to sue" and "lack of personality to sue;" and of applying these definitions to the present case. Thus, the fact that, unlike in the instant case, the corporations involved in the Columbia case were foreign corporations is of no moment. The definition of the term "lack of capacity to sue" enunciated in the said case still applies to the case at bar. Indeed, as held by this Court and as correctly cited by the CA in the case of Columbia: "[l]ack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in the case, or does not have the character or representation he claims[;] 'lack of capacity to sue' refers to a plaintiff's general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality or any other general disqualifications of a party. ..."6In the instant case, petitioner lacks capacity to sue because it no longer possesses juridical personality by reason of its dissolution and lapse of the three-year grace period provided under Section 122 of the Corporation Code, as will be discussed below. With respect to the second assigned error, Section 122 of the Corporation Code provides as follows: SEC. 122. Corporate liquidation.– Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. At any time during said three (3) years, said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its property in trust

for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest. Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. This Court has held that: It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but there is no time limit within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 now Sec. 122]) that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being sued (7 R.C.L., Corps., par. 750); but trustees to whom the corporate assets have been conveyed pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the liquidation...7 In the absence of trustees, this Court ruled, thus: … Still in the absence of a board of directors or trustees, those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in its behalf, might make proper representations with the Securities and Exchange Commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the corporate concerns.8 In the instant case, there is no dispute that petitioner's corporate registration was revoked on May 26, 2003. Based on the above-quoted 1âwphi 1

provision of law, it had three years, or until May 26, 2006, to prosecute or defend any suit by or against it. The subject complaint, however, was filed only on October 19, 2006, more than three years after such revocation. It is likewise not disputed that the subject complaint was filed by petitioner corporation and not by its directors or trustees. In fact, it is even averred, albeit wrongly, in the first paragraph of the Complaint9 that "[p]laintiff is a duly organized and existing corporation under the laws of the Philippines, with capacity to sue and be sued. x x x"10 Petitioner, nonetheless, insists that a corporation may still sue, even after it has been dissolved and the three-year liquidation period provided under Section 122 of the Corporation Code has passed. Petitioner cites the cases of Gelano v. Court of Appeals,11 Knecht v. United Cigarette Corporation,12 and Pepsi-Cola Products Philippines, Inc. v. Court of Appeals,13 as authority to support its position. The Court, however, agrees with the CA that in the abovecited cases, the corporations involved filed their respective complaints while they were still in existence. In other words, they already had pending actions at the time that their corporate existence was terminated. The import of this Court's ruling in the cases cited by petitioner is that the trustee of a corporation may continue to prosecute a case commenced by the corporation within three years from its dissolution until rendition of the final judgment, even if such judgment is rendered beyond the threeyear period allowed by Section 122 of the Corporation Code. However, there is nothing in the said cases which allows an already defunct corporation to initiate a suit after the lapse of the said three-year period. On the contrary, the factual circumstances in the abovecited cases would show that the corporations involved therein did not initiate any complaint after the lapse of the three-year period. In fact, as stated above, the actions were already pending at the time that they lost their corporate existence. In the present case, petitioner filed its complaint not only after its corporate existence was terminated but also beyond the three-year period allowed by Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a corporation. To allow petitioner to initiate the subject complaint and pursue it until final judgment, on the ground that such complaint was filed for the sole purpose of liquidating its assets, would be to circumvent the provisions of Section 122 of the Corporation Code. As to the last issue raised, the basic and pivotal issue in the instant case is petitioner's capacity to sue as a corporation and it has already been

settled that petitioner indeed lacks such capacity. Thus, this Court finds no cogent reason to depart from the ruling of the CA finding it unnecessary to delve on the other issues raised by petitioner. WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 88864, sustaining the Decision of the Regional Trial Court of Muntinlupa City, Branch 276, in Civil Case No. 06-138, is AFFIRMED.

G.R. No. L-39050 February 24, 1981 CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners, vs. THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents.

DE CASTRO, J.: Private respondent Insular Sawmill, Inc. is a corporation organized on September 17, 1945 with a corporate life of fifty (50) years, or up to September 17, 1995, with the primary purpose of carrying on a general lumber and sawmill business. To carry on this business, private respondent leased the paraphernal property of petitioner-wife Guillermina M. Gelano at the corner of Canonigo and Otis, Paco, Manila for P1,200.00 a month. It was while private respondent was leasing the aforesaid property that its officers and directors had come to know petitioner-husband Carlos Gelano who received from the corporation cash advances on account of rentals to be paid by the corporation on the land. Between November 19, 1947 to December 26, 1950 petitioner Carlos Gelano obtained from private respondent cash advances of P25,950.00. The said sum was taken and received by petitioner Carlos Gelano on the agreement that private respondent could deduct the same from the monthly rentals of the leased premises until said cash advances are fully paid. Out of the aforementioned cash advances in the total sum of P25,950.00, petitioner Carlos Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance of P20,000.00 which he refused to pay despite repeated demands by private respondent. Petitioner Guillermina M. Gelano refused to pay on the ground that said amount was for the personal account of her husband asked for by, and given to him, without her knowledge and consent and did not benefit the family.

in the amount of P83.00, the amount due private respondent on account of credit purchases of lumber materials is P946.46 which petitioners failed to pay. On July 14, 1952, in order to accommodate and help petitioners renew previous loans obtained by them from the China Banking Corporation, private respondent, through Joseph Tan Yoc Su, executed a joint and several promissory note with Carlos Gelano in favor of said bank in the amount of P8,000.00 payable in sixty (60) days. For failure of Carlos Gelano to pay the promissory note upon maturity, the bank collected from the respondent corporation the amount of P9,106.00 including interests, by debiting it from the corporation's current account with the bank. Petitioner Carlos Gelano was able to pay private respondent the amount of P5,000.00 but the balance of P4,106.00 remained unsettled. Guillermina M. Gelano refused to pay on the ground that she had no knowledge about the accommodation made by the corporation in favor of her husband. On May 29, 1959 the corporation, thru Atty. German Lee, filed a complaint for collection against herein petitioners before the Court of First Instance of Manila. Trial was held and when the case was at the stage of submitting memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde took over and prepared the memorandum. In the meantime, private respondent amended its Articles of Incorporation to shorten its term of existence up to December 31, 1960 only. The amended Articles of Incorporation was filed with, and approved by the Securities and Exchange Commission, but the trial court was not notified of the amendment shortening the corporate existence and no substitution of party was ever made. On November 20, 1964 and almost four (4) years after the dissolution of the corporation, the trial court rendered a decision in favor of private respondent the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered, ordering: 1. Defendant Carlos Gelano to pay plaintiff the sum of:

On various occasions from May 4, 1948 to September 11, 1949 petitioners husband and wife also made credit purchases of lumber materials from private respondent with a total price of P1,120.46 in connection with the repair and improvement of petitioners' residence. On November 9, 1949 partial payment was made by petitioners in the amount of P91.00 and in view of the cash discount in favor of petitioners

(a) P19,650.00 with interest thereon at the legal rate from the date of the filing of the complaint on May 29, 1959, until said sum is fully paid;

(b) P4,106.00, with interest thereon at the legal rate from the date of the filing of the complaint until said sum is fully paid; 2. Defendants Carlos Gelano and Guillermina Mendoza to pay jointly and severally the sum of: (a) P946.46, with interest thereon, at the agreed rate of 12% per annum from October 6, 1946, until said sum is fully paid; (b) P550.00, with interest thereon at the legal rate from the date of the filing of the complaint until the said sum is fully paid; (c) Costs of the suit; and 3. Defendant Carlos Gelano to pay the plaintiff the sum of P2,000.00 attorney's fees. The Countered of defendants are dismissed. SO ORDERED. 1 Both parties appealed to the Court of Appeals, private respondent also appealing because it insisted that both Carlos Gelano and Guillermina Gelano should be held liable for the substantial portion of the claim. On August 23, 1973, the Court of Appeals rendered a decision modifying the judgment of the trial court by holding petitioner spouses jointly and severally liable on private respondent's claim and increasing the award of P4,106.00. The dispositive portion of the decision reads as follows: WHEREFORE, modified in the sense that the amount of P4,160.00 under paragraph 1 (b) is raised to P8,160.00 and the clarification that the conjugal partnership of the spouses is jointly and severally liable for the obligations adjudged against defendant Carlos Gelano, the judgment appealed from is affirmed in all other respects. 2

After petitioners received a copy of the decision on August 24, 1973, they came to know that the Insular Sawmill Inc. was dissolved way back on December 31, 1960. Hence, petitioners filed a motion to dismiss the case and/or reconsideration of the decision of the Court of Appeals on grounds that the case was prosecuted even after dissolution of private respondent as a corporation and that a defunct corporation cannot maintain any suit for or against it without first complying with the requirements of the winding up of the affairs of the corporation and the assignment of its property rights within the required period. Incidentally, after receipt of petitioners' motion to dismiss and/or reconsideration or on October 28, 1973, private respondent thru its former directors filed a Petition for Receivership before the Court of First Instance of Manila, docketed as Special Proceedings No. 92303, 3 which petition is still pending before said court. On November 5, 1973, private respondent filed comment on the motion to dismiss and or reconsideration and after the parties have filed reply and rejoinder, the Court of Appeals on July 5, 1974 issued a resolution 4 denying the aforesaid motion. Hence, the present petition for review, petitioners assigning the following errors: I THE "RESPONDENT COURT" ERRED IN DENYING PETlTIONERS MOTION TO DISMISS THIS CASE DESPITE THE CLEAR FINDING THAT "RESPONDENT" HAD ALREADY CEASED TO EXIST AS A CORPORATION SINCE DECEMBER 31, 1960 YET. II THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT ACTIONS PENDING FOR OR AGAINST A DEFUNCT CORPORATION ARE DEEMED ABATED. III THE "RESPONDENT COURT" ERRED IN HOLDING INSTEAD THAT EVEN IF THERE WAS NO

COMPLIANCE WITH SECTIONS 77 AND 78 OF THE CORPORATION LAW FOR THE WINDING UP OF THE AFFAIRS OF THE CORPORATION BY THE CONVEYANCE OF CORPORATE PROPERTY AND PROPERTY RIGHTS TO AN ASSIGNEE, OR TRUSTEE OR THE APPOINTMENT OF A RECEIVER WITHIN THREE YEARS FROM THE DISSOLUTION OF SUCH CORPORATION, ANY LITIGATION FILED BY OR AGAINST THE DISSOLVED CORPORATION, INSTITUTED WITHIN THREE YEARS AFTER SUCH DISSOLUTION BUT WHICH COULD NOT BE TERMINATED WITHIN SAID PERIOD, MAY STILL BE CONTINUED AS IT IS NOT DEEMED ABATED. IV THE "RESPONDENT COURT" ERRED IN THE APPLICATION TO THIS CASE OF ITS RULING IN PASAY CREDIT AND FINANCE CORPORATION, VERSUS LAZARO, ET AL., 46 O.G. (11) 5528, AND IN OVERLOOKING THE DISTINCTION LAID DOWN BY THIS HONORABLE COURT IN NUMEROUS DECIDED CASES THAT ONLY CASES FILED IN THE NAME OF ASSIGNEES, TRUSTEES OR RECEIVERS (FOR A DEFUNCT CORPORATION), AI)POINTED WITHIN THREE YEARS FROM ITS DISSOLUTION, MAY BE PROSECUTED BEYOND THE SAID THREE YEAR PERIOD, AND THAT, ALL OTHERS ARE DEEMED ABATED. V THE "RESPONDENT COURT" ERRED IN HOLDING THAT WITH THE FILING OF SPECIAL PROCEEDINGS NO. 92303 IN THE COURT OF FIRST INSTANCE OF MANILA BY FORMER DIRECTORS OF "PRIVATE RESPONDENT" ON OCTOBER 23,1973, OR, THIRTEEN YEARS AFTER ITS DISSOLUTION, A LEGAL, PERSONALITY WILL BE APPOINTED TO REPRESENT THE CORPORATION. VI

THE "RESPONDENT COURT" ERRED IN PRACTICALLY RULING THAT THE THREE-YEAR PERIOD PROVIDED FOR BY THE CORPORATION LAW WITHIN WHICH ASSIGNEES, TRUSTEES FOR RECEIVERS MAY BE APPOINTED MAY BE EXTENDED. VII THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT THE FAILURE OF "PRIVATE RESPONDENT" OR ITS AUTHORIZED COUNSEL TO NOTIFY THE TRIAL COURT OF ITS DISSOLUTION OR OF ITS "CIVIL DEATH" MAY BE CONSIDERED AS AN ABANDONMENT OF ITS CAUSE OF ACTION AMOUNTING TO A FAILURE TO PROSECUTE AND RESULTING IN THE ABATEMENT OF THE SUIT. VIII THE "RESPONDENT COURT" ERRED IN RECOGNIZING THE PERSONALITY OF COUNSEL APPEARING FOR PRIVATE RESPONDENT' DESPITE HIS ADMISSION THAT HE DOES NOT KNOW THE "PRIVATE RESPONDENT" NOR HAS HE MET ANY OF ITS DIRECTORS AND OFFICERS. IX THE "RESPONDENT COURT" ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING IN FAVOR OF "PRIVATE RESPONDENT". X THE "RESPONDENT COURT" ERRED IN MODIFYING THE TRIAL COURT'S DECISION AND HOLDING EVEN THE CONJUGAL PARTNERSHIP OF PETITIONERS JOINTLY AND SEVERALLY LIABLE FOR THE OBLIGATION ADJUDGED AGAINST PETITIONERHUSBAND, CARLOS GELANO.

The main issue raised by petitioner is whether a corporation, whose corporate life had ceased by the expiration of its term of existence, could still continue prosecuting and defending suits after its dissolution and beyond the period of three years provided for under Act No. 1459, otherwise known as the Corporation law, to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or assignee.

750); but trustees to whom the corporate assets have been conveyed pursuant to the authority of Section 78 may sue and be sued as such in all matters connected with the liquidation. By the terms of the statute the effect of the conveyance is to make the trustees the legal owners of the property conveyed, subject to the beneficial interest therein of creditors and stockholders. 7

The complaint in this case was filed on May 29, 1959 when private respondent Insular Sawmill, Inc. was still existing. While the case was being tried, the stockholders amended its Articles of Incorporation by shortening the term of its existence from December 31, 1995 to December 31, 1960, which was approved by the Securities and Exchange Commission.

When Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77 of the Corporation Law, it stin has the right until December 31, 1963 to prosecute in its name the present case. After the expiration of said period, the corporation ceased to exist for all purposes and it can no longer sue or be sued. 8

In American corporate law, upon which our Corporation Law was patterned, it is well settled that, unless the statutes otherwise provide, all pending suits and actions by and against a corporation are abated by a dissolution of the corporation. 5 Section 77 of the Corporation Law provides that the corporation shall "be continued as a body corporate for three (3) years after the time when it would have been ... dissolved, for the purpose of prosecuting and defending suits By or against it ...," so that, thereafter, it shall no longer enjoy corporate existence for such purpose. For this reason, Section 78 of the same law authorizes the corporation, "at any time during said three years ... to convey all of its property to trustees for the benefit of members, Stockholders, creditors and other interested," evidently for the purpose, among others, of enabling said trustees to prosecute and defend suits by or against the corporation begun before the expiration of said period. 6 Commenting on said sections, Justice Fisher said:

However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution is authorized under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the Three-year period although private respondent (did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had been handling the case when the same was pending before the trial court until it was appealed before the Court of Appeals and finally to this Court. We therefore hold that there was a substantial compliance with Section 78 of the Corporation Law and as such, private respondent Insular Sawmill, Inc. could still continue prosecuting the present case even beyond the period of three (3) years from the time of its dissolution.

It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but that there is no time limited within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78) that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being sued (7 R.C.L. Corps., Par.

From the above quoted commentary of Justice Fisher, the trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be conceived why a suit already commenced By the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed — to proceed to final judgment and execution thereof. The word "trustee" as sued in the corporation statute must be understood in its general concept which could include the counsel to whom was entrusted in the instant case, the prosecution of the suit filed by the corporation. The purpose in the transfer of the assets of the corporation to a trustee upon its dissolution is more for the protection of its creditor and stockholders. Debtors like the petitioners herein may not take

advantage of the failure of the corporation to transfer its assets to a trustee, assuming it has any to transfer which petitioner has failed to show, in the first place. To sustain petitioners' contention would be to allow them to enrich themselves at the expense of another, which all enlightened legal systems condemn. The observation of the Court of Appeals on the issue now before Us that: Under Section 77 of the Corporation Law, when the corporate existence is terminated in any legal manner, the corporation shall nevertheless continue as a body corporate for three (3) years after the time when it would have been dissolved, for the purpose of prosecuting and defending suits by or against it. According to authorities, the corporation "becomes incapable of making contracts or receiving a grant. It does not, however, cease to be a body corporate for all purposes." In the case of Pasay Credit and Finance Corp. vs. Isidro Lazaro and others, 46 OG (11) 5528, this Court held that "a corporation may continue a pending 'litigation even after the lapse of the 3year period granted by Section 77 of Act 1459 to corporation subsequent to their dissolution to continue its corporate existence for the purpose of winding up their affairs and settling all the claims by and against same." We note that the plaintiff Insular Sawmill, Inc. ceased as a corporation on December 30, 1960 but the case at bar was instituted on May 29, 1959, during the time when the corporation was still very much alive. Accordingly, it is our view that "any litigation filed by or against it instituted within the period, but which could not be terminated, must necessarily prolong that period until the final termination of said litigation as otherwise corporations in liquidation would lose what should justly belong to them or would be exempt from the payment of just obligations through a mere technicality, something that courts should prevent" (Philippine Commercial Laws by Martin, 1962 Ed., Vol. 2, p. 1716). merits the approval of this Court. The last two assigned errors refer to the disposition of the main case. Petitioners contend that the obligations contracted by petitioner Carlos Gelano from November 19, 1947 until August 18, 1950 (before the effectivity of the New Civil Code) and from December 26, 1950 until July

14, 1952 (during the effectivity of the New Civil Code) were his personal obligations, hence, petitioners should not be held jointly and severally liable. As regards the said issues, suffice it to say that with the findings of the Court of Appeals that the obligation contracted by petitioner-husband Carlos Gelano redounded to the benefit of the family, the inevitable conclusion is that the conjugal property is liable for his debt pursuant to paragraph 1, Article 1408, Civil Code of 1889 9 which provision incidentally can still be found in paragraph 1, Article 161 of the New Civil Code. 10 Only the conjugal partnership is liable, not joint and several as erroneously described by the Court of Appeals, the conjugal partnership being only a single entity. WHEREFORE, with the modification that only the conjugal partnership is liable, the appealed decision is hereby affirmed in all other respects. Without pronouncement as to costs.

CARGILL, INC., Petitioner,

G.R. No. 168266 Present:

- versus -

CARPIO, J., Chairperson, BRION, ABAD, VILLARAMA, JR.,* and PEREZ, JJ.

INTRA STRATA ASSURANCE Promulgated: CORPORATION, Respondent. March 15, 2010 x-------------------------------------------------x The Case This petition for review[1] assails the 26 May 2005 Decision[2] of the Court of Appeals in CA-G.R. CV No. 48447. The Facts Petitioner Cargill, Inc. (petitioner) is a corporation organized and existing under the laws of the State of Delaware, United States of America. Petitioner and Northern Mindanao Corporation (NMC) executed a contract dated 16 August 1989 whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of molasses, to be delivered from

1 Januaryto 30 June 1990 at the price of $44 per metric ton. The contract provides that petitioner would open a Letter of Credit with the Bank of Philippine Islands. Under the red clause of the Letter of Credit, NMC was permitted to draw up to $500,000 representing the minimum price of the contract upon presentation of some documents. The contract was amended three times: first, on 11 January 1990, increasing the purchase price of the molasses to $47.50 per metric ton;[3] second, on 18 June 1990, reducing the quantity of the molasses to 10,500 metric tons and increasing the price to $55 per metric ton;[4] and third, on 22 August 1990, providing for the shipment of 5,250 metric tons of molasses on the last half of December 1990 through the first half of January 1991, and the balance of 5,250 metric tons on the last half of January 1991 through the first half of February 1991.[5] The third amendment also required NMC to put up a performance bond equivalent to $451,500, which represents the value of 10,500 metric tons of molasses computed at $43 per metric ton. The performance bond was intended to guarantee NMCs performance to deliver the molasses during the prescribed shipment periods according to the terms of the amended contract. In compliance with the terms of the third amendment of the contract, respondent Intra Strata Assurance Corporation (respondent) issued on 10 October 1990 a performance bond[6] in the sum of P11,287,500 to guarantee NMCs delivery of the 10,500 tons of molasses, and a surety bond[7] in the sum of P9,978,125 to guarantee the repayment of downpayment as provided in the contract.

NMC was only able to deliver 219.551 metric tons of molasses out of the agreed 10,500 metric tons. Thus, petitioner sent demand letters to respondent claiming payment under the performance and surety bonds. When respondent refused to pay, petitioner filed on 12 April 1991 a complaint[8] for sum of money against NMC and respondent. Petitioner, NMC, and respondent entered into a compromise agreement,[9] which the trial court approved in its Decision[10] dated 13 December 1991. The compromise agreement provides that NMC would pay petitioner P3,000,000 upon signing of the compromise agreement and would deliver to petitioner 6,991 metric tons of molasses from 16-31 December 1991. However, NMC still failed to comply with its obligation under the compromise agreement. Hence, trial proceeded against respondent. On 23 November 1994, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, judgment is rendered in favor of plaintiff [Cargill, Inc.], ordering defendant INTRA STRATA ASSURANCE CORPORATION to solidarily pay plaintiff the total amount of SIXTEEN MILLION NINE HUNDRED NINETY-THREE THOUSAND AND TWO HUNDRED PESOS (P16,993,200.00), Philippine Currency, with interest at the legal rate from October 10, 1990 until fully paid, plus attorneys fees in the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00), Philippine Currency and the costs of the suit.

The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack of merit. SO ORDERED.[11]

On appeal, the Court of Appeals reversed the trial courts decision and dismissed the complaint. Hence, this petition. The Court of Appeals Ruling The Court of Appeals held that petitioner does not have the capacity to file this suit since it is a foreign corporation doing business in the Philippines without the requisite license. The Court of Appeals held that petitioners purchases of molasses were in pursuance of its basic business and not just mere isolated and incidental transactions. The Issues Petitioner raises the following issues: 1. Whether petitioner is doing or transacting business in the Philippines in contemplation of the law and established jurisprudence; 2. Whether respondent is estopped from invoking the defense that petitioner has no legal capacity to sue in the Philippines; 3. Whether petitioner is seeking a review of the findings of fact of the Court of Appeals; and

4. Whether the advance payment of $500,000 was released to NMC without the submission of the supporting documents required in the contract and the red clause Letter of Credit from which said amount was drawn.[12] The Ruling of the Court We find the petition meritorious. Doing Business in the Philippines and Capacity to Sue The principal issue in this case is whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts. Under Article 123[13] of the Corporation Code, a foreign corporation must first obtain a license and a certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign corporation does business in the Philippines without the proper license, it cannot maintain any action or proceeding before Philippine courts as provided underSection 133 of the Corporation Code: Sec. 133. Doing business without a license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against

before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

Thus, the threshold question in this case is whether petitioner was doing business in the Philippines. The Corporation Code provides no definition for the phrase doing business. Nevertheless, Section 1 of Republic Act No. 5455 (RA 5455),[14] provides that: x x x the phrase doing business shall include soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. (Emphasis supplied)

This is also the exact definition provided under Article 44 of the Omnibus Investments Code of 1987.

Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of 1991, which repealed Articles 44-56 of Book II of the Omnibus Investments Code of 1987, enumerated not only the acts or activities which constitute doing business but also those activities which are not deemed doing business. Section 3(d) of RA 7042 states: [T]he phrase doing business shall include soliciting orders, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.

Since respondent is relying on Section 133 of the Corporation Code to bar petitioner from maintaining an action in Philippine courts, respondent bears the burden of proving that petitioners business activities in the Philippines were not just casual or occasional, but so systematic and regular as to manifest continuity and permanence of activity to constitute doing business in the Philippines. In this case, we find that respondent failed to prove that petitioners activities in the Philippines constitute doing business as would prevent it from bringing an action. The determination of whether a foreign corporation is doing business in the Philippines must be based on the facts of each case.[15] In the case of Antam Consolidated, Inc. v. CA,[16] in which a foreign corporation filed an action for collection of sum of money against petitioners therein for damages and loss sustained for the latters failure to deliver coconut crude oil, the Court emphasized the importance of the element of continuity of commercial activities to constitute doing business in the Philippines. The Court held: In the case at bar, the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of doing business. The records show that the only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude

coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation. x x x x x x The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines.[17]

3. Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative's or distributor's own name and account; 4. The publication of a general advertisement through any print or broadcast media; 5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines; 6. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export; 7. Collecting information in the Philippines; and

Similarly, in this case, petitioner and NMC amended their contract three times to give a chance to NMC to deliver to petitioner the molasses, considering that NMC already received the minimum price of the contract. There is no showing that the transactions between petitioner and NMC signify the intent of petitioner to establish a continuous business or extend its operations in the Philippines. The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I, that doing business does not include the following acts: 1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; 2. Having a nominee director or officer to represent its interests in such corporation;

8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

Most of these activities do not bring any direct receipts or profits to the foreign corporation, consistent with the ruling of this Court in National Sugar Trading Corp. v. CA[18]that activities within Philippine jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing business in the Philippines.[19] In that case, the Court held that it would be inequitable for the National Sugar Trading Corporation, a state-owned corporation, to evade payment of a legitimate indebtedness owing to the foreign corporation on the plea that the latter should have obtained a license first before perfecting a contract with the Philippine government. The Court emphasized that the foreign

corporation did not sell sugar and derive income from the Philippines, but merely purchased sugar from the Philippine government and allegedly paid for it in full. In this case, the contract between petitioner and NMC involved the purchase of molasses by petitioner from NMC. It was NMC, the domestic corporation, which derived income from the transaction and not petitioner. To constitute doing business, the activity undertaken in the Philippines should involve profit-making.[20] Besides, under Section 3(d) of RA 7042, soliciting purchases has been deleted from the enumeration of acts or activities which constitute doing business.

Other factors which support the finding that petitioner is not doing business in the Philippines are: (1) petitioner does not have an office in the Philippines; (2) petitioner imports products from the Philippines through its non-exclusive local broker, whose authority to act on behalf of petitioner is limited to soliciting purchases of products from suppliers engaged in the sugar trade in the Philippines; and (3) the local broker is an independent contractor and not an agent of petitioner.[21] As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc.:[22] An exporter in one country may export its products to many foreign importing countries without

performing in the importing countries specific commercial acts that would constitute doing business in the importing countries. The mere act of exporting from ones own country, without doing any specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing country. The importing country does not require jurisdiction over the foreign exporter who has not yet performed any specific commercial act within the territory of the importing country. Without jurisdiction over the foreign exporter, the importing country cannot compel the foreign exporter to secure a license to do business in the importing country. Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by the importing countries to be doing business in those countries. This will require Philippine exporters to secure a business license in every foreign country where they usually export their products, even if they do not perform any specific commercial act within the territory of such importing countries. Such a legal concept will have deleterious effect not only on Philippine exports, but also on global trade. To be doing or transacting business in the Philippines for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business

within the Philippine territory is an essential requisite for the Philippines to to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license.[23] (Emphasis supplied)

In the present case, petitioner is a foreign company merely importing molasses from a Philipine exporter. A foreign company that merely imports goods from a Philippine exporter, without opening an office or appointing an agent in the Philippines, is not doing business in the Philippines. Review of Findings of Fact The Supreme Court may review the findings of fact of the Court of Appeals which are in conflict with the findings of the trial court.[24] We find that the Court of Appeals finding that petitioner was doing business is not supported by evidence. Furthermore, a review of the records shows that the trial court was correct in holding that the advance payment of $500,000 was released to NMC in accordance with the conditions provided under the red clause Letter of Credit from which said amount was drawn. The Head of the International Operations Department of the Bank of Philippine Islands

testified that the bank would not have paid the beneficiary if the required documents were not complete. It is a requisite in a documentary credit transaction that the documents should conform to the terms and conditions of the letter of credit; otherwise, the bank will not pay. The Head of the International Operations Department of the Bank of Philippine Islands also testified that they received reimbursement from the issuing bank for the $500,000 withdrawn by NMC.[25] Thus, respondent had no legitimate reason to refuse payment under the performance and surety bonds when NMC failed to perform its part under its contract with petitioner. WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 26 May 2005 of the Court of Appeals in CA-G.R. CV No. 48447. We REINSTATE the Decision dated 23 November 1994 of the trial court.

STEELCASE, INC.,

G.R. No. 171995 Petitioner,

- versus -

This is a petition for review on certiorari under Rule 45 assailing the March 31, 2005 Decision[1] of the Court of Present: Appeals (CA) which affirmed the May 29, 2000 Order[2]of the Regional Trial Court, Branch 60, Makati City (RTC), dismissing the complaint for sum of money in Civil Case No. 99-122 entitled Steelcase, Inc. v. Design International VELASCO, JR., J., Chairperson, Selections, Inc. PERALTA, ABAD,

DESIGN INTERNATIONAL SELECTIONS, INC., Respondent.

Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing under the laws of Michigan, United States of PERLAS-BERNABE, JJ. America (U.S.A.), and engaged in the manufacture of office furniture with dealers worldwide.[3] Respondent Design International Selections, Inc. (DISI) is a corporation existing under Philippine Laws and engaged in the furniture business, including the distribution of furniture.[4] Promulgated: MENDOZA, and

April 18, 2012

x----------------------------------------------------------------------------------------x

DECISION MENDOZA, J.:

The Facts

Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-user customers within the Philippines. The business relationship continued smoothly until it was terminated sometime in January 1999 after the agreement was breached with neither party admitting any fault.[5] On January 18, 1999, Steelcase filed a complaint[6] for sum of money against DISI alleging, among others, that DISI had an unpaid account of US$600,000.00. Steelcase prayed that

DISI be ordered to pay actual or compensatory damages, exemplary damages, attorneys fees, and costs of suit. In its Answer with Compulsory Counterclaims[7] dated February 4, 1999, DISI sought the following: (1) the issuance of a temporary restraining order (TRO) and a writ of preliminary injunction to enjoin Steelcase from selling its products in the Philippines except through DISI; (2) the dismissal of the complaint for lack of merit; and (3) the payment of actual, moral and exemplary damages together with attorneys fees and expenses of litigation. DISI alleged that the complaint failed to state a cause of action and to contain the required allegations on Steelcases capacity to sue in the Philippines despite the fact that it (Steelcase) was doing business in the Philippines without the required license to do so. Consequently, it posited that the complaint should be dismissed because of Steelcases lack of legal capacity to sue in Philippine courts. On March 3, 1999, Steelcase filed its Motion to Admit Amended Complaint[8] which was granted by the RTC, through then Acting Presiding Judge Roberto C. Diokno, in its Order[9] dated April 26, 1999. However, Steelcase sought to further amend its complaint by filing a Motion to Admit Second Amended Complaint[10] on March 13, 1999. In his Order[11] dated November 15, 1999, Acting Presiding Judge Bonifacio Sanz Maceda dismissed the complaint, granted the TRO prayed for by DISI, set aside the April 26, 1999 Order of the RTC admitting the Amended

Complaint, and denied Steelcases Motion to Admit Second Amended Complaint. The RTC stated that in requiring DISI to meet the Dealer Performance Expectation and in terminating the dealership agreement with DISI based on its failure to improve its performance in the areas of business planning, organizational structure, operational effectiveness, and efficiency, Steelcase unwittingly revealed that it participated in the operations of DISI. It then concluded that Steelcase was doing business in the Philippines, as contemplated by Republic Act (R.A.) No. 7042 (The Foreign Investments Act of 1991), and since it did not have the license to do business in the country, it was barred from seeking redress from our courts until it obtained the requisite license to do so. Its determination was further bolstered by the appointment by Steelcase of a representative in the Philippines. Finally, despite a showing that DISI transacted with the local customers in its own name and for its own account, it was of the opinion that any doubt in the factual environment should be resolved in favor of a pronouncement that a foreign corporation was doing business in the Philippines, considering the twelve-year period that DISI had been distributing Steelcase products in the Philippines. Steelcase moved for the reconsideration of the questioned Order but the motion was denied by the RTC in its May 29, 2000 Order.[12] Aggrieved, Steelcase elevated the case to the CA by way of appeal, assailing the November 15, 1999 and May 29,

2000 Orders of the RTC. On March 31, 2005, the CA rendered its Decision affirming the RTC orders, ruling that Steelcase was a foreign corporation doing or transacting business in the Philippines without a license. The CA stated that the following acts of Steelcase showed its intention to pursue and continue the conduct of its business in the Philippines: (1) sending a letter to Phinma, informing the latter that the distribution rights for its products would be established in the near future and directing other questions about orders for Steelcase products to Steelcase International; (2) cancelling orders from DISIs customers, particularly Visteon, Phils., Inc. (Visteon); (3) continuing to send its products to the Philippines through Modernform Group Company Limited (Modernform), as evidenced by an Ocean Bill of Lading; and (4) going beyond the mere appointment of DISI as a dealer by making several impositions on management and operations of DISI. Thus, the CA ruled that Steelcase was barred from access to our courts for being a foreign corporation doing business here without the requisite license to do so. Steelcase filed a motion for reconsideration but it was denied by the CA in its Resolution dated March 23, 2006.[13] Hence, this petition. The Issues Steelcase filed the present petition relying on the following grounds:

I THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT FOUND THAT STEELCASE HAD BEEN DOING BUSINESS IN THE PHILIPPINES WITHOUT A LICENSE. II THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING THAT RESPONDENT WAS ESTOPPED FROM CHALLENGING STEELCASES LEGAL CAPACITY TO SUE, AS AN AFFIRMATIVE DEFENSE IN ITS ANSWER.

The issues to be resolved in this case are: (1) Whether or not Steelcase is doing business in the Philippines without a license; and (2) Whether or not DISI is estopped from challenging the Steelcases legal capacity to sue. The Courts Ruling The Court rules in favor of the petitioner. Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines

Anent the first issue, Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of 1991 (FIA) expressly states that the phrase doing business excludes the appointment by a foreign corporation of a local distributor domiciled in the Philippines which transacts business in its own name and for its own account. Steelcase claims that it was not doing business in the Philippines when it entered into a dealership agreement with DISI where the latter, acting as the formers appointed local distributor, transacted business in its own name and for its own account. Specifically, Steelcase contends that it was DISI that sold Steelcases furniture directly to the end-users or customers who, in turn, directly paid DISI for the furniture they bought. Steelcase further claims that DISI, as a nonexclusive dealer in the Philippines, had the right to market, sell, distribute and service Steelcase products in its own name and for its own account. Hence, DISI was an independent distributor of Steelcase products, and not a mere agent or conduit of Steelcase. On the other hand, DISI argues that it was appointed by Steelcase as the latters exclusive distributor of Steelcase products. DISI likewise asserts that it was not allowed by Steelcase to transact business in its own name and for its own account as Steelcase dictated the manner by which it was to conduct its business, including the management and solicitation of orders from customers, thereby assuming control of its operations. DISI further insists that Steelcase treated and considered DISI as a mere conduit, as evidenced

by the fact that Steelcase itself directly sold its products to customers located in the Philippines who were classified as part of their global accounts. DISI cited other established circumstances which prove that Steelcase was doing business in the Philippines including the following: (1) the sale and delivery by Steelcase of furniture to Regus, a Philippine client, through Modernform, a Thai corporation allegedly controlled by Steelcase; (2) the imposition by Steelcase of certain requirements over the management and operations of DISI; (3) the representations made by Steven Husak as Country Manager of Steelcase; (4) the cancellation by Steelcase of orders placed by Philippine clients; and (5) the expression by Steelcase of its desire to maintain its business in the Philippines. Thus, Steelcase has no legal capacity to sue in Philippine Courts because it was doing business in the Philippines without a license to do so. The Court agrees with the petitioner. The rule that an unlicensed foreign corporations doing business in the Philippine do not have the capacity to sue before the local courts is well-established. Section 133 of the Corporation Code of the Philippines explicitly states: Sec. 133. Doing business without a license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such

corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

The phrase doing business is clearly defined in Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991), to wit: d) The phrase doing business shall include soliciting orders, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its

interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account; (Emphases supplied)

This definition is supplemented by its Implementing Rules and Regulations, Rule I, Section 1(f) which elaborates on the meaning of the same phrase: f. Doing business shall include soliciting orders, service contracts, opening offices, whether liaison offices or branches; appointing representatives or distributors, operating under full control of the foreign corporation, domiciled in the Philippines or who in any calendar year stay in the country for a period totalling one hundred eighty [180] days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to and in progressive prosecution of commercial gain or of the purpose and object of the business organization. The following acts shall not be deemed doing business in the Philippines:

1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; 2. Having a nominee director or officer to represent its interest in such corporation; 3. Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative's or distributor's own name and account; 4. The publication of a general advertisement through any print or broadcast media; 5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines; 6. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export; 7. Collecting information in the Philippines; and 8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the

same, training domestic workers to operate it, and similar incidental services. (Emphases supplied)

From the preceding citations, the appointment of a distributor in the Philippines is not sufficient to constitute doing business unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines.[14] It should be kept in mind that the determination of whether a foreign corporation is doing business in the Philippines must be judged in light of the attendant circumstances.[15] In the case at bench, it is undisputed that DISI was founded in 1979 and is independently owned and managed by the spouses Leandro and Josephine Bantug.[16] In addition to Steelcase products, DISI also distributed products of other companies including carpet tiles, relocatable walls and theater settings.[17] The dealership agreement between Steelcase and DISI had been described by the owner himself as: xxx basically a buy and sell arrangement whereby we would inform Steelcase of the volume of the products needed for a particular project and Steelcase would, in turn, give special quotations or discounts after considering the value of the

entire package. In making the bid of the project, we would then add out profit margin over Steelcases prices.After the approval of the bid by the client, we would thereafter place the orders to Steelcase. The latter, upon our payment, would then ship the goods to the Philippines, with us shouldering the freight charges and taxes.[18] [Emphasis supplied]

This clearly belies DISIs assertion that it was a mere conduit through which Steelcase conducted its business in the country. From the preceding facts, the only reasonable conclusion that can be reached is that DISI was an independent contractor, distributing various products of Steelcase and of other companies, acting in its own name and for its own account. The CA, in finding Steelcase to be unlawfully engaged in business in the Philippines, took into consideration the delivery by Steelcase of a letter to Phinma informing the latter that the distribution rights for its products would be established in the near future, and also its cancellation of orders placed by Visteon. The foregoing acts were apparently misinterpreted by the CA. Instead of supporting the claim that Steelcase was doing business in the country, the said acts prove otherwise. It should be pointed out that no sale was concluded as a result of these communications. Had Steelcase indeed been doing business in the Philippines, it would have readily accepted and serviced the orders from the abovementioned Philippine companies. Its decision to

voluntarily cease to sell its products in the absence of a local distributor indicates its refusal to engage in activities which might be construed as doing business. Another point being raised by DISI is the delivery and sale of Steelcase products to a Philippine client by Modernform allegedly an agent of Steelcase. Basic is the rule in corporation law that a corporation has a separate and distinct personality from its stockholders and from other corporations with which it may be connected.[19] Thus, despite the admission by Steelcase that it owns 25% of Modernform, with the remaining 75% being owned and controlled by Thai stockholders,[20] it is grossly insufficient to justify piercing the veil of corporate fiction and declare that Modernform acted as the alter ego of Steelcase to enable it to improperly conduct business in the Philippines. The records are bereft of any evidence which might lend even a hint of credence to DISIs assertions. As such, Steelcase cannot be deemed to have been doing business in the Philippinesthrough Modernform. Finally, both the CA and DISI rely heavily on the Dealer Performance Expectation required by Steelcase of its distributors to prove that DISI was not functioning independently from Steelcase because the same imposed certain conditions pertaining to business planning, organizational structure, operational effectiveness and efficiency, and financial stability. It is actually logical to expect that Steelcase, being one of the major manufacturers

of office systems furniture, would require its dealers to meet several conditions for the grant and continuation of a distributorship agreement. The imposition of minimum standards concerning sales, marketing, finance and operations is nothing more than an exercise of sound business practice to increase sales and maximize profits for the benefit of both Steelcase and its distributors. For as long as these requirements do not impinge on a distributors independence, then there is nothing wrong with placing reasonable expectations on them. All things considered, it has been sufficiently demonstrated that DISI was an independent contractor which sold Steelcase products in its own name and for its own account. As a result, Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.

capacity to sue in the Philippines by reason of its doing business without a license.

DISI is estopped from challenging Steelcases legal capacity to sue

If indeed Steelcase had been doing business in the Philippines without a license, DISI would nonetheless be estopped from challenging the formers legal capacity to sue.

Regarding the second issue, Steelcase argues that assuming arguendo that it had been doing business in the Philippines without a license, DISI was nonetheless estopped from challenging Steelcases capacity to sue in the Philippines. Steelcase claims that since DISI was aware that it was doing business in the Philippines without a license and had benefited from such business, then DISI should be estopped from raising the defense that Steelcase lacks the

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

It cannot be denied that DISI entered into a dealership agreement with Steelcase and profited from it for 12 years from 1987 until 1999. DISI admits that it complied with its obligations under the dealership agreement by exerting more effort and making substantial investments in the promotion of Steelcase products. It also claims that it was able to establish a very good reputation and goodwill for Steelcase and its products, resulting in the establishment and development of a

strong market for Steelcase products in the Philippines. Because of this, DISI was very proud to be awarded the Steelcase International Performance Award for meeting sales objectives, satisfying customer needs, managing an effective company and making a profit.[21] Unquestionably, entering into a dealership agreement with Steelcase charged DISI with the knowledge that Steelcase was not licensed to engage in business activities in the Philippines. This Court has carefully combed the records and found no proof that, from the inception of the dealership agreement in 1986 until September 1998, DISI even brought to Steelcases attention that it was improperly doing business in the Philippines without a license. It was only towards the latter part of 1998 that DISI deemed it necessary to inform Steelcase of the impropriety of the conduct of its business without the requisite Philippine license. It should, however, be noted that DISI only raised the issue of the absence of a license with Steelcase after it was informed that it owed the latter US$600,000.00 for the sale and delivery of its products under their special credit arrangement.

By acknowledging the corporate entity of Steelcase and entering into a dealership agreement with it and even benefiting from it, DISI is estopped from questioning Steelcases existence and capacity to sue. This is consistent with the Courts ruling in Communication Materials and Design, Inc. v. Court of Appeals[22] where it was written:

Notwithstanding such finding that ITEC is doing business in the country, petitioner is nonetheless estopped from raising this fact to bar ITEC from instituting this injunction case against it. A foreign corporation doing business in the Philippines may sue in Philippine Courts although not authorized to do business here against a Philippine citizen or entity who had contracted with and benefited by said corporation. To put it in another way, a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations. One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity: The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such person has received the benefits of the contract. The rule is deeply rooted in the timehonored axiom of Commodum ex injuria sua non habere debet no person ought to derive any advantage of his own wrong. This is as it should be for as mandated by law, every person must in the exercise of his rights and in the

performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

The case of Rimbunan Hijau Group of Companies v. Oriental Wood Processing Corporation[24] is likewise instructive:

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

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

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

The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations; one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its existence and capacity. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases where such

person has received the benefits of the contract . . . All things considered, respondent can no longer invoke petitioners lack of capacity to sue in this jurisdiction. Considerations of fair play dictate that after having contracted and benefitted from its business transaction with Rimbunan, respondent should be barred from questioning the latters lack of license to transact business in the Philippines. In the case of Antam Consolidated, Inc. v. CA, this Court noted that it is a common ploy of defaulting local companies which are sued by unlicensed foreign corporations not engaged in business in the Philippines to invoke the latters lack of capacity to sue. This practice of domestic corporations is particularly reprehensible considering that in requiring a license, the law never intended to prevent foreign corporations from performing single or isolated acts in this country, or to favor domestic corporations who renege on their obligations to foreign firms unwary enough to engage in solitary transactions with them. Rather, the law was intended to bar foreign corporations from acquiring a domicile for the purpose of business without first taking the steps necessary to render them amenable to suits in the local courts. It was to prevent the foreign companies from enjoying the good while disregarding the bad.

As a matter of principle, this Court will not step in to shield defaulting local companies from the repercussions of their business dealings. While the doctrine of lack of capacity to sue based on failure to first acquire a local license may be resorted to in meritorious cases, it is not a magic incantation. It cannot be called upon when no evidence exists to support its invocation or the facts do not warrant its application. In this case, that the respondent is estopped from challenging the petitioners capacity to sue has been conclusively established, and the forthcoming trial before the lower court should weigh instead on the other defenses raised by the [25] respondent. (Emphases supplied)

As shown in the previously cited cases, this Court has time and again upheld the principle that a foreign corporation doing business in the Philippines without a license may still sue before the Philippine courts a Filipino or a Philippine entity that had derived some benefit from their contractual arrangement because the latter is considered to be estopped from challenging the personality of a corporation after it had acknowledged the said corporation by entering into a contract with it.[26] In Antam Consolidated, Inc. v. Court of Appeals,[27] this Court had the occasion to draw attention to the common ploy of invoking the incapacity to sue of an

unlicensed foreign corporation utilized by defaulting domestic companies which seek to avoid the suit by the former. The Court cannot allow this to continue by always ruling in favor of local companies, despite the injustice to the overseas corporation which is left with no available remedy. During this period of financial difficulty, our nation greatly needs to attract more foreign investments and encourage trade between the Philippines and other countries in order to rebuild and strengthen our economy. While it is essential to uphold the sound public policy behind the rule that denies unlicensed foreign corporations doing business in the Philippines access to our courts, it must never be used to frustrate the ends of justice by becoming an all-encompassing shield to protect unscrupulous domestic enterprises from foreign entities seeking redress in our country. To do otherwise could seriously jeopardize the desirability of the Philippines as an investment site and would possibly have the deleterious effect of hindering trade between Philippine companies and international corporations. WHEREFORE, the March 31, 2005 Decision of the Court of Appeals and its March 23, 2006 Resolution are hereby REVERSED and SET ASIDE. The dismissal order of the Regional Trial Court dated November 15, 1999 is hereby set aside. Steelcases Amended Complaint is hereby ordered REINSTATED and the case is REMANDED to the RTC for appropriate action.