Corporation Law

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Republic of the Philippines SUPREME COURT  Manila

of Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process 2 of reincorporation.   On June 14, 1977, the new PMB was issued a certificate of 3 incorporation by the Securities and Exchange Commission.  

FIRST DIVISION

On May 5, 1981, Ka Bio the other petitioners (but herein, of the old PBM, filedChung with the SECand a petition for liquidation not all forstockholders dissolution) of both the old PBM and the new PBM. The allegation was that the former had become legally non-existent for failure to extend its corporate life and that the latter had likewise beenipso facto dissolved for non-use of the charter and 4 continuous failure to operate within 2 years from incorporation.  

G.R. No. 71837 July 26, 1988 CHUNG KA BIO, WELLINGTON CHUNG, CHUNG SIONG PEK, VICTORIANO CHUNG, and MANUEL CHUNG TONG OH, petitioners, vs.

INTERMEDIATE APPELLATE COURT (2nd Special Cases Division), SECURITIES and EXCHANGE COMMISSION EN BANC, HON. ANTONIO R. MANABAT, HON. JAMES K. ABUGAN, HON. ANTERO F.L. VILLAFLOR, JR., HON. SIXTO T.J. DE GUZMAN, JR., ALFREDO CHING, CHING TAN, CHIONG TIONG TAY, CHUNG KIAT HUA, CHENG LU

Dismissed for lack of a cause of action, the case, docketed as AC No. 055, was reinstated on appeal to the SECen banc and remanded to a new panel of hearing officers for further proceedings, including the proper accounting of the assets and liabilities of the old PBM. This order was appealed to the Intermediate Appellate

KUN, EMILIO TAÑEDO, ROBERTO G. CENON and PHILIPPINE BLOOMING MILLS COMPANY, INC., respondents.

Court in a petition partial review, docketed as AC GR SP No. not 00843, questioning the authority of thefor SEC in Case No. 055 to adjudicate a matter properly raised  5 on appeal or resolved in the order appealed from.  

Blanco Law Firm for petitioners. The Solicitor General for respondent SEC. Balgos & Perez Law Office for Philippine Blooming Mills Company, Inc. Quiason, Ermitaño, Makalintal & Barot Law Offices for private respondents Ching Tan and Chiong Tiong Tay.  Angara, Concepcion, Regala & Cruz Law Offices for private r espondents.

CRUZ, J.:  The Philippine Blooming Mills Company, Inc. was incorporated on January 19, 1952, 1 for a term of 25 years which expired on January 19,1977.  On May 14, 1977, the members of its board of directors executed a deed of assignment of all of the accounts receivables, properties, obligations and liabilities of the old PBM in favor

In a related development, Alfredo Ching, one of the members of the board of directors of the old PBM who executed the deed of assignment, filed with the Intermediate Appellate Court a separate petition for certiorari, docketed as AC GR No. 01099, in which he questioned the same order and the decision of the SEC in AC Case No. 055. He alleged that the SEC had gravely erred in not dismissing the petition for liquidation since the action amounted to a quo warranto  proceeding 6 which only the state could institute through the Solicitor General.   Earlier, on April 1, 1982, the new PBM and Alfredo Ching had filed with the SEC a petition for suspension of payment, which was opposed by Chung Ka Bio, et al., on the ground that the SEC had no jurisdiction over a petition for suspension of payments initiated by a mere individual. The opposition was rejected and the case was set for hearing. Chung Ka Bio elevated the matter to the SEC en banc on certiorari   with with preliminary injunction and receivership, docketed as SEC EB No. 018, praying for the annulment and setting aside of the proceedings. On May 7 10, 1983, the case was remanded to the hearing officers for further proceedings.   Chung Ka Bio came to this Court but we referred his case to the Intermediate Appellate Court where it was docketed as GR SP No. 01007. The three

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cases, viz., PBM Co., Inc. v. SEC, AC GR SP 00843; Chung Ka Bio, et al. v. SEC  , AC GR SP No. 01007; and Alfredo Ching, et al. v. SEC , AC GR SP No. 01099 were then consolidated in the respondent court which, on February 28, 1985, issued the decision now challenged on certiorari  by the petitioners in the case at bar. The decision affirmed the orders issued by the SEC in the said cases except the requirement for the accounting of the assets of the old PBM, which was set aside. 8  The petitioners now contend as follows: 1. The board of directors of an already dissolved corporation does not have the inherent power, without the express consent of the stockholders, to convey all its assets to a new corporation. 2. The new corporation is accountable for the said assets to the stockholders of the dissolved corporation who had not consented to the conveyance of the same to the new corporation. 3. The new corporation has not substantially complied with the two-year requirement of Section 22 of the new Corporation Code on non-user because its stockholders never adopted a set of by -laws. 4.  A quo warranto proceeding is no longer necessary to dissolve a corporation which is already "deemed dissolved" under Section 22 of the new Corporation Code. 5. The Securities and Exchange Commission has no jurisdiction over a petition for suspension of payments filed by an individual only. 9  On the first contention, the petitioners insist that they have never given their consent to the creation of the new corporation nor have they indicated their agreement to transfer their respective stocks in the old PBM to the new PBM. The creation of the new corporation with the transfer thereto of the assets of the old corporation was not within the powers of the board of directors of the latter as it was authorized only to wind up the affairs of such company and not in any case to continue its business. Moreover, no stockholders' meeting had been convened to discuss the deed of assignment and the 2/3 vote required by the Corporation Law  10 to authorize such conveyance had not been obtained.  

The pertinent provisions of the Corporation Law, which was the law then in force, are the following: SEC. 77. Every corporation whose charter expired by its own limitation or is annulled by purposes forfeitureisor otherwise, or whose corporate existence for other terminated in any other manner, shall nevertheless be continued as a body corporate for three years after the time when it would have been dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established." SEC. 28-1/2. A corporation may, by action taken at any meeting of its board of directors, all sell,oflease, exchange, otherwise dispose of all or substantially its property andorassets, including its goodwill, upon such terms and conditions and for such considerations, which may be money, stocks bonds, or other instruments for the payment of money or other property or other considerations, as its board of directors deem expedient, when and as authorized by the affirmative vote of shareholders holding shares in the corporation entitling them to exercise at least twothirds of the voting power on such a proposal at a shareholders' meeting called for that purpose. Notice of such meeting shall be given to all of the shareholders of record of the corporation whether or not they shall be entitled to vote thereat: Provided, however, That any stockholder who did not vote to authorize the action of the board of directors, may, within forty days after the date upon which such action was authorized, object thereto in writing and demand payment for his shares. If, after such a demand by a stockholder, the corporation and the stockholder can not agree upon the value of his share or shares at the time such corporate action was authorized, such value shall be ascertained by three disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The finding of the appraisers shall be final and if their award is not paid by the corporation within

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thirty days after it is made, it may be recovered in an action by the stockholder against the corporation. Upon payment by the corporation to the stockholder of the agreed or awarded price of his shares, the stockholder shall forthwith transfer and assign the share or shares held by him as directed by the corporation. Unless and until such sale, lease, or exchange shall be abandoned, the stockholder making such demand in writing ceases to be a stockholder and shall have no rights with respect to such shares except the right to receive payment therefor as aforesaid. A stockholder shall not be entitled to payment for his shares under the provisions of this section unless the value of the corporate assets which would remain after such payment would be at least equal to the aggregate amount of its debts and liabilities exclusive of capital stock. Nothing in this section is intended to restrict the power of any corporation, without the authorization thereof by the shareholders, to sell, lease, exchange, or otherwise dispose of, any of its property if thereby the corporate business be not substantially limited, or if the proceeds of such property be appropriated to the conduct or development of its remaining business. These are now Sections 122 and 40, respectively, with modifications, of the Corporation Code. As the first contention is based on the negative averment that no stockholders' meeting was held and the 2/3 consent vote was not obtained, there is no need for affirmative proof. Even so, there is the presumption of regularity which must operate in favor of the private respondents, who insist that the proper authorization as required by the Corporation Law was duly obtained at a meeting called for the purpose. (That authorization was embodied in a unanimous resolution dated March 19, 1977, which was reproduced verbatim  in the deed of 11 assignment.)  Otherwise, the new PBM would not have been issued a certificate of incorporation, which should also be presumed to have been done regularly. It must also be noted that under Section 28-1/2, "any stockholder who did not vote to

authorize the action of the board of directors may, within forty days after the date upon which such action was authorized, object thereto in writing and demand payment for his shares." The record does not show, nor have the petitioners alleged or proven, that they filed a written objection and demanded payment of their shares during the reglementary forty-day period. This circumstance should bolster the private respondents' claim that the authorization was unanimou s. While we agree that the board of directors is not normally permitted to undertake any activity outside of the usual liquidation of the business of the dissolved corporation, there is nothing to prevent the stockholders from conveying their respective shareholdings toward the creation of a new corporation to continue the business of the old. Winding up is the sole activity of a dissolved corporation that does not intend to incorporate anew. If it does, however, it is not unlawful for the old board of directors to negotiate and transfer the assets of the dissolved corporation to the new corporation intended to be created as long as the stockholders have given their consent. This was not prohibited by the Corporation Act. In fact, it was expressly allowed by Section 28-1/2. What the Court finds especially intriguing in this case is the fact that although the deed of assignment was executed in 1977, it was only in 1981 that it occurred to the petitioners to question its validity. All of four years had elapsed before the petitioners filed their action for liquidation of both the old and the new corporations, and during this period, the new PBM was in full operation, openly and quite visibly conducting the same business undertaken earlier by the old dissolved PBM. The petitioners and the private respondents are not strangers but relatives 12 and close business associates.  The PBM office is in the heart of Metro 13 Manila.  The new corporation, like the old, employs as many as 2,000 persons, the 14 same personnel who worked for the old PBM.  Additionally, one of the petitioners, Chung Siong Pek was one of the directors who executed the deed of assignment in favor of the old PBM and it was he also who received the deeded 15 assets on behalf and as treasurer of the new PBM.  Surely, these circumstances must operate to bar the petitioners now from questioning the deed of assignment after this long period of inaction in the protection of the rights they are now belatedly asserting. Laches has operated against them. We have said in a number of cases that laches, in a general sense, means the failure or neglect, for an unreasonable and unexplained length of time, to do that which, 16

by exercising due diligence, could or should have been done earlier.

 It is

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negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to 17 assert it.  Public policy requires, for the peace of society, the discouragement of 18 claims grown stale for non-assertion.  Unlike the statute of limitations, laches does not involve mere lapse or passage of time but is principally an impediment to the assertion or enforcement of a right which has become under the circumstances 19 inequitable or unfair to permit.   The essential elements of laches are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the sitution complained of; (2) delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; (4) injury or prejudice to the defendant in the event relief is accorded to the  20 complainant.   All the requisites are present in the case at bar. To begin with, what gave rise to the situation now complained of by the petitioners was the adoption of the deed of assignment by the directors of the old PBM allegedly without the consent of its stockholders and the acceptance of the deeded assets by the new PBM. Secondly, there was delay on the petitioners' part since it took them nearly four years, i.e., from May 14, 1977 to May 5,1981, before they made their move to assail the transfer despite complete knowledge of the transaction. It is also evident that the new PBM could not have had the slightest suspicion that the petitioners would assert the right on which they now base their suit, especially Chung Siong Pek, who in fact acted not only as director of the old PBM but also as treasurer of the new PBM in the transaction. Finally, the injury or prejudice in the event relief is granted is obvious as all the transactions of the new PBM will have to be undone, including credits extended and commitments made to third parties in good faith.

self-serving and completely without proof. Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution.

Section 19 of theprovided Corporation Law, part of of the which is now would Sectioncease 22 of Corporation Code, that the powers corporation if itthe did not formally organize and commence the transaction of its business or the continuation of its works within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that "every corporation formed under this Act, must within one month after the filing of the articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws." Whether this provision should be given mandatory or only directory effect remained a controversial question until it became academic with the adoption of PD 902-A. Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or revocation of the certificate of registration of corporations. Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(i) of PD 902-A, the SEC is empowered to "suspend or revoked, after proper notice and hearing, the franchise or certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws within the required period." It is clear from this provision that there must first of all be a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without 21 affecting the corporate existence of the erring firm.  

The third contention is likewise rejected for, as already shown, it is undeniable that the new PBM has in fact been operating all these years. The petitioners' argument that Alfredo Ching was merely continuing the business of the old PBM is selfdefeating for they themselves argue that the old PBM had already been dissolved. As for the contention that the election of Wellington Chung and J.R. Blanco as

It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality. Organization and commencement of transaction of corporate business are but conditions s ubsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even

directors was subject to the outcome of the petition for liquidation, this is clearly

before the filing of the by-laws, which under Section 46 of the Corporation Code,

The second contention must also fall with the first, and for the same reasons.

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must be adopted "within one month after receipt of official notice of the issuance of its certificate of incorporation."

Under Section 5(d), PD 902-A, as amended by PD 1758, however, it is clearly provided that such jurisdiction may be exercised only in:

Distinguishing creation from defects in organization, Fletcher has the following to

d) Petitions of corporations, partnerships or associations to be

say:

declared in the state of suspension of payments in cases where the corporation, partnership or association possess sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.

Ordinarily, want of, or defects in, the organization of a corporation, as distinguished from its creation, do not preclude the existence of a de facto corporation; and requirements in special charters or general incorporation laws relating to organization are often construed to be merely directory, or to conditions subsequent rather than conditions precedent, so that compliance therewith is not necessary to create even a dejure corporation. It has been held that there may be a de  factocorporation notwithstanding a failure to give the notice

This section clearly does not allow a mere individual to file the petition which is limited to "corporations, partnerships or associations." Administrative agencies like

required the statute of the meeting forlimit the the of oramount organization; or thoughbythere would failure to fix and of the capital stock of the company at the first meeting; or a failure to issue stock; or that there were informalities in the proceedings of such meeting, or that no certificate of organization was executed or filed. And the same has been held to be true though no board of directors has been elected, and though there were irregularities with respect to the number, term, place of residence and of meeting of the board of directors, or some of the persons chosen as directors are not qualified, even though the taking of these various steps is necessary to the proper use of the

the SEC are tribunals limited jurisdiction and,toas such, those powers which are of specifically granted themcanbyexercise their only enabling 23 statutes. Consequently, where no authority is granted to hear petitions of individuals  for suspension of payments, such petitions are beyond the competence of the SEC. The analogy offered by the respondent court is clearly inappropriate for while it is true that the Sandiganbayan may assume jurisdiction over private individuals, it is because its charter expressly allows this in specified cases. No similar permission is found in PD 902-A.

franchise. .... In any case, the deficiency claimed by the petitioners was corrected when the new  22 PBM adopted and filed its by-laws on September 6, 1981,  thus rendering the third issue also moot and academic.

Jurisdiction over the subject matter must exist as a matter of law and cannot be fixed by agreement of the parties, acquired through, or waived, enlarged or diminished by, any act or omission; neither can it be conferred by acquiescence of the tribunal. Hence, Alfredo Ching, as a mere individual, cannot be allowed as a copetitioner in SEC Case No. 2250.

It is needless as well to dwell on the fourth contention, in view of the findings that the new PBM has not been ipso facto dissolved.

WHEREFORE, the appealed decision is AFFIRMED as above modified, with costs against the petitioners.

On the fifth and final issue, the respondent court justifies assumption by the SEC of  jurisdiction over the petition for suspension of payment filed by the individual on

SO ORDERED.

The circumstance that Ching is a co-signer in the corporation's promissory notes, collateral or guarantee or security agreements, does not make him a proper party.

the general principle against multiplicity of suits.

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Republic of the Philippines SUPREME COURT  Manila

However, if reinstatement is no longer possible, respondent is hereby directed to pay complainant his separation pay of one (1) month for every year of service.

THIRD DIVISION

Complainant's claim moral damages dismissed for his failure to show fraud or badfor faith on the part of isrespondent. SO ORDERED.

G.R. No. 100686 August 15, 1995 The case stemmed from the following facts:

PEPSI COLA DISTRIBUTORS OF THE PHILIPPINES, INC., petitioner, vs.

NATIONAL LABOR RELATIONS COMMISSION, 5th Division, Cagayan de Oro City, HON. AMADO M. SOLAMO, Labor Arbiter, Sub-Regional Arbitration Branch No. 10, Butuan City, and TERTULIANO P.

Tertuliano P. Yute, private respondent herein, started working with Pepsi Cola Bottling Company of the Philippines (PCBCP for short) in Butuan City as a contractual maintenance electrician sometime in 1979 and when Pepsi Cola Distributors of the Philippines, Inc. (PCD) took over the bottling

YUTE, respondents. 

company's manufacturing operations in 1981, he was absorbed as a regular employee.

ROMERO, J.: 

On December 15, 1988, petitioner PCD terminated private respondent's employment on the grounds of alleged abandonment of work and/or absence without leave.

In this petition for certiorari   with prayer for temporary restraining order and/or preliminary injunction, petitioner Pepsi Cola Distributors of the  1 Philippines, Inc. seeks to set aside the Resolution  of the National Labor Relations Commission (Fifth Division), Cagayan de Oro City, dated April 24,  2 1991 and the entry of judgment made on June 10, 1991 when said Resolution became final and executory on May 20, 1991. The dispositive  3 portion of said Resolution  reads as follows: WHEREFORE, premises considered, the appealed decision is hereby modified directing respondent PCD and PCPPI to reinstate complainant Tertuliano P. Yute to his former position without loss of seniority rights with full backwages from July 25, 1989 to his actual reinstatement and to pay complainant an amount equivalent to ten (10%) percent of the monetary award for and as attorney's fees.

On January 3, 1989, private respondent filed before the Sub-Regional Arbitration Branch No. 10 of the NLRC in Butuan City a complaint for illegal dismissal, moral and exemplary damages, and attorney's fees against  4 PCD.   After efforts for amicable settlement of the case proved futile, the parties were required to file their respective position papers. On May 22, 1989, Labor Arbiter Amado M. Solamo rendered a  5 decision  which declared as illegal the dismissal of private respondent and ordered petitioner PCD to reinstate him with full backwages from the time he was illegally dismissed up to the time of his actual reinstatement without loss of seniority rights and privileges; to pay private respondent attorney's fees equivalent to 10% of the total monetary award. All other

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claims of private respondent were dismissed by the Labor Arbiter for lack of merit. PCD appealed the Labor Arbiter's decision to the National Labor Relations Commission (Fifth respondent Division), Cagayan de Orohim City. In the meanwhile, reinstated private and included in the payroll effectivePCD on May 22, 1989. On July 25, 1989, or 33 days after he was included in the payroll, PCD stopped payment of private respondent's salary on the ground that it allegedly sold its business interest to Pepsi Cola Products Philippines, Inc. (PCPPI for short) effective July 24, 1989.

cannot be issued against a person not a party to the case or compromise is well-settled (Bobis vs. Provincial Sheriff of Camarines Norte, 120 SCRA 85). Furthermore, the power of the court to issue execution of judgment extends only to properties unquestionably owned by the respondent against whom  judgment is sought to be satisfied (Vda. de Soyma vs. Court of Appeals, 121 SCRA 650). 4. The takeover of PCPPI from PCD is a supervening fact that would substantially alter or modify the issues subject of litigation and the liabilities or obligations of the parties;

On September 7, 1989, the NLRC, upon motion of private respondent and  7  6 other employees  similarly situated, issued a writ of execution  ordering

5. Reinstatement or payroll hire can no longer be had since the complainants have not been offered employment nor were they regular employees of the company at the time of the takeover by

PCD to pay their salaries from July 25, 1989 up to September 30, 1989.

PCPPI from PCD.

On November 17, 1989, PCPPI filed in the case a manifestation/motion praying that the change in ownership of the company be taken cognizance of by the NLRC, stating thus:

On November 29, 1989, private respondent filed another motion for  8 execution  praying that another writ of execution be issued considering that the previous one issued on September 7, 1989 was not executed.

1. PCPPI is now the owner, manufacturer and operator of the properties and assets of the respondent Pepsi-Cola Distributors of the Philippines, Inc. (PCD) located in Butuan Plant;

In a resolution dated August 17, 1990, the NLRC dismissed the appeal of PCD on the ground that the same was filed out of time thereby affirming the Labor Arbiter's decision.

2. PCPPI has a legal personality separate and distinct from PCD, although PCPPI assumed the business and had offered employment to regular employees of good standing as of July 24, 1989, the fact remains that PCPPI is not a party respondent to this case nor is PCPPI an alter-ego, agent or representative of respondent PCD. Attached hereto as Annex "A" is a copy of the Certificate of Registration of PCPPI to attest to the foregoing allegation;

Petitioner filed a motion for reconsideration of the order of August 17,

3. PCPPI, despite not being a party to the case has or will bear the wrath of this Honorable Office('s) writs of execution appurtenant to the above-cited cases without being afforded procedural and substantive due process. The doctrine that writs of execution

1990 contending that it was error to hold that the appeal was filed on June 14, 1989 instead of June 9, 1989 when said appeal was filed by registered mail; that it was error not to pass upon the merits of the appeal on the mistaken belief that it was filed out of time. On April 24, 1991, the NLRC, acting on the motion for reconsideration, resolved the case on the merits by modifying the appealed decision of the Labor Arbiter whereby PCD and PCPPI were both ordered to reinstate private respondent Tertuliano P. Yute to his former position without loss o f seniority rights and with full backwages from July 25, 1989 to his actual reinstatement and to pay him an amount equivalent to ten (10%) percent of the monetary award for and as attorney's fees; however, if

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reinstatement is no longer possible, PCD is directed to pay complainant his separation pay of one (1) month for every year of service; private respondent's claim for moral damages is dismissed for his failure to show  9 fraud or bad faith on the part of PCD.  

PCD, sold its business interest to PCPPI which, however, denied liability on the ground that it is a new entity separate and distinct from PCD.

The aforesaid Resolution having become final and executory on May 20, 1991, the NLRC recorded the same in its book of entries of judgments on June 10, 1991.

respondent December 15, 1988aswas ontwo a just cause after affording himondue process because earlypremised as the first years (1979-80) of his employment, he was twice reprimanded for being absent without permission; that when he was required to explain his absence from November 22, 1988 to December 15, 1988 without permission and to report for work, he failed to appear before the administrative committee on December 12, 1988 despite personal service of notice which he refused to sign; that despite receipt by his sister who refused to sign the notice resetting the hearing on December 14, 1988, private respondent failed to appear, thus compelling the committee to terminate his employment effective December 15, 1988 based on the evidence presented.

Arguing that the NLRC (Fifth Division) Resolution of April 24, 1991 was issued with grave abuse of discretion and that the entry of judgment made on June 10, 1991 caused serious injustice to petitioner PCD because its previous counsel willfully and maliciously did not inform them of the receipt of the resolution and instead allowed the period to file a motion for reconsideration to lapse, PCD filed the instant petition on July 18, 1991.  10

It is the contention of petitioner PCD that the dismissal of private

On January 20, 1992, a temporary restraining order   was issued by this Court and petitioner PCD was required to post a cash bond or surety bond

While petitioner asserts that the second dismissal of private respondent on July 24, 1989 was due to closure of PCD as a result of business losses, it however argues that public respondent NLRC gravely abused its discretion when it assumed jurisdiction and ruled on the validity of the second dismissal. Petitioner maintains that its right to due process of law was violated considering that there was no formal complaint as regard's the second dismissal and no hearing was ever conducted to enable petitioner PCD to present evidence on an issue which is separate and distinct from the first dismissal. Corollary to the argument on violation of its right to due process of law, petitioner PCD further contends that Pepsi Cola Products

in an amount equivalent to the award of the NLRC. On March 14,  13 1992, petitioner PCD submitted to the Court a Supersedeas Bond  in the amount of P73,926.00.

Philippines, Inc.held (PCPPI), a corporation separate andbackwages distinct from PCDPI, should not be liable for reinstatement with of private respondent since it is not a party to this case.

Briefly, this case involves a maintenance electrician, an employee of petitioner PCD, who was dismissed from his employment on December 15, 1988 on the alleged ground of abandonment and/or absence without leave, but as a result of a favorable decision in an illegal dismissal case he filed against his employer, he was later reinstated and included in the payroll from May 22, 1989 pending PDC's appeal with the NLRC, only to be dismissed again on July 24, 1989 on the alleged ground that his employer,

The Court finds that private respondent was accorded due process before he was dismissed on December 15, 1988. The Court has consistently held that due process does not necessarily mean or require a hearing, but  14 simply an opportunity or right to be heard.  In the instant case, prior to his dismissal on December 15, 1988, private respondent was twice notified about the hearing to be conducted by the administrative committee created to look into his case, but he refused to sign the notice and to

On January 14, 1992, or after the petition was given due course  on December 11, 1991, petitioner PCD filed an urgent motion for the issuance of a writ of preliminary injunction and/or temporary restraining  11 order  alleging that by filing a motion for issuance of writ of execution dated July 1, 1991, private respondent is attempting to execute the questioned resolution, and if said motion is granted, it would render moot and academic the instant petition.  12

attend the scheduled hearings on December 12, 1988 which was reset to

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December 14, 1988. In Stronghold  15  Appeals, the Court states, thus:

Insurance

Co . ,  , Inc. v . Court

of

The circumstance that the chance to be heard is not availed of does not to disparage that .opportunity and is deprive the person the right due process. . . (D)ue process not violated whereof a person is not heard because he has chosen, for whatever reason, not to be heard. It should be obvious that if he opts to be silent where he has a right to speak, he cannot later be heard to complain that he was unduly silenced. Besides, the requirements of due process of law are deemed to have been satisfied where the parties, as in the instant case, are given the  16 opportunity to submit position papers.   While the dismissal of private respondent by petitioner was not tainted with violation of his right to due process of law, the Court, however, finds the penalty of dismissal from his employment too harsh and disproportionate for an infraction which, under the attendant circumstances, appears to be excusable. Private respondent, at this stage, had just recovered from the complained stomach ache which, in accordance with the company physician's diagnosis, required him to rest for 25 days. As found by the Labor Arbiter, private respondent's absences in 1979 and 1980 for which he was twice reprimanded were incurred during his employment with the Pepsi Cola Bottling Company of the Philippines, Inc. (PCBCPI), petitioner's predecessor-in-interest. When the business interests of PCBCPI were taken over by petitioner PCD in 1981 and private respondent was absorbed as regular employee by the PCD, his previous absences were thus obliterated from his records by such a change of employment status from contractual to regular. Clearly then, his dismissal on December 15, 1988 was principally predicated on his absences from work from November 22, 1988 to December 15, 1988. The Labor Arbiter meticulously examined the circumstances regarding private respondent's absence from work for 23 days, thus:

. . . [O]n 21 November 1988 while he was working, he suffered stomach ache and for that matter he was accompanied by his supervisor, Pedrito Pilapil, to the company nurse and he was given needed medicines. Later, upon the agreement of the complainant and his immediate supervisor the former went on one (1) day vacation leave, and left the respondent plant and he immediately proceeded to their company physician, Teodoro BP. Vesagas, MD, FICS, FPCS, at M.J. Santos Hospital, Butuan City for further treatment and the herein complainant was advised to rest for 25 days per medical certificate issued by company's physician (Annex "C" —  Complainant's Position Paper). Thereafter, he went to Magallanes, Agusan del Norte to take the necessary rest. Later on 9 December 1988 he collected his 13th month pay as he went also for check-up from the company's physician and asked for a medical certificate. On that day he met his immediate supervisor and informed (him about) his illness and presented his medical certificate. However, on 16 December 1988 while complainant reported back for work, he was informed by his supervisor that his services was (sic) already terminated effective 15 December 1988 for alleged absence without leave (AWOL) as there was already an administrative investigation conducted by management for the said AWOL. . . . These facts which were alleged in private respondent's position paper, were notprivate controverted by petitioner. Asbeen correctly thethen Labor Arbiter, respondent should have givenobserved a warningbyfirst, a reprimand or even suspension but certainly, not outright dismissal from employment. While public respondent NLRC found that private respondent committed a minor procedural infraction when he went on sick leave from November 22, 1988 to December 16, 1988 without officially informing management or his immediate supervisor, the same cannot reasonably  justify the penalty of outright dismissal f rom his employment, considering that he filed a one-day vacation leave on the first day of his sickness, not foreseeing that the company's physician would later advise him to rest for 25 days. On December 9, 1988 he presented his medical certificate to his immediate supervisor. In view of private respondent's fault in this regard,

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public respondent NLRC correctly ruled that he is not entitled to backwages from December 15, 1988 when he was first dismissed from the service, to May 21, 1989, a day before he was reinstated in the payroll of petitioner PCD. The Court is in accord with said NLRC ruling.

entity or purchasing company is free from any liabilities incurred  18 by the former corporation.   There is thus no grave abuse of discretion on the part of public respondent

The Court cannot, however, sustain petitioner PCD's subsequent act of dismissing private respondent for the second time by removing his name from the payroll of July 25, 1989 after reinstating him 63 days earlier, or on May 22, 1989 on the ground that it has already sold its business interests to Pepsi Cola Products Philippines, Inc. (PCPPI). The contention that the second dismissal of private respondent presents an issue separate and distinct from the issue of the earlier dismissal on December 15, 1988 is nothing but an attempt of PCD to evade liability for illegally dismissing private respondent and to shield the purchasing corporation, PCPPI, from the said liability. It must be noted that the issue of whether or not Pepsi

NLRC when it ordered PCD andofPCPPI to reinstate private his former position without loss seniority rights, with fullrespondent backwages to from July 25, 1989 to his actual reinstatement, and to pay him 10% of the monetary award as attorney's fees. However, if reinstatement is no longer possible considering the supervening facts and circumstances of the case, coupled with the strained relationship between petitioner and private respondent as a result of their adversarial positions against each other in this case, more particularly petitioners PCD and PCPPI which consistently refused to reinstate him, private respondent should be awarded separation pay as an alternative to reinstatement.

Cola Products Philippines, Inc.as(PCPPI) liable for thehas illegal acts of its predecessor-in-interest PCD, in theisinstant case, already been  17 settled in the case of Pepsi Cola Bottling Co. v . NLRC .  In said case, the purchasing corporation claimed that it is a corporation separate and distinct from Pepsi Cola Bottling Company (PBC) or Pepsi Cola Distributors, Inc. (PCD); hence, it is not the proper party to which the writ of execution of the decision in an illegal dismissal case filed against its predecessor-ininterest, PBC should be served; and that reinstatement is no longer possible since PCD closed down its business on July 24, 1989 and the new franchise holder, PCPPI, is a new entity. In rejecting the aforementioned arguments of PCDPI, the Court ruled:

WHEREFORE, in view of the foregoing, the Resolution of the National Labor Relations Commission (Fifth Division), Cagayan de Oro City, dated April 24, 1991 is hereby AFFIRMED. The temporary restraining order issued on January 20, 1992 is LIFTED. Costs against petitioner. SO ORDERED.

Pepsi Cola Distributors of the Philippines may have ceased business operations and Pepsi-Cola Products Philippines, Inc. may be a new company but it does not necessarily follow that no one may now be held liable for illegal acts committed by the earlier firm. The complaint was filed when PCD was still in existence. Pepsi-Cola never stopped doing business in the Philippines. The same soft drinks products sold in 1988 when the complaint was initiated continue to be sold now. The sale of products, purchases of materials, payment of obligations, and other business acts did not stop at the time PCD bowed out and PCPPI came into being. There is no evidence presented showing that PCPPI, as the new

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Republic of the Philippines SUPREME COURT  Manila

In his Position Paper, complainant alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980 under its President, respondent Patricio

SECOND DIVISION

Lim; that in 1978 Patricio formed Peggy Inc. with controlling interest; thatLim complainant wasMills, absorbed by respondent Peggy MillsFilsyn as itshaving Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that at the time of his retirement complainant was receiving P60,000.00 monthly with vacation and sick leave benefits; 13th month pay, holiday pay and two round trip business class tickets on a Manila-London-Manila itinerary every three years which is convertible to cas[h] if unused; that in January 1986, respondents failed to pay vacation and leave credits and requested complainant to wait as it was short of funds but the same remain unpaid at present; that complainant is entitled to such benefit as per CBA provision (Annex "A"); that respondents likewise failed failed to pay complainant’s holiday pay up to the present; that complainant is entitled to such benefits as per CBA provision (Annex "B"); that in 1989 the plant union staged a strike and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992 complainant was entitled to 4 round trip business class plane tickets on a Manila-London-Manila itinerary but this benefit not (sic) its monetary equivalent was not given; that on August 1990 the respondents reduced complainant’s monthly salary of  P60,000.00  P60,000.00 by P9,900.00 till November 1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. as per agreement (Annex "D") and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President; that complainant worked for Sta. Rosa until November 30 that from time to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as per correspondence (Annexes "D-1" and "D-2"); that when complainant reached and applied retirement age at the end of 1993, he was only given a reduced 13th month pay ofP44,183.63, leaving a balance of P15,816.87; that thereafter the owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles; that on two occasions, complainant wrote letters (Annexes "E-1" to "E-2") to Patricio Lim requesting for his retirement and other benefits; that in the last quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00 which complainant rejected; that again complainant wrote a letter (Annex "F") reiterating his demand for full payment of all benefits and to no avail, hence this complaint; and that he is entitled to all his money claims pursuant to law.

G.R. No. 146667

January 23, 2007 

JOHN F. McLEOD, Petitioner, vs.

NATIONAL LABOR RELATIONS COMMISSION (First Division), FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU, Respondents. DECISION

CARPIO, J.:  The Case 1

2

This is a petition for review  to set aside the Decision  dated 15 June 2000 and the 3 Resolution  dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No. 55130. The Court of Appeals affirmed with modification the 29 December 1998 4 Decision  of the National Labor Relations Commission (NLRC) in NLRC NCR 0200949-95. The Facts The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court of Appeals, are as follows: On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral and exemplary damages, attorney’s fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu.

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On the other hand, respondents in their Position Paper alleged that complainant was the former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the corporation still exists at present; that its assets were

In his Reply, complainant alleged that all respondents being one and the same entities are solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds office in the same address; that all

acquired by Sta. Rosa Textile at Corporation which was established in April 1992 but still remains non-operational present; that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with complainant; that respondent Patricio Lim is the President and Board Chairman of Sta. Rosa Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has no cause of action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses as per Notice (Annex "1"); that complainant was relied upon to settle the labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company; and losses to Sta. Rosa which acquired its assets as per their financial statements (Annexes "2" and "3"); that the attendance records of complainant from April 1992 to November 1993 (Annexes "4" and "5") show that he was either absent or worked at most two hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims for damages in the total amount of P36,757.00 against complainant; that complainant’s monthly salary at Peggy Mills was  was  P50,495.00 and not P60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount complainant is entitled should be offset with the counterclaims; that complainant worked only for 12 years from 1980 to 1992; that complainant was only hired as a consultant and not an employee by Sta. Rosa Textile; that complainant’s attendance record of absence and two hours daily work during the period of the strike wipes out any vacation/sick leave he may have accumulated; that there is no basis for complainant’s claim of two (2) business class airline tick ets; that complainant’s pay already included the holiday pay; that he is entitled to holiday pay as consultant by Sta. Rosa; that he has waived this benefit in his 12 years of work with Peggy Mills; that he is not entitled to 13th month pay as consultant; and that he is not entitled to moral and exemplary damages and attorney’s fees.  fees. 

respondents have the same offices and personnel such asC.Patricio Eric Hu; that respondents’ Position Position Paper  Paper is key verified by Marialen Corpuz Lim whoand knows all the corporate officers of all respondents; that the veil of corporate fiction may be pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues; that complainant never accepted the change in his position from Vice-President and Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a consultant; that the Deed of Dation in Payment with Lease (Annex "C") proves that Sta. Rosa took over the assets of Peggy Mills as early as June 15, 1992 and not 1995 as alleged by respondents; that complainant never resigned from his  job but applied for retirement as per letters (Annexes "E-1", "E-2" and "F"); that documents "G", "H" and "I" show that Eric Hu is a top official of Peggy Mills that the closure of Peggy Mills cannot be the fault of complainant; that the strike was staged on the issue of CBA negotiations which is not part of the usual duties and responsibilities as Plant Manager; that complainant is a British national and is prohibited by law in engaging in union activities; that as per Resolution (Annex "3") of the NLRC in the proper case, complainant testified in favor of management; that the alleged attendance record of complainant was lifted from the logbook of a security agency and is hearsay evidence; that in the other attendance record it shows that complainant was reporting daily and even on Saturdays; that his limited hours was due to the strike and cessation of operations; that as plant manager complainant was on call 24 hours a day; that respondents must pay complainant the unpaid portion of his salaries and his retirement benefits that cash voucher No. 17015 (Annex "K") shows that complainant drew the monthly salary of P60,000.00 which was reduced to P50,495.00 in August 1990 and therefore without the consent of complainant; that complainant was assured that he will be paid the deduction as soon as the company improved its financial standing but this assurance was never fulfilled; that Patricio Lim promised complainant his retirement pay as per the latter’s l etters (Annexes "E "E-1", -1", "E-2" and "F"); that the law itself provides for retirement benefits; that Patricio Lim by way of Memorandum (Annex "M") approved vacation and sick leave benefits of 22 days per year effective 1986; that Peggy Mills required monthly paid employees to sign an acknowledgement that their monthly compensation includes holiday pay; that complainant was not made to sign this undertaking precisely because he is entitled to holiday pay over and above his monthly pay; that the company paid for complainant’s two (2) round trip tickets to London in 1983 and 1986 as reflected in

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the complainant’s passport (Annex "N"); that respondents claim that complainant is not entitled to 13th month pay but paid in 1993 and all the past 13 years; that complainant is entitled to moral and exemplary damages and attorney’s fees; that all doubts must be resolved in favor of complainant; and that complainant reserved

P60,000 x 14.0 mos. …………………… …………………… P840,000.00  P840,000.00

the right to file perjury cases against those concerned.

P2,000.00 x 22 days x 3 yrs. …………… 132,000.00  132,000.00 

In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employeremployee relationship between them and complainant; that undersigned counsel does not represent Peggy Mills, Inc.

Underpayment of Salaries (3 yrs.)

In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on February 10, 1991 as per Board Minutes (Annex "A"); that on August 19, 1987, the workers staged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed a Notice of Closure with the DOLE (Annex "B"); that all employees were given separation pay except for complainant whose task was extended to December 31, 1992 to wind up the affairs of the company as per vouchers (Annexes "C" and "C-1"); that respondent offered complainant his retirement benefits under RA 7641 but complainant refused; that the regular salaries of complainant from closure up to December 31, 1992 have offset whatever vacation and sick leaves he accumulated; that his claim for unused plane tickets from 1989 to 1992 has no policy basis, the company’s formula of employees monthly rate x 314 days over 12 months already included holiday pay; that complainant’s unpaid portion of the 13th month pay pay in 1993 has no basis because he was only an employee up to December 31, 1992; that the 13th month pay was 5 based on his last salary; and that complainant is not entitled t o damages damages..   On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive portion: WHEREFORE, premises considered, We hold all respondents as jointly and solidarily liable for complainant’s money claims as adjudicated above above and computed below as follows:

Vacation and Sick Leave (3 yrs.)

P60,000 - P50,495 = P9,505 P 9,505 x 36.0 mos. …………………... 342,180.00 342,180.00   Holiday Pay (3 yrs.) P2,000 x 30 days ………………………. 60,000.00  60,000.00  Underpayment of 13th month pay (1993) ……... 15,816.87  15,816.87  Moral Damages ……………………………….. 3,000,000.00  3,000,000.00  Exemplary Exempl ary Damages ………………………….. 1,000,000.00  1,000,000.00  10% Attorney’s Fees ………………………… ………………………….. 138,999.68 TOTAL P5,528,996.55 Unused Airline Tickets (3 yrs.) (To be converted in Peso upon payment) $2,450.00 x 3.0 *yrs.+..……………… $7,350.00  $7,350.00  6

Retirement Benefits (one month salary for every year of service)

SO ORDERED. ORDERED.  

6/80 - 11/30/93 = 14 years

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Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta. Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the NLRC. The NLRC rendered its decision on 29 December 1998, thus:

4. attorney’s fees equivalent to 10% of the total award.  award.  No costs is awarded. 10

WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495.00 a month.

SO ORDERED. ORDERED.  

All other claims are DISMISSED for lack of merit.

The Court of Appeals ruled that the fact that (1) all respondent corporations have the same address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano holds office at respondent corporations’ corp orations’ address; and (4) all respondent corporations have common officers and key personnel, would not  justify the application of the doctrine of piercing piercing the veil of corporate fiction.

7

SO ORDERED. ORDERED.   John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in its Resolution of 30 June 1999. 1999 .8 McLeod thus filed a petition for certiorari before 9 the Court of Appeals assailing the decision and resolution of the NLRC. NLRC.   The Ruling of the Court of Appeals

The Court of Appeals rejected McLeod’s theory that all respondent corporations are the same corporate entity which should be held solidarily liable for the payment of his monetary claims.

The Court of Appeals held that there should be clear and convincing evidence that SRTI, FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be treated as distinct and separate from each other.

On 15 June 2000, the Court of Appeals rendered judgment as follows: WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED with the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable with Peggy Mills, Inc., to pay the following amounts to petitioner John F. McLeod: 1. retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495, a month; 2. moral damages in the amount of one hundred thousand (P100,000.00) Pesos; 3. exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and

The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it has six incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R. Concio, Jr., E. A. Picasso, and Walter Euyang. On the other hand, the Articles of Incorporation of Filsyn show that it has 10 incorporators, namely, Jesus Y. Yujuico, Carlos Palanca, Jr., Patricio, Ang Beng Uh, Ramon A. Yulo, Honorio Poblador, Jr., Cipriano Azada, Manuel Tomacruz, Ismael Maningas, and Benigno Zialcita, Jr. The Court of Appeals pointed out that PMI and Filsyn have only two interlocking incorporators and directors, namely, Patricio and Carlos Palanca, Jr. 11

Reiterating the ruling of this Court in Laguio v. NLRC, NLRC,  the Court of Appeals held that mere substantial identity of the incorporators of two corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction.

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The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred before the execution of the contract.

The Court of Appeals stated that for McLeod to be entitled to payment of service incentive leave and holidays, there must be an agreement to that effect between him and his employer.

The Court of Appeals held that McLeod failed to substantiate his claim that all respondent corporations should be treated as one corporate entity. The Court of Appeals thus upheld the NLRC’s finding that no employeremployeremployee relationship existed between McLeod and respondent corporations except PMI.

Moreover, the Court of Appeals rejected McLeod’s argument that since P MI paid for his two round-trip tickets Manila-London in 1983 and 1986, he was also "entitled to unused airline tickets." The Court of Appeals stated that the fact that PMI granted McLeod "free transport to and from Manila and London for the year 1983 and 1986 does not ipso facto characterize it as regular that would establish a prevailing company policy."

The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any liability, there being no proof of malice or bad faith on his part. The Court of Appeals, however, ruled that McLeod was entitled to recover from PMI and Patricio, the company’s Chairman and President.  President. 

The Court of Appeals also denied McLeod’s claims for underpayment of salaries and his 13th month pay for the year 1994. The Court of Appeals upheld the NLRC’s NLRC’s ruling that it could be deduced from McLeod’s own narration of facts that he agreed to the reduction of his compensation from P60,000 to P50,495 in August 1990 to November 1993.

The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMI’s financial obligation to McLeod. The Court of Appeals stated that, on several occasions, despite his approval, Patricio refused and ignored to pay McLeod’s retirement benefits. The Court of Appeals stated that the delay lasted for one year prompting McLeod to initiate legal action. The Court of Appeals stated that although PMI offered to pay McLeod his retirement benefits, this offer for P300,000 was still below the "floor limits" provided by law. The Court of Appeals held that an employee could demand payment of retirement benefits as a matter of ri ght. The Court of Appeals stated that considering that PMI was no longer in operation,

The Court of Appeals found the award of moral damages for P50,000 in order because of the "stubborn refusal" of PMI and Patricio to respect McLeod’s valid claims. The Court of Appeals also ruled that attorney’s fees equivalent to 10% of the total award should be given to McLeod under Article 2208, paragraph 2 of the Civil 12 Code..   Code Hence, this petition.

its "officer should be held liable for acting on behalf of the corporation." The Issues The Court of Appeals also ruled that since PMI did not have a retirement program providing for retirement benefits of its employees, Article 287 of the Labor Code must be followed. The Court of Appeals thus upheld the NLRC’s finding findi ng that McLeod was entitled to retirement pay equivalent to 22.5 days for every year of service from 1980 to 1992 based on a salary rate of P50,495 a month. The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave and holiday pay because as Vice President and Plant Manager, McLeod is a managerial employee who, under Article 82 of the Labor Code, is not entitled to these benefits.

McLeod submits the following issues for our consideration: 1. Whether the challenged Decision and Resolution of the 14th Division of the Court of Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in CA-G.R. SP No. 55130 are in accord with law and  jurisprudence;

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2. Whether an employer-employee relationship exists between the private respondents and the petitioner for purposes of determining employer liability to the petitioner;

3. Whether the private respondents may avoid their f inancial obligations to the petitioner by invoking the veil of corporate fiction; 4. Whether petitioner is entitled to the relief he seeks against the private respondents; 5. Whether the ruling of [this] Court in Special Police and Watchman Association (PLUM) Federation v. National Labor Relations Commission cited by the Office of the Solicitor General is applicable to the case of petitioner; and 6. Whether the appeal taken by the private respondents from the Decision of the labor arbiter meets the mandatory requirements recited in the 13 Labor Code of the Philippines, as amended. amended.  

When PMI’s rank-and-file rank-and-file employees staged a strike on 19 August 1989 to July 18 1992, PMI incurred serious business losses. losses.  This prompted PMI to stop permanently plant operations and to send a notice of closure to the Department of 19 Labor and Employment on 21 July 1992. 1992.   20

PMI informed its employees, including McLeod, of the closure. closure.  PMI paid its employees, including managerial employees, except McLeod, their unpaid wages, sick leave, vacation leave, prorated 13th month pay, and separation pay. Under the compromise agreement between PMI and its employees, the employer-employee 21 relationship between them ended on 25 November 1992. 1992 .   Records also disclose that PMI extended McLeod’s service up to 31 December 1992 22 "to wind up some affairs" of the company. company.  McLeod testified on cross-examination 23 that he received his last salary from PMI in December 1992. 1992.   It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31 December 1992. However, McLeod claims that after FETMI purchased PMI in January 1993, he "continued to work at the same plant with the same responsibilities" until 30 November 1993. McLeod claims that FETMI merely renamed PMI as SRTI. McLeod asserts that it was for this reason that when he reached the retirement age in 1993, 24 he asked all the respondents for the payment of his benefits. benefits.  

The Court’s Ruling  Ruling   The petition must fail. McLeod asserts that the Court of Appeals should not have upheld the NLRC’s findings that he was a managerial employee of PMI from 20 June 1980 to 31 December 1992, and then a consultant of SRTI up to 30 November 1993. McLeod asserts that if only for this "brazen assumption," the Court of Appeals should not have sustained the NLRC’s ruling that his cause of action was only against PMI.  PMI.  These assertions do not deserve serious consideration. 14

Records disclose that McLeod was an employee only of PMI. PMI.  PMI hired McLeod as 15 its acting Vice President and General Manager on 20 June 1980 .  PMI confirmed McLeod’s appointment as Vice President/Plant Manager in the Special Meeting of 16 its Board of Directors on 10 February 1981. 1981.  McLeod himself testified during the 17 hearing before the Labor Arbiter that his "regular employment" was with PMI PMI..  

These assertions deserve scant consideration. What took place between PMI and SRTI was dation in payment with lease. Pertinent portions of the contract that PMI and SRTI executed on 15 June 1992 read: WHEREAS, PMI is indebted to the Development Bank of the Philippines ("DBP") and as security for such debts (the "Obligations") has mortgaged its real properties covered by TCT Nos. T-38647, T-37136, and T-37135, together with all machineries and improvements found thereat, a complete listing of which is hereto attached as Annex "A" (the "Assets"); WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the Obligations, including the Assets, to the Asset Privatization Trust ("APT") and

Page | 16

 

the latter has received payment for the Obligations from PMI, PMI, under APT’s Direct Debt Buy-Out ("DDBO") program thereby causing APT to completely discharge and cancel the mortgage in the Assets and to release the titles of the Assets back to PMI;

Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of P210,000,000. We are no t convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. PMI had already paid its employees, except McLeod, their money claims.

WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00) (the "Advances") to enable PMI to consummate the DDBO with APT, with SRTC subrogating APT as PMI’s creditor thereby;

There was also no merger or consolidation of PMI and SRTI.

WHEREAS, in payment to SRTC for PMI’s liability, PMI has agreed to transfer all its rights, title and interests in the Assets by way of a dation in payment to SRTC, provided that simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder;

Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues

xxxx

the combined business.

NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms and conditions hereinafter set forth, the parties hereby agree as follows:

The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders.

1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights, 25 title and interest in and to the Assets by way of a dation in payment .  (Emphasis supplied) As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently enters 26 into the transaction to escape liability for those debts. debts.   None of the foregoing exceptions is present in this case.

The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or 27 not to such merger or consolidation. consolidation .   In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI. Moreover, SRTI did not expressly or impliedly agree to assume any of PMI’s debts. Pertinent portions of the subject Deed of Dation in Payment with Lease provide, thus:

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2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the following:

Yes, but I want a precise answer to that question. If he has an employment contract with Far Eastern Textile?

xxxx

WITNESS:

(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any liability for claims of PMI’s creditors, laborers, and workers and for physical injury or injury to property arising from PMI’s custody, possession, care, repairs,   maintenance, use or operation of the Assets except ordinary wear and 28 tear tear;; (Emphasis supplied)

Can I answer it this way, sir? There is not a valid contract but I was under the impression taking into consideration that the closeness that I had at Far Eastern Textile is enough during that period of time of the development of Peggy Mills to reorganize a staff. I was under the basic impression that they might still retain my status as Vice President and Plant Manager of the company.

Also, McLeod did not present any evidence to show the alleged renaming of "Peggy Mills, Inc." to "Sta. Rosa Textiles, Inc."

ATTY. ESCANO:

Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity.

But the answer is still, there is no employment contract in your possession appointing you in any capacity by Far Eastern?

Respondent corporations assert that SRTI hired McLeod as consultant after PMI 29 stopped operations. operations.  On the other hand, McLeod asserts that he was respondent 30 corporations’ employee from 1980 to 30 No vember 1993. 1993. However, McLeod failed to present any proof of employer-employee relationship between him and Filsyn, SRTI, or FETMI. McLeod testified, thus:

WITNESS:

ATTY. ESCANO:

ATTY. ESCANO:

Do you have any employment contract with Far Eastern Textile?

So, there is proof that you were in fact really employed by Peggy Mills?

WITNESS:

WITNESS:

It is my belief up the present time.

Yes, sir.

ATTY. AVECILLA:

ATTY. ESCANO:

May I request that the witness be allowed to go through his Annexes, Your Honor.

Of course, my interest now is to whether or not there is a similar document to present that you were employed by the other respondents like Filsyn Corporation?

There was no written contract, sir. xxxx

ATTY. ESCANO: WITNESS:

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ATTY. ESCANO:

A Not a direct contract but I was taken in and I told to take over this from Mr. Eric Hu. Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of Mr. Patricio Lim at that period of time.

What about Far Eastern Textile Mills?

Q No documents to show, Mr. McLeod?

WITNESS:

A No. No documents, sir. sir.  

I have no document, sir.

McLeod could have presented evidence to support his allegation of employeremployee relationship between him and any of Filsyn, SRTI, and FETMI, but he did not. Appointment letters or employment contracts, payrolls, organization charts, SSS registration, personnel list, as well as testimony of co-employees, may serve as 33 evidence of employee status. status.  

I have no document, sir.

32

ATTY. ESCANO: And Sta. Rosa Textile Mills?

It is a basic rule in evidence that parties must prove their affirmative allegations. WITNESS: 31

There is no document, sir. sir .   xxxx ATTY. ESCANO: Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment from Far Eastern Textiles, Inc.? A No, sir. Q What about Sta. Rosa Textile Mills, do you have an employment contract from this company? A No, sir. xxxx Q And what about respondent Eric Hu. Have you had any contract of employment

While technical rules are not strictly followed in the NLRC, this does not mean that the rules on proving allegations are entirely ignored. Bare allegations are not 34 enough. They must be supported by substantial evidence at the very least least..   However, McLeod claims that "for purposes of determining employer liability, all private respondents are one and the same employer" because: (1) they have the same address; (2) they are all engaged in the same business; and (3) they have 35 interlocking directors and officers. officers.   This assertion is untenable. A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it 36 may be connected. connected.   While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, 37 or defend crime, crime,  or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where

from Mr. Eric Hu?

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the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another 38 corporation..   corporation

That respondent corporations have interlocking incorporators, directors, and officers is of no moment. The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos 47

To disregard the separate juridical personality of a corporation, the 39 wrongdoing must be established clearly and convincingly. It cannot be presumed. presumed.  

Palanca, Jr.  While Patricio was Director and Board Chairman of Filsyn, SRTI, and Jr. 48 PMI PMI,,  he was never an officer of FETMI.

Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the corporate veil.

Eric Hu, on the other hand, was Director of Filsyn and SRTI. SRTI .  He was never an officer of PMI.

Respondent corporations may be engaged in the same business as that of PMI, but 40 this fact alone is not enough reason to pierce the veil of corporate fiction. fiction.  

Marialen C. Corpuz, Filsyn’s Finance Officer, Officer,  testified on cross-examination that (1) among all of Filsyn’s officers, only she was the one involved in the management of PMI; (2) only she and Patricio were the common officers between Filsyn and PMI; 51 and (3) Filsyn and PMI are "two separate companies. companies.""  

41

In Indophil Textile Mill Workers Union v. Calica, Calica,  the Court ruled, thus: In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner Union and private respondent Company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient 42 to justify the piercing of the corporate veil of Acrylic. Acrylic.  (Emphasis supplied) Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto 43 Bldg., Paseo de Roxas, Makati City, City ,  can be explained by the two companies’ stipulation in their Deed of Dation in Payment with Lease that "simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under 44 terms and conditions stated hereunder." hereunder."   As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA45 Lepanto Bldg., Paseo de Roxas, Makati City, City,  while FETMI held office at 18F, Tun Nan Commercial Building, 333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan, 46 R.O.C..  Hence, they did not have the same address as that of PMI. R.O.C

49

50

Apolinario L. Posio, PMI’s Chief Accountant, testified that "SRTI is a different 52 corporation from PMI." PMI."   At any rate, the existence of interlocking incorporators, di rectors, and officers is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or 53 other public policy considerations. considerations.   54

In Del Rosario v. NLRC, NLRC,  the Court ruled that substantial identity of the incorporators of corporations does not necessarily imply fraud. In light of the foregoing, and there being no proof of employer-employee relationship between McLeod and respondent corporations and Eric Hu, McLeod’s cause of action is only against his former employer, PMI. On Patricio’s personal liability, it is settled that in the absence of malice, bad faith, or specific provision of law, a stockholder or an officer of a corporation cannot be 55 made personally liable for corporate liabilities. liabilities.   To reiterate, a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting 56

through its directors, officers, and employees, are its sole liabilities. liabilities.  

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Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons;

"Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months."

(2) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally 57 answerable for their corporate action. action.  

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides:

Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI. The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad  judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some ill 58 motive or interest. It partakes of the nature of fraud. fraud.   In the present case, there is nothing substantial on record to show that Patricio acted in bad faith fait h in terminating McLeod’s services to warrant Patricio’s personal liability. PMI had no other choice but to stop plant operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be held solidarily liable with PMI for McLeod’s money claims.  claims. 

"(c) ‘Employer’ includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.". The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law. xxxx (c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. In the instant case, it would

The ruling in A.C. Ransom Labor Union-CCLU v. NLRC, NLRC,  which the Court of Appeals cited, does not apply to this case. We quote pertinent portions of the ruling, thus:

appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19,

(a) Article 265 of the Labor Code, in part, expressly provides:

1972 Decision of the Court of Industrial Relations was promulgated against 60 RANSOM..  (Emphasis supplied) RANSOM

59

"Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages." Article 273 of the Code provides that:

Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade payment of backwages to the 22 strikers. This situation, or anything similar showing malice or bad faith on the part of Patricio, does not obtain in the present 61 case. In Santos v. NLRC ,  the Court held, thus:

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It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU vs. NLRC , for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an

maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

employer corporation could be held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of backwages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC  in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the President who who was dismissed for the latter’s claim for unpaid wages.  wages. 

distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for 62 the payment of private respondents’ back salaries. salaries.  (Emphasis supplied)

A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on the part of the company officer. In A.C. Ransom , the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other. The basic rule is still that which can be deduced from the Court’s pronouncement in Sunio vs. National Labor Relations Commission; thus: We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Director’s Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one-half (½) interest of said corporation, and his alleged arbitrary dismissal of private respondents. Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted

It is basic that a corporation is invested by law with a personality separate and

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. Neither Article 212(c) nor Articl e 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable for the debts of the corporation. As this Court ruled in H.L. Carlos Construction, Inc. 63 v. Marina Properties Corporation:   We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides: "Section 31. Liability of directors, trustees or officers . - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith ... shall be liable  jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders and other persons." The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons. The records are bereft of any evidence that Typoco acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. The unilateral termination of the Contract during the existence of the TRO was indeed contemptible  –   –  for which MPC should have merely been

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cited for contempt of court at the most – most  – and  and a preliminary injunction would have then stopped work by the second contractor. Besides, there is no showing that the 64 unilateral termination of the Contract was null and void void..  

Also unavailing is McLeod’s claim that he was entitled to the "unpaid monetary equivalent of unused plane tickets for the period covering 1989 to 1992 in the 69 amount of P279,300.00." P279,300.00."  PMI has no company policy granting its officers and 70 employees expenses for trips abroad. abroad .  That at one time PMI reimbursed McLeod

McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday pay. Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest Periods, provides:

for his and his wife’s plane plane tickets in a vacation to London Londo n  could not be deemed as an established practice considering that it happened only once. To be considered a "regular practice," the giving of the benefits should have been done over a long 72 period, and must be shown to have been consistent and deliberate. deliberate .  

71

Coverage. ─ The provisions of this title shall apply to employees in all establishments and undertakings whether for profit or not, but not to government employees, managerial employees, field personnel, members of the family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and workers who are paid by results as determined by the Secretary of Labor in appropriate regulations. As used herein, "managerial employees" refer to those whose primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof, and to other officers or members of the managerial staff. (Emphasis supplied)

In American Wire and Cable Daily Rated Employees Union v. American Wire and 73 Cable Co., Inc., Inc.,  the Court held that for a bonus to be enforceable, the employer must have promised it, and the parties must have expressly agreed upon it, or it must have had a fixed amount and had been a long and regular practice on the part of the employer. In the present case, there is no showing that PMI ever promised McLeod that it would continue to grant him the benefit in question. Neither is there any proof that PMI and McLeod had expressly agreed upon the giving of that benefit. 74

As Vice President/Plant Manager, McLeod is a managerial employee who is excluded from the coverage of Title I, Book Three of the Labor Code. McLeod is entitled to payment of vacation leave and sick leave only if he and PMI had agreed on it. The payment of vacation leave and sick leave depends on the policy of the 65 employer or the agreement between the employer and employee. employee.  In the present case, there is no showing that McLeod and PMI had an agreement concerning payment of these benefits. McLeod’s assertion of underpayment of his 13th month pay in December 1993 is 66 unavailing..  As already stated, PMI stopped plant operations in 1992. McLeod unavailing himself testified that he received his last salary from PMI in December 1992. After the termination of the employer-employee relationship between McLeod and PMI, SRTI hired McLeod as consultant and not as employee. Since McLeod was no longer 67 an employee, he was not entitled to the 13th month pay. pay .  Besides, there is no evidence on record that McLeod indeed received his alleged "reduced 13th month 68 pay of P44,183.63" in December 1993. 1993.  

McLeod’s reliance on Annex M  can hardly carry the day for him. Annex M, which is McLeod’s letter addressed to "Philip Lim, VP Administration," merely contains McLeod’s proposals for the grant of some benefits to supervisory and confidential employees. Contrary to McLeod’s allegation, Patricio did not sign the letter. Hence, the letter does not embody any agreement between McLeod and the management that would entitle McLeod to his money claims. Neither can McLeod’s assertions find support in Annex U. U . 75 Annex U is the Agreement which McLeod and Universal Textile Mills, Inc. executed in 1959. The Agreement merely contains the renewal of the service agreement which the parties signed in 1956. McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced without his consent. McLeod testified that in 1990, Philip Lim explained to him why his salary would have to be reduced. McLeod said that Philip told him that "they were short in 76 finances; that it would be repaid." repaid."  Were McLeod not amenable to that reduction in salary, he could have immediately resigned from his work in PMI.

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McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod testified that PMI was not able to operate from August 1989 to 1992 because of the strike. Even before 1989, as Vice President of PMI, McLeod was 77 aware that the company had incurred "huge loans from DBP." DBP."  As it happened, McLeod continued to work with PMI. We find it pertinent to quote some portions of Apolinario Posio’s testimony, Posio’s testimony, to wit: Q You also stated that before the period of the strike as shown by annex "K" of the reply filed by the complainant which was I think a voucher, the salary of Mr. McLeod was roughly P60,000.00 a month? A Yes, sir. Q And as shown by their annex "L" to their reply, that this was reduced to roughly P50,000.00 a month?

Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because of this reduced amount of his salary at that time? A I don’t have any personal knowledge of any complaint, sir.  sir.  Q At least, that is in so far as you were concerned, he said nothing when he signed the voucher in question? A Yes, sir. Q Now, you also stated that the reason for what appears to be an agreement between Peggy Mills and Mr. McLeod in so far as the reduction of his salary from P60,000.00 to P50,000.00 a month was because he would have a reduced number of working days in view of the strike at Peggy Mills, is that right? A Yes, sir.

A Yes, sir. Q You stated that this was indeed upon the instruction by the Vice-President of Peggy Mills at that time and that was Mr. Philip Lim, would you not?

Q And that this was so because on account of the strike, there was no work to be done in the company? 78

A Yes, sir. sir.   A Yes, sir. xxxx Q Of your own personal knowledge, can you say if this was, in fact, by agreement between Mr. Philip Lim or any other officers of Peggy Mills and Mr. McLeod? A If I recall it correctly, I assume it was an agreement, verbal agreement with, between Mr. Philip Lim and Mr. McLeod, because the voucher that we prepared was actually acknowledged by Mr. McLeod, the reduced amount was acknowledged by Mr. McLeod thru the voucher that we prepared.

Q Now, you also stated if you remember during the first time that you testified that in the beginning, the monthly salary of the complainant was P60,000.00, is that correct? A Yes, sir.

Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously received the reduced amount ofP50,000.00 by signing the voucher and receiving the amount in question?

Q And because of the long period of the strike, when there was no work to be done, by agreement with the complainant, his monthly salary was adjusted to only P50,495 because he would not have to report for work on Saturday. Do you remember having made that explanation?

A Yes, sir.

A Yes, sir.

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Q You also stated that the complainant continuously received his monthly salary in the adjusted amount ofP50,495.00 monthly signing the necessary vouchers or pay slips for that without complaining, is that not right, Mr. Posio?

Records disclose that PMI had long offered to pay McLeod his money claims. In their Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as "separation benefits, and not P300,000, if only to buy peace and to forestall any complaint" that McLeod may initiate before the NLRC. McLeod

79

A Yes, sir. sir.  

admitted at the hearing before the Labor Arbiter Arb iter that PMI has made this offer ─  

Since the last salary that McLeod received from PMI was P50,495, that amount should be the basis in computing his retirement benefits. McLeod must be credited only with his service to PMI as it had a juridical personality separate and distinct from that of the other respondent corporations.

ATTY. ESCANO: x x x According to your own statement in your Position Paper and I am referring to page 8, your unpaid retirement benefit for fourteen (14) years of service at P60,000.00 per year is P840,000.00, is that correct?

80

Since PMI has no retirement plan, plan ,  we apply Section 5, Rule II of the Rules Implementing the New Retirement Law which provides: 5.1 In the absence of an applicable agreement or retirement plan, an employee who retires pursuant to the Act shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.

WITNESS: That is correct, sir. ATTY. ESCANO: And this amount is correct P840,000.00, according to your Position Paper?

5.2 Components of One-half One-half (1/2) Month Salary. ─ For the purpose of determining the minimum retirement pay due an employee under this Rule, the term "one-half month salary" shall include all of the following: (a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x

WITNESS: That is correct, sir. ATTY. ESCANO:

With McLeod having worked with PMItofor 12 years, from 1992, he is entitled to a retirement pay equivalent ½ month salary for 1980 every to year of service based on his latest salary rate of P50,495 a month. There is no basis for the award of moral damages. Moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, 81 malicious, or in bad faith, oppressive or abusive. abusive.  From the records of the case, the Court finds no ultimate facts to support a conclusion of bad faith on the part of PMI.

The question I want to ask is, are you aware that this amount was offered to you sometime last year through your own lawyer, my good friend, Atty. Avecilla, who is right here with us? WITNESS: I was aware, sir. ATTY. ESCANO: So this was offered to you, is that correct?

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WITNESS:

ATTY. ESCANO:

I was told that a fixed sum of P840,000.00 was offered.

No. What was mentioned was the amount of P840,000.00.

ATTY. ESCANO:

WITNESS:

And , of course, the reason, if I may assume, that you declined this offer was that, according to you, there are other claims which you would like to raise against the Respondents which, by your impression, they were not willing to pay in addition to this particular amount?

What did you say, Atty. Escano? ATTY. ESCANO: The amount that I mentioned was P840,000.00 corresponding to the . . . . . . .

WITNESS: WITNESS: Yes, sir. May I ask that the question be clarified, your Honor?

ATTY. ESCANO:

ATTY. ROXAS: The question now is, if the same amount is offered to you by way of retirement which is exactly what you stated in your own Position Paper, would you accept it or not? WITNESS:

Q You mentioned that you were offered for the settlement of your claims in 1994 for P840,000.00, is that right, Mr. Witness?

Not on the concept without all the basic benefits due me, I will refuse. refuse.  

A During that period in time, while the petition in this case was ongoing, we already filed a case at that period of time, sir. There was a discussion. To the best of my knowledge, they are willing to settle for P840,000.00 and based on what the Attorney told me, I refused to accept because I believe that my position was not in

xxxx

anyway due to a compromise situation to the benefits I am entitled to. to.83 

ATTY. ROXAS:

Hence, the awards for exemplary damages and attorney’s fees are not proper in the 84 present case. case.  

82

Q You mentioned in the cross-examination of Atty. Escano that you were offered the separation pay in 1994, is that correct, Mr. Witness? WITNESS: A I was offered a settlement of P300,000.00 for complete settlement and that was I think in January or February 1994, sir.

That respondent corporations, in their appeal to the NLRC, did not serve a copy of their memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC New Rules of Procedure provides: Requisites for Perfection Perfection of Appeal. ─ (a) The appeal shall be filed within the reglementary period as provided in Section 1 of this Rule; shall be under oath with proof of payment of the required appeal fee and the posting of a cash or surety

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bond as provided in Section 5 of this Rul e; shall be accompanied by a memorandum of appeal x x x and proof of service on the other party of such appeal. (Emphasis supplied) The "other party" mentioned in the Rule obviously refers to the adverse party, in this case, McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others, proof of service of the memorandum of appeal on the other party, is merely a rundown of the contents of the required memorandum of appeal to be submitted 85 by the appellant. These are not jurisdictional requirements. requirements.   WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No. 55130, with the following MODIFICATIONS: (a) the retirement pay of John F. McLeod should be computed at ½ month salary for every year of service for 12 years based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from personal liability; and (c) the awards for moral and exemplary damages damages and attorney’s fees are deleted. No pronouncement as to costs. SO ORDERED.

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FIRST DIVISION

[G.R. No. 111262. September 19, 1996]

SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, represented by its President RAYMUNDO HIPOLITO, JR., petitioner, vs . HON. MA. NIEVES D. CONFESOR, Secretary of Labor, Dept. of Labor & Employment, SAN MIGUEL CORPORATION, MAGNOLIA CORPORATION (Formerly, Magnolia Plant) and SAN MIGUEL FOODS, INC. (Formerly, B-Meg Plant), respondents.

SEC. 2. In accordance with Article 253-A of the Labor Code as amended, amended, the term of this Agreement insofar as the representation aspect is concerned, shall be for five (5) years fro m July 1, 1989 to June 30, 1994. Hence, the freedom period for purposes of such representation shall be sixty (60) days prior to June 30, 1994. SEC. 3. Sixty (60) days prior to June 30, 1992 either party may initiate negotiations negotiations of all provisions of this Agreement, except insofar as the representation aspect is concerned. If no agreement is reached in such negotiations, this Agreement shall nevertheless remain in force up to the time a subsequent agreement is reached by [1] the parties.   In keeping with their vision and long term strategy for business expansion, [2] SMC management informed its employees in a letter dated August 13, 1991 that the company which was composed of four operating divisions namely: (1) Beer, (2) Packaging, (3) Feeds and Livestocks, (4) Magnolia and Agri-business would undergo [3]

DECISION KAPUNAN,  J .: .: This is a petition for certiorari   assailing the Order of the Secretary of Labor rendered on February 15, 1993 involving a labor dispute at San Miguel Corporation. The facts are as follows: On June 28, 1990, petitioner-union San Miguel Corporation Employees Union PTGWO entered into a Collective Bargaining Agreement (CBA) with private respondent San Miguel Corporation (SMC) to take effect upon the expiration of the previous CBA or on June 30, 1989. This CBA provided, among others, that: ARTICLE XIV DURATION OF AGREEMENT SECTION 1. This Agreement which shall be binding upon the parties hereto and their respective successors-in-interest, shall become effective and shall remain in force and effect until June 30, 1992.

a restructuring. restructuring.   Effective October 1, 1991, Magnolia and Feeds and Livestock Division were spun-off and became two separate and distinct corporations: Magnolia Corporation (Magnolia) and San Miguel Foods, Inc. (SMFI). Notwithstanding the spin-offs, the CBA remained in force and effect. After June 30, 1992, the CBA was renegotiated in accordance with the terms of the CBA and Article 253-A of the Labor Code. Negotiations started sometime in July, 1992 with the two parties submitting their respective proposals and counterproposals. During thestill negotiations, petitioner-union insisted that the bargaining unit of SMC should include thethe employees of the spun-off corporations: Magnolia and SMFI; and that the renegotiated terms of the CBA shall be effective only for the remaining period of two years or until June 30, 1994. SMC, on the other hand, contended that the members/employees who had moved to Magnolia and SMFI, automatically ceased to be part of the bargaining unit at the SMC. Furthermore, the CBA should be effective for three years in accordance with Art. 253-A of the Labor Code. Unable to agree on these issues with respect to the bargaining unit and duration of the CBA, petitioner-union declared a deadlock on September 29, 1990. On October 2, 1992, a Notice of Strike was filed against SMC.

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In order to avert a strike, SMC requested the National Conciliation and Mediation Board (NCMB) to conduct preventive mediation. No settlement was arrived at despite several meetings held between the parties. On November 3, 1992, a strike vote was co nducted which resulted in a “yes vote” in favor of a strike.  strike.  On November 4, 1992, private respondents SMC, Magnolia and SMFI filed a petition with the Secretary of Labor praying that the latter assume jurisdiction over the labor dispute in a vital industry.

separation of the employees of Magnolia from the SMC bargaining unit. It then prayed for the lifting of the temporary restraining order. Likewise, Efren Carreon, Acting President of the SMCEU-PTGWO, filed a petition for the withdrawal/dismissal of the petition cons idering that the temporary restraining order jeopardized the employees’ right to conclude a new CBA.   At the same time, he challenged the legal personality of Mr. Raymundo Hipolito, Jr. to represent the Union as its president when the latter was already officially dismissed from the company on October 4, 1994. Amidst all these pleadings, the following primordial issues arise:

As prayed for, the Secretary of Labor assumed jurisdiction over the labor [4] dispute on November 10, 1992. 1992 .  Several conciliation meetings were held but still no agreement/settlement agreement/settlement was arrived at by both parties.

1) Whether or not the duration of the renegotiated terms of the CBA is to be effective for three years or for only two years; and

After the parties submitted their respective position papers, the Secretary of Labor issued the assailed Order on February 15, 1993 directing, among others, that

2) Whether or not the bargaining unit of SMC includes also the employees of Magnolia and SMFI.

the renegotiated terms of the CBA shall be effective for the period of three (3) years from June 30, 1992; and that such CBA shall cover only the employees of SMC and not of Magnolia and SMFI.

Petitioner-union contends that the duration for the non-representation provisions of the CBA should be coterminous with the term of the bargaining agency which in effect shall be for the remaining two years of the current CBA, citing a previous decision of the Secretary of Labor on December 14, 1992 in the [9] matter of the labor dispute at Philippine Refining Company. Company.  

Dissatisfied, petitioner-union now comes to this Court questioning this Order of the Secretary of Labor. [5]

Subsequently, on March 30, 1995 1995,,  petitioner-union filed a Motion for Issuance of a Temporary Restraining Order or Writ of Preliminary Injunction to enjoin the holding of the certification elections in the different companies, maintaining that the employees of Magnolia and SMFI fall within the bargaining unit of SMC. On March 29, 1995, the Court issu ed a resolution granting the temporary [6] restraining order prayed for. for.   [7]

Meanwhile, an urgent motion for leave to intervene in the case was filed by the Samahan ng Malayang Manggagawa-San Miguel Corporation-Federation of Free Workers (SMM-SMC-FFW) through its authorized representiative, Elmer S. Armando, alleging that it is one of the contending parties adversely effected by the temporary restraining order. The Intervenor cited the case of Daniel S.L. Borbon v. Hon. Bienvenido B. [8] Laguesma,  G.R. No. 101766, March 5, 1993, where the Court recognized the

However, the Secretary of Labor, in her questioned Order of February 15, 1993 ruled that the renegotiated terms of the CBA at SMC should run for a period of three (3) years. We agree with the Secretary of Labor. Pertinent to the first issue is Art. 253-A of the Labor Code as amended which reads: ART. 253-A. Terms of a Collective Bargaining Agreement. — Any Collective Bargaining Agreement that the parties may enter into shall, insofar as the representation aspect is concerned, be for a term of five (5) years. No petition questioning the majority status of the incumbent bargaining agent shall be entertained and no certification election shall be conducted by the Department of Labor and Employment outside of the sixty-day period immediately before the date of expiry of such five year term of the Collective Bargaining Agreement. All other provisions of the Collective Bargaining Agreement shall be renegotiated not later than three (3) years after its execution. Any agreement on such other provisions of

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the Collective Bargaining Agreement entered into within six (6) months from the date of expiry of the term of such other provisions as fixed in such Collective Bargaining Agreement, Agreement, shall retroact to the day immedia immediately tely following such date. If any such agreement is entered into beyond six months, the parties shall agree on the duration of retroactivity thereof. In case of a deadlock in the renegotiation of the collective bargaining agreement, the parties may exercise their rights under this Code. (underlining supplied.)

THE CHAIRMAN (REP. HERRERA): You can negotiate for one year, two years or three years but assuming assuming three years which, I think, that’s the likelihood. ... THE CHAIRMAN (REP. VELOSO): Yes. THE CHAIRMAN (SEN. HERRERA): Three years, the new union, assum assuming ing there will be a change of agent, at least he has one year to administer and to adjust, to develop rapport with the management. management. Yan ang importante. 

Article 253-A is a new provision. This was incorporated by Section 21 of Republic Act No. 6715 (the Herrera-Veloso Law) which took effect on March 21, 1989. This new provision states that the CBA ha hass a term of five (5) years instead of three years, before the amendment of the law as far as the representation aspect is concerned. All other provisions of the CBA shall be negotiated not later than three (3) years after its execution. The “representation aspect” refers to the identity and majority status of the union that negotiated the CBA as the exclusive bargaining

You know, for us na nagne-negotiate, and hazard talaga sa negotiation, when we negotiate with somebody na hindi natin kilala, then, we are governed by our biases na ito ay destroyer ng Labor; ang mga employer, ito bayaran ko lang ito okay na. ‘Yan ang nangyayari, but let us give that allowance for one year to let them know.

representative of the appropriate bargaining unit concerned. “All other provisions” simply refers to the rest of the CBA, economic as well as non-economic provisions, [10] except representation. representation.   As the Secretary of Labor herself observed in the instant case, the law is clear and definite on the duration of the CBA insofar as the representation aspect is concerned, but is quite ambiguous with the terms of the other provisions of the CBA. It is a cardinal principle of statutory construction that the Court must ascertain the legislative intent for the purpose of giving effect to any statute. The history of the times and state of the things existing when the act was framed or adopted must be followed and the conditions of the things at the time of the enactment of the law should be considered to determine the legislative intent..[11] We look into the discussions leading to the passage of the law: intent THE CHAIRMAN (REP. VELASCO): . . . the CBA, insofar as the economic provisions are concerned . . . THE CHAIRMAN (SEN. HERRERA): Maximum of three years? years?

Actually, ang thrust natin ay industrial peace, and there can be no industrial peace if you encourage union to fight each other .  ‘Yan ‘Yan   ang [12] problema.’’   problema. xxx

xxx

xxx

HON. ISIDRO: Madali iyan, kasi these two periods that are mentioned in the CBA seem to provide some doubts later on in the implementation. implementation. Sabi kasi rito, insofar as representation issue is concerned, seven years ang lifetime . . . HON. CHAIRMAN HERRERA: Five years. HON. ISIDRO: Five years, all the others thre three e years. HON. CHAIRMAN HERRERA: No. Ang three years duon sa terms and conditions, not later than three years. 

THE CHAIRMAN (SEN. VELOSO): Maximum of three yea years. rs.

HON. ISIDRO: Not later than three years, so within three years you have to make a new CBA.

THE CHAIRMAN (SEN. HERRERA): Present practice?

HON. CHAIRMAN CHAIRMAN HERRERA: Yes.

THE CHAIRMAN (REP. VELOSO): In other words, after three years puwede nang magnegotiate in that CBA for the remaining two years.

HON. ISIDRO: That is again for purposes of renewing the terms, three years years na naman iyan — then, seven years . . .

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HON. CHAIRMAN HERRERA: Not later than three ye years. ars.

HON. ANIAG: So that if they changed the union, iyong last last year. . . .

HON. ISIDRO: Assuming that they usually follow the period —  three years nang three years, but under this law with respect to representation —  five years, ano? Now, after three years, nagkaroon ng bagong terms, tapos na iyong term, renewed na iyong terms, ang karapatan noon sa representation issue mayroon pang two years left.

HON. CHAIRMAN HERRERA: Iyon lang, that you have to administer the contract. Then, voluntary arbitration na kayo and then mayroon ka nang probisyon “retroact on the date of the expiry date”.  Pagnatalo and incumbent unyon, mag-aassume and new union, administer the contract. As far as the term ang condition, for one year, and that will give him time and the employer to k now each other. 

HON. CHAIRMAN HERRERA: One year na lang because six years nang lahat, three plus three. HON ISIDRO: Hindi, two years pa rin ang ang natitira, eh. Three years pa lang ang natatapos. So, another CBA was formed and this CBA mayroon na naman siyang bagong five years with respect to representation issue. HON. CHAIRMAN HERRERA: Hindi. Hindi na. Ganito iyan. Iyong terms and conditions for three years. HON. ISIDRO: Yes. HON. CHAIRMAN HERRERA: On the third year you can start negotiating to change the terms and conditions . 

HON. JABAR: Boy, let us be rea realistic. listic. I think if a new union wins a certification election, it would not want to administer a CBA which has not been negotiated by the union itself. HON. CHAIRMAN HERRERA: That is not true, Hon. This is true because what is happening now in the country is that the term ng contract natin, duon din mage-expire ang representation. Iyon and nangyari. That is where you have the gulo. Ganoon and nangyari. So, ang nangyari diyan, pagmayroon certification election, expire ang contract, ano ang usual issue company union. I can you (sic) give you more what the incumbent union is giving. So ang mangyayari diyan, pag-negotiate mo hardline na a agad. gad. HON. CHAIRMAN VELOSO: VELOSO: Mon, for four years?

HON. ISIDRO: Yes. HON. CHAIRMAN HERRERA: Assuming you will follow the practice . . . HON. ISIDRO: Oo. HON. CHAIRMAN HERRERA: But on the fifth year, ang representation status now can be questioned, so baka puwedeng magkaroon ng certification election. If the incumbent union loses, then the new union administers the contract for one year to give him ti me to know his counterpart — the employer, before he can negotiate for a new term. Iyan ang advantage.  HON. ISIDRO: Kasi, when the CBA has only a three-yea three-yearr lifetime with respect to the terms and conditions and then, so you have to renew that in three years — you renew for another three years, mayroon na naman another five years iyong ano . . . HON. ANIAG: Hindi, ang natitira duon sa representation representation two years na lang. HON. CHAIRMAN HERRERA: Two years na lang sa representation.

HON. ISIDRO: Ang tingin ko lang dito, iyong distinction between the terms and the representation aspect —  why do we have to distinguish between three and five? What’s wrong with having a unif orm expiration period? period?   HON. CHAIRMAN HERRERA: Five years. HON. ISIDRO: Puro three years. HON. CHAIRMAN HERRERA: That is what we are trying to avoid because ang reality diyan, Mart, pagpasok mo sa kumpanya, mag-ne-negotiate ka ng six months, that’s the average, aabot pa minsan ng one year. Pagkatapos ng negotiation mo, signing kayo. There will be an allowed allowed period of one year. Third year na, uumpisahan naman ang organizations, papasok na ang ibang unyon because the reality in Trade Union committee, they organize, we organize. So, actually, you have only industrial peace for one year, effective industrial peace. That is what we are trying to change. Otherwise, we will continue to discourage the investors and the union will never grow because every other year it has to use its money for the certification election. Ang grabe pang practice diyan, mag-a-

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advance ang federation for three years union dues para panggastos lang sa certification election. That is what we are trying to avoid. HON. JABAR: Although there are unions which really really get advances. HON. CHAIRMAN HERRERA: Pag nag-survey tayo sa mga unyon, ganoon ang mangyayari. And I think our responsibility here is to create a legal framework to promote industrial peace and to develop responsible and fair labor movement.  HON. CHAIRMAN VELOSO: In other words, the longer the period of the effectivity . . .

(economic and non-economic) can not be questioned by the employers or employees during the period of effectivity of the CBA. The CBA is a contract between the parties and the parties must respect the terms and conditions of the [14] agreement.. Notably, the framers of the law did not give a fixed term as to the agreement effectivity of the terms and conditions of employment. employment. It can be gleaned from their discussions that it was left to the parties to fix the period. In the instant case, it is not difficult to determine the period of effectivity for the non-representation provisions of the CBA. Taking it from the history of their CBAs, SMC intended to have the terms of the CBA effective for three (3) years reckoned from the expiration of the old or previous CBA which was on June 30, 1989, as it provides:

xxx HON. CHAIRMAN VELOSO. (continuing) . . in other words, the longer the period of effectivity of the CBA, the better for industrial peace. 

SECTION 1. This Agreement which shall be binding upon the parties hereto and their respective successors-in-interest, shall become effective and shall remain in force and effect until June 30, 1992.

HON. CHAIRMAN HERRERA: representation status. HON. CHAIRMAN VELOSO: Only on —  HON. CHAIRMAN HERRERA: — the representations. HON. CHAIRMAN VELOSO: But on the economic economic issues. HON. CHAIRMAN HERRERA: HERRERA: You have to rev review iew that. The parties will hav have e to review that. HON. CHAIRMAN VELOSO: At least on second year. HON. CHAIRMAN HERRERA: Not later than 3 years ang [13] karamihan ng mga, mag-negotiate when the company is — (interrupted  (interrupted))   xxx From the aforesaid discussions, the legislators were more inclined to have the period of effectivity for three (3) years insofar as the economic as well as noneconomic provisions are concerned, except representation. Obviously, the framers of the law wanted to maintain industrial peace and stability by having both management and labor work harmoniously together without any disturbance. Thus, no outside union can enter the establishment within five (5) years and challenge the status of the incumbent union as the exclusive bargaining agent. Likewise, the terms and conditions of employment

The argument that the PRC case is applicable is indeed misplaced. We quote with favor the Order of the Secretary of Labor in the light of SMC’s peculiar situation as compared with PRC’s company situation.   It is true that in the Philippine Refining Company case (OS-AJ-0031-91 (sic), Labor Dispute at Philippine Refining Company), we ruled that the term of the renegotiated provisions of the CBA should coincide with the remaining term of the agency. In doing so, we placed premium on the fact that PRC has only two (2) unions and no other union had yet executed a renewed term of 3 years. Nonetheless, in the ruling a shortened term, rather we were by general our considered perception that saidfor term would improve, thanguided ruin, the welfare of both the workers and the company. It is equally true that once the economic provisions of the CBA expire, the residual representative status of the union is effective for only 2 more years. However, if circumstances warrant that the contract duration which it is soliciting from the company for the benefit of the workers, shall be a little bit longer than its lifespan, then this Office cannot stand in the way of a more ideal situation. We must not lose sight of the fact that the primordial purpose of a collective contract is to promote industrial harmony and stability in the terms and conditions of employment. To our mind, this objective cannot be achieved without giving due con sideration to the peculiarities and unique characteristics of the(SMC) employer. In the bar, there no dispute mother corporation spun-off two case of itsatdivisions andisthereby gavethat birththe to

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two (2) other entities now known as Magnolia Corporation and San Miguel Foods, Inc. In order to effect a smooth transition, the companies concerned continued to recognize the existing unions as the bargaining agents of their respective bargaining units. In the meantime, the other unions in these companies eventually concluded

As a matter of policy the parties are encourages (sic) to enter into a renegotiated CBA with a term which would coincidde (sic) with the aforesaid five (5) year term of the bargaining representative.

their CBA negotiations on the remaining term and all of them agreed on a 3-year cycle. Notably, the following CBAs were forge forged d incorporating a term of 3-years on the renegotiated provisions, to wit:

In the event however, that the parties, by mutual agreement, enter into a renegotiated contract with a term of three (3) years or one which does not coincide with the said 5-year term, and said agreement is ratified by majority of the members in the bargaining unit, the subject contract is valid and legal and therefore, binds the contracting parties. The same will however not adversely affect the right of another union to challenge the majority status of the incumbent bargaining agent within sixty (60) days before the lapse of the original five (5) year term of the CBA.

1. SMC -

daily-paid employees union (IBM)

2. SMF Plant.

monthly-paid employees and daily-paid employees at the Cabuyao

There is a direct link between the voluntary recognition by the company of the continuing representative status of the unions after the aforementioned spin-offs and the stand of the company for a 3-year renegotiated cycle when the economic provisions of the existing CBAs expired, i.e., to maintain stability and avoid confusion when the umbilical cord of the two divisions were severed from their parent. These two cannot be considered independently independently of each other for they were intended to reinforce one another. Precisely, the company conceded to face the same union notwithstanding the spin-offs in order to preserve industrial peace during the infancy of the two corporations. If the union would insist on a shorter renegotiated term, then all the advantages gained by both parties in this regard, would have gone to naught. With this in mind, this office feels that it will betray its mandate should we order the parties to execute a 2-year renegotiated term for then chaos and confusion, rather than tranquility, would be the order of the day. Worse, there is a strong likelihood that such a ruling might spawn discontent and possible mass actions against the company coming from the other unions who had already agreed agreed to a 3-year renegotiated terms. If this happens, the purpose of this [15] Office’s intervention into the parties’ controversy controversy would have been defeated. defeated.   The issue as to the term of the non-representation provisions of the CBA need not belabored especially when we take note of the Memorandum of the Secretary of Labor dated February 24, 1994 which was mentioned in the Resolution of Undersecretary Bienvenido Laguesma on January 16, 1995 in the certification [16] election case involving the SMC employees. employees . In said memorandum, the Secretary of Labor had occasion to clarify the term of the r enegotiated terms of the CBA vis-avis the term of the bargaining agent, to wit:

Thus, we do not find any grave abuse of discretion on the part of the Secretary of Labor in ruling that the effectivity of the renegotiated terms of the CBA shall be for three (3) years. With respect to the second issue, there is, likewise, no merit in petitionerunion’s assertion that the employees of Magnolia and SMFI should still be considered part of the bargaining unit of SMC. Magnolia and SMFI were spun-off to operate as distinct companies on October 1, 1991. Management saw the nee need d for these transformations in keeping with its vision and long term strategy as it explained in its letter addressed to the employees dated August 13, 1991: x x x As early as 1986, we announced the decentralization program and spoke of the need for structures that can react fast to competition, a changing environment, shorter product life cycles and shifts in consumer preference. preference. We further stated in the 1987 Annual Report to Stockholders that San Miguel’s businesses will be more autonomous and self sufficient so as to better acquire and master new technologies, cope with a labor force with different expertises and expectations, and master and satisfy the changing needs of our customers and endconsumers. As subsidiaries, Magnolia and FLD will gain better industry focus and flexibility, greater awareness of operating results, and speedier, more responsive decision making. xxx

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We only have to look at the experience of Coca-Cola Bottlers Philippines, Inc., since this company was organized about ten years ago, to see the benefits that arise from restructuring a division of San Miguel into a more competitive organization. As a stand-alone enterprise, CCBPI engineered a dramatic turnaround and has sustained its sales and market share leadership ever since. We are confident that history will repeat itself, and the transformation of Magnolia [17] and FLD will be successful as that of CCBPI. CCBPI.   Undeniably, the transformation of the companies was a management prerogative and business judgment which the courts can not look into unless it is contrary to law, public policy or morals. Neither can we impute any bad faith on the part of SMC so as to justify the application of the doctrine of piercing the corporate [18] veil veil..  Ever mindful of the employees’ interests, management has assured the concerned employees that they will be absorbed by the new corporations without loss of[19] tenure and retaining their present pay and benefits according to the existing CBAs..  They were advised that upon the expiration of the CBAs, new agreements CBAs will be negotiated between the management of the new corporations and the bargaining representatives of the employees concerned. As a result of the spinoffs: 1. Each of the companies are run by, supervised and controlled by different management teams including separate human resource/personnel managers. 2. Each Company enforces its own administrative and operational rules and policies and are not dependent on each other in their operations. 3. Each entity maintains separate financial statements and are audited [20] separately from each other. other.   Indubitably, therefore, Magnolia and SMFI became distinct entities with separate juridical personalities. Thus, they can not belong to a single bargaining unit as held in the case of Diatagon Labor Federation Local 110 of the ULGWP v. [21] Ople. We elucidate: The fact that their businesses are related and that the 236 employees of Georgia Pacific International Corporation were originally employees of Lianga Bay Logging Co., Inc. is not a justification for disregarding their separate personalities. Hence, the 236 employees, who are now attached to Georgia Pacific International

Corporation, should not be allowed to vote in the certification election at the Lianga Bay Logging Co., Inc. They should vote at a separate certification election to determine the collective bargaining representative of the employees of Georgia Pacific International Corporation. Petitioner-union’s Petitionerunion’s attempt to include the employees em ployees of Magnolia and SMFI in the SMC bargaining unit so as to have a bigger mass base of employees has, therefore, no more valid ground. Moreover, in determining an appropriate bargaining unit, the test of grouping is mutuality or commonality of interests. The employees sought to be represented by the collective bargaining agent must have substantial mutual interests in terms of employment and working conditions as evinced by the type of work they [22] performed.. Considering the spin-offs, the companies would consequently have performed their respective and distinctive concerns in terms of the nature of work, wages, hours of work and other conditions of employment. Interests of employees in the different companies perforce differ. SMC is engaged in the business of beer manufacturing. Magnolia is involved in the manufacturing and processing of dairy [23] productss  while SMFI is involved in the production of feeds and the processing of product [24] chicken..  The nature of their products and scales of business may require chicken different skills which must necessarily be commensurated by different compensation packages. The different companies may have different volumes of work and different working conditions. For such reason, the employees of the different companies see the need to group themselves together and organize themselves into distinctive and different groups. It would then be best to have separate bargaining units for the different companies where the employees can bargain separately according to their needs and according to their own working conditions. We reiterate what we have explained in the case of University of the [25] Philippines v. Ferrer-Callej a  that: [T]here are various factors which must be satisfied and considered in determining the proper constituency of a bargaining unit. No one particular factor is itself decisive of the determination. The weight accorded to any particular factor varies in accordance with the particular question or questions that may arise in a given case. What are these fa factors? ctors? Rothenberg mentions a good number, but the most pertinent to our case are: (1) will of the employees (Globe Doctrine); (2) affinity and unit of employees’ interest, such as substantial similarity of work and duties, or

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similarity of compensation and working conditions; (3) prior collective bargaining history; and (4) employment status, such as temporary, seasonal and probationary employees x x. xxx

In view of all the foregoing, we do not find any grave abuse of discretion on the part of the Secretary of Labor in rendering the assailed Order.

WHEREFORE, the petition is DISMISSED for lack of merit. The Temporary Restraining Order issued on March 29, 1995 is lifted. SO ORDERED.

An enlightening appraisal of the problem of defining an appropriate bargaining unit is given in the 10th Annual Report of the National Labor Relations Board wherein it is emphasized that the factors which said board may consider and weigh in fixing appropriate units are: the history, extent and type of organization of employees; the history of their collective bargaining; the history, extent and type of organization of employees in other plants of the same employer, or other employers in the same industry; the skill wages, work, and working conditions of the employees; the desires of the employees; the eligibility of the employees for membership in the union or unions involved; and the relationship between the unit or units proposed and the employer’s organization, management, and operation x x. x x In said report, it is likewise emphasized that the basic test in determining the appropriate bargaining unit is that a unit, to be appropriate, must affect a grouping of employees who have substantial, mutual interests in wages, hours, working conditions and other subjects of collective bargaining (citing Smith on Labor Laws, 316-317; Francisco, Labor Laws, 162) x x. Finally, we take note of the fact that the separate interests of the employees of Magnolia and SMFI from those of SMC has been recognized in the case of Daniel Borbon v. Laguesma.[26]We quote: Even assuming in gratia argumenti  that at the time of the election they were regular employees of San Miguel, nonetheless, these workers are no longer connected with San Miguel Corporation in any manner because Magnolia has ceased to be a division of San Miguel Corporation and has been formed into a separate corporation with a personality of its own (p. 305, Rollo). This development, which was brought to our attention by private respondents, necessarily renders moot and academic any further discourse on the propriety of the elections which petitioners impugn via the present recourse (p. 319, Rollo).

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Republic of the Philippines SUPREME COURT  Manila

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

FIRST DIVISION

petitioners in the amount of P91.00 and in view of the cash discount in favor of petitioners 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.

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 petitionerwife 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

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:

did not benefit the family.

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1. Defendant Carlos Gelano to pay plaintiff the sum of: (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. 1

SO ORDERED.   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 2 respects.   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 3 Proceedings No. 92303,  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.

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II THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT ACTIONS PENDING FOR OR AGAINST A DEFUNCT CORPORATION

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.

ARE DEEMED ABATED. VI 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.

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.

IV VIII 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.

THE "RESPONDENT COURT" ERRED IN RECOGNIZING THE PERSONALITY OF COUNSEL APPEARING FOR DOES PRIVATE RESPONDENT' DESPITE HIS ADMISSION THAT HE NOT KNOW THE "PRIVATE RESPONDENT" NOR HAS HE MET ANY OF ITS DIRECTORS AND OFFICERS. IX

V

THE "RESPONDENT COURT" ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING IN FAVOR OF "PRIVATE RESPONDENT".

THE "RESPONDENT COURT" ERREDNO. IN HOLDING WITH THE FILING OF SPECIAL PROCEEDINGS 92303 IN THAT THE COURT OF

X

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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 PETITIONER-

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

HUSBAND, CARLOS GELANO.

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 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 7 beneficial interest therein of creditors and stockholders.  

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. 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

When Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77

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.

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 8 ceased to exist for all purposes and it can no longer sue or be sued.  

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 5 corporation.  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 6 period.  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

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

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

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.

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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).

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 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 3-year 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

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 petitionerhusband 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 10 paragraph 1, Article 161 of the New Civil Code.  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. SO ORDERED.

liquidation would lose what should justly belong to them or would

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Republic of the Philippines SUPREME COURT  Manila

"Mentholatum"; and that, as a consequence of these acts of the defendants, plaintiffs suffered damages from the dimunition of their sales and the loss of goodwill and reputation of their product in the market.

EN BANC

After a protracted trial, featured by the dismissal of the case on March 9, 1936 for failure of plaintiff's counsel to attend, and its subsequent reinstatement on April 4, 1936, the Court of First Instance of Manila, on October 29, 1937, rendered  judgment in favor of the complainants, the dispositive part of its d ecision reading thus:

G.R. No. L-47701

June 27, 1941 

THE MENTHOLATUM CO., INC., ET AL., petitioners, vs.

En meritos de todo lo expuesto, este Juzgado dicta sentencia:

ANACLETO MANGALIMAN, ET AL., respondents.  Araneta, Zaragoza, Araneta Benito Soliven for respondents.  

&

Bautista

for

petitioners.

LAUREL, J.:  This is a petition for a writ of certiorari  to review the decision of the Court of Appeals dated June 29, 1940, reversing the judgment of the Court of First Instance of Manila and dismissing petitioners' complaint. On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an action in the Court of First Instance of Manila, civil case No. 48855, against Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair competition. Plaintiffs prayed 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. The complaint stated, among other particulars, that the Mentholatum Co., Inc., is a Kansas corporation which manufactures Mentholatum," a medicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and other external ailments of the body; that the Philippine-American Drug co., Inc., is its exclusive distributing agent in the Philippines authorized by it to look after and protect its interests; that on June 26, 1919 and on January 21, 1921, the Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the word, "Mentholatum," as trade mark for its products; that the Mangaliman brothers prepared a medicament and salve named "Mentholiman" which they sold to the public packed in a container of the same size, color and shape as

(a) Haciendo que sea perpetuo y permanente el iterdicto prohibitorio preliminar expedido contra Anacleto Mangaliman, sus agentes y empleados, prohibiendoles vender su producto en la forma en que se vendia al incoarse la demanda de autos, o de alguna otra manera competir injustamente contra el producto de las demandantes, y de usar la marca industrial "MENTHOLIMAN" en sus productos; (b) Ordenando al demandado Anacleto Mangaliman, que rinda exacta cuenta de sus ganancias por la venta de su producto desde el dia 10 de marzo de 1934, hasta la fecha de esta decision, y que pague a las demandantes, en concepto de daños y perjuicios, lo que resulte ser la ganancia de dicho demandado; (c) Condenando a dicho demandado, Anacleto Mangaliman, a pagar un multa de cincuenta pesos (P50) por desacato al Juzgado, y las costas del  juicio; y (d) Sobreseyendo la contra-reclamacion del demandado, Anacleto Mangaliman, contra las demandantes. In the Court of Appeals, where the cause was docketed as CA-G. R. No. 46067, the decision of the trial court was, on J une 29, 1940, reversed, said tribunal holding that the activities of the Mentholatum Co., Inc., were business transactions in the Philippines, and that, by section 69 of the Corporation Law, it may not maintain the present suit. Hence, this petition for certiorari .

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In seeking a reversal of the decision appealed from, petitioners assign the following errors: 1. The Court of Appeals erred in declaring that the transactions of the Mentholatum Co., Inc., in the Philippines constitute "transacting business" in this country as this term is used in section 69 of the Corporation Law. The aforesaid conclusion of the Court of Appeals is a conclusion of law and not of fact. 2. The Court of Appeals erred in not holding that whether or not the Mentholatum Co., Inc., has transacted business in the Philippines is an issue foreign to the case at bar. 3. The Court of Appeals erred in not considering the fact that the complaint was filed not only by the Mentholatum Co., Inc., but also by the PhilippineAmerican Drug Co., Inc., and that even if the Mentholatum Co., Inc., has no legal standing in this jurisdiction, the complaint filed should be decided on its merits since the Philippine-American Drug Co., Inc., has sufficient interest and standing to maintain the complaint. Categorically stated, this appeal simmers down to an interpretation of section 69 of the Corporation Law, and incidentally turns upon a substantial consideration of two fundamental propositions, to wit: (1) whether or not the petitioners could prosecute the instant action without having secured the license required in section 69 of the Corporation Law; and (2) whether or not the Philippine-American Drug Co., Inc., could by itself maintain this proceeding. Petitioners maintain that the Mentholatum Co., Inc., has not sold personally any of its products in the Philippines; that the Philippine-American Drug Co., Inc., like fifteen or twenty other local entities, was merely an importer of the products of the Mentholatum Co., Inc., and that the sales of the Philippine-American Drug Co., Inc., were its own and not for the account of the Mentholatum Co., Inc. Upon the other hand, the defendants contend that the Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippines of the Mentholatum Co., Inc., in the sale and distribution of its product known as "Mentholatum"; that, because of this arrangement, the acts of the latter; and that the Mentholatum Co., Inc., being thus engaged in business in the Philippines, and not having acquired the license required

by section 68 of the Corporation Law, neither it nor the Philippine-American Drug co., Inc., could prosecute the present action. Section 69 of Act No. 1459 reads: SEC. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the court. In the present case, no dispute exists as to facts: (1) that the plaintiff, the Mentholatum Co., Inc., is a foreign corporation; (2) that it is not licensed to do business in the Philippines. The controversy, in reality, hinges on the question of whether the said corporation is or is not transacting business in the Philippines. No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in" or "transacting" business. Indeed, each case must be  judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [C. C. A. Ohio], 223 F. 984, 987.) The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. (Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N. W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp., 158 N. E. 698, 703, 327 III. 367.)

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In its decision of June 29, 1940, the Court of Appeals concluded that "it is undeniable that the Mentholatum Co., through its agent, the Philippine-American Drug Co., Inc., has been doing business in the Philippines by selling its products here since the year 1929, at least." This is assailed by petitioners as a pure conclusion of

involved should not be construed in derogation of the policy-determining authority of the State.

law. This finding is predicated upon the testimony of Mr. Roy Springer of the Philippine-American Drug Co., Inc., and the pleadings filed by petitioners. The complaint filed in the Court of First Instance of Manila on October 1, 1935, clearly stated that 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." The object of the pleadings being to draw the lines of battle between litigants and to indicate fairly the nature of the claims or defenses of both parties (1 Sutherland's Code Pleading, Practice & Forms, sec. 83; Milliken v. Western Union Tel. Co., 110 N. Y. 403, 18 N. E. 251; Eckrom v. Swenseld, 46 N. D. 561, 563, 179 N. W. 920), a party cannot subsequently take a position contradictory to, or inconsistent with, his pleadings, as the facts therein admitted

section 69 of the Corporation Law to protect its rights, is hereby reserved.

are to be taken as true for the purpose of the action. (46 C. J., sec. 121, pp. 122124.) 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. And, 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 (Mechem on Agency, sec. 1; Sory on Agency, sec. 3; Sternaman v. Metropolitan Life Ins. Co., 170 N. Y. 21), it cannot now, to the advantage of its principal, claim an independent standing in court. The appellees below, petitioners here, invoke the case of Western Equipment and Supply Co. vs. Reyes  (51 Phil., 115). The Court of Appeals, however, properly distinguished that case from the one at bar in that in the former "the decision expressly says that the Western Equipment and Supply Co. was not engaged in business in the Philippines, and significantly added that if the plaintiff had been doing business in the Philippine Islands without first obtaining a license, 'another and a very different question would be presented'. " It is almost unnecessary to remark in this connection that the recognition of the legal status of a foreign corporation is a matter affecting the policy of the forum, and the distinction drawn in our Corporation Law is an expression of that policy. The general statement made

The right of the petitioner conditioned upon compliance with the requirements of

The writ prayed for should be, as it hereby is, denied, with costs against the petitioners. So ordered.

Separate Opinions  MORAN, J., dissenting: Section 69 of the Corporation Law provides that, without license no foreign corporation may maintain by itself or assignee any suit in the Philippine courts for the recovery of any debt, claim or demand whatever. But this provision, as we have held in Western Equipment & Supply Company vs. Reyes   (51 Phil., 115), does not apply to suits for infringement of trade marks and unfair competition, the theory being that "the right to the use of the corporate and trade name of a foreign corporation is a property right, a right in rem, which it may assert and protect in any of the courts of the world even in countries where it does not personally transact any business," and that "trade mark does not acknowledge any territorial boundaries but extends to every mark where the traders' goods have become known and identified by the use of the mark."

in Western Equipment and Supply Co. vs. Reyes  regarding the character of the right

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SECOND DIVISION

On August 14, 1987, ITEC entered into a contract with petitioner ASPAC [1] referred to as “Representative Agreement”. Agreement”.  Pursuant to the contract, ITEC engaged ASPAC as its “exclusive representative” in the Philippines for the sale of ITEC’s products, in consideration of which, ASPAC was paid a stipulated

[G.R. No. 102223. August 22, 1996] 1996]

commission. The agreement was signed by G.A. Clark and Francisco S. Aguirre, presidents of ITEC and ASPAC respectively, for and in behalf of their [2] companies..  The said agreement was initially for a term of twenty-four companies months. After the lapse of the agreed period, the agreement was renewed for another twenty-four months.

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-TRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and FRANCISCO S. AGUIRRE, petitioners, vs. THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC, INC., respondents.   DECISION

[3]

Through a “License Agreement” Agreement”  entered into by the same parties on November 10, 1988, ASPAC was able to incorporate and use the name “ITEC” in its own name. Thus, ASPAC Multi-Trade, Inc. became legally and publicly known as ASPAC-ITEC (Philippines). By virtue of said contracts, ASPAC sold electronic products, exported by ITEC,

TORRES, JR., J.: Business Corporations, according to Lord Coke, “have no souls.”  souls.”   They do business peddling goods, wares or even services across national boundaries in “soulless forms” in quest for profits albeit at times, unwelcomed in these strange lands venturing into uncertain markets and, the risk of dealing with wily competitors. This is one of the issues in the case at bar. Contested in this petition for review on Certiorari  is   is the Decision of the Court of Appeals on June 7, 1991, sustaining the RTC Order dated February 22, 1991, denying the petitioners’ Motion to Dismiss, and directing the issuance of a writ of preliminary injunction, and its companion Resolution of October 9, 1991, denying the petitioners’ Motion for Reconsideration.  Reconsideration.   Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations, while petitioner Francisco S. Aguirre is their President and majority stockholder. Private Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly organized and existing under the laws of the State of Alabama, United States of America. There is no dispute that ITEC is a foreign corporation not licensed to do business in the Philippines.

to their sole customer, the Philippine Long Distance Telephone Company, (PLDT, for brevity). To facilitate their transactions, ASPAC, dealing under its new appellation, and [4] PLDT executed a document entitled entitled “PLDT“PLDT-ASPAC/ITEC PROTOCOL” PROTOCOL”  which defined the project details for the supply of ITEC’s Interface Equipment in connection with the Fifth Expansion Program of PLDT. One year into the second term of the parties’ Representative Agreement, ITEC decided to terminate the same, because petitioner ASPAC allegedly violated its [5] contractual commitment as stipulated in their agreements. agreements.   ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is likewise petitioner Aguirre, of using knowledge knowledg e and information of ITEC’s products specifications to develop their own line of equipment and product support, which are similar, if not identical to ITEC’s own, and offering them to ITEC’s former customer. [6]

On January 31, 1991, the complaint complain t  in Civil Case No. 91-294, was filed with the Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff sought to enjoin, first, preliminarily and then, after trial, permanently; (1) defendants DIGITAL, CMDI, and Francisco Aguirre and their agents and business associates, to cease and desist from selling or attempting to sell to PLDT and to any other party, products which have been copied or manufactured “in like mann er, similar or

Page | 44

 

identical to the products, wares and equipment of plaintiff,” and (2) defendant ASPAC, to cease and desist from using in its corporate name, letter heads, envelopes, sign boards and business dealings, plaintiff’s trademark, internationally known as ITEC; and the recovery from defendants in solidum, damages of at least

In fine, We find that the petition  prima facie does not show that Certiorari  lies   lies in the present case and therefore, the petition does not deserve to be given due course.

P500,000.00, attorney’s fees and litigation expenses.  expenses. 

WHEREFORE, the present petition should be, as it is hereby, denied due course and accordingly, is hereby dismissed. Costs against the petitioners.

[7]

In due time, defendants filed a motion to dismiss dismiss  the complaint on the following grounds: (1) That plaintiff has no legal capacity to sue as it is a foreign corporation doing business in the Philippines without the required BOI authority and SEC license, and (2) that plaintiff is simply engaged in forum shopping which  justifies the application against it of the principle of “ forum non conveniens ”. ”.   On February 8, 1991, the complaint was amended by virtue of which ITEC [8] INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC. INC.   [9]

In their Supplemental Motion to Dismiss, Dismiss,  defendants took note of the amendment of the complaint and asked the court to consider in toto their motion to dismiss and their supplemental motion as their answer to the amended complaint. After conducting hearings on the prayer for preliminary injunction, the court a [10] quo on February 22, 1991, issued its Order: Order :  (1) denying the motion to dismiss for being devoid of legal merit with a rejection of both grounds relied upon by the defendants in their motion to dismiss, and (2) directing the issuance of a writ of preliminary injunction on the same day. From the foregoing order, petitioners elevated the case to the respondent [11] Court of Appeals on a Petition for Certiorari  and  and Prohibition  under Rule 65 of the Revised Rules of Court, assailing and seeking the nullification and the setting aside of the Order and the Writ of Preliminary Injunction issued by the Regional Trial Court. The respondent appellate court stated, thus: “We find no reason whether in law or from the facts of record, to disagree with the (lower court’s) ruling.  ruling.  We therefore are unable to find in respondent Judge’s issuance of said writ the grave abuse of discretion ascribed thereto by the petitioners.

[12]

SO ORDERED." ORDERED."

  [13]

Petitioners filed a motion for reconsideration likewise denied by the respondent court.

 on June 7, 1991, which was

“WHEREFORE, the present motion for reconsideration r econsideration should be, as it is hereby, denied for lack of merit. For the same reason, the motion to have the motion for reconsideration set for oral argument likewise should be and is hereby denied. [14]

SO ORDERED." ORDERED."

  [15]

Petitioners are now before us via Petition for Review on Certiorar i i   under Rule 45 of the Revised Rules of Court. It is the petitioners’ submission that private respondents are foreign corporations actually doing business in the Philippines without the requisite authority and license from the Board of Investments and the Securities and Exchange Commission, and thus, disqualified from instituting the present action in our courts. It is their contention that the provisions of the Representative Agreement, petitioner ASPAC executed with private respondent ITEC, are similarly “highly restrictive” in nature as those found in the agreements which confronted [16] the Court in the case of Top-Weld Manufacturing, Inc. vs. ECED S.A. et al.,  as to reduce petitioner ASPAC to a mere conduit or extension of private respondents in the Philippines. In that case, we ruled that respondent foreign corporations are doing business in the Philippines because when the respondents entered into the disputed contracts with the petitioner, they were carrying out the purposes for which they were created, i.e., to manufacture and market welding products and equipment. The The terms and conditions of the contracts as well as the respondents’ conduct indicate that they established within our country a continuous business, and not merely one of a temporary character. The respondents could be exempted

Page | 45

 

from the requirements of Republic Act 5455 if the petitioner is an independent entity which buys and distributes products not only of the petitioner, but also of other manufacturers or transacts business in its name and for its account and not in the name or for the account of the foreign principal. A reading of the agreements

3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales Goal for additional twelve month periods, if any, shall be sent to the Sales Agent by ITEC at the beginning of each period. These Sales Goals shall be incorporated into

between the petitioner and the respondents shows that they are highly restrictive in nature, thus making the petitioner a mere conduit or extension of the respondents.

this Agreement and made a part hereof.

It is alleged that certain provisions of the “Representative Agreement” executed by the parties are similar to those found in the License Agreement of the parties in the Top-Weld Top-Weld case which were considered as “highly restrictive” by this Court. The provisions in point are: “2.0 Terms and Conditions Conditi ons of Sales. 2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is net to ITEC and does not include any transportation charges, import charges or taxes into or within the Territory. All orders from customers are subject to formal acceptance by ITEC at its Huntsville, Alabama U.S.A. facility. xxx

xxx

xxx

xxx

xxx

6.0. Representative as Independent Contractor xxx

xxx

xxx

6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit sales within the Territory on ITEC’s behalf but is authorized to bind ITEC only in its capacity as Representative and no other, and then only to specific customers and [17] on terms and conditions expressly authorized by ITEC in writing.” writing.”   Aside from the abovestated provisions, petitioners point out the following matters of record, which allegedly witness to the respondents' activities within the Philippines in pursuit of their business dealings:

xxx

3.0 Duties of Representative 3.1. REPRESENTATIVE SHALL: 3.1.1. Not represent or offer for sale within the Territory any product which competes with an existing ITEC product or any product which ITEC has under active development. 3.1.2. Actively solicit all potential customers within the Territory in a systematic and businesslike manner. 3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid and the like within the Territory.

“a. While petitioner ASPAC was the authorized exclusive representative for three (3) years, it solicited from and closed several sales for and on behalf of private respondents as to their products only and no other, to PLDT, worth no less than US $15 Million (p. 20, tsn, Feb. 18, 1991); b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by private respondents’ sole witness, Mr. Clarence Long, is not in the name of petitioner ASPAC as such representative, but in the name of private respondent ITEC, INC. (p. 20, tsn, Feb. 18, 1991); c. The document denominated as “PLDT“PLDT-ASPAC/ITEC PROTOCOL” (Annex C of the original and amended complaints) which defined the responsibilities of the parties thereto as to the supply, installation and maintenance of the ITEC equipment sold under said Contract No. 1 is, as its very title indicates, in the names jointly of the petitioner ASPAC and private respondents;

Page | 46

 

d. To evidence receipt of the purchase price of US $15 Million, private respondent ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13, 1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were identified by private respondent’s sole witness, Mr. witness,  Mr. Clarence Long (pp. 25-27, tsn, [18] Feb. 18, 1991).” 1991).”   Petitioners contend that the above acts or activities belie the supposed independence of petitioner ASPAC from private respondents. “The unrebutted evidence on record below for the petitioners likewise reveal the continuous character of doing business in the Philippines by private respondents based on the standards laid down by this Court in Wang Laboratories, Inc. vs. Hon. Rafael T. [19] Mendoza,  et al .  and again in TOP-WELD. (supra)” It thus appears that as the respondent Court of Appeals and the trial court’s failure to give credence on the grounds relied upon in support of their Motion to Dismiss that petitioners ascribe grave abuse of discretion amounting to an excess of jurisdiction of said courts. Petitioners likewise argue that since private respondents have no capacity to bring suit here, the Philippines is not the “most convenient forum” because the trial court is devoid of any power to enforce its orders issued or decisions rendered in a case that could not have been commenced to begin with, such that in insisting to assume and exercise jurisdiction over the case below, the trial court had gravely abused its discretion and even actually exceeded its jurisdiction. As against petitioner’s insistence that private respondent is “doing business” in the Philippines, the latter maintains that it is not. We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules and Regulations Implementing the Omnibus Investments Code of 1987, the following: “(1) A foreign firm is deemed not engaged in business in the Philippines if it transacts business through middlemen, acting in their own names, such as indebtors, commercial bookers or commercial merchants. (2) A foreign corporation is deemed not “doing business” if its representative domiciled in the Philippines has an independent status in that it transacts business [20] in its name and for its account.” account.”  

Private respondent argues that a scrutiny of its Representative Agreement with the Petitioners will show that although ASPAC was named as representative of ITEC., ASPAC actually acted in its own name name and for its own account. The following provisions are particularly mentioned: “3.1.7.1. In the event that REPRESENTATIVE imports impor ts directly from ITEC, REPRESENTATIVE will pay for its own account; all customs duties and import fees imposed on any ITEC products; all import expediting or handling charges and expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC. xxx xxx

xxx

4.1. As complete consideration and payment for acting as representative under this Agreement, REPRESENTATIVE shall receive a sales commission equivalent to a percentum of the FOB value of all ITEC equipment sold to customers within the territory as a direct result of REPRESENTATIVE’s sales efforts.” efforts.”[21]  More importantly, private respondents charge ASPAC of admitting its independence from ITEC by entering and ascribing to provision No. 6 of the Representative Agreement. “6.0. Representative as Independent Contractor  Contractor   6.1. When performing any of its duties under this Agreement, REPRESENTATIVE shall act as an independent contractor and not as an employee, worker, laborer, partner, joint venturer of ITEC as these terms are defined by the laws, regulations, decrees or the like of any jurisdiction, including the jurisdiction of the United States, [22] the state of Alabama and the Territory. Territory.””   Although it admits that the Representative Agreement contains provisions which both support and belie the independence of ASPAC, private respondents echoes the respondent court’s finding that the lower court did not commit grave abuse of discretion nor acted in excess of jurisdiction when it found that the ground relied upon by the petitioners in their motion to dismiss does not appear to be [23] indubitable..   indubitable

Page | 47

 

The issues before us now are whether or not private respondent ITEC is an unlicensed corporation doing business in the Philippines, and if it is, whether or not this fact bars it from invoking the injunctive authority of our courts.

order for business from the Philippines, and thus, in effect, to permit persons to [29] avoid their contracts made with such foreign corporations corporations..  

Considering the above, it is necessary to state what is meant bythat “doing business” in the Philippines. Section 133 of the Corporation Code, provides “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 [24] laws.””   laws.

“engaging” or “transacting” business. business.  judged in the of its peculiar circumstances, upon its  Indeed, peculiarsuch factscase and must uponbe the language of light the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for [30] which it was organized. organized .  

Generally, a “foreign corporation” has no legal existence within the state in which it is foreign. This proceeds from the principle that juridical existence of a corporation is confined within the territory of the state under whose laws it was incorporated and organized, and it has no legal status beyond such territory. Such foreign corporation may be excluded by any other state from doing business within [25] its limits, or conditions may be imposed on the exercise of such privileges. privileges.  Before a foreign corporation can transact business in this country, it must first obtain a license to transact business in the Philippines, and a certificate from the appropriate government government agency. If it transacts business in the Philippines without such a license, it shall not be permitted to maintain or intervene in any action, suit, or proceeding in any court or administrative agency of the Philippines, but it may be [26] sued on any valid cause of action recognized under Philippine laws laws..   In a long line of decisions, this Court has not altogether prohibited a foreign corporation licensedCourts. to do business the Philippines or corporation maintaining an action innot Philippine What itinseeks to preventfrom is a suing foreign doing business in the Philippines without a license from gaining access to Philippine [27] Courts..   Courts The purpose of the law in requiring that foreign corporations doing business in the Philippines be licensed to do so and that they appoint an agent for service of process is to subject the for eign corporation doing business in the Philippines to the  jurisdiction of its courts. The object is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking steps necessary to render it amenable to suit in the local [28] courts..  The implication of the law is that it was never the purpose of the courts

There is no exact rule or governing principle as to what constitutes “doing” or

Article 44 of the Omnibus Investments Code of 1987 defines the phrase to 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 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 or 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.” organization.”   Thus, a foreign corporation with a settling agent in the Philippines which [31] issued twelve marine policies covering different shipments to the Philippines Philippine s and a foreign corporation which had been collecting premiums on outstanding policiess[32] were regarded as doing business here. policie The same rule was observed relating to a foreign corporation with an “exclusive distributing agent” in the Philippines, and which has been selling its [33] products here since 1929, 1929,  and a foreign corporation engaged in the business of manufacturing and selling computers worldwide, and had installed at least 26 different products in several corporations in the Philippines, and allowed its registered logo and trademark to be used and made it known that there exists a [34] designated distributor in the Philippines. Philippines .   [35]

In Georg Grotjahn GMBH and Co. vs. Isnani, Isnani,  it was held that the uninterrupted performance by a foreign corporation of acts pursuant to its primary

legislature to exclude a foreign corporation which happens to obtain an isolated

Page | 48

 

purposes and functions as a regional area headquarters for its home office, qualifies such corporation as one doing business in the country.

book under the heading of ITEC Technical Assistance Center, and all calls being recorded and forwarded to ITEC on a weekly basis.

These foregoing instances should be distinguished from a single or isolated

What is more, TESSI was obliged to provide ITEC with a monthly report

[36] transaction or occasional, incidental, or casual transactions, which do not come within the meaning of the law, law, f o orr in such case, the foreign corporation is deemed not engaged in business in the Philippines.

detailing the failure and repair of ITEC products, and to requisition monthly the materials and components needed to replace stock consumed in the warranty repairs of the prior month.

Where a single act or transaction, however, is not merely incidental or casual but indicates the foreign corporation’s intention to do other business in the Philippines, said single act or transaction constitutes “doing” or “engaging in” or [37] “transacting” business in the Philippines. Philippines.  

A perusal of the agreements between petitioner ASPAC and the respondents shows that there are provisions which are highly restrictive in nature, such as to reduce petitioner ASPAC to a mere extension or instrument of the private respondent.

In determining whether a corporation does business in the Philippines or not, aside from their activities within the forum, reference may be made to the contractual agreements entered into by it with other entities in the country. Thus,

The “No Competing Product” provision of the Representative Agreement between ITEC and ASPAC provides: “The Representative shall not represent or offer for sale within the Territory any product which competes with an existing ITEC

in the Top-Weld case ( supra ), the foreign corporation’s LICENSE AND TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT with their local contacts were made the basis of their being regarded by this Tribunal as corporations doing business in [38] the country. Likewise, in Merill Lynch Futures, Inc. vs. Court of Appeals, etc.  etc.  the FUTURES CONTRACT entered into by the petitioner foreign corporation weighed heavily in the court’s ruling.  ruling.  

product or any product which ITEC has under active development.” Likewise pertinent is the following provision: “When acting under this Agreement, REPRESENTATIVE is authorized to solicit sales within the Territory on ITEC’s behalf but is authorized to bind ITEC only in its capacity as Representative and no other, and then only to specific customers and on terms and conditions expressly authorized by ITEC in writing.”  writing.” 

With the abovestated precedents in mind, we are persuaded to conclude that private respondent had been “engaged in” or “doing business” in the Philippines for some time now. This is the inevitable result after a scrutiny of the different contracts and agreements entered into by ITEC with its various business contacts in the country, particularly ASPAC and Telephone Equipment Sales and Services, Inc. (TESSI, for brevity). The latter is a local electronics firm engaged by ITEC to be its local technical representative, and to create a service center for ITEC products sold locally. Its arrangements, with these entities indicate convincingly ITEC’s purpose to bring about the situation among its customers and the general public that they are dealing directly with ITEC, and that ITEC is actively engaging in business in the country.

When ITEC entered into the disputed contracts with ASPAC and TESSI, they were carrying out the purposes for which it was created, i.e., to market electronics and communications products. The terms and conditions of the contracts as well as ITEC’s conduct indicate that they established within our country a continuous [40] business, and not merely one of a temporary character. character.  

[39]

In its Master Service Agreement Agreement  with TESSI, private respondents required its local technical representative to provide the employees of the technical and service center with ITEC identification cards and business cards, and to correspond only on ITEC, Inc., letterhead. TESSI personnel are instructed to answer the telephone telephone with “ITEC Technical Assistance Center.”, such telephone being listed in the telephone

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 [41] 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 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 [42] corporations..  One who has dealt with a corporation of foreign origin as a corporations corporate entity is estopped to deny its corporate existence and capacity. The

Page | 49

 

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 [43] where such person has received the benefits of the contract. contract.   The rule is deeply rooted in the time-honored 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 [44] everyone his due, and observe honesty and good faith. faith.””   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. As observed by this Court in TOP-WELD (supra) , viz: The parties are charged with knowledge of the existing law at the time they enter into a contract and at the time it is to become operative. (Twiehaus v . Rosner, 245 SW 2d 107; Hall v . Bucher, 227 SW 2d 98). Moreover, a person is presumed to be more knowledgeable about his own state law than his alien or foreign contemporary. In this case, the record shows that, at least, petitioner had actual knowledge of the applicability of R.A. No. 5455 at the time the contract was executed and at all times times thereafter. This conclusion is compelled by the fact that the same statute is now being propounded by the petitioner to bolster its claim. We, therefore sustain the appellate court’s view that “it was incumbent upon TOP WELD to know whether or not IRTI and ECED were properly authorized to engage in business in the Philippines when they entered into the licensing and distributorship agreements.” The The very purpose of the law was circumvented and evaded when the petitioner entered into said agreements despite the prohibition of R.A. No. 5455. The parties in this case being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case.

the jurisdiction of its courts. It was never intended to favor domestic corporations who enter into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not licensed to do business in this [45] country..   country [46]

In Antam Consolidated Inc. vs. Court of Appeals, et al .  we expressed our chagrin over this commonly used scheme of defaulting local companies which are being sued by unlicensed foreign companies not engaged in business in the Philippines to invoke the lack of capacity to sue of such foreign companies. Obviously, the same ploy is resorted to by ASPAC to prevent the injunctive action filed by ITEC to enjoin petitioner from using knowledge possibly acquired in violation of f iduciary arrangements between the parties. 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. In Top-Weld, we ruled that a foreign corporation may be exempted from the license requirement in order to institute an action in our courts if its representative in the country maintained an independent status during the existence of the disputed contract. Petitioner is deemed to have acceded to such independent character when it entered into the Representative Agreement with ITEC, particularly, provision 6.2 (supra ). Petitioner’s insistence on the dismissal of this action due to the application, or non application, of the private international law rule of forum non conveniens  defies well-settled rules of fair play. Acc According ording to petitioner, the Philippine Court has no venue to apply its discretion whether to give cognizance or not to the present action, because it has not acquired jurisdiction over the person of the plaintiff in the case, the latter allegedly having no personality to sue before Philippine Courts. This argument is misplaced because the court has already acquired jurisdiction over the plaintiff in the suit, by virtue of his filing the original complaint. And as we have already observed, petitioner are not at liberty to question quest ion plaintiff’s standing to sue, having already acceded to the same by virtue of its entry into the Representative Agreement referre referred d to earlier.

The doctrine of lack of capacity to sue based on the failure to acquire a local

Thus, having acquired jurisdiction, it is now for the Philippine Court, based on the facts of the case, whether to give due course to the suit or dismiss it, on the

license is based on considerations of sound public policy. The license requirement was imposed to subject the foreign corporation doing business in the Philippines to

principle of forum non conveniens.  Hence, the Philippine Court may refuse to assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court

[47]

Page | 50

 

may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: 1) That the Philippine Court is one to which the parties may conveniently resort to; 2) That the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, 3) That the Philippine Court has or is likely to have power to enforce its decision. decision.[48]  The aforesaid requirements having been met, and in view of the court’s disposition to give due course to the questioned action, the matter of the present forum not being the “most convenient” as a ground  ground   for the suit’s dismissal, deserves scant consideration.

IN VIEW OF THE FOREGOING PREMISES , the instant Petition is hereby DISMISSED. The decision of the Court of Appeals dated June 7, 1991, upholding the RTC Order dated February 22, 1991, denying the petitioners’ Motion to Dismiss, and ordering the issuance of the Writ of Preliminary Injunction is hereby affirmed in toto. SO ORDERED.

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Republic of the Philippines SUPREME COURT  Manila

from March, 1964 to November, 1964, inclusive; (2) houseboy with an hourly rate of $1.26 from December, 1964 to November, 1965, inclusive; (3) houseboy with an hourly rate of $1.33 from December, 1965 to August, 1966, inclusive; and (4) cashier with

FIRST DIVISION

an hourly rate of $1.40 from August, 1966 to March 27, 1967, inclusive. He further averred that from December, 1965 to August, 1966, inclusive, he rendered overtime services daily and that this entire period was divided into swing and graveyard shifts to which he was assigned, but he was not paid both overtime and night shift premiums despite his repeated demands from respondents.

G.R. No. L-38649 March 26, 1979 FACILITIES MANAGEMENT CORPORATION, CORPORATION, J. S. DREYER, and J. V. CATUIRA, petitioners, vs.

LEONARDO DE LA ROSA AND THE HONORABLE COURT OF INDUSTRIAL RELATIONS, respondents.

Sycip, Salazar, Feliciano & Associates for petitioners. Benjamin M. Mendoza for respondent Court.

MAKASIAR, J:  Petition for review on certiorari of the decision of the Court of Industrial Relations, dated February 14, 1972, ordering petitioners herein to pay private respondent Leonardo de la Osa his overtime compensation, as wen as his swing shift and graveyard shift premiums at the rate of fifty (50%) per cent of his basic sa (Annex E, p. 31, rollo). The aforesaid decision was based on a report submitted by the Hearing Examiner, CIR (Dagupan City Branch), the pertinent portions of which are quoted hereinbelow:::

Respondents filed on August 7, 1967 their letter- answer without substantially denying the material allegations of the basic petition but interposed the following special defenses, namely: That respondents Facilities Management Corporation and J. S. Dreyer are domiciled in Wake Island which is beyond the territorial  jurisdiction of the Philippine Government; that respondent J. V. Catuira, though an employee of respondent corporation presently stationed in Manila, is without power and authority of legal representation; and that the employment contract between petitioner and respondent corporation carries -the approval of the Department of Labor of the Philippines. Subsequently on May 3, 1968. respondents filed a motion to dismiss the subject petition on the ground that this Court has no Jurisdiction over the instant case, and on May 24, 1968, petitioner interposed an opposition thereto. Said motion was denied by this Court in its Order issued on July 12, 1968 sustaining jurisdiction in accordance with the prevailing doctrine of the Supreme Court in similar cases. xxx xxx xxx

In a petition filed on July 1, 1967, Leonardo dela Osa sought his reinstatement. with full backwages, as well as the recovery of his overtime compensation, swing shift and graveyard shift differentials. Petitioner alleged that he was employed by respondents as follows: (1) painter with an hourly rate of $1.25

But before we consider and discuss the foregoing issues, let us first ascertain if this Court could acquire jurisdiction over the case at bar, it having been contended by respondents that they are domiciled in Wake Island which is beyond the territorial

Page | 52

 

 jurisdiction of the Philippine Government. To this incidental question, it may be stated that while it is true the site of work is Identified as Wake Island, it is equally true the place of hire is established in Manila (See Section B, Filipino Employment

1. L-37117 July 30, 1973 lack of merit 13, 1973. Reconsideration

Contract, Exhibit '1'). Moreover, what is important is the fact that the contract of employment between the parties litigant was shown to have been originally executed and subsequently renewed in Manila, as asserted by petitioner and not denied by respondents. Hence, any dispute arising therefrom should necessarily be determined in the place or venue where it was contracted.

denied merit, Nov. 20,1973.

xxx xxx xxx From the evidence on hand, it has been proven beyond doubt that petitioner canvas assigned to and performed work in respondent company at slight time which consisted of two different schedules, namely, swing shift and graveyard shifts, particularly during his tenure as houseboy for the second period and as cashier. Petitioner's testimony to this effect was not contradicted, much less rebutted, by respondents, as revealed by the records. Since petitioner actually rendered night time services as required by respondents, and considering the physical, moral and sociological effects arising from the performance of such nocturnal duties, we think and honestly believe that petitioner should be compensated at least fifty percent (50%) more than his basic wage rate. This night shift premium pay would indeed be at par with the overtime compensation stipulated at one and onehalf (1 ½) times of the straight time rate.

2. L-38781 June lack of 21,1974.

Petition on Motion

denied

lack

17,1974 merit

for Sept. for of

Petition on

denied

3. L-39111-12 Sept. 2,1974 Case dismissed 6, 1976, pursuant voluntary tion of private dent Inocente R. that his claims had been settled to his satisfaction.

for June

on

Feb. to manifesta respon Riel all entire

Incidentally, in connection with G.R. No. L-39111-12 (No. 3 above), WE found strong evidence that petitioner therein, which is also the petitioner in the case at bar, "twisted the arm" of private respondent, when the latter in his Manifestation dated July 3, 1975, stated: 3. ... Furthermore, since petitioner FMC is a foreign corporation domiciled in California, U.S.A. and has never been engaged in business in the Philippines, nor does it have an agent or an office in this country, there exists no valid reason for me to participate in the continuation and/or prosecution of this case (p. 194, rollo).

xxx xxx xxx (pp. 31-36, rollo). Apropos before this Court were filed three (3) other cases involving the same petitioner, all of which had been finally dispoded of, as follows:

—  as if jurisdiction depends on the will of the parties to a case. At any rate, considering that petitioner paid the claims of private respondent, the case had become moot and academic. Besides, the fact of such payment amounts to an acknowledgment on the part of petitioner of the jurisdiction of the court over it.

G.R. No Date of Filing Disposition WE have also noted that the principal question involved in each of the abovenumbered three (3) cases is more or less Identical, to wit: Is the mere act by a non-

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resident foreign corporation of recruiting Filipino workers for its own use abroad, in law doing business in the Philippines? In the case at bar, which was filed with this Court on June 3, 1974, petitioners presented, inter alia,  the following issue: ... can the CIR validly affirm a judgment against persons domiciled outside and not doing business in the Philippines, and over whom it did not acquire jurisdiction') While it is true that the issues presented in the decided cases are worded differently from the principal issue raised in the case at bar, the fact remains that they all boil down to one and the same issue, which was aptly formulated and ably resolved by Mr. Justice Ramon C. Fernandez, then with the Court of Appeals and now a member of this Court, in CA-G.R. No. SP-01485-R, later elevated to this Court on appeal by certiorari in Case G.R. No. L-37117 this case, the majority opinion of the Court of Appeals, which was penned by Justice Fernandez and which WE hereby adopt, runs as follows: The principal issue presented in this special civil action is whether petitioner has been 'doing business in the Philippines' so that the service of summons upon its agent in the Philippines vested the Court of First Instance of Manila with jurisdiction. From the facts of record, the petitioner may be considered as doing busuness un the Philippines within the the scope of Section 14, Rule 14 of the Rules of the Court which provide:

Indeed, the petitioner, in compliance with Act 2486 as implemented by Department of Labor Order No. IV dated May 20, 1968 had to appoint Jaime V. Catuira, 1322 A. Mabini, Ermita, Manila as agent for FMC with authority to execute Employment Contracts and receive, in behalf of that corporation, legal services from and be bound by processes of the Philippine Courts of Justice, for as long as he remains an employee of FMC (Annex 'I', rollo, p. 56). It is a fact that when the summons for the petitioner was served on Jaime V. Catuira he was still in the employ of the FMC. In his motion to dismiss Annex B', p. 19, Rollo), petitioner admits that Mr. Catuira represented it in this country 'for the purpose of making arrangements for the approval by the Department of Labor of the employment of Filipinos who are recruited by the Company as its own employees for assignment abroad.' In effect, Mr. Catuira was a on officer representing petitioner in the Philippines. Under the rules and regulations promulgated by the Board of Investments which took effect Feb. 3, 1969, implementing Rep. Act No. 5455, which took effect Sept. 30, 1968, the phrase 'doing business' has been exemption with illustrations, among them being as follows: xxx xxx xxx

SEC 14. Service upon private foreign corporations. If the defendant is a foreign corporation or a non-resident joint stock company or association: doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines.

(f) the performance within the Philippines of any act or combination of acts enumerated in section l(l) of the Act shall constitute 'doing business' therein. in particular, 'doing business includes: (1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm, not acting independently of the foreign firm amounting to negotiation fixing of the terms and conditions of sales ororservice

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contracts, regardless of whether the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. xxx

of First Instance of Manila against Pacific Star Line, The Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the amount of US$2,300.00 representing the value of stolen and damaged cargo plus litigation expenses and exemplary damages in the amounts of P1,000.00 and P2,000.00, respectively, with legal interest thereon from the filing of the suit and costs.

(2) Appointing a representative or distributor who is dociled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of the principal.

After all the defendants had filed their answer, the defendants Manila Port Service and Manila Railroad Company, Inc. amended their answer to allege that the plaintiff, Aetna Casualty & Surety Company, is a foreign corporation not duly licensed to do business in the Philippines and, therefore, without capacity to sue and be sued.

(4) Opening offices, whether called 'liaison'offices, agencies or branches, unless proved otherwise. (10) 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, or in the progressive prosecution of, commercial gain or of the purpose and objective of the business organization (54 O.G. 53). Recently decided by this Court —  again thru Mr. Justice Ramon C. Fernandez —  which is similar to the case at bar, is G.R. No. L-26809, entitled Aetna Casualty & Curety Company, plaintiff- appellant versus Pacific Star Line, the Bradman Co., Inc., Manila Port Service and/or  Manila Railroad Company, Inc., defendants-appellees." The case is an appeal from the decision of the Court of First Instance of Manila, Branch XVI, in its Civil Case No. 53074, entitled  Aetna Casualty & Surety Company vs. Pacific Star Lines, The Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc. " dismissing the complaint on the ground that the plaintiff has no legal capacity to bring the suit.

After the parties submitted a partial stipulation of facts and additional documentary evidence, the case was submitted for decision of the trial court, which dismissed the complaint on the ground that the plaintiff insurance company is subject to the requirements of Sections 68 and 69 of Act 1459, as amended, and for its failure to comply therewith, it has no legal capacity to bring suit in this jurisdiction. Plaintiff appealed to this Court. The main issue involved in the appeal is whether or not the plaintiff appellant has been doing business in the Philippines, considering the fact that it has no license to transact business in the Philippines as a foreign corporation. WE ruled: The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation from performing single acts, but to prevent from the acquiring a domicile the itpurpose of business withoutittaking steps necessary to for render amenable to suit in the local courts. It was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts (Marshall Co. vs. Elser & Co., 46 Phil 70,75). In Mentholatum Co., Inc., et al vs- M Court rules thatNo general rule or governing principle can be

It appears&that on Co., February 11,subrogee 1963, Smith Bell &Civil Co. Case (Philippines), Inc.inand Casualty Surety Inc., as instituted No. 53074 the Aetna Court

laid down as to what constitutes 'doing' or 'engaging in' or 'transacting' business. Indeed,

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in business in the Philippines within the purview of Sections 68 and 69 of the Corporation Law so as to bar plaintiff from seeking redress in our courts. (Marshall Wens Co. vs. Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs. Angel O. Singson, G.R. No. L7917, April 29, 1955)'. 102 Phil., pp. 1, 18.

each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int Revenue [C.C.A Ohio], 223 F. 984, 987). The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization (Griffin v. Implement

Based on the rulings laid down in the foregoing cases, it cannot be said that the Aetna Casualty & Surety Company is transacting business of insurance in the Philippines for which it must have a license. The Contract of insurance was entered into in New York, U.S.A., and payment was made to the consignee in its New York branch. It appears from the list of cases issued by the Clerk of Court of the Court of First Instance of Manila that all the actions, except two (2) cases filed by Smith, Beer & Co., Inc. against the Aetna Casualty & Surety Company, are claims against the shipper and the arrastre operators just like the case at bar.

Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. III; Automotive Material Co. vs. American Standard Metal Products Corp., 158 N.E. 698, 703, 327 III. 367)'. 72 Phil. 524, 528-529.

Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in the business of insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it is not barred from filing the instant case although it has not secured a license to transact insurance business in the Philippines.

And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held: (d) While plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no capacity to bring the present action. Such license is not necessary because it is not engaged in business in the Philippines. In fact, the transaction herein involved is the first business undertaken by plaintiff in the Philippines, although on a previous occasion plaintiff's vessel was chartered by the National Rice and Corn Corporation to carry rice cargo from abroad to the Philippines. These two isolated transactions do not constitute engaging

Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from seeking redress from courts in the Philippines, a fortiori   fortiori , that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines. WHEREFORE, THE PETITION IS HEREBY DENIED WITH COSTS AGAINST THE PETITIONERS. SO ORDERED.

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FIRST DIVISION

[G.R. No. 154618. April 14, 2004]

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.  DECISION YNARES-SANTIAGO, J .: .: This petition for review assails the Decision dated August 12, 2002 of the Court of Appeals in CA-G.R. SP No. 66574, which dismissed Civil Case No. 3123 -2001-C and annulled and set aside the Order dated September 4, 2001 issued by the Regional Trial Court of Calamba, Laguna, Branch 92. Petitioner Agilent Technologies Singapore (Pte.), Ltd. (“Agilent”) is a foreign corporation, which, by its own admission, is not licensed to do business in [1] the Philippines. Philippines.  Respondent Integrated Silicon Technology Philippines Corporation (“Integrated Silicon”) is a private domestic corporation, 100% foreign owned, which is engaged in the business of manufacturing and assembling electronics components..[2] Respondents Teoh Kia components Kiang ng Hong, Teoh Kiang Seng and Anthony Choo, Malaysian nationals, are current members of Integrated Silicon’s board of directors, while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are its [3] former members. members.   The juridical relation among the various parties in this case can be traced to a 55-year year Value Added Assembly Services Agreement (“VAASA”), entered into on April 2, 1996 between Integrated Silicon and the Hewlett-Packard Singapore (Pte.) [4] Ltd., Singapore Components Operation (“HP(“HP-Singapore”) 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 materia materials ls to Integrated Silicon; transport machinery to the plant of Integrated [5] Silicon; and pay Integrated Silicon the purchase price of the finished products. products .  The VAASA had a

five-year term, beginning on April 2, 1996, with a provision for annual renewal by [6] mutual written consent. consent.  On September 19, 1999, with the consent of Integrated [7] Silicon,,  HP-Singapore Silicon assigned all its rights and obligations in [8] the VAASA to Agilent. Agilent.   On May 25, 2001, Integrated Silicon filed a complaint for “Specific Performance and Damages” against Agilent against Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and FrancisKhor, docketed as Civil Case No. 3110-01-C. It alleged that Agilent breached the parties’ oral agreement to extend the VAASA. I ntegrated Silicon thus prayed that defendant be ordered ordered to execute a written extension of the VAASA for a period of five years as earlier assured and promised; to comply with the extended VAASA; and to pay actual, moral, exemplary [9] damages and attorney’s fees. fees.   On June 1, 2001, summons and a copy of the complaint were served on Atty. Ramon Quisumbing, who returned these processes on the claim that he was not the registered agent of Agilent. Later, he entered a special appearance to assail the court’s jurisdiction over the person of  Agilent.  Agilent. On July 2, 2001, Agilent filed a separate complaint against Integrated Silicon, Teoh Kang Seng, Teoh Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, [10] Jean Kay M. dela Cruz and Rolando T. Nacilla Nacilla,,  for “Specific Performance, Recovery of Possession, and Sum of Money with Replevin, Preliminary Mandatory Injunction, and Damages”, before the before the Regional Trial Court,Calamba, Laguna, Branch 92, docketed as Civil Case No. 3123-2001-C. Agilent prayed that a writ of replevin or, in the alternative, a writ of preliminary mandatory injunction, be issued ordering defendants to immediately return and deliver to plaintiff its equipment, machineries and the materials to be used for fiber-optic components which were left in the plant of Integrated Integrated Silicon. It further prayed that defendants defendants [11] be ordered to pay actual and exemplary damages and attorney’s f e ees. es.   [12]

Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C, 3123-2001-C,  on the [13] [14] grounds of lack of Agilent’s Agilent’s  legal capacity to sue sue;;  litis pendentia;  forum [15] [16] shopping;;  and failure to state a cause of action shopping action..   On September 4, 2001, the trial court denied the Motion to Dismiss and [17] granted petitioner Agilent’s Agilent’s application  application for a writ of replevin. replevin.   Without filing a motion for reconsideration, respondents filed a petition [18] for certiorari  with  with the Court of Appeals. Appeals.  

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In the meantime, upon motion filed by respondents, Judge Antonio S. Pozas of Branch 92 voluntarily inhibited himself in Civil Case No. 3123-2001-C. The case was re-raffled and assigned to Branch 35, the same branch where Civil Case No. 31102001-C is pending. On August 12, 2002, the Court of Appeals granted respondents’ petition for certiorari , set aside the assailed Order of the trial court dated September 4, 2001, and ordered the dismissal of Civil Case No. 3123-2001-C. Hence, the instant petition raising the following errors:

I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT DISMISSING RESPONDENTS’ PETITION FOR CERTIORARI FOR RESPONDENTS’ FAILURE TO FILE A MOTION FOR RECONSIDERATION BEFORE RESORTING TO THE REMEDY OF CERTIORARI.

II. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE TRIAL COURT’S ORDER DATED  DATED  4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C BELOW ON THE GROUND OF LITIS PENDENTIA, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. 3110-2001-C.

III. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE TRIAL COURT’S ORDER DATED  DATED  4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C BELOW ON THE GROUND OF FORUM SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. 3110-2001-C.

IV. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING THE [19] INSTEAD OF ORDERING IT DISMISSAL OF CIVIL CASE NO. 323-2001-C BELOW CONSOLIDATED WITH CIVIL CASE NO. 3110-2001-C. 3110-2001-C.  

The two primary issues raised in this petition: (1) whether or not the Court of Appeals committed reversible error in giving due course to respondents’ petition, notwithstanding the failure to file a Motion for Reconsideration of the September 4, 2001 Order; and (2) whether or not the Court of Appeals committed reversible error in dismissing Civil Case No. 3123-2001-C. We find merit in the petition. The Court of Appeals, citing the case of Malayang Manggagawa sa ESSO ESSO v. [20] ESSO Standard Eastern, Inc. ,  held that the lower court had no jurisdiction over Civil Case No. 3123-2001-C because of the pendency of Civil Case No. 3110-2001-C and, therefore, a motion for reconsideration was not necessary before resort to a petition for certiorari . This was error. Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests vests jurisdiction over the [21] subject matter of Civil Case No. 3123-2001-C in the RTC. RTC.   The Court of Appeals’ ruling that the assailed Order issued by the RTC of Calamba, Branch 92, was a nullity for lack of jurisdiction due to litis pendentia and forum shopping, has no legal basis. The pendency pendency of another action does not strip a court of the jurisdiction granted by law. The Court of Appeals further ruled that a Motion for Reconsideration was not necessary in view of the urgent necessity in this case. We are not convince convinced. d. In the [22] case of Bache and Co. (Phils.), Inc. v. Ruiz ,  relied on by the Court of Appeals, it was held that “time is of the essence in view of the tax assessments sought to be enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, on account of which immediate and more direct action becomes necessary.” Tax assessments in that case were based on documents seized by virtue of an illegal search, and the deprivation of the right to due process tainted the entire proceedings with illegality. Hence, the urgent necessity of preventing the enforcement of the tax assessments was patent. Respondents, on the other hand, [23] cite the case of Geronimo v. Commission on Elections ,  where the urgent necessity of resolving a disqualification case for a position in local government warranted the expeditious resort to certiorari. In the case at bar, there is no analogously urgent circumstance which would necessitate the relaxation of the rule on a Motion for Reconsideration. Indeed, none of the exceptions for dispensing with a Motion for Reconsideration is present here. None of the following cases cited by respondents serves as adequate basis for their procedural lapse.

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[24]

In Vigan Electric Light Co., Inc. v. Public Service Commission ,  the questioned order was null and void for failure of respondent tribunal to comply with due [25] process requirements; inMatanguihan v. Tengco,  the questioned order was a patent nullity for failure to acquire jurisdiction over the defendants, which fact the records plainly disclosed; and in National Electrification Administration v. Court of [26]  Appeals,  the questioned orders were void for vagueness. No such patent nullity is evident in the Order issued by the trial court in this case. Finally, while urgency may be a ground for dispensing with a Motion for Reconsideration, in the case of Vivo [27] v. Cloribel ,  cited by respondents, the slow progress of the case would have rendered the issues moot had a motion for reconsideration been availed of. We find no such urgent circumstance in the case at bar. Respondents, therefore, availed of a premature remedy when they immediately raised the matter to the Court of Appeals on certiorari ; and the appellate court committed reversible error when it took cognizance of respondents’ petition instead of dismissing the same outright. We come now to the substantive issues of the petition. Litis pendentia is a Latin term which literally means “a pending suit.” It is variously referred to in some decisions as lis pendens and auter action pendant . While it is normally connected with the control which the court has on a property involved in a suit during the continuance proceedings, it is more interposed as a ground for the dismissal of a civil action pending in court. Litis pendentia as a ground for the dismissal of a civil action refers to that situation wherein another action is pending between the same parties for the same cause of action, such that the second action becomes unnecessary and vexatious. For litis pendentia to be invoked, the concurrence of the following requisites is necessary:

(a)

identity of parties or at least such as represent the same interest in both actions;

(b)

identity of rights asserted and reliefs prayed the reliefs being founded on the same facts; and

for,

(c)

the identity in the two cases should be such that the judgment that may be rendered in one would, regardless of which party is [28] successful, amount to res judicata in the other. other.  

The Court of Appeals correctly appreciated the identity of parties in Civil Cases No. 3123-2001-C and 3110-2001-C. Well-settled is the rule that lis pendens requires [29] only substantial, and not absolute, identity of parties parties..  There is substantial identity of parties when there is a community of interest between a party in the first case and a party in the second case, even if the latter was not impleaded in the [30] first case. case.  The parties in these cases are vying over the interests of the two opposing corporations; the individuals are only incidentally impleaded, being the natural persons purportedly accused of violating these corporations’ rights.  rights.   Likewise, the fact that the positions of the parties are reversed, i.e., the plaintiffs in the first case are the defendants in the second case or vice versa, does not negate the identity of parties for purposes of determining whether the case is [31] dismissible on the ground of litis pendentia.   The identity of parties notwithstanding, litis pendentia does not obtain in this case because of the absence of the second and third requisites. requisites. The rights asserted in each of the cases involved are separate and distinct; there are two subjects of controversy presented for adjudication; and two causes of action are clearly involved. The fact that respondents instituted a prior action for “Specific Performance Perfor mance and Damages” is not a ground for defeating the petitioners’ action for “Specific Performance, Recovery of Possession, and Sum of Money with Replevin, with Replevin, Preliminary Mandatory Injunction, and Damages.”  Damages.”  In Civil Case No. 3110-2001-C filed by respondents, the issue is whether or not there was a breach of an oral promise to renew of the VAASA. The issue in Civil Case No. 3123-2001-C, filed by petitioner, is whether petitioner has the right to take possession of the subject properties. Petitioner’s right of  possession   possession is founded on the ownership of the subject goods, which ownership is not disputed and is not contingent on the extension or non-extension of the VAASA. Hence, the replevin suit can validly be tried even while the prior suit is being litigated in the Regional Trial Court. Possession of the subject properties is not an issue in Civil Case No. 31102001-C. The reliefs sought by respondent Integrated Silicon therein are as follows: (1) execution of a written extension or renewal of the VAASA; (2) compliance with the extended VAASA; and ( 3) payment of overdue accounts, damages, and attorney’s fees.  fees.  The reliefs sought by petitioner Agilent in Civil Case No. 3123-20013123-2001C, on the other hand, are as follows: (1) issuance of a Writ of Replevin or Writ of Preliminary Mandatory Injunction; (2) recovery of possession of the subject properties; (3) damages and attorney’s fees.  fees.  

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Concededly, some items or pieces of evidence may be admissible in both actions. It cannot be said, however, that exactly the same evide evidence nce will support the decisions in both, since the legally significant and controlling facts in each case are entirely different. Although the VAASA figures prominently in both suits, Civil Case No. 3110-2001-C is premised on a purported breach of an oral obligation to extend the VAASA, and damages arising out of Agilent’s Agilent’s alleged  alleged failure to comply with such purported extension. Civil Case No. 3123-2001-C, on the other hand, is premised on a breach of the VAASA itself, and damages arising to Agilent out of that purported breach. It necessarily follows that the third requisite for litis pendentia is also absent. The following are the elements elements of res judicata: (a)

The former judgment must be final;

(b)

The court which rendered judgment must have jurisdiction over the parties and the subject matter;

(c) (d)

It must be a judgment on the merits; and There must be between the first and second actions identity of [32] parties, subject matter, and cause of action. action .  

In this case, any judgment rendered in one of the actions will not amount to res judicata in the oth er action. There being different causes of action, the decision in one case will not constitute res judicata as to the other. Of course, a decision in one case may, to a certain extent, affect the other case. This, however, is not the test to determine the identity of the causes of action. Whatever difficulties or inconvenience may be entailed if both causes of action are pursued on separate remedies, the proper solution is not the dismissal order of the Court of Appeals. The possible consolidation of said cases, as well as stipulations and appropriate modes of discovery, may well be considered by the court below to subserve not only procedural expedience but, more important, the [33] ends of justice. justice.  

this case, a judgment in the said case will not amount to resjudicata  in Civil Case No. 3110-2001-C, 3110-2001C, and respondents’ contention on forum shopping must likewise fail.  fail.  We are not unmindful of the afflictive consequences that may be suffered by both petitioner and respondents if replevin is granted by the trial court in Civil Case No. 3123-2001-C. If respondent Integrated Silicon eventually wins Civil Case No. 3110-2001-C, and the VAASA’s VAASA’s terms  terms are extended, petitioner corporation will have to comply with its obligations thereunder, which would include the consignment of properties similar to those it may recover by way of replevin in Civil Case No. 31232001-C. However, petitioner will also suffer an injustice if denied the remedy of replevin, resort to which is not only allowed but encouraged by law. Respondents argue that since Agilent is an unlicensed foreign corporation [35] doing business in the Philippines, it lacks the legal capacity to file suit. suit .  The assailed acts of petitioner Agilent, purportedly in the nature of “doing business” in the Philippines, are the following: (1) mere entering into the VAASA, which is a “service contract”; contract”;[36] (2) appointment of a full-time representative in Integrated [37] Silicon, to “oversee and supervise the production” of   of  Agilent’s Agilent’s products  products;;  (3) the appointment by Agilent of six full -time staff members, who were permanently stationed at Integrated Silicon’s facilities in order to inspect the finished goods [38] for Agilent; Agilent;  and (4) Agilent’s Agilent’s   participation in the management, supervision and [39] control of Integrated Silicon, Silicon,  including instructing Integrated Silicon to hire more [40] employees to meet Agilent’s Agilent’s   increasing production needs, needs,  regularly performing quality audit, evaluation and supervision of Integrated Silicon’s [41] employees,, regularly performing inventory audit of raw materials to be used by employees Integrated Silicon, which was also required to provide weekly inventory updates [42] to Agilent, Agilent,  and providing and dictating Integrated Silicon on the daily production schedule, volume and models of the products to manufacture and ship [43] for Agilent. Agilent.   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.  country.  The Corporation Code provides:

We now proceed to the issue of forum shopping. The test for determining whether a party violated the rule against forum[34] shopping was laid down in the case of Buan v. Lopez Lopez..  Forum shopping exists where the elements of litis pendentiaare present, or where a final judgment in one case will amount to res judicata in the final other. other. There being no litis pendentia in

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

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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 the Philippines from accessing our courts. In a number of cases, however, we have held that an unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine courts against a Philippine citizen or entity who had contracted with and benefited from [44] said corporation. corporation.  Such a suit is premised on the doctrine of estoppel. A party is estopped from challenging the personality of a corporation after having acknowledged the same by entering into a contract with it. This doctrine of estoppel to deny corporate existence and capacity applies to foreign as well as [45] domestic corporations. corporations.  The application of this principle prevents 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 [46] the benefits of the contract. contract.   The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be condensed in four statements: (1) if a foreign corporation does business in the Philippines without a license, it cannot sue before [47] the Philippine courts; courts;  (2) 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 [48] transaction transactio n ; (3) 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 pers onality in a suit brought before Philippine courts; courts;[49] and (4) 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 Agilent’s legal  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  Philippines, as [50] this Court observed in the case of Mentholatum v. Mangaliman .  The Corporation Code itself is silent as to what acts constitute doing or transacting business in the Philippines. Jurisprudence has it, however, that 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 or in progressive prosecution of the purpose and subject of its [51] organization.””   organization. [52]

In Mentholatum ,  this Court discoursed on the two general tests to determine whether or not a foreign corporation can be considered as “doing [53] business” in the Philippines. the Philippines. The first of these is the substance test, thus: 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. [54]

The second test is the continuity test, expressed thus: 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. Although each case must be judged in light of its attendant circumstances,  jurisprudence has evolved several guiding principles for the application of these tests. For instance, considering that it transacted transacted with its Philippine counterpart for seven years, engaging in futures contracts, this Court concluded that the foreign corporation in Merrill Lynch Futures, Inc. v. Court of Appeals and Spouses [55] Lara,  was doing business in the Philippines. In Commissioner of Internal Revenue v. Japan Airlines (“JAL”),[56] the Court held that JAL was doing business in the Philippines,i.e., its commercial dealings in the country were continuous  –   –  despite the fact that no JAL aircraft landed in the country  –   –  as it sold tickets in the Philippines through a general sales agent, and opened a promotions office here as well. In General Corp. of the Phils. v. Union Insurance Society of Canton and [57] Fireman’s Fund Insurance,  a foreign insurance corporation was held to be doing business in the Philippines, as it appointed a settling agent here, and issued 12 marine insurance policies. We held that these transactions were not isolated or casual, but manifested the continuity of the foreign corporation’s conduct and its [58] intent to establish a continuous business in the country. In Eriks PTE Ltd . v. Court of  Appeals and Enriquez ,  the foreign corporation sold its products to a Filipino buyer

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who ordered the goods 16 times within an eight-month period. Accordingly, this Court ruled that the corporation was doing business in the Philippines, as there was a clear intention on its part to continue the body of its business here, despite the relatively short span of time involved.  Communication Materials and Design, Inc., et al. v. Court of Appeals, ITEC, et al .[59] and Top-Weld Manufacturing v. ECED, IRTI, [60] et al .  both involved the License and Technical Agreement and Distributor Agreement of foreign corporations with their respective local counterparts that were the primary bases for the Court’s ruling that the foreign corporations were [61] doing business in the Philippines. Philippines .  In particular, the Court cited the highly restrictive nature of certain provisions in the agreements involved, such that, as stated in Communication Materials, the Philippine entity is reduced to a mere extension or instrument of the foreign corporation. For example, inCommunication Materials, the Court deemed the “No Competing Product” provision of the [62] Representative Agreement therein restrictive. restrictive.   The case law definition has evolved into a statutory definition, having been adopted with some qualifications in various pieces of legislation. The Foreign Investments Act of 1991 (the “FIA”; Republic Act No. 7042, as amended), defines “doing business” as follows:  follows: 

(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;  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) 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 Section 1 of the Implementing Rules and Regulations of the FIA (as amended by Republic Act No. 8179), would demonstrate that the acts enumerated in the VAASA do not constitute “doing business” in the Philippines.   Section 1 of the Implementing Rules and Regulations of the FIA (as amended by Republic Act No. 8179) provides that the following shall not be deemed “doing business”:   business”:

(8)

Collecting information in the Philippines; and 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 [63] the Philippines is one that is for profit-making. profit-making.   By the clear terms of the VAASA, Agilent’s 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 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.

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Finally, as to Agilent’s Agilent’s purported  purported failure to state a cause of action against the individual respondents, we likewise rule in favor of petitioner. A Motion to Dismiss hypothetically admits all the allegations in the Complaint, which plainly alleges that these individual respondents had committed or permitted the commission of acts prejudicial to Agilent. Whether or not these individuals had divested themselves of their interests in Integrated Silicon, or are no longer members of Integrated Silicon’s Board of Directors, is a matter of defense best threshed out during trial.

WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 66574 dated August 12, 2002, which dismissed Civil Case No. 3123-2001-C, is REVERSED and SET ASIDE. The Order dated September 4, 2001 issued by the Regional Trial Court of Calamba, Laguna, Branch 92, in Civil Case No. 3123-2001-C, is REINSTATED. Agilent’s Agilent’s application  application for a Writ of Replevin is GRANTED. No pronouncement as to costs.

SO ORDERED.

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THIRD DIVISION

Singapore 0511. It is not licensed to do business in the Philippines and i(s) not so engaged and is suing on an isolated transaction for which it has capacity to sue x x x.” (par. 1, Complaint; p. p. 1, Record)

[G.R. No. 118843. 118843. February 6, 1997]

On various dates covering the period January 17 -- August 16, 1989, private respondent Delfin Enriquez, Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The ordered materials were delivered via [3] airfreight under the following invoices: invoices:  

ERIKS PTE. LTD., petitioner , vs. COURT OF APPEALS and DELFIN F. ENRIQUEZ, JR., respondents. DECISION PANGANIBAN,  J.: Is a foreign corporation which sold its products sixteen times over a fivemonth period to the same Filipino buyer without first obtaining a license to do business in the Philippines, prohibited from maintaining an action to collect payment therefor in Philippine Philippine courts? In other words, is such foreign corporation “doing business” in the Philippines without the required license and thus barred access to our court system? This is the main issue presented for resolution in the instant petition for [1] review, which seeks the reversal of the Decision Decisio n  of the Court of Appeals, Seventh Division, promulgated on January 25, 1995, in CA-G.R. CV No. 41275 which affirmed, for want of capacity to sue, the trial court’s dismissal of the collection suit instituted by petitioner.

The Facts Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of elements used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for industrial fluid control [2] and PVC pipes and and fittings for industrial uses. In its complaint, it alleged that: that:  

Date 17 Jan 89 24 Feb 89 02 Mar 89

Invoice No. 27065 27738 27855

03 Mar 89 03 Mar 89 10 Mar 89

27876 27877 28046

21 Mar 89 14 Apr 89 19 Apr 89 16 Aug 89

28258 28901 29001 31669

21 Mar 89 04 Apr 89 14 Apr 89 25 Apr 89 02 May 89 05 May 89 15 May 89

28257 28601 28900 29127 29232 29332 29497

31 May 89

29844

AWB No. 618-7496-2941 618-7553-6672 (freight & handling charges per Inv. 27738) 618-7553-7501 618-7553-7501 618-7578-3256/ 618-7578-3481 618-7578-4634 618-7741-7631 Self-collect (handcarried by buyer) 618-7578-4634 618-7741-7605 618-7741-7631 618-7741-9720 (By seafreight) 618-7796-3255 (Freight & handling charges per Inv. 29127) 618-7796-5646

“(I)t is a corporation duly organized and existing under the laws of the Republic of Singapore with address at 18 Pasir Panjang Road #09-01, PSA Multi-Storey Complex,

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Total The transfers of goods were perfected in Singapore, for private respondent’s account, F.O.B. Singapore, with a 90-day credit term. Subsequently, demands were made by petitioner upon private respondent to settle his account, but the latter failed/refused to do so. On August 28, 1991, petitioner corporation filed with the Regional Trial Court [4] of Makati, Branch 138, 138,  Civil Case No. 91-2373 entitled “Eriks Pte. Ltd. vs. Delfin Enriquez, Jr.”  for the recovery of S$41,939.63 or its equivalent in Philippine currency, plus interest thereon and damages. Private respondent responded with a Motion to Dismiss, contending that petitioner corporation had no legal capacity to [5] sue. In an Order dated M March arch 8, 1993, 1993,  the trial court dismissed the action on the ground that petitioner is a foreign corporation doing business in the Philippines [6] without a license. The dispositive portion of said order reads reads::   “WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTED and accordingly, the above-entitled case is hereby DISMISSED.

main issue in this petition is whether petitioner-corporation may maintain S$The 41,927.43 an action in Philippine courts considering that it has no license to do business in the =========== country. The resolution of this issue d epends on whether petitioner’s business with private respondent may be treated as isolated transactions. Petitioner insists that the series of sales made to private respondent would still constitute isolated transactions despite the number of invoices covering several separate and distinct items sold and shipped over a span of four to five months, and that an affirmation of respondent Court’s ruling would result in injustice and unjust enrichment. Private respondent counters that to declare petitioner as possessing capacity to sue will render nugatory the provisions of the Corporation Code and constitute a gross violation of our laws. Thus, he argues, petitioner is undeserving of legal protection. The Court’s Ruling 

The petition has no merit.

SO ORDERED.”  ORDERED.”  The Concept of Doing Business  

On appeal, respondent Court affirmed said order as it deemed the series of transactions between petitioner corporation and private respondent not to be an “isolated or casual transaction.” Thus, transaction.”  Thus, respondent Court likewise found petitioner [7] to be without legal capacity to sue, and disposed of the appeal as follows: follows:   “WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED.  AFFIRMED.   The complaint is dismissed. No costs. SO ORDERED.”  ORDERED.”  Hence, this petition.

The Issue

The Corporation Code provides: “Sec. 133. Doing business without a license.  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.”  laws.”   The aforementioned provision prohibits, not merely absence of the prescribed license, but it also bars a foreign corporation “doing business” in the Philippines [8] without such license access to our courts. courts .  A foreign corporation without such license is not ipso facto incapacitated from bringing an action. A license is necessary only if it is “transacting or doing business”  in the country.

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However, there is no definitive rule on what constitutes “doing,” “engaging in,” or “transacting” business.  business.  The Corporation Code itself does not define such terms. To fill the gap, the evolution of its statutory definition has produced a rather [9] all-encompassing concept in Republic Act No. 7042 7042  in this wise: “SEC. 3.  3.  Definitions. - As used in this Act:

987.] The term implies a continuity of commercial dealings and arrange arrangements, ments, 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.+ (sic) (Griffin v. Implement Dealer’s Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp., 158 N.E. 698, 703, 327 III. 367.)”  367.)”  

xxx xxx

xxx

(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 eight(y) (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’ organization 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.” (underscoring supplied)  supplied)   In the durable case of The Mentholatum Co. vs. Mangaliman,  this Court discoursed on the test to determine whether a foreign company is “doing business” [10] in the Philippines, thus: thus:   “x x x  x  The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether substantially from[C.C.A., it and Ohio], turned223 it over to another. (Traction Cos.itv.has Collectors of Int.retired Revenue F. 984,

The accepted rule in jurisprudence is that each case must be judged in the [11] light of its own environmental circumstances. circumstances.  It should be kept in mind that the purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to prevent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business without first taking the steps necessary to render it amenable to suits in the local courts. The trial court held that petitioner-corporation was doing business without a [12] license, finding that: that:   “The invoices and delivery receipts covering the period of (sic) from January 17, 1989 to August 16, 1989 cannot be treated to mean a singular and isolated business transaction that is temporary in character. Granting that there is no distributorship agreement between herein parties, yet by the mere fact that plaintiff, each time that the defendant posts an order delivers the items as evidenced by the several invoices and receipts of various dates only indicates that plaintiff has the intention and desire to repeat the (sic) said transaction in the future in pursuit of its ordinary business. Furthermore, ‘and ‘and if the corporation is doing that for which it was created, the amount or volume of the business done is immaterial and a single act of that character may constitute doing business’. (See p. 603, Corp. Code, De Leon 1986 Ed.).”  Ed.).”  Respondent Court affirmed this finding in its assailed Decision with this [13] explanation:   explanation: “x x x Considering the factual background as laid out above, the transaction cannot be considered as an isolated one. Note that there were 17 orders and deliveries (only sixteen per our count) over a four -month period. The appellee (private respondent) made separate orders at various dates. The transactions did not

Page | 66

 

consist of separate deliveries for one single order. In the case at bar, the transactions entered into by the appellant with the appellee are a series of commercial dealings which would signify an intent on the part of the appellant (petitioner) to do business in the Philippines and could not by any stretch of the imagination be considered an isolated one, thus would fall under the category of ‘doing business’.  business’.  Even if We were to view, as contended by the appellant, that the transactions which occurred between January to August 1989, constitute a single act or isolated business transaction, this being the ordinary business of appellant corporation, it can be said to be illegally doing or transacting business without a license. x x x Here it can be clearly gleaned from the four-month period of transactions between appellant and appellee that it was a continuing business relationship, which would, without doubt, constitute doing business without a license. For all intents and purposes, appellant corporation is doing or transacting business in the Philippines without a license and that, therefore, in accordance with the specific mandate of Section 144 of the Corporation Code, it has no capacity to sue.” (addition ours)  ours)   We find no reason to disagree with both lower courts. More than the sheer number of transactions entered into, a clear and unmistakable intention on the part of petitioner to continue the body of its business in the Philippines is more than apparent. As alleged in its complaint, it is engaged in the manufacture and sale of elements used in sealing pumps, valves, and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial use. Thus, the sale by petitioner of the items covered by the receipts, which are part and parcel of its main product line, was actually carried out in the

Equally important is the absence of any fact or circumstance which might tend even remotely to negate such intention to continue the progressive prosecution of petitioner’s business activities in this country.  country.   Had private respondent not turned out to be a bad risk, in all likelihood petitioner would have indefinitely continued its commercial transactions with him, and not surprisingly, in ever increasing volumes. Thus, we hold that the series of transactions in question could not have been isolated or casual transactions. What is determinative of “doing business” is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase “isolated transaction” has a definite and fixed meaning,  meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is “doing business” does not necessarily depend upon the frequency [14] of its transactions, but more upon the nature and character of the transactions. transactions.   Given the facts of this case, we cannot see how petitioner’s business dealings will fit the category of “isolated transactions” considering that its intention to continue and pursue the corpus of its business in the country had been clearly established. It has not presented any convincing argument with equally convincing evidence for us to rule otherwise.

Incapacitated to Maintain Suit  

progressive prosecution of commercial gain and the pursuit of the purpose and object of its business, pure and simple. Further, its grant and extension of 90-day credit terms to private respondent for every purchase made, unarguably shows an intention to continue transacting with private respondent, since in the usual course of commercial transactions, credit is extended only to customers in good standing or to those on whom there is an intention to maintain long-term relationship. This being so, the existence of a distributorship agreement between the parties, as alleged but not proven by private respondent, would, if duly established by competent evidence, be merely corroborative, and failure to sufficiently prove said allegation will not significantly affect the finding of the courts below. Nor our own ruling. It is precisely upon the set of facts above-detailed that we concur with

It was never the intent of the legislature to bar court access to a foreign corporation or entity which happens to obtain an isolated order for business in the Philippines. Neither, did it intend to shield debtors from their legitimate liabilitie liabilitiess [15] or obligations. obligations.  But it cannot allow foreign corporations or entities which conduct regular business any access to courts without the fulfillment by such corporations of the necessary requisites to be subjected to our government’s regulation and authority. By securing a license, the fore foreign ign entity would be giving assurance that it

respondent Court that petitioner corporation was doing business in the country.

will abide by the decisions of our courts, even if adverse to it.

Accordingly and ineluctably, petitioner must be held to be incapacitated to maintain the action a quo against private respondent.

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Other Remedy Still Available  

By this judgment, we are not foreclosing petitioner’s right to collect payment. Res judicata does not set in a case dismissed for lack of capacity to sue, [16] because there has been no determination on the merits. merits .  Moreover, this Court has ruled that subsequent acquisition of the license will cure the lack of capacity at [17] the time of the execution of the contract. contract.   The requirement of a license is not meant to put foreign corporations at a disadvantage. Rather, the doctrine of lack of capacity to sue is based on [18] considerations of sound public policy policy.. Thus, it has been ruled in Home [19] Insurance  that  that::   “‘x x x  x  The primary purpose of our statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of this state. The statute was not intended to exclude foreign corporations from the state. x x x x The better reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold that where, as here, there is a prohibition with a penalty, with no express or implied declarations respecting the validity of enforceability of contracts made by qualified foreign corporations, the contracts x x x are enforceable x x x upon compliance with the law.’(Peter & Burghard Stone Co. v. Carper, 172 N.E. 319 *1930+.)” *1930+.)”   While we agree with petitioner that the country needs to develop trade relations and foster friendly commercial relations with other states, we also need to enforce our laws that regulate the conduct of foreigners who desire to do business here. Such strangers must follow our laws and must subject themselves to reasonable regulation by our government.

WHEREFORE, premises considered, the instant petition is hereby DENIED and the assailed Decision is AFFIRMED. SO ORDERED.

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