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Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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
KUN, EMILIO TAEDO, ROBERTO G. CENON and PHILIPPINE BLOOMING MILLS
COMPANY, INC., respondents.
Blanco Law Firm for petitioners.
The Solicitor General for respondent SEC.
Balgos & Perez Law Office for Philippine Blooming Mills Company, Inc.
Quiason, Ermitao, Makalintal & Barot Law Offices for private respondents Ching
Tan and Chiong Tiong Tay.
Angara, Concepcion, Regala & Cruz Law Offices for private respondents.

CRUZ, J.:
The Philippine Blooming Mills Company, Inc. was incorporated on January 19, 1952,
for a term of 25 years which expired on January 19,1977.
1
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
of Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process
of reincorporation.
2
On June 14, 1977, the new PMB was issued a certificate of
incorporation by the Securities and Exchange Commission.
3

On May 5, 1981, Chung Ka Bio and the other petitioners herein, all stockholders of
the old PBM, filed with the SEC a petition for liquidation (but not for 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
continuous failure to operate within 2 years from incorporation.
4

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

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
which only the state could institute through the Solicitor General.
6

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 preliminary injunction and receivership, docketed as SEC EB
No. 018, praying for the annulment and setting aside of the proceedings. On May
10, 1983, the case was remanded to the hearing officers for further proceedings.
7

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
to authorize such conveyance had not been obtained.
10

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 forfeiture or otherwise, or whose
corporate existence for other purposes is terminated in any other
manner, shall nevertheless be continued as a body corporate for
three 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, sell, lease, exchange, or otherwise dispose
of all or substantially all of its property and assets, 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 two-
thirds 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
assignment.)
11
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 unanimous.
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
and close business associates.
12
The PBM office is in the heart of Metro
Manila.
13
The new corporation, like the old, employs as many as 2,000 persons, the
same personnel who worked for the old PBM.
14
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
assets on behalf and as treasurer of the new PBM.
15
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,
by exercising due diligence, could or should have been done earlier.
16
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
assert it.
17
Public policy requires, for the peace of society, the discouragement of
claims grown stale for non-assertion.
18
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
inequitable or unfair to permit.
19

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
complainant.
20

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.
The second contention must also fall with the first, and for the same reasons.
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 self-
defeating 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
directors was subject to the outcome of the petition for liquidation, this is clearly
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 the Corporation Law, part of which is now Section 22 of the
Corporation Code, provided that the powers of the corporation would cease if it 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
affecting the corporate existence of the erring firm.
21

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 subsequent
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
before the filing of the by-laws, which under Section 46 of the Corporation Code,
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must be adopted "within one month after receipt of official notice of the issuance
of its certificate of incorporation."
Distinguishing creation from defects in organization, Fletcher has the following to
say:
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
required by the statute of the meeting for the of or organization;
or though there would failure to fix and limit the amount 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
franchise. ....
In any case, the deficiency claimed by the petitioners was corrected when the new
PBM adopted and filed its by-laws on September 6, 1981,
22
thus rendering the third
issue also moot and academic.
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.
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
the general principle against multiplicity of suits.
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:
d) Petitions of corporations, partnerships or associations to be
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.
This section clearly does not allow a mere individual to file the petition which is
limited to "corporations, partnerships or associations." Administrative agencies like
the SEC are tribunals of limited jurisdiction and, as such, can exercise only those
powers which are specifically granted to them by their enabling
statutes.
23
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.
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.
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 co-
petitioner in SEC Case No. 2250.
WHEREFORE, the appealed decision is AFFIRMED as above modified, with costs
against the petitioners.
SO ORDERED.
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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 100686 August 15, 1995
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.
YUTE, respondents.

ROMERO, J.:
In this petition for certiorari with prayer for temporary restraining order
and/or preliminary injunction, petitioner Pepsi Cola Distributors of the
Philippines, Inc. seeks to set aside the Resolution
1
of the National Labor
Relations Commission (Fifth Division), Cagayan de Oro City, dated April 24,
1991 and the entry of judgment
2
made on June 10, 1991 when said
Resolution became final and executory on May 20, 1991. The dispositive
portion of said Resolution
3
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.
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.
Complainant's claim for moral damages is dismissed for his failure
to show fraud or bad faith on the part of respondent.
SO ORDERED.
The case stemmed from the following facts:
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
company's manufacturing operations in 1981, he was absorbed as a
regular employee.
On December 15, 1988, petitioner PCD terminated private respondent's
employment on the grounds of alleged abandonment of work and/or
absence without leave.
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
PCD.
4

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
decision
5
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 Division), Cagayan de Oro City. In the meanwhile, PCD
reinstated private respondent and included him in the payroll effective 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.
On September 7, 1989, the NLRC, upon motion of private respondent and
other employees
6
similarly situated, issued a writ of execution
7
ordering
PCD to pay their salaries from July 25, 1989 up to September 30, 1989.
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:
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;
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;
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
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;
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
PCPPI from PCD.
On November 29, 1989, private respondent filed another motion for
execution
8
praying that another writ of execution be issued considering that the
previous one issued on September 7, 1989 was not executed.
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.
Petitioner filed a motion for reconsideration of the order of August 17,
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 of
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
Page | 8

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
fraud or bad faith on the part of PCD.
9

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.
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.
On January 14, 1992, or after the petition was given due course
10
on
December 11, 1991, petitioner PCD filed an urgent motion for the issuance
of a writ of preliminary injunction and/or temporary restraining
order
11
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.
On January 20, 1992, a temporary restraining order
12
was issued by this
Court and petitioner PCD was required to post a cash bond or surety bond
in an amount equivalent to the award of the NLRC. On March 14, 1992,
petitioner PCD submitted to the Court a Supersedeas Bond
13
in the
amount of P73,926.00.
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,
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.
It is the contention of petitioner PCD that the dismissal of private
respondent on December 15, 1988 was premised on a just cause after
affording him due process because as early as the first two 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.
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
Philippines, Inc. (PCPPI), a corporation separate and distinct from PCDPI,
should not be held liable for reinstatement with backwages of private
respondent since it is not a party to this case.
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
simply an opportunity or right to be heard.
14
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
attend the scheduled hearings on December 12, 1988 which was reset to
Page | 9

December 14, 1988. In Stronghold Insurance Co., Inc. v. Court of
Appeals,
15
the Court states, thus:
The circumstance that the chance to be heard is not availed of
does not disparage that opportunity and deprive the person of
the right to due process. . . . (D)ue process is not violated where 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
opportunity to submit position papers.
16

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 not controverted by petitioner. As correctly observed by the Labor
Arbiter, private respondent should have been given a warning first, then 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 from 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,
Page | 10

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.
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
Cola Products Philippines, Inc. (PCPPI) is liable for the illegal acts of its
predecessor-in-interest PCD, as in the instant case, has already been
settled in the case of Pepsi Cola Bottling Co. v. NLRC.
17
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-in-
interest, 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:
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
entity or purchasing company is free from any liabilities incurred
by the former corporation.
18

There is thus no grave abuse of discretion on the part of public respondent
NLRC when it ordered PCD and PCPPI to reinstate private respondent to his
former position without loss of seniority rights, with full backwages 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.
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.

Page | 11

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.
D E C I S I O N
CARPIO, J.:
The Case
This is a petition for review
1
to set aside the Decision
2
dated 15 June 2000 and the
Resolution
3
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
Decision
4
of the National Labor Relations Commission (NLRC) in NLRC NCR 02-
00949-95.
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,
attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far
Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu.
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
Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with respondent Filsyn having
controlling interest; that complainant was absorbed by Peggy Mills as its 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 to pay complainants
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 complainants monthly salary of 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.
Page | 12

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
acquired by Sta. Rosa Textile Corporation which was established in April 1992 but
still remains non-operational at 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 complainants monthly salary at Peggy Mills 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
complainants 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 complainants claim of two (2) business class airline tickets;
that complainants 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
attorneys fees.
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
respondents have the same offices and key personnel such as Patricio Lim and Eric
Hu; that respondents Position Paper is verified by Marialen C. Corpuz who 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 latters letters (Annexes "E-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
complainants two (2) round trip tickets to London in 1983 and 1986 as reflected in
Page | 13

the complainants 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 attorneys fees; that
all doubts must be resolved in favor of complainant; and that complainant reserved
the right to file perjury cases against those concerned.
In their Reply, respondents alleged that except for Peggy Mills, the other
respondents are not proper persons in interest due to the lack of employer-
employee relationship between them and complainant; that undersigned counsel
does not represent Peggy Mills, Inc.
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 companys formula of employees
monthly rate x 314 days over 12 months already included holiday pay; that
complainants unpaid portion of the 13th month pay in 1993 has no basis because
he was only an employee up to December 31, 1992; that the 13th month pay was
based on his last salary; and that complainant is not entitled to damages.
5

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 complainants money claims as adjudicated above and computed below as
follows:
Retirement Benefits (one month salary for every year of service)
6/80 - 11/30/93 = 14 years
P60,000 x 14.0 mos. P840,000.00
Vacation and Sick Leave (3 yrs.)
P2,000.00 x 22 days x 3 yrs. 132,000.00
Underpayment of Salaries (3 yrs.)
P60,000 - P50,495 = P9,505
P 9,505 x 36.0 mos. ... 342,180.00
Holiday Pay (3 yrs.)
P2,000 x 30 days . 60,000.00
Underpayment of 13th month pay (1993) ... 15,816.87
Moral Damages .. 3,000,000.00
Exemplary Damages .. 1,000,000.00
10% Attorneys 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
SO ORDERED.
6

Page | 14

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:
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.
All other claims are DISMISSED for lack of merit.
SO ORDERED.
7

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

The Ruling of the Court of Appeals
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
4. attorneys fees equivalent to 10% of the total award.
No costs is awarded.
SO ORDERED.
10

The Court of Appeals rejected McLeods 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 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 address; and (4) all
respondent corporations have common officers and key personnel, would not
justify the application of the doctrine of piercing the veil of corporate fiction.
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.
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.
Reiterating the ruling of this Court in Laguio v. NLRC,
11
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.
Page | 15

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 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 NLRCs finding that no employer-
employee relationship existed between McLeod and respondent corporations
except PMI.
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 companys Chairman and President.
The Court of Appeals pointed out that Patricio deliberately and maliciously evaded
PMIs financial obligation to McLeod. The Court of Appeals stated that, on several
occasions, despite his approval, Patricio refused and ignored to pay McLeods
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 right.
The Court of Appeals stated that considering that PMI was no longer in operation,
its "officer should be held liable for acting on behalf of the corporation."
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 NLRCs finding 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.
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.
Moreover, the Court of Appeals rejected McLeods argument that since PMI 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 also denied McLeods claims for underpayment of salaries and
his 13th month pay for the year 1994. The Court of Appeals upheld the NLRCs
ruling that it could be deduced from McLeods 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 found the award of moral damages for P50,000 in order
because of the "stubborn refusal" of PMI and Patricio to respect McLeods valid
claims.
The Court of Appeals also ruled that attorneys fees equivalent to 10% of the total
award should be given to McLeod under Article 2208, paragraph 2 of the Civil
Code.
12

Hence, this petition.
The Issues
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;
Page | 16

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 financial 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
Labor Code of the Philippines, as amended.
13

The Courts Ruling
The petition must fail.
McLeod asserts that the Court of Appeals should not have upheld the NLRCs
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 NLRCs ruling that his cause of action was only against PMI.
These assertions do not deserve serious consideration.
Records disclose that McLeod was an employee only of PMI.
14
PMI hired McLeod as
its acting Vice President and General Manager on 20 June 1980.
15
PMI confirmed
McLeods appointment as Vice President/Plant Manager in the Special Meeting of
its Board of Directors on 10 February 1981.
16
McLeod himself testified during the
hearing before the Labor Arbiter that his "regular employment" was with PMI.
17

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

PMI informed its employees, including McLeod, of the closure.
20
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
relationship between them ended on 25 November 1992.
21

Records also disclose that PMI extended McLeods service up to 31 December 1992
"to wind up some affairs" of the company.
22
McLeod testified on cross-examination
that he received his last salary from PMI in December 1992.
23

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,
he asked all the respondents for the payment of his benefits.
24

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 | 17

the latter has received payment for the Obligations from PMI, under APTs 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;
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 PMIs creditor
thereby;
WHEREAS, in payment to SRTC for PMIs 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;
x x x x
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:
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,
title and interest in and to the Assets by way of a dation in payment.
25
(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
into the transaction to escape liability for those debts.
26

None of the foregoing exceptions is present in this case.
Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum
of P210,000,000. We are not 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.
There was also no merger or consolidation of PMI and SRTI.
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
the combined business.
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.
The surviving or consolidated corporation assumes automatically the liabilities of
the dissolved corporations, regardless of whether the creditors have consented or
not to such merger or consolidation.
27

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 PMIs debts.
Pertinent portions of the subject Deed of Dation in Payment with Lease provide,
thus:
Page | 18

2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the
following:
x x x x
(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any
liability for claims of PMIs creditors, laborers, and workers and for physical injury or
injury to property arising from PMIs custody, possession, care, repairs,
maintenance, use or operation of the Assets except ordinary wear and
tear;
28
(Emphasis supplied)
Also, McLeod did not present any evidence to show the alleged renaming of "Peggy
Mills, Inc." to "Sta. Rosa Textiles, Inc."
Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity.
Respondent corporations assert that SRTI hired McLeod as consultant after PMI
stopped operations.
29
On the other hand, McLeod asserts that he was respondent
corporations employee from 1980 to 30 November 1993.
30
However, McLeod failed
to present any proof of employer-employee relationship between him and Filsyn,
SRTI, or FETMI. McLeod testified, thus:
ATTY. ESCANO:
Do you have any employment contract with Far Eastern Textile?
WITNESS:
It is my belief up the present time.
ATTY. AVECILLA:
May I request that the witness be allowed to go through his Annexes, Your Honor.
ATTY. ESCANO:
Yes, but I want a precise answer to that question. If he has an employment contract
with Far Eastern Textile?
WITNESS:
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.
ATTY. ESCANO:
But the answer is still, there is no employment contract in your possession
appointing you in any capacity by Far Eastern?
WITNESS:
There was no written contract, sir.
x x x x
ATTY. ESCANO:
So, there is proof that you were in fact really employed by Peggy Mills?
WITNESS:
Yes, sir.
ATTY. ESCANO:
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?
WITNESS:
Page | 19

I have no document, sir.
ATTY. ESCANO:
What about Far Eastern Textile Mills?
WITNESS:
I have no document, sir.
ATTY. ESCANO:
And Sta. Rosa Textile Mills?
WITNESS:
There is no document, sir.
31

x x x x
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.
x x x x
Q And what about respondent Eric Hu. Have you had any contract of employment
from Mr. Eric Hu?
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.
Q No documents to show, Mr. McLeod?
A No. No documents, sir.
32

McLeod could have presented evidence to support his allegation of employer-
employee 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
evidence of employee status.
33

It is a basic rule in evidence that parties must prove their affirmative allegations.
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
enough. They must be supported by substantial evidence at the very least.
34

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
interlocking directors and officers.
35

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
may be connected.
36

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,
or defend crime,
37
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
Page | 20

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
corporation.
38

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

Here, we do not find any of the evils sought to be prevented by the doctrine of
piercing the corporate veil.
Respondent corporations may be engaged in the same business as that of PMI, but
this fact alone is not enough reason to pierce the veil of corporate fiction.
40

In Indophil Textile Mill Workers Union v. Calica,
41
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
to justify the piercing of the corporate veil of Acrylic.
42
(Emphasis supplied)
Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto
Bldg., Paseo de Roxas, Makati City,
43
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
terms and conditions stated hereunder."
44

As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA-
Lepanto Bldg., Paseo de Roxas, Makati City,
45
while FETMI held office at 18F, Tun
Nan Commercial Building, 333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan,
R.O.C.
46
Hence, they did not have the same address as that of PMI.
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
Palanca, Jr.
47
While Patricio was Director and Board Chairman of Filsyn, SRTI, and
PMI,
48
he was never an officer of FETMI.
Eric Hu, on the other hand, was Director of Filsyn and SRTI.
49
He was never an
officer of PMI.
Marialen C. Corpuz, Filsyns Finance Officer,
50
testified on cross-examination that (1)
among all of Filsyns 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;
and (3) Filsyn and PMI are "two separate companies."
51

Apolinario L. Posio, PMIs Chief Accountant, testified that "SRTI is a different
corporation from PMI."
52

At any rate, the existence of interlocking incorporators, directors, and officers is not
enough justification to pierce the veil of corporate fiction, in the absence of fraud or
other public policy considerations.
53

In Del Rosario v. NLRC,
54
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, McLeods
cause of action is only against his former employer, PMI.
On Patricios 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
made personally liable for corporate liabilities.
55

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
through its directors, officers, and employees, are its sole liabilities.
56

Page | 21

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;
(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
answerable for their corporate action.
57

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
motive or interest. It partakes of the nature of fraud.
58

In the present case, there is nothing substantial on record to show that Patricio
acted in bad faith in terminating McLeods services to warrant Patricios 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 McLeods money claims.
The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,
59
which the Court of Appeals
cited, does not apply to this case. We quote pertinent portions of the ruling, thus:
(a) Article 265 of the Labor Code, in part, expressly provides:
"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:
"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."
(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:
"(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.
x x x x
(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
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,
1972 Decision of the Court of Industrial Relations was promulgated against
RANSOM.
60
(Emphasis supplied)
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
case. In Santos v. NLRC,
61
the Court held, thus:
Page | 22

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
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 was dismissed for the latters claim for unpaid wages.
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 Courts 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
Directors 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
() 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
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.
It is basic that a corporation is invested by law with a personality separate and
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
the payment of private respondents back salaries.
62
(Emphasis supplied)
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 Article 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.
v. Marina Properties Corporation:
63

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
Page | 23

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

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:
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)
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
employer or the agreement between the employer and employee.
65
In the present
case, there is no showing that McLeod and PMI had an agreement concerning
payment of these benefits.
McLeods assertion of underpayment of his 13th month pay in December 1993 is
unavailing.
66
As already stated, PMI stopped plant operations in 1992. McLeod
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
an employee, he was not entitled to the 13th month pay.
67
Besides, there is no
evidence on record that McLeod indeed received his alleged "reduced 13th month
pay of P44,183.63" in December 1993.
68

Also unavailing is McLeods claim that he was entitled to the "unpaid monetary
equivalent of unused plane tickets for the period covering 1989 to 1992 in the
amount of P279,300.00."
69
PMI has no company policy granting its officers and
employees expenses for trips abroad.
70
That at one time PMI reimbursed McLeod
for his and his wifes plane tickets in a vacation to London
71
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
period, and must be shown to have been consistent and deliberate.
72

In American Wire and Cable Daily Rated Employees Union v. American Wire and
Cable Co., Inc.,
73
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.
McLeods reliance on Annex M
74
can hardly carry the day for him. Annex M, which is
McLeods letter addressed to "Philip Lim, VP Administration," merely contains
McLeods proposals for the grant of some benefits to supervisory and confidential
employees. Contrary to McLeods 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 McLeods assertions find support in Annex 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
finances; that it would be repaid."
76
Were McLeod not amenable to that reduction
in salary, he could have immediately resigned from his work in PMI.
Page | 24

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
aware that the company had incurred "huge loans from DBP."
77
As it happened,
McLeod continued to work with PMI. We find it pertinent to quote some portions
of Apolinario Posios 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?
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?
A Yes, sir.
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 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?
A Yes, sir.
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 dont have any personal knowledge of any complaint, 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.
Q And that this was so because on account of the strike, there was no work to be
done in the company?
A Yes, sir.
78

x x x x
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 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.
Page | 25

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?
A Yes, sir.
79

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.
Since PMI has no retirement plan,
80
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.
5.2 Components of 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
With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is
entitled to a retirement pay equivalent to month salary for every 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,
malicious, or in bad faith, oppressive or abusive.
81
From the records of the case, the
Court finds no ultimate facts to support a conclusion of bad faith on the part of PMI.
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
admitted at the hearing before the Labor Arbiter that PMI has made this offer
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?
WITNESS:
That is correct, sir.
ATTY. ESCANO:
And this amount is correct P840,000.00, according to your Position Paper?
WITNESS:
That is correct, sir.
ATTY. ESCANO:
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?
Page | 26

WITNESS:
I was told that a fixed sum of P840,000.00 was offered.
ATTY. ESCANO:
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?
WITNESS:
Yes, sir.
ATTY. ESCANO:
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:
Not on the concept without all the basic benefits due me, I will refuse.
82

x x x x
ATTY. ROXAS:
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.
ATTY. ESCANO:
No. What was mentioned was the amount of P840,000.00.
WITNESS:
What did you say, Atty. Escano?
ATTY. ESCANO:
The amount that I mentioned was P840,000.00 corresponding to the . . . . . . .
WITNESS:
May I ask that the question be clarified, your Honor?
ATTY. ROXAS:
Q You mentioned that you were offered for the settlement of your claims in 1994
for P840,000.00, is that right, Mr. Witness?
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
anyway due to a compromise situation to the benefits I am entitled to.
83

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

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 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
Page | 27

bond as provided in Section 5 of this Rule; 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
by the appellant. These are not jurisdictional requirements.
85

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 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 and attorneys fees are deleted. No pronouncement as to
costs.
SO ORDERED.

Page | 28

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.
D E C I S I O N
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.
SEC. 2. In accordance with Article 253-A of the Labor Code as amended, the term of
this Agreement insofar as the representation aspect is concerned, shall be for five
(5) years from 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
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
the parties.
[1]

In keeping with their vision and long term strategy for business expansion,
SMC management informed its employees in a letter dated August 13, 1991
[2]
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
a restructuring.
[3]

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 the negotiations, the petitioner-union insisted that the bargaining unit
of SMC should still include the 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.
Page | 29

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 conducted which resulted in a yes
vote in favor of a 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.
As prayed for, the Secretary of Labor assumed jurisdiction over the labor
dispute on November 10, 1992.
[4]
Several conciliation meetings were held but still
no agreement/settlement was arrived at by both parties.
After the parties submitted their respective position papers, the Secretary of
Labor issued the assailed Order on February 15, 1993 directing, among others, that
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.
Dissatisfied, petitioner-union now comes to this Court questioning this Order
of the Secretary of Labor.
Subsequently, on March 30, 1995,
[5]
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 issued a resolution granting the temporary
restraining order prayed for.
[6]

Meanwhile, an urgent motion for leave to intervene
[7]
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.
Laguesma,
[8]
G.R. No. 101766, March 5, 1993, where the Court recognized the
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 considering 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:
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
2) Whether or not the bargaining unit of SMC includes also the
employees 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
matter of the labor dispute at Philippine Refining Company.
[9]

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
Page | 30

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, shall retroact to the day immediately 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.)
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 has 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
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,
except representation.
[10]

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:
THE CHAIRMAN (REP. VELASCO): . . . the CBA, insofar as the economic
provisions are concerned . . .
THE CHAIRMAN (SEN. HERRERA): Maximum of three years?
THE CHAIRMAN (SEN. VELOSO): Maximum of three years.
THE CHAIRMAN (SEN. HERRERA): Present practice?
THE CHAIRMAN (REP. VELOSO): In other words, after three years puwede
nang magnegotiate in that CBA for the remaining two years.
THE CHAIRMAN (REP. HERRERA): You can negotiate for one year, two years or
three years but assuming three years which, I think, thats the likelihood.
. . .
THE CHAIRMAN (REP. VELOSO): Yes.
THE CHAIRMAN (SEN. HERRERA): Three years, the new union, assuming there
will be a change of agent, at least he has one year to administer and to
adjust, to develop rapport with the management. Yan ang importante.
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.
Actually, ang thrust natin ay industrial peace, and there can be no
industrial peace if you encourage union to fight each other. Yan ang
problema.
[12]

x x x x x x x x x
HON. ISIDRO: Madali iyan, kasi these two periods that are mentioned in the
CBA seem to provide some doubts later on in the 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 three years.
HON. CHAIRMAN HERRERA: No. Ang three years duon sa terms and
conditions, not later than three years.
HON. ISIDRO: Not later than three years, so within three years you have to
make a new CBA.
HON. CHAIRMAN HERRERA: Yes.
HON. ISIDRO: That is again for purposes of renewing the terms, three years na
naman iyan then, seven years . . .
Page | 31

HON. CHAIRMAN HERRERA: Not later than three years.
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: One year na lang because six years nang lahat,
three plus three.
HON ISIDRO: Hindi, two years pa rin 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. 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 time 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-year 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 two years na lang.
HON. CHAIRMAN HERRERA: Two years na lang sa representation.
HON. ANIAG: So that if they changed the union, iyong last year. . . .
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 know each other.
HON. JABAR: Boy, let us be realistic. 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, pag-
mayroon 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 agad.
HON. CHAIRMAN VELOSO: Mon, for four years?
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? Whats wrong with having a uniform expiration 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, thats the average, aabot pa minsan ng one year. Pagkatapos
ng negotiation mo, signing kayo. There will be an 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-
Page | 32

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 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 . . .
x x x
HON. CHAIRMAN VELOSO. (continuing) . . in other words, the longer the
period of effectivity of the CBA, the better for industrial peace.
HON. CHAIRMAN HERRERA: representation status.
HON. CHAIRMAN VELOSO: Only on
HON. CHAIRMAN HERRERA: the representations.
HON. CHAIRMAN VELOSO: But on the economic issues.
HON. CHAIRMAN HERRERA: You have to review that. The parties will have to
review that.
HON. CHAIRMAN VELOSO: At least on second year.
HON. CHAIRMAN HERRERA: Not later than 3 years ang karamihan ng mga,
mag-negotiate when the company is (interrupted)
[13]

x x x
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 non-
economic 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
(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
agreement.
[14]
Notably, the framers of the law did not give a fixed term as to the
effectivity of the terms and conditions of 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:
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.
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 SMCs peculiar
situation as compared with PRCs 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 ruling for a shortened term, we were guided by our considered
perception that the said term would improve, rather than ruin, the general 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 consideration to the peculiarities and unique
characteristics of the employer. In the case at bar, there is no dispute that the
mother corporation (SMC) spun-off two of its divisions and thereby gave birth to
Page | 33

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
their CBA negotiations on the remaining term and all of them agreed on a 3-year
cycle. Notably, the following CBAs were forged incorporating a term of 3-years on
the renegotiated provisions, to wit:
1. SMC - daily-paid employees union (IBM)
2. SMF - monthly-paid employees and daily-paid employees at the Cabuyao
Plant.
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 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 to a 3-year renegotiated terms. If this happens, the purpose of this
Offices intervention into the parties controversy would have been defeated.
[15]

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
election case involving the SMC employees.
[16]
In said memorandum, the Secretary
of Labor had occasion to clarify the term of the renegotiated terms of the CBA vis-a-
vis the term of the bargaining agent, to wit:
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.
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.
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 petitioner-
unions 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 need 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. We further stated in
the 1987 Annual Report to Stockholders that San Miguels 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 end-
consumers. As subsidiaries, Magnolia and FLD will gain better industry focus and
flexibility, greater awareness of operating results, and speedier, more responsive
decision making.
x x x
Page | 34

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
and FLD will be successful as that of CCBPI.
[17]

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
veil.
[18]
Ever mindful of the employees interests, management has assured the
concerned employees that they will be absorbed by the new corporations without
loss of tenure and retaining their present pay and benefits according to the existing
CBAs.
[19]
They were advised that upon the expiration of the CBAs, new agreements
will be negotiated between the management of the new corporations and the
bargaining representatives of the employees concerned. As a result of the spin-
offs:
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
separately from each other.
[20]

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.
Ople.
[21]
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-unions attempt to include the employees 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
performed.
[22]
Considering the spin-offs, the companies would consequently have
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
products
[23]
while SMFI is involved in the production of feeds and the processing of
chicken.
[24]
The nature of their products and scales of business may require
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
Philippines v. Ferrer-Calleja
[25]
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 factors? 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
Page | 35

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

Page | 36

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-39050 February 24, 1981
CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents.

DE CASTRO, J.:
Private respondent Insular Sawmill, Inc. is a corporation organized on September
17, 1945 with a corporate life of fifty (50) years, or up to September 17, 1995, with
the primary purpose of carrying on a general lumber and sawmill business. To carry
on this business, private respondent leased the paraphernal property of petitioner-
wife Guillermina M. Gelano at the corner of Canonigo and Otis, Paco, Manila for
P1,200.00 a month. It was while private respondent was leasing the aforesaid
property that its officers and directors had come to know petitioner-husband Carlos
Gelano who received from the corporation cash advances on account of rentals to
be paid by the corporation on the land.
Between November 19, 1947 to December 26, 1950 petitioner Carlos Gelano
obtained from private respondent cash advances of P25,950.00. The said sum was
taken and received by petitioner Carlos Gelano on the agreement that private
respondent could deduct the same from the monthly rentals of the leased premises
until said cash advances are fully paid. Out of the aforementioned cash advances in
the total sum of P25,950.00, petitioner Carlos Gelano was able to pay only
P5,950.00 thereby leaving an unpaid balance of P20,000.00 which he refused to pay
despite repeated demands by private respondent. Petitioner Guillermina M. Gelano
refused to pay on the ground that said amount was for the personal account of her
husband asked for by, and given to him, without her knowledge and consent and
did not benefit the family.
On various occasions from May 4, 1948 to September 11, 1949 petitioners husband
and wife also made credit purchases of lumber materials from private respondent
with a total price of P1,120.46 in connection with the repair and improvement of
petitioners' residence. On November 9, 1949 partial payment was made by
petitioners in the amount of P91.00 and in view of the cash discount in favor of
petitioners in the amount of P83.00, the amount due private respondent on
account of credit purchases of lumber materials is P946.46 which petitioners failed
to pay.
On July 14, 1952, in order to accommodate and help petitioners renew previous
loans obtained by them from the China Banking Corporation, private respondent,
through Joseph Tan Yoc Su, executed a joint and several promissory note with
Carlos Gelano in favor of said bank in the amount of P8,000.00 payable in sixty (60)
days. For failure of Carlos Gelano to pay the promissory note upon maturity, the
bank collected from the respondent corporation the amount of P9,106.00 including
interests, by debiting it from the corporation's current account with the bank.
Petitioner Carlos Gelano was able to pay private respondent the amount of
P5,000.00 but the balance of P4,106.00 remained unsettled. Guillermina M. Gelano
refused to pay on the ground that she had no knowledge about the accommodation
made by the corporation in favor of her husband.
On May 29, 1959 the corporation, thru Atty. German Lee, filed a complaint for
collection against herein petitioners before the Court of First Instance of Manila.
Trial was held and when the case was at the stage of submitting memorandum,
Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde took over
and prepared the memorandum.
In the meantime, private respondent amended its Articles of Incorporation to
shorten its term of existence up to December 31, 1960 only. The amended Articles
of Incorporation was filed with, and approved by the Securities and Exchange
Commission, but the trial court was not notified of the amendment shortening the
corporate existence and no substitution of party was ever made. On November 20,
1964 and almost four (4) years after the dissolution of the corporation, the trial
court rendered a decision in favor of private respondent the dispositive portion of
which reads as follows:
WHEREFORE, judgment is rendered, ordering:
Page | 37

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.
SO ORDERED.
1

Both parties appealed to the Court of Appeals, private respondent also appealing
because it insisted that both Carlos Gelano and Guillermina Gelano should be held
liable for the substantial portion of the claim.
On August 23, 1973, the Court of Appeals rendered a decision modifying the
judgment of the trial court by holding petitioner spouses jointly and severally liable
on private respondent's claim and increasing the award of P4,106.00. The
dispositive portion of the decision reads as follows:
WHEREFORE, modified in the sense that the amount of P4,160.00
under paragraph 1 (b) is raised to P8,160.00 and the clarification
that the conjugal partnership of the spouses is jointly and
severally liable for the obligations adjudged against defendant
Carlos Gelano, the judgment appealed from is affirmed in all other
respects.
2

After petitioners received a copy of the decision on August 24, 1973, they came to
know that the Insular Sawmill Inc. was dissolved way back on December 31, 1960.
Hence, petitioners filed a motion to dismiss the case and/or reconsideration of the
decision of the Court of Appeals on grounds that the case was prosecuted even
after dissolution of private respondent as a corporation and that a defunct
corporation cannot maintain any suit for or against it without first complying with
the requirements of the winding up of the affairs of the corporation and the
assignment of its property rights within the required period.
Incidentally, after receipt of petitioners' motion to dismiss and/or reconsideration
or on October 28, 1973, private respondent thru its former directors filed a Petition
for Receivership before the Court of First Instance of Manila, docketed as Special
Proceedings No. 92303,
3
which petition is still pending before said court.
On November 5, 1973, private respondent filed comment on the motion to dismiss
and or reconsideration and after the parties have filed reply and rejoinder, the
Court of Appeals on July 5, 1974 issued a resolution
4
denying the aforesaid motion.
Hence, the present petition for review, petitioners assigning the following errors:
I
THE "RESPONDENT COURT" ERRED IN DENYING PETlTIONERS
MOTION TO DISMISS THIS CASE DESPITE THE CLEAR FINDING
THAT "RESPONDENT" HAD ALREADY CEASED TO EXIST AS A
CORPORATION SINCE DECEMBER 31, 1960 YET.
Page | 38

II
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT
ACTIONS PENDING FOR OR AGAINST A DEFUNCT CORPORATION
ARE DEEMED ABATED.
III
THE "RESPONDENT COURT" ERRED IN HOLDING INSTEAD THAT
EVEN IF THERE WAS NO COMPLIANCE WITH SECTIONS 77 AND 78
OF THE CORPORATION LAW FOR THE WINDING UP OF THE
AFFAIRS OF THE CORPORATION BY THE CONVEYANCE OF
CORPORATE PROPERTY AND PROPERTY RIGHTS TO AN ASSIGNEE,
OR TRUSTEE OR THE APPOINTMENT OF A RECEIVER WITHIN
THREE YEARS FROM THE DISSOLUTION OF SUCH CORPORATION,
ANY LITIGATION FILED BY OR AGAINST THE DISSOLVED
CORPORATION, INSTITUTED WITHIN THREE YEARS AFTER SUCH
DISSOLUTION BUT WHICH COULD NOT BE TERMINATED WITHIN
SAID PERIOD, MAY STILL BE CONTINUED AS IT IS NOT DEEMED
ABATED.
IV
THE "RESPONDENT COURT" ERRED IN THE APPLICATION TO THIS
CASE OF ITS RULING IN PASAY CREDIT AND FINANCE
CORPORATION, VERSUS LAZARO, ET AL., 46 O.G. (11) 5528, AND
IN OVERLOOKING THE DISTINCTION LAID DOWN BY THIS
HONORABLE COURT IN NUMEROUS DECIDED CASES THAT ONLY
CASES FILED IN THE NAME OF ASSIGNEES, TRUSTEES OR
RECEIVERS (FOR A DEFUNCT CORPORATION), AI)POINTED WITHIN
THREE YEARS FROM ITS DISSOLUTION, MAY BE PROSECUTED
BEYOND THE SAID THREE YEAR PERIOD, AND THAT, ALL OTHERS
ARE DEEMED ABATED.
V
THE "RESPONDENT COURT" ERRED IN HOLDING THAT WITH THE
FILING OF SPECIAL PROCEEDINGS NO. 92303 IN THE COURT OF
FIRST INSTANCE OF MANILA BY FORMER DIRECTORS OF "PRIVATE
RESPONDENT" ON OCTOBER 23,1973, OR, THIRTEEN YEARS AFTER
ITS DISSOLUTION, A LEGAL, PERSONALITY WILL BE APPOINTED TO
REPRESENT THE CORPORATION.
VI
THE "RESPONDENT COURT" ERRED IN PRACTICALLY RULING THAT
THE THREE-YEAR PERIOD PROVIDED FOR BY THE CORPORATION
LAW WITHIN WHICH ASSIGNEES, TRUSTEES FOR RECEIVERS MAY
BE APPOINTED MAY BE EXTENDED.
VII
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT THE
FAILURE OF "PRIVATE RESPONDENT" OR ITS AUTHORIZED
COUNSEL TO NOTIFY THE TRIAL COURT OF ITS DISSOLUTION OR
OF ITS "CIVIL DEATH" MAY BE CONSIDERED AS AN
ABANDONMENT OF ITS CAUSE OF ACTION AMOUNTING TO A
FAILURE TO PROSECUTE AND RESULTING IN THE ABATEMENT OF
THE SUIT.
VIII
THE "RESPONDENT COURT" ERRED IN RECOGNIZING THE
PERSONALITY OF COUNSEL APPEARING FOR PRIVATE
RESPONDENT' DESPITE HIS ADMISSION THAT HE DOES NOT
KNOW THE "PRIVATE RESPONDENT" NOR HAS HE MET ANY OF ITS
DIRECTORS AND OFFICERS.
IX
THE "RESPONDENT COURT" ERRED IN AFFIRMING THE DECISION
OF THE TRIAL COURT HOLDING IN FAVOR OF "PRIVATE
RESPONDENT".
X
Page | 39

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-
HUSBAND, CARLOS GELANO.
The main issue raised by petitioner is whether a corporation, whose corporate life
had ceased by the expiration of its term of existence, could still continue
prosecuting and defending suits after its dissolution and beyond the period of three
years provided for under Act No. 1459, otherwise known as the Corporation law, to
wind up its affairs, without having undertaken any step to transfer its assets to a
trustee or assignee.
The complaint in this case was filed on May 29, 1959 when private respondent
Insular Sawmill, Inc. was still existing. While the case was being tried, the
stockholders amended its Articles of Incorporation by shortening the term of its
existence from December 31, 1995 to December 31, 1960, which was approved by
the Securities and Exchange Commission.
In American corporate law, upon which our Corporation Law was patterned, it is
well settled that, unless the statutes otherwise provide, all pending suits and
actions by and against a corporation are abated by a dissolution of the
corporation.
5
Section 77 of the Corporation Law provides that the corporation shall
"be continued as a body corporate for three (3) years after the time when it would
have been ... dissolved, for the purpose of prosecuting and defending suits By or
against it ...," so that, thereafter, it shall no longer enjoy corporate existence for
such purpose. For this reason, Section 78 of the same law authorizes the
corporation, "at any time during said three years ... to convey all of its property to
trustees for the benefit of members, Stockholders, creditors and other interested,"
evidently for the purpose, among others, of enabling said trustees to prosecute and
defend suits by or against the corporation begun before the expiration of said
period.
6
Commenting on said sections, Justice Fisher said:
It is to be noted that the time during which the corporation,
through its own officers, may conduct the liquidation of its assets
and sue and be sued as a corporation is limited to three years
from the time the period of dissolution commences; but that
there is no time limited within which the trustees must complete
a liquidation placed in their hands. It is provided only (Corp. Law,
Sec. 78) that the conveyance to the trustees must be made within
the three-year period. It may be found impossible to complete the
work of liquidation within the three-year period or to reduce
disputed claims to judgment. The authorities are to the effect that
suits by or against a corporation abate when it ceased to be an
entity capable of suing or being sued (7 R.C.L. Corps., Par. 750);
but trustees to whom the corporate assets have been conveyed
pursuant to the authority of Section 78 may sue and be sued as
such in all matters connected with the liquidation. By the terms of
the statute the effect of the conveyance is to make the trustees
the legal owners of the property conveyed, subject to the
beneficial interest therein of creditors and stockholders.
7

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

However, a corporation that has a pending action and which cannot be terminated
within the three-year period after its dissolution is authorized under Section 78 to
convey all its property to trustees to enable it to prosecute and defend suits by or
against the corporation beyond the Three-year period although private respondent
(did not appoint any trustee, yet the counsel who prosecuted and defended the
interest of the corporation in the instant case and who in fact appeared in behalf of
the corporation may be considered a trustee of the corporation at least with
respect to the matter in litigation only. Said counsel had been handling the case
when the same was pending before the trial court until it was appealed before the
Court of Appeals and finally to this Court. We therefore hold that there was a
substantial compliance with Section 78 of the Corporation Law and as such, private
respondent Insular Sawmill, Inc. could still continue prosecuting the present case
even beyond the period of three (3) years from the time of its dissolution.
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
Page | 40

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 ofPasay 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
liquidation would lose what should justly belong to them or would
be exempt from the payment of just obligations through a mere
technicality, something that courts should prevent" (Philippine
Commercial Laws by Martin, 1962 Ed., Vol. 2, p. 1716).
merits the approval of this Court.
The last two assigned errors refer to the disposition of the main case. Petitioners
contend that the obligations contracted by petitioner Carlos Gelano from
November 19, 1947 until August 18, 1950 (before the effectivity of the New Civil
Code) and from December 26, 1950 until July 14, 1952 (during the effectivity of the
New Civil Code) were his personal obligations, hence, petitioners should not be held
jointly and severally liable. As regards the said issues, suffice it to say that with the
findings of the Court of Appeals that the obligation contracted by petitioner-
husband Carlos Gelano redounded to the benefit of the family, the inevitable
conclusion is that the conjugal property is liable for his debt pursuant to paragraph
1, Article 1408, Civil Code of 1889
9
which provision incidentally can still be found in
paragraph 1, Article 161 of the New Civil Code.
10
Only the conjugal partnership is
liable, not joint and several as erroneously described by the Court of Appeals, the
conjugal partnership being only a single entity.
WHEREFORE, with the modification that only the conjugal partnership is liable, the
appealed decision is hereby affirmed in all other respects. Without pronouncement
as to costs.
SO ORDERED.

Page | 41

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47701 June 27, 1941
THE MENTHOLATUM CO., INC., ET AL., petitioners,
vs.
ANACLETO MANGALIMAN, ET AL., respondents.
Araneta, Zaragoza, Araneta & Bautista for petitioners.
Benito Soliven for respondents.
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
"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.
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 decision reading
thus:
En meritos de todo lo expuesto, este Juzgado dicta sentencia:
(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 daos 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 June 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.
Page | 42

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 Philippine-
American 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.)
Page | 43

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
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
are to be taken as true for the purpose of the action. (46 C. J., sec. 121, pp. 122-
124.) 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
in Western Equipment and Supply Co. vs. Reyes regarding the character of the right
involved should not be construed in derogation of the policy-determining authority
of the State.
The right of the petitioner conditioned upon compliance with the requirements of
section 69 of the Corporation Law to protect its rights, is hereby reserved.
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."
Page | 44

SECOND DIVISION
[G.R. No. 102223. August 22, 1996]
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.
D E C I S I O N
TORRES, JR., J.:
Business Corporations, according to Lord Coke, have no 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 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.
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.
On August 14, 1987, ITEC entered into a contract with petitioner ASPAC
referred to as Representative Agreement.
[1]
Pursuant to the contract, ITEC
engaged ASPAC as its exclusive representative in the Philippines for the sale of
ITECs products, in consideration of which, ASPAC was paid a stipulated
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
companies.
[2]
The said agreement was initially for a term of twenty-four
months. After the lapse of the agreed period, the agreement was renewed for
another twenty-four months.
Through a License Agreement
[3]
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,
to their sole customer, the Philippine Long Distance Telephone Company, (PLDT, for
brevity).
To facilitate their transactions, ASPAC, dealing under its new appellation, and
PLDT executed a document entitled PLDT-ASPAC/ITEC PROTOCOL
[4]
which defined
the project details for the supply of ITECs 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
contractual commitment as stipulated in their agreements.
[5]

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 and information of ITECs products
specifications to develop their own line of equipment and product support, which
are similar, if not identical to ITECs own, and offering them to ITECs former
customer.
On January 31, 1991, the complaint
[6]
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 manner, similar or
Page | 45

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, plaintiffs trademark, internationally
known as ITEC; and the recovery from defendants in solidum, damages of at least
P500,000.00, attorneys fees and litigation expenses.
In due time, defendants filed a motion to dismiss
[7]
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
INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC.
[8]

In their Supplemental Motion to Dismiss,
[9]
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
quo on February 22, 1991, issued its Order:
[10]
(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
Court of Appeals on a Petition for Certiorari and Prohibition
[11]
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 courts) ruling. We therefore are unable to find in respondent Judges
issuance of said writ the grave abuse of discretion ascribed thereto by the
petitioners.
In fine, We find that the petition prima facie does not show that Certiorari lies in
the present case and therefore, the petition does not deserve to be given due
course.
WHEREFORE, the present petition should be, as it is hereby, denied due course and
accordingly, is hereby dismissed. Costs against the petitioners.
SO ORDERED."
[12]

Petitioners filed a motion for reconsideration
[13]
on June 7, 1991, which was
likewise denied by the respondent court.
WHEREFORE, the present motion for reconsideration 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.
SO ORDERED."
[14]

Petitioners are now before us via Petition for Review on Certiorari
[15]
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
the Court in the case of Top-Weld Manufacturing, Inc. vs. ECED S.A. et al.,
[16]
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 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 | 46

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
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.
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 case which were considered as highly restrictive by this
Court. The provisions in point are:
2.0 Terms and Conditions 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
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.
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
this Agreement and made a part hereof.
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 ITECs 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.
[17]

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:
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-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 | 47

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 respondents sole witness, Mr. Clarence Long (pp. 25-27, tsn,
Feb. 18, 1991).
[18]

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.
Mendoza, et al.
[19]
and again in TOP-WELD. (supra) It thus appears that as the
respondent Court of Appeals and the trial courts 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 petitioners 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
in its name and for its account.
[20]

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 and for its own account. The following
provisions are particularly mentioned:
3.1.7.1. In the event that REPRESENTATIVE imports 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 REPRESENTATIVEs sales 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
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,
the state of Alabama and the Territory.
[22]

Although it admits that the Representative Agreement contains provisions
which both support and belie the independence of ASPAC, private respondents
echoes the respondent courts 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
indubitable.
[23]

Page | 48

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

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
its limits, or conditions may be imposed on the exercise of such privileges.
[25]
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 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
sued on any valid cause of action recognized under Philippine laws.
[26]

In a long line of decisions, this Court has not altogether prohibited a foreign
corporation not licensed to do business in the Philippines from suing or maintaining
an action in Philippine Courts. What it seeks to prevent is a foreign corporation
doing business in the Philippines without a license from gaining access to Philippine
Courts.
[27]

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 foreign 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
courts.
[28]
The implication of the law is that 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, and thus, in effect, to permit persons to
avoid their contracts made with such foreign corporations.
[29]

There is no exact rule or governing principle as to what constitutes doing or
engaging or transacting business. Indeed, such case must be judged in the light
of its peculiar circumstances, upon its peculiar facts and upon the language of 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
which it was organized.
[30]

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.
Thus, a foreign corporation with a settling agent in the Philippines which
issued twelve marine policies covering different shipments to the Philippines
[31]
and
a foreign corporation which had been collecting premiums on outstanding
policies
[32]
were regarded as doing business here.
The same rule was observed relating to a foreign corporation with an
exclusive distributing agent in the Philippines, and which has been selling its
products here since 1929,
[33]
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
designated distributor in the Philippines.
[34]

In Georg Grotjahn GMBH and Co. vs. Isnani,
[35]
it was held that the
uninterrupted performance by a foreign corporation of acts pursuant to its primary
Page | 49

purposes and functions as a regional area headquarters for its home office, qualifies
such corporation as one doing business in the country.
These foregoing instances should be distinguished from a single or isolated
transaction or occasional, incidental, or casual transactions, which do not come
within the meaning of the law,
[36]
for in such case, the foreign corporation is deemed
not engaged in business in the Philippines.
Where a single act or transaction, however, is not merely incidental or casual
but indicates the foreign corporations intention to do other business in the
Philippines, said single act or transaction constitutes doing or engaging in or
transacting business in the Philippines.
[37]

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,
in the Top-Weld case (supra), the foreign corporations 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
the country. Likewise, in Merill Lynch Futures, Inc. vs. Court of Appeals, etc.
[38]
the
FUTURES CONTRACT entered into by the petitioner foreign corporation weighed
heavily in the courts ruling.
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 ITECs 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.
In its Master Service Agreement
[39]
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 with
ITEC Technical Assistance Center., such telephone being listed in the telephone
book under the heading of ITEC Technical Assistance Center, and all calls being
recorded and forwarded to ITEC on a weekly basis.
What is more, TESSI was obliged to provide ITEC with a monthly report
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.
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.
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
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 ITECs 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.
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
ITECs conduct indicate that they established within our country a continuous
business, and not merely one of a temporary character.
[40]

Notwithstanding such finding that ITEC is doing business in the country,
petitioner is nonetheless estopped from raising this fact to bar ITEC from instituting
this injunction case against it.
A foreign corporation doing business in the Philippines may sue in Philippine
Courts although not authorized to do business here against a Philippine citizen or
entity who had contracted with and benefited by said corporation.
[41]
To put it in
another way, a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it. And the doctrine
of estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations.
[42]
One who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its corporate existence and capacity. The
Page | 50

principle will be applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes chiefly in cases
where such person has received the benefits of the contract.
[43]

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
everyone his due, and observe honesty and good faith.
[44]

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 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 courts view that it was incumbent upon TOP-
WELD to know whether or not IRTI and ECED were properly authorized to engage in
business in the Philippines when they entered into the licensing and distributorship
agreements. The very purpose of the law was circumvented and evaded when the
petitioner entered into said agreements despite the prohibition of R.A. No.
5455. The parties in this case being equally guilty of violating R.A. No. 5455, they
are in pari delicto, in which case it follows as a consequence that petitioner is not
entitled to the relief prayed for in this case.
The doctrine of lack of capacity to sue based on the failure to acquire a local
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
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
country.
[45]

In Antam Consolidated Inc. vs. Court of Appeals, et al.
[46]
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 fiduciary 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).
Petitioners 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. According 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 plaintiffs standing to sue, having already acceded to the same by virtue of
its entry into the Representative Agreement referred to earlier.
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
principle of forum non conveniens.
[47]
Hence, the Philippine Court may refuse to
assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court
Page | 51

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.
[48]

The aforesaid requirements having been met, and in view of the courts
disposition to give due course to the questioned action, the matter of the present
forum not being the most convenient as a ground for the suits 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.

Page | 52

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-38649 March 26, 1979
FACILITIES MANAGEMENT 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:::
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
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
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.
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
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 | 53

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
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.
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 one-
half (1 ) times of the straight time rate.
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:
G.R. No Date of Filing Disposition
1. L-37117 July 30, 1973 Petition denied for
lack of merit on Sept.
13, 1973. Motion for
Reconsideration
denied lack of
merit, Nov. 20,1973.
2. L-38781 June 17,1974 Petition denied for
lack of merit on June
21,1974.
3. L-39111-12 Sept. 2,1974 Case dismissed on Feb.
6, 1976, pursuant to
voluntary manifesta
tion of private respon
dent Inocente R. Riel
that his claims had all
been settled to his entire
satisfaction.
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).
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.
WE have also noted that the principal question involved in each of the above-
numbered three (3) cases is more or less Identical, to wit: Is the mere act by a non-
Page | 54

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:
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.
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
(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 or fixing
of the terms and conditions of sales or service
Page | 55

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
(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.
(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.
It appears that on February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna
Casualty & Surety Co., Inc., as subrogee instituted Civil Case No. 53074 in the Court
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.
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.
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 it from acquiring a domicile for the purpose of
business without taking the steps necessary to render it 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 that-
No general rule or governing principle can be
laid down as to what constitutes 'doing' or
'engaging in' or 'transacting' business. Indeed,
Page | 56

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. III; Automotive
Material Co. vs. American Standard Metal
Products Corp., 158 N.E. 698, 703, 327 III. 367)'.
72 Phil. 524, 528-529.
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
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. L-
7917, April 29, 1955)'. 102 Phil., pp. 1, 18.
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.
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.
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, 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.

Page | 57

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.
D E C I S I O N
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
the Philippines.
[1]
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 Kiang Hong, Teoh Kiang Seng and Anthony Choo,
Malaysian nationals, are current members of Integrated Silicons board of directors,
while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are its
former members.
[3]

The juridical relation among the various parties in this case can be traced to a
5-year Value Added Assembly Services Agreement (VAASA), entered into on April
2, 1996 between Integrated Silicon and the Hewlett-Packard Singapore (Pte.)
Ltd., Singapore Components Operation (HP-Singapore).
[4]
Under the terms of
the VAASA, Integrated Silicon was to locally manufacture and assemble fiber optics
for export to HP-Singapore. HP-Singapore, for its part, was to consign raw materials
to Integrated Silicon; transport machinery to the plant of Integrated Silicon; and pay
Integrated Silicon the purchase price of the finished products.
[5]
The VAASA had a
five-year term, beginning on April 2, 1996, with a provision for annual renewal by
mutual written consent.
[6]
On September 19, 1999, with the consent of Integrated
Silicon,
[7]
HP-Singapore assigned all its rights and obligations in
the VAASA to Agilent.
[8]

On May 25, 2001, Integrated Silicon filed a complaint for Specific
Performance and Damages 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. Integrated Silicon thus prayed that defendant be 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
damages and attorneys fees.
[9]

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
courts jurisdiction over the person of 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,
Jean Kay M. dela Cruz and Rolando T. Nacilla,
[10]
for Specific Performance,
Recovery of Possession, and Sum of Money with Replevin, Preliminary Mandatory
Injunction, and Damages, 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 Silicon. It further prayed that defendants
be ordered to pay actual and exemplary damages and attorneys fees.
[11]

Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C,
[12]
on the
grounds of lack of Agilents legal capacity to sue;
[13]
litis pendentia;
[14]
forum
shopping;
[15]
and failure to state a cause of action.
[16]

On September 4, 2001, the trial court denied the Motion to Dismiss and
granted petitioner Agilents application for a writ of replevin.
[17]

Without filing a motion for reconsideration, respondents filed a petition
for certiorari with the Court of Appeals.
[18]

Page | 58

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. 3110-
2001-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 COURTS ORDER 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 COURTS ORDER 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
DISMISSAL OF CIVIL CASE NO. 323-2001-C BELOW INSTEAD OF ORDERING IT
CONSOLIDATED WITH CIVIL CASE NO. 3110-2001-C.
[19]

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 v.
ESSO Standard Eastern, Inc.,
[20]
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 jurisdiction over the
subject matter of Civil Case No. 3123-2001-C in the RTC.
[21]

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 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 convinced. In the
case of Bache and Co. (Phils.), Inc. v. Ruiz,
[22]
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,
cite the case of Geronimo v. Commission on Elections,
[23]
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.
Page | 59

In Vigan Electric Light Co., Inc. v. Public Service Commission,
[24]
the questioned
order was null and void for failure of respondent tribunal to comply with due
process requirements; inMatanguihan v. Tengco,
[25]
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
Appeals,
[26]
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
v. Cloribel,
[27]
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 for,
the reliefs being founded on the same facts; and
(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
successful, amount to res judicata in the other.
[28]

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
only substantial, and not absolute, identity of parties.
[29]
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
first case.
[30]
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.
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
dismissible on the ground of litis pendentia.
[31]

The identity of parties notwithstanding, litis pendentia does not obtain in this
case because of the absence of the second and third 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 and Damages is not a ground for defeating the petitioners action for
Specific Performance, Recovery of Possession, and Sum of Money with Replevin,
Preliminary Mandatory Injunction, and 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. Petitioners right of 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. 3110-
2001-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
attorneys fees. The reliefs sought by petitioner Agilent in Civil Case No. 3123-2001-
C, 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 attorneys fees.
Page | 60

Concededly, some items or pieces of evidence may be admissible in both
actions. It cannot be said, however, that exactly the same evidence 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 Agilents 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 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) It must be a judgment on the merits; and
(d) There must be between the first and second actions identity of
parties, subject matter, and cause of action.
[32]

In this case, any judgment rendered in one of the actions will not amount
to res judicata in the other action. There being different causes of action, the
decision in one case will not constituteres 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
ends of justice.
[33]

We now proceed to the issue of forum shopping.
The test for determining whether a party violated the rule against forum-
shopping was laid down in the case of Buan v. Lopez.
[34]
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. There being no litis pendentia in
this case, a judgment in the said case will not amount to resjudicata in Civil Case No.
3110-2001-C, and respondents contention on forum shopping must likewise 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 VAASAs 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. 3123-
2001-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
doing business in the Philippines, it lacks the legal capacity to file suit.
[35]
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;
[36]
(2) appointment of a full-time representative in Integrated
Silicon, to oversee and supervise the production of Agilents products;
[37]
(3) the
appointment by Agilent of six full-time staff members, who were permanently
stationed at Integrated Silicons facilities in order to inspect the finished goods
for Agilent;
[38]
and (4) Agilents participation in the management, supervision and
control of Integrated Silicon,
[39]
including instructing Integrated Silicon to hire more
employees to meet Agilents increasing production needs,
[40]
regularly performing
quality audit, evaluation and supervision of Integrated Silicons
employees,
[41]
regularly performing inventory audit of raw materials to be used by
Integrated Silicon, which was also required to provide weekly inventory updates
to Agilent,
[42]
and providing and dictating Integrated Silicon on the daily production
schedule, volume and models of the products to manufacture and ship
for Agilent.
[43]

A foreign corporation without a license is not ipso facto incapacitated from
bringing an action in Philippine courts. A license is necessary only if a foreign
corporation is transacting or doing business in the country. The Corporation
Code provides:
Sec. 133. Doing business without a license. No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
Page | 61

proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The aforementioned provision prevents an unlicensed foreign corporation
doing business in the Philippines from accessing our courts.
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
said corporation.
[44]
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
domestic corporations.
[45]
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
the benefits of the contract.
[46]

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
the Philippine courts;
[47]
(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
transaction
[48]
; (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 corporations corporate personality
in a suit brought before Philippine 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 Agilents 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, as
this Court observed in the case of Mentholatum v. Mangaliman.
[50]
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
organization.
[51]

In Mentholatum,
[52]
this Court discoursed on the two general tests to
determine whether or not a foreign corporation can be considered as doing
business in the Philippines. The first of these is the substance test, thus:
[53]

The true test [for doing business], however, seems to be whether the foreign
corporation is continuing the body of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another.
The second test is the continuity test, expressed thus:
[54]

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 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
Lara,
[55]
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
Firemans Fund Insurance,
[57]
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 corporations conduct and its
intent to establish a continuous business in the country. In Eriks PTE Ltd. v. Court of
Appeals and Enriquez,
[58]
the foreign corporation sold its products to a Filipino buyer
Page | 62

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,
et al.
[60]
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 Courts ruling that the foreign corporations were
doing business in the Philippines.
[61]
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
Representative Agreement therein restrictive.
[62]

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:
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:
(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 representatives or
distributors own name and account;
(4) The publication of a general advertisement through any print or
broadcast media;
(5) Maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in
the Philippines;
(6) Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated contract of
sale which are not on a continuing basis, such as installing in the
Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to operate
it, and similar incidental services.
By and large, to constitute doing business, the activity to be undertaken in
the Philippines is one that is for profit-making.
[63]

By the clear terms of the VAASA, Agilents activities in the Philippines were
confined to (1) maintaining a stock of goods in the Philippines solely for the purpose
of having the same processed by Integrated Silicon; and (2) consignment of
equipment with Integrated Silicon to be used in the processing of products for
export. As such, we hold that, based on the evidence presented thus
far, Agilent cannot be deemed to be doing business in
the Philippines. Respondents contention that Agilent lacks the legal capacity to file
suit is therefore devoid of merit. As a foreign corporation not doing business in
the Philippines, it needed no license before it can sue before our courts.
Page | 63

Finally, as to Agilents 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 Silicons
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. Agilents application for a
Writ of Replevin is GRANTED.
No pronouncement as to costs.
SO ORDERED.

Page | 64

THIRD DIVISION
[G.R. No. 118843. February 6, 1997]
ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS and DELFIN F. ENRIQUEZ,
JR., respondents.
D E C I S I O N
PANGANIBAN, J.:
Is a foreign corporation which sold its products sixteen times over a five-
month 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 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
review, which seeks the reversal of the Decision
[1]
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 courts 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
and PVC pipes and fittings for industrial uses. In its complaint, it alleged that:
[2]

(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,
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. 1, Record)
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
airfreight under the following invoices:
[3]

Date
17 Jan 89
24 Feb 89
02 Mar 89

03 Mar 89
03 Mar 89
10 Mar 89

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


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


31 May 89
Invoice No.
27065
27738
27855

27876
27877
28046

28258
28901
29001
31669


28257
28601
28900
29127
29232
29332
29497


29844
AWB No.
618-7496-2941
618-7553-6672
(freight & hand-
ling 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 & hand-
ling charges per
Inv. 29127)

618-7796-5646


Amount
S$ 5,010.59
14,402.13
1,164.18

1,394.32
1,641.57
7,854.60

27.72
2,756.53
458.80
1,862.00
--------------------
S$36,392.44
415.50
884.09
1,269.50
883.80
120.00
1,198.40
111.94
--------------------
S$ 4,989.29
545.70
--------------------
S$ 545.70
--------------------
Page | 65

Total S$ 41,927.43
===========
The transfers of goods were perfected in Singapore, for private respondents
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
of Makati, Branch 138,
[4]
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
sue. In an Order dated March 8, 1993,
[5]
the trial court dismissed the action on the
ground that petitioner is a foreign corporation doing business in the Philippines
without a license. The dispositive portion of said order reads:
[6]

WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTED
and accordingly, the above-entitled case is hereby DISMISSED.
SO ORDERED.
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, respondent Court likewise found petitioner
to be without legal capacity to sue, and disposed of the appeal as follows:
[7]

WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED. The
complaint is dismissed. No costs.
SO ORDERED.
Hence, this petition.
The Issue
The main issue in this petition is whether petitioner-corporation may maintain
an action in Philippine courts considering that it has no license to do business in the
country. The resolution of this issue depends on whether petitioners 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 Courts 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 Courts Ruling
The petition has no merit.
The Concept of Doing Business
The Corporation Code provides:
Sec. 133. Doing business without a license. - No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The aforementioned provision prohibits, not merely absence of the prescribed
license, but it also bars a foreign corporation doing business in the Philippines
without such license access to our courts.
[8]
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.
Page | 66

However, there is no definitive rule on what constitutes doing, engaging
in, or transacting business. The Corporation Code itself does not define such
terms. To fill the gap, the evolution of its statutory definition has produced a rather
all-encompassing concept in Republic Act No. 7042
[9]
in this wise:
SEC. 3. Definitions. - As used in this Act:
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
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)
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
in the Philippines, thus:
[10]

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 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.+ (sic) (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.)
The accepted rule in jurisprudence is that each case must be judged in the
light of its own environmental circumstances.
[11]
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
license, finding that:
[12]

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 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.).
Respondent Court affirmed this finding in its assailed Decision with this
explanation:
[13]

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 | 67

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.
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)
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
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
respondent Court that petitioner corporation was doing business in the country.
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
petitioners business activities in this 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, 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 of its transactions, but
more upon the nature and character of the transactions.
[14]

Given the facts of this case, we cannot see how petitioners 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
Accordingly and ineluctably, petitioner must be held to be incapacitated to
maintain the action a quo against private respondent.
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 liabilities
or obligations.
[15]
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 governments regulation and
authority. By securing a license, the foreign entity would be giving assurance that it
will abide by the decisions of our courts, even if adverse to it.
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Other Remedy Still Available
By this judgment, we are not foreclosing petitioners right to collect
payment. Res judicata does not set in a case dismissed for lack of capacity to sue,
because there has been no determination on the merits.
[16]
Moreover, this Court
has ruled that subsequent acquisition of the license will cure the lack of capacity at
the time of the execution of the contract.
[17]

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
considerations of sound public policy.
[18]
Thus, it has been ruled in Home
Insurance that:
[19]

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+.)
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.