1. ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants, vs.

BACOLOD-MURCIA
MILLING CO., INC., defendant-appellee. (business judgment rule)

FACTS: Plaintiffs-appelants Alfredo Montelibano, Alejandro Montelibano, and the Limited co-
partnership Gonzaga and Company, had been and are sugar planters adhered to the defendant’s
sugar central mill under identical milling contracts since 1919. Sometime in 1936, it was proposed
to execute amended milling contracts, increasing the planters’ share from 55% to 60% of the
manufactured sugar and resulting molasses, besides other concessions, but extending the
operation of the milling contract from the original 30 years to 45 years. To this effect, a printed
Amended Milling Contract form was drawn up. On August 20, 1936, the BOD of the appellee
Bacolod-Murcia Milling Co., Inc., adopted a resolution (Acts No. 11, Acuerdo No. 1) granting
further concessions to the planters over and above those contained in the printed Amended
Milling Contract. Appellants signed and executed the printed Amended Milling Contract on
September 10, 1936. but a copy of the resolution of August 10, 1936, signed by the Central’s
General Manager, was not attached to the printed contract until April 17, 1937.

In 1953, the appellants initiated the present action, contending that three Negros sugar centrals
(La Carlota, Binalbagan-Isabela, and San Carlos), with a total annual production exceeding one-
third of the production of all the sugar central mills in the province, had already granted increased
participation (of 62.5%) to their planters, and that under paragraph 9 of the resolution of August
20, 1936, the appellee had become obligated to grant similar concessions to the plaintiffs. The
defendant-appellee Bacolod-Murcia Milling Co., Inc., resisted the claim, and defended by urging
that the stipulations contained in the resolution were made without consideration; that the
resolution in question was, therefore, null and void ab initio, being in effect a donation that was
ultra vires and beyond the powers of the corporate directors to adopt.

After trial, the court below rendered judgment upholding the stand of the defendant Milling
company. Hence the appeal.

ISSUE: Whether or not the resolution in question was null and void ab initio, being in effect a
donation that was ultra vires and beyond the powers of the corporate directors to adopt? No.

HELD: We agree with appellants that the appealed decisions cannot stand. It must be
remembered that the controverted resolution was adopted by appellee corporation as a
supplement to, or further amendment of, the proposed milling contract, and that it was approved
on August 20, 1936, twenty-one days prior to the signing by appellants on September 10, of the
Amended Milling Contract itself; so that when the Milling Contract was executed, the concessions
granted by the disputed resolution had been already incorporated into its terms. No reason
appears of record why, in the face of such concessions, the appellants should reject them or
consider them as separate and apart from the main amended milling contract, specially taking
into account that appellant Alfredo Montelibano was, at the time, the President of the Planters
Association (Exhibit 4, p. 11) that had agitated for the concessions embodied in the resolution of
August 20, 1936. That the resolution formed an integral part of the amended milling contract,
signed on September 10, and not a separate bargain, is further shown by the fact that a copy of
the resolution was simply attached to the printed contract without special negotiations or
agreement between the parties.
It follows from the foregoing that the terms embodied in the resolution of August 20, 1936 were
supported by the same causa or consideration underlying the main amended milling contract; i.e.,
the promises and obligations undertaken thereunder by the planters, and, particularly, the
extension of its operative period for an additional 15 years over and beyond the 30 years
stipulated in the original contract. Hence, the conclusion of the court below that the resolution
constituted gratuitous concessions not supported by any consideration is legally untenable.

All disquisition concerning donations and the lack of power of the directors of the respondent
sugar milling company to make a gift to the planters would be relevant if the resolution in question
had embodied a separate agreement after the appellants had already bound themselves to the
terms of the printed milling contract. But this was not the case. When the resolution was adopted
and the additional concessions were made by the company, the appellants were not yet obligated
by the terms of the printed contract, since they admittedly did not sign it until twenty-one days
later, on September 10, 1936. Before that date, the printed form was no more than a proposal
that either party could modify at its pleasure, and the appellee actually modified it by adopting the
resolution in question. So that by September 10, 1936 defendant corporation already understood
that the printed terms were not controlling, save as modified by its resolution of August 20, 1936;
and we are satisfied that such was also the understanding of appellants herein, and that the
minds of the parties met upon that basis. Otherwise there would have been no consent or
"meeting of the minds", and no binding contract at all. But the conduct of the parties indicates that
they assumed, and they do not now deny, that the signing of the contract on September 10, 1936,
did give rise to a binding agreement. That agreement had to exist on the basis of the printed
terms as modified by the resolution of August 20, 1936, or not at all. Since there is no rational
explanation for the company's assenting to the further concessions asked by the planters before
the contracts were signed, except as further inducement for the planters to agree to the extension
of the contract period, to allow the company now to retract such concessions would be to
sanction a fraud upon the planters who relied on such additional stipulations.

The same considerations apply to the "void innovation" theory of appellees. There can be no
novation unless two distinct and successive binding contracts take place, with the later designed
to replace the preceding convention. Modifications introduced before a bargain becomes
obligatory can in no sense constitute novation in law.

Stress is placed on the fact that the text of the Resolution of August 20, 1936 was not attached to
the printed contract until April 17, 1937. But, except in the case of statutory forms or solemn
agreements (and it is not claimed that this is one), it is the assent and concurrence (the "meeting
of the minds") of the parties, and not the setting down of its terms, that constitutes a binding
contract. And the fact that the addendum is only signed by the General Manager of the milling
company emphasizes that the addition was made solely in order that the memorial of the terms of
the agreement should be full and complete.

Much is made of the circumstance that the report submitted by the Board of Directors of the
appellee company in November 19, 1936 (Exhibit 4) only made mention of 90%, the planters
having agreed to the 60-40 sharing of the sugar set forth in the printed "amended milling
contracts", and did not make any reference at all to the terms of the resolution of August 20,
1936. But a reading of this report shows that it was not intended to inventory all the details of the
amended contract; numerous provisions of the printed terms are alao glossed over. The Directors
of the appellee Milling Company had no reason at the time to call attention to the provisions of the
resolution in question, since it contained mostly modifications in detail of the printed terms, and
the only major change was paragraph 9 heretofore quoted; but when the report was made, that
paragraph was not yet in effect, since it was conditioned on other centrals granting better
concessions to their planters, and that did not happen until after 1950. There was no reason in
1936 to emphasize a concession that was not yet, and might never be, in effective operation.

There can be no doubt that the directors of the appellee company had authority to modify the
proposed terms of the Amended Milling Contract for the purpose of making its terms more
acceptable to the other contracting parties. The rule is that —

It is a question, therefore, in each case of the logical relation of the act to the corporate purpose
expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is
done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of
those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered
within charter powers. The test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise,
not. (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)

As the resolution in question was passed in good faith by the board of directors, it is valid and
binding, and whether or not it will cause losses or decrease the profits of the central, the court
has no authority to review them.

They hold such office charged with the duty to act for the corporation according to their best
judgment, and in so doing they cannot be controlled in the reasonable exercise and performance
of such duty. Whether the business of a corporation should be operated at a loss during
depression, or close down at a smaller loss, is a purely business and economic problem to be
determined by the directors of the corporation and not by the court. It is a well-known rule of law
that questions of policy or of management are left solely to the honest decision of officers and
directors of a corporation, and the court is without authority to substitute its judgment of the board
of directors; the board is the business manager of the corporation, and so long as it acts in good
faith its orders are not reviewable by the courts. (Fletcher on Corporations, Vol. 2, p. 390).

GR No 151969 September 4, 2009

Valle Verde Country Club v Africa

FACTS

On February 27, 1996 Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal
(Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto
Sunico, and Ray Gamboa were elected as BOD during the Annual Stockholders’ Meeting of
petitioner Valle Verde Country Club, Inc. (VVCC)
From 1997 to 2001, the requisite quorum for the holding of the stockholders’ meeting could not
be obtained. Consequently, the directors continued to serve in the VVCC Board in a hold-over
capacity.

On November 10, 1998, Makalintal resigned as member of the VVCC Board and Jose Ramirez
(Ramirez) was elected by the remaining BOD as his replacement.
Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez
as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the
Regional Trial Court (RTC) as contrary to:
§ Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors
or trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for 1 year until their successors
are elected and qualified.
§ Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board
of directors or trustees other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of the remaining directors or
trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the
stockholders in a regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in
office. xxx.

Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his
[Makalintal’s] term – as well as those of the other members of the VVCC Board – should be
considered to have already expired. Thus, according to Africa, the resulting vacancy should have
been filled by the stockholders in a regular or special meeting called for that purpose, and not by
the remaining members of the VVCC Board, as was done in this case. The RTC sustained
Africa’s complaint.
ISSUE
Whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect
another director to fill in a vacancy caused by the resignation of a hold-over director.
RULING
NO.
When Section 23 of the Corporation Code declares that “the board of directors…shall hold office
for one (1) year until their successors are elected and qualified,” we construe the provision to
mean that the term of the members of the board of directors shall be only for one year; their
term expires one year after election to the office. The holdover period – that time from the lapse
of one year from a member’s election to the Board and until his successor’s election and
qualification – is not part of the director’s original term of office, nor is it a new term; the holdover
period, however, constitutes part of his tenure. Corollary, when an incumbent member of the
board of directors continues to serve in a holdover capacity, it implies that the office has a fixed
term, which has expired, and the incumbent is holding the succeeding term.
[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal,
there was no more unexpired term to speak of, as Makalintal’s one-year term had already
expired. Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies
with the VVCC’s stockholders, not the remaining members of its board of directors. To assume –
as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998, not by the
expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover
director did not change the nature of the vacancy; the vacancy due to the expiration of
Makalintal’s term had been created long before his resignation.

G.R. NO. 171993 December 12, 2011

MARC II MARKETING, INC. AND LUCILA JOSON, petitioners, V. ALFREDO M. JOSON,
respondent.
 PEREZ, J.:

FACTS: Marc II Marketing, Inc. and Lucila Joson is assailing the decision of the CA for reversing
and settling aside the Resolution of the National Labor Relations Commission.
Marc II Marketing, Inc. is a corporation duly organized and existing under and by virtue of the
laws of the Philippines. It is primarily engaged in buying, marketing, selling and distributing in
retail or wholesale for export or import household appliances and products and other items.
Petitioner Lucila V. Joson is the President and majority stockholder of the corporation.
Before Marc II Marketing, Inc. was officially incorporated, Alfredo M. Joson has already been
engaged by Lucila, in her capacity as President, to work as General Manager of the corporaton
and it was formalized through the execution of a Management Contract dated in 1994 under Marc
Marketing, Inc., as Marc II Marketing, Inc. was yet to be incorporated. For occupying the said
position, respondent was among the corporation’s corporate officers by the express provision of
Section 1, Article IV of its by-laws.
Alfredo was appointed as one of its officers with the designation or title of General Manager to
function as a managing director with other duties and responsibilities that the Board may provide
and authorized.
However, in 1997, Marc II Marketing Inc. decided to stop and cease its operation as evidenced by
an Affidavit of Non-Operation due to poor sales collection aggravated by the inefficient
management of its affairs. Alfredo was informed of the cessation of its business operations and
the termination of his services as General Manager. He filed action for reinstatement and money
claim against petitioners.

ISSUE: Whether or not Marc II Marketing Inc.’s Board of Directors could create a position for
corporate officers through an enabling clause found in its corporate by-laws?

HELD: The Court held that in the context of PD 902-A, corporate officers are those officers of a
corporation who are given that character either by the Corporation Code or by the corporation’s
by-laws.
Section 25 of the Corporation Code specifically enumerated who are these corporate officers,
namely: president, secretary, treasurer and such other officers as may be provided for in the by-
laws.
A careful examination of Marc II Marketing Inc.’s by-laws, particularly paragraph 1, Section 1 of
Article IV explicitly revealed that its corporate officers are composed only of chairman, president,
one/more vice president, treasurer and secretary. The position of general manager was not
among those enumerated. Meanwhile, paragraph 2, Section 1 of Article IV of the corporation’s
by-laws empowered its Board of Directors to appoint such officers as it may determine necessary
or proper, making this an enabling provision for approving a resolution to make the position of
general manager a corporate officer. All of these acts were done without first amending its by-
laws so as to include the General Manager in its roster of corporate officers.
Though the Board of Directors may create appointive positions other than the positions of
corporate officers, the persons occupying such positions cannot be viewed as corporate officers
under Section 25 of the Corporation Code. The said provision of the Corporation Code
safeguards the constitutionally enshrined right of every employee to security of tenure and
prevents the creation of a corporate officer position by a simple inclusion in the corporate by-laws
of an enabling clause empowering the Board of Directors.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7
March 2006, respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby
AFFIRMED with the MODIFICATION finding respondents dismissal from employment legal but
without proper observance of due process. Accordingly, petitioner corporation, jointly and
solidarily liable with petitioner Lucila, is hereby ordered to pay respondent the following; (1)
separation pay equivalent to one month pay or at least one-half month pay for every year of
service, whichever is higher, to be computed from the commencement of employment until
termination; and (2) nominal damages in the amount of P50,000.00.

This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct
further proceedings for the sole purpose of determining the compensation that respondent was
actually receiving during the period that he was the General Manager of petitioner corporation for
the proper computation of his separation pay.

PHILTRUST CO. vs RIVERA ***

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,was adopted in
our jurisdiction in Philippine Trust Co. v. Rivera, where this Court declared that:
It is established doctrine that subscriptions to the capital of a corporation constitute a fund
to which creditors have a right to look for satisfaction of their claims and that the assignee
in insolvency can maintain an action upon any unpaid stock subscription in order to realize
assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802)
SC clarified that the trust fund doctrine is not limited to reaching the stockholder’s unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only
the capital stock, but also other property and assets generally regarded in equity as a trust fund
for the payment of corporate debts. All assets and property belonging to the corporation held in
trust for the benefit of creditors that were distributed or in the possession of the stockholders,
regardless of full payment of their subscriptions, may be reached by the creditor in satisfaction of
its claim.
Also, under the trust fund doctrine, a corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,
without a valuable consideration, or fraudulently, to the prejudice of creditors. The creditor is
allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of
the corporation for the satisfaction of its debt. To make out a prima facie case in a suit against
stockholders of an insolvent corporation to compel them to contribute to the payment of its debts
by making good unpaid balances upon their subscriptions, it is only necessary to establish that
the stockholders have not in good faith paid the par value of the stocks of the corporation.

MENTHOLATUM vs Mangaliman **

In the Mentholatum case this Court discoursed on the two general tests to determine whether or
not a foreign corporation can be considered as “doing business” in the Philippines. The first of
these is the substance test, thus:
The true test [for doing business], however, seems to be whether the foreign corporation is
continuing the body of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another.
The second test is the continuity test, expressed thus:
The term [doing business] implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in the progressive prosecution of, the purpose and object of its
organization.]
The Foreign Investments Act of 1991 (the “FIA”; Republic Act No. 7042, as amended), defines
“doing business” as follows:
Sec. 3, par. (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 totaling 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 the progressive prosecution of, commercial
gain or of the purpose and object of the business organization.
An analysis of the relevant case law, in conjunction with Sec 1 of the IRR of the FIA (as amended
by RA 8179), would demonstrate that the acts enumerated in the VAASA do not constitute “doing
business” in the Philippines. The said provision provides that the following shall not be deemed
“doing business”:
(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.

The Mentholatum Co. Inc. et al., v. Mangaliman, et al., G.R. No. L-47701, 27 June 1941.
[LAUREL, J.]

FACTS
The Mentholatum Co., Inc., a foreign corporation, and the Philippine-American Drug Co., Inc., the
former’s exclusive distributing agent of the product “Mentholatum” in the Philippine Islands,
instituted an action against Anacleto Mangaliman, Florencio Mangaliman and the Director of the
Bureau of Commerce for infringement of trade mark and unfair competition, praying for the
issuance of an order restraining Anacleto and Florencio Mangaliman from selling their product
“Mentholiman,” and directing them to render an accounting of their sales and profits and to pay
damages. Mentholatum, not licensed to do business in the Philippines, claims that they have not
sold personally any of their products in the Philippines and that products were imported from
them by local entities including Philippine-American Drug under their own account.

ISSUES
(1) Is Mentholatum Co. Inc. “doing business” in the Philippines? YES
(2) Is Mentholatum Co. Inc. allowed prosecute its action?
HELD
(1) YES.
[The test is] whether the foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it has substantially retired
from it and turned it over to another. The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in progressive prosecution
of, the purpose and object of its organization.

[Here] the Philippine-American Drug Co., Inc., is the exclusive distributing agent in the
Philippine Islands of the Mentholatum Co., Inc., in the sale and distribution of its product
known as the Mentholatum. xxx It follows that whatever transactions the Philippine-American
Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc., did it itself.

(2) NO.
Section 69 of Act No. 1459 provides that “No foreign corporation or corporation formed,
organized, or existing under any laws other than those of the Philippine Islands shall be permitted
to… maintain by itself or assignee any suit for the recovery of any debt, claim, or demand
whatever, unless it shall have the license xxx.”
The Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines
without the license required by section 68 of the Corporation Law, it may not prosecute this
action for violation of trade mark and unfair competition. Neither may the Philippine-American
Drug Co., Inc., maintain the action here for the reason that the distinguishing features of
the agent being his representative character and derivative authority.

B. VAN ZUIDEN BROS., LTD., Petitioner,

vs.
GTVL MANUFACTURING INDUSTRIES, INC., Respondent.
CARPIO, J.:

Facts:

· This is a petition for review of the 18 April 2001 Decision of the Court of Appeals in CA-
G.R. CV No. 66236. The Court of Appeals affirmed the Order of the Regional Trial Court, Branch
258, Parañaque City (trial court) dismissing the complaint for sum of money filed by B. Van
Zuiden Bros., Ltd. (petitioner) against GTVL Manufacturing Industries, Inc. (respondent).

· On 13 July 1999, petitioner filed a complaint for sum of money against respondent,
docketed as Civil Case No. 99-0249. The pertinent portions of the complaint read:
1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. x x x
ZUIDEN is not engaged in business in the Philippines, but is suing before the Philippine
Courts, for the reasons hereinafter stated.
xxxx
3. ZUIDEN is engaged in the importation and exportation of several products, including lace
products.
4. On several occasions, GTVL purchased lace products from [ZUIDEN].
5. The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers
the products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd.
(KENZAR), x x x and the products are then considered as sold, upon receipt by KENZAR of the
goods purchased by GTVL.
KENZAR had the obligation to deliver the products to the Philippines and/or to follow whatever
instructions GTVL had on the matter.
Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong Kong, the
transaction is concluded; and GTVL became obligated to pay the agreed purchase price.
xxxx
7. However, commencing October 31, 1994 up to the present, GTVL has failed and refused to
pay the agreed purchase price for several deliveries ordered by it and delivered by
ZUIDEN, as above-mentioned.
xxxx
9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or admissions of liability,
GTVL has failed and refused, and continues to fail and refuse, to pay the overdue amount of
U.S.$32,088.02 [inclusive of interest]
· Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that
petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing business in the
Philippines without securing the required license. Accordingly, petitioner cannot sue before
Philippine courts.
· After an exchange of several pleading between the parties, the trial court issued an Order
on 10 November 1999 dismissing the complaint.
· On appeal, the Court of Appeals sustained the trial court’s dismissal of the complaint.
Hence, this petition.

Issue:
Whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine
courts. The resolution of this issue depends on whether petitioner is doing business in the
Philippines.

Ruling:
An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine
courts. On the other hand, an unlicensed foreign corporation not doing business in the
Philippines can sue before Philippine courts. Under Section 3(d) of Republic Act No. 7042 (RA
7042) or "The Foreign Investments Act of 1991," the phrase "doing business" includes: x x
x 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. The series of transactions between petitioner and
respondent cannot be classified as "doing business" in the Philippines under Section 3(d)
of RA 7042. An essential condition to be considered as "doing business" in the Philippines is the
actual performance of specific commercial acts within the territory of the Philippines for
the plain reason that the Philippines has no jurisdiction over commercial acts performed
in foreign territories. Here, there is no showing that petitioner performed within the
Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA
7042. Petitioner did not also open an office here in the Philippines, appoint a representative or
distributor, or manage, supervise or control a local business. While petitioner and respondent
entered into a series of transactions implying a continuity of commercial dealings, the
perfection and consummation of these transactions were done outside the Philippines. 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 one’s 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 acquire jurisdiction
over the foreign exporter who has not 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. 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 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.

iNational 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.

Cargill, Inc. vs. Intra Strata Assurance Corp.

Carpio, J.

FACTS:

Cargill (foreign) is a corporation organized and existing under the laws of the State of Delaware.

Cargill executed a contract with Northern Mindanao Corporation (NMC)(domestic), whereby

NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of molasses to be delivered from
Jan 1 to 30 1990 for $44 per metric ton.

The contract provided that CARGILL was to open a Letter of Credit with the BPI. NMC was
permitted to draw up 500,000 representing the minimum price of the contract.

The contract was amended 3 times (in relation to the amount and the price).But the third
amendment required NMC to put up a performance bond which was intended to guarantee
NMC’s performance to deliver the molasses during the prescribed shipment periods

In compliance, INTRA STRATA issued a performance bond to guarantee NMC's delivery.

NMC was only able to deliver 219551 metric tons out of the agreed 10,500.Thus CARGILL sent
demand letters to INTRA claiming payment under the performance and surety bonds. When
INTRA failed to pay, CARGILL filed a complaint.

CARGILL NMC and INTRA entered into a compromise agreement approved by the court, such
provided that NMC would pay CARGILL 3 million upon signing and would deliver to CARGILL
6,991 metric tons of molasses. But NMC still failed to comply.
RTC ruled in favor of CARGILL.

According to the CA – CARGILL does not have the capacity to file suit since it was a foreign
corporation doing business in the PH without the requisite license. The Purchase of molasses
were in pursuance of its basic business and not just mere isolated and incidental transactions.

ISSUE:

Whether or not petitioner is doing or transacting business in the Philippines in contemplation of

the law and established jurisprudence/ Whether or not CARGILL,an unlicensed foreign
corporation, has legal capacity to sue before Philippine courts.

HELD:

Yes.

RATIO:

“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 under Section 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]
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;
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.

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.”

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner,

vs.
INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG HONG,
TEOH KIANG SENG, ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M.
DELA CRUZ and ROLANDO T. NACILLA, respondents.

FACTS:
Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to do
business in the Philippines. Respondent Integrated Silicon is a private domestic corporation,
100% foreign owned, which is engaged in the business of manufacturing and assembling
electronics components.
The juridical relation among the various parties in this case can be traced to a 5-year Value
Added Assembly Services Agreement (VAASA), between Integrated Silicon and HP-Singapore.
Under the terms of the VAASA, Integrated Silicon was to locally manufacture and assemble fiber
optics for export to HP-Singapore. HP-Singapore, for its part, was to consign raw materials to
Integrated Silicon. The VAASA had a five-year term with a provision for annual renewal by mutual
written consent. Later, with the consent of Integrated Silicon, HP-Singapore assigned all its rights
and obligations in the VAASA to Agilent.
Later, Integrated Silicon filed a complaint for “Specific Performance and Damages” against
Agilent and its officers. It alleged that Agilent breached the parties’ oral agreement to extend the
VAASA. Agilent filed a separate complaint against Integrated Silicon for “Specific Performance,
Recovery of Possession, and Sum of Money with Replevin, Preliminary Mandatory Injunction,
and Damages.”
Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal capacity to
sue; litis pendentia; forum shopping; and failure to state a cause of action.

ISSUE: W/N an unlicensed foreign corporation not doing business in the Philippines lacks the
legal capacity to file suit.

HELD: YES.
A foreign corporation without a license is not ipso facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign corporation is “transacting” or “doing
business” in the country. The Corporation Code provides:
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 aforementioned provision prevents an unlicensed foreign corporation “doing business” in the
Philippines from accessing our courts.
The principles regarding the right of a foreign corporation to bring suit in Philippine courts may
thus be condensed in four statements:
if a foreign corporation does business in the Philippines without a license, it cannot sue before the
Philippine courts;
if a foreign corporation is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of any
business transaction;
if a foreign corporation does business in the Philippines without a license, a Philippine citizen or
entity which has contracted with said corporation may be estopped from challenging the foreign
corporation’s corporate personality in a suit brought before Philippine courts; and
if a foreign corporation does business in the Philippines with the required license, it can sue
before Philippine courts on any transaction.
The challenge to Agilent’s legal capacity to file suit hinges on whether or not it is doing business
in the Philippines. However, there is no definitive rule on what constitutes “doing”, “engaging in”,
or “transacting” business in the Philippines. The Corporation Code itself is silent as to what acts
constitute doing or transacting business in the Philippines.
In the Mentholatum case this Court discoursed on the two general tests to determine whether or
not a foreign corporation can be considered as “doing business” in the Philippines. The first of
these is the substance test, thus:
The true test [for doing business], however, seems to be whether the foreign corporation is
continuing the body of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another.
The second test is the continuity test, expressed thus:
The term [doing business] implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in the progressive prosecution of, the purpose and object of its
organization.]
The Foreign Investments Act of 1991 (the “FIA”; Republic Act No. 7042, as amended), defines
“doing business” as follows:
Sec. 3, par. (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 totaling 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 the progressive prosecution of, commercial
gain or of the purpose and object of the business organization.
An analysis of the relevant case law, in conjunction with Sec 1 of the IRR of the FIA (as amended
by RA 8179), would demonstrate that the acts enumerated in the VAASA do not constitute “doing
business” in the Philippines. The said provision provides that the following shall not be deemed
“doing business”:
(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.
By and large, to constitute “doing business”, the activity to be undertaken in the Philippines is one
that is for profit-making.
By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to (1)
maintaining a stock of goods in the Philippines solely for the purpose of having the same
processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to be
used in the processing of products for export. As such, we hold that, based on the evidence
presented thus far, Agilent cannot be deemed to be “doing business” in the Philippines.
Respondents’ contention that Agilent lacks the legal capacity to file suit is therefore devoid of
merit. As a foreign corporation not doing business in the Philippines, it needed no license before it
can sue before our courts.

STEELCASE, INC., Petitioner,

vs.
DESIGN INTERNATIONAL SELECTIONS, INC., Respondent.

MENDOZA, J.:

Facts:
Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of Michigan, USA and is
engaged in the manufacture of office furniture with dealers worldwide. Design International
Selections, Inc. (DISI) is a corporation existing under Philippine Laws and engaged in the
furniture business, including the distribution of furniture. 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 after the agreement was breached in 1999. Steelcase
filed a complaint for sum of money against DISI alleging that DISI had an unpaid account of
$600,000. It also prayed that DISI be ordered to pay actual or compensatory damages,
exemplary damages, attorney’s fees and costs of suit. Meanwhile, DISI alleged that the complaint
failed to state a cause of action and that the complaint should be dismissed because of
Steelcase’s lack of legal capacity to sue in Philippine courts due to that fact that it doesn’t have a
license to operate in the country.
The RTC dismissed Steelcase’s complaint. It has likewise concluded that Steelcase was “doing
business” in the Philippines as contemplated by RA 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 Philippine courts until it obtained the requisite license to do so. The CA affirmed the
ruling of the RTC. Steelcase contends that DISI is an independent distributor of Steelcase
products and not an agent or conduit of Steelcase.
Moreover, DISI is acting as Steelcase’s appointed local distributor, and is transacting business in
its own name and for its own account.
Issue:
Whether or not Steelcase had been “doing business” in the Philippines without a license

Ruling:
The phrase “doing business” is clearly defined in Section 3(d) of RA 7042 (Foreign Investments
Act of 1991) which states that “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… totaling 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 the progressive prosecution of, commercial
gain or of the purpose and object of the business organization.” The second sentence of Section
3(d) states 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… nor
appointing a representative or distributor domiciled in the Philippines which transacts business in
its own name and for its own account.”
On such account, 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. Steelcase, therefore,
is foreign corporation not doing business in the Philippines by its act of appointing a distributor
falls under one of the exceptions under RA 7042.