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Category Archives: Corporation Law

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

[LAUREL, J.]

 

FACTS

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

ISSUES

(1) Is Mentholatum Co. Inc. “doing business” in the Philippines?

(2) Is Mentholatum Co. Inc. allowed prosecute its action?

HELD

(1) YES.

[The test is] whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.

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

(2) NO.

Section 69 of Act No. 1459 provides that No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to… maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license xxx.”

The Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without the license required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition. Neither may the Philippine-American Drug Co., Inc., maintain the action here for the reason that the distinguishing features of the agent being his representative character and derivative authority.

 

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B. Van Zuiden Bros. Ltd. v. GTVL Manufacturing, G.R. No. 147905, 28 May 2007

[CARPIO, J.]

 

FACTS

B. Van Zuiden Bros. Ltd. (Zuiden) is a corporation incorporated under the laws of Hong Kong, suing in Philippine court for collection of sum of money. In its complaint, petitioner alleged that it is engaged in the importation and exportation of several products, including lace products. Petitioner asserted that on several occasions, respondent purchased lace products from it. Petitioner also claimed that respondent instructed it to deliver the purchased goods to Kenzar, which is a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the goods, the products were considered sold. Kenzar, in turn, had the obligation to deliver the lace products to the Philippines. In other words, the sale of lace products was consummated in Hong Kong.Instead of filing an Answer, GTVL Manufacturing (GVTL) filed a Motion to Dismiss

 

ISSUES

(1) Whether the petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts.

(2) What constitutes doing business in the Philippines?

 

 RULINGS

(1) YES, if the foreign corporation is not doing business in the Philippines. NO, if the foreign corporation is doing business in the Philippines.

Section 133 of the Corporation Code provides:

Doing business without 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 law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the Philippines can sue before Philippine courts.

The series of transactions between petitioner and respondent cannot be classified as doing business in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as doing business in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. Here, there is no showing that petitioner performed within the Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and respondent entered into a series of transactions implying a continuity of commercial dealings, the perfection and consummation of these transactions were done outside the Philippines.

(2) To be doing or transacting business in the Philippines for purposes of Section 133 of the Corporation Code, the foreign corporation mustactually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license.

 

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Steelcase, Inc. v. Design International Selections, Inc. (DISI), G.R. No. 171995, 18 April 2012

[MENDOZA, J.]

 

FACTS

Steelcase, Inc. (Steelcase) granted Design International Selections, Inc. (DISI) the right to market, sell, distribute, install, and service its products to end-user customers within the Philippines.Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of 1991 (FIA) expressly states that the phrase doing business excludes the appointment by a foreign corporation of a local distributor domiciled in the Philippines which transacts business in its own name and for its own account. On the other hand, DISI argues that it was appointed by Steelcase as the latter’s exclusive distributor of Steelcase products.  The dealership agreement between Steelcase and DISI had been described by the owner himself as basically a buy and sell arrangement.

 

ISSUE

Whether Steelcase had been doing business in the Philippines.

RULING

NO.

[T]he appointment of a distributor in the Philippines is not sufficient to constitute doing business unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines. Here, DISI was an independent contractor which sold Steelcase products in its own name and for its own account. As a result, Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.

 

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Heirs of Gamboa v. Teves, et al., G.R. No. 176579, 09 October 2012

[CARPIO, J.]

FACTS

Movants Philippine Stock Exchange’s (PSE) President, Manuel V. Pangilinan, Napoleon L. Nazareno, and the Securities and Exchange Commission (SEC) contend that the term “capital” in Section 11, Article XII of the Constitution has long been settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has consistently adopted this particular definition in its numerous opinions. Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a “new” definition or “midstream redefinition” of the term “capital” in Section 11, Article XII of the Constitution.

ISSUE

Whether the term “capital” includes both voting and non-voting shares.

RULING

NO.

The Constitution expressly declares as State policy the development of an economy “effectively controlled” by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that “[f]or stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential.” In effect, the FIA clarifies, reiterates and confirms the interpretation that the term “capital” in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership. This is precisely because the right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.

 

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Narra Nickel Mining and Dev’t Corp., et al. v. Redmont Consolidated Mines Corp., G.R. No. 195580, 21 April 2014

[VELASCO, JR., J.]

FACTS

Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the DENR separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and Development, Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra) applications Mineral Production Sharing Agreement (MPSA) on the ground that they are not “qualified persons” and thus disqualified from engaging in mining activities through MPSAs reserved only for Filipino citizens.

McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;

Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc. (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;

Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of Patricia Louise Mining & Development Corporation;

ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS

(1) YES.

The instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules which states, “but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership.

(2) NO.

[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners. xxx Noticeably, the ownership of the “layered” corporations boils down to xxx group wherein MBMI has joint venture agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.

 

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Cebu Country Club, Inc. (CCCI) et al., v. Elizagaque, G.R. No. 160273, January 18, 2008.

[SANDOVAL-GUTIERREZ, J.]

(Long Version Digest)

FACTS

Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a non-profit and non-stock private membership club, having its principal place of business in Banilad, Cebu City. Petitioners herein are members of its Board of Directors. In 1996, respondent filed with CCCI an application for proprietary membership. The application was indorsed by CCCI’s two (2) proprietary members, namely: Edmundo T. Misa and Silvano Ludo. As the price of a proprietary share was around the P5 million range, Benito Unchuan, then president of CCCI, offered to sell respondent a share for only P3.5 million. Respondent, however, purchased the share of a certain Dr. Butalid for only P3 million. Consequently, on September 6, 1996, CCCI issued Proprietary Ownership Certificate No. 1446 to respondent.

During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of Directors, action on respondent’s application for proprietary membership was deferred. In another Board meeting held on July 30, 1997, respondent’s application was voted upon. As shown by the records, the Board adopted a secret balloting known as the “black ball system” of voting wherein each member will drop a ball in the ballot box. A white ball represents conformity to the admission of an applicant, while a black ball means disapproval. Pursuant to Section 3(c), as amended, cited above, a unanimous vote of the directors is required. When respondent’s application for proprietary membership was voted upon during the Board meeting on July 30, 1997, the ballot box contained one (1) black ball. Thus, for lack of unanimity, his application was disapproved.

On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of reconsideration. As CCCI did not answer, respondent, on October 7, 1997, wrote another letter of reconsideration. Still, CCCI kept silent. On November 5, 1997, respondent again sent CCCI a letter inquiring whether any member of the Board objected to his application. Again, CCCI did not reply. Consequently, on December 23, 1998, respondent filed with the Regional Trial Court (RTC), Branch 71, Pasig City a complaint for damages against petitioners

ISSUE

Whether in disapproving respondent’s application for proprietary membership with CCCI, petitioners are liable to respondent for damages, and if so, whether their liability is joint and several.

RULING

YES.

In rejecting respondent’s application for proprietary membership, we find that petitioners violated the rules governing human relations, the basic principles to be observed for the rightful relationship between human beings and for the stability of social order. The trial court and the Court of Appeals aptly held that petitioners committed fraud and evident bad faith in disapproving respondent’s applications. This is contrary to morals, good custom or public policy. Hence, petitioners are liable for damages pursuant to Article 19 in relation to Article 21 of the same Code.

It bears stressing that the amendment to Section 3(c) of CCCI’s Amended By-Laws requiring the unanimous vote of the directors present at a special or regular meeting was not printed on the application form respondent filled and submitted to CCCI. What was printed thereon was the original provision of Section 3(c) which was silent on the required number of votes needed for admission of an applicant as a proprietary member.

Petitioners explained that the amendment was not printed on the application form due to economic reasons. We find this excuse flimsy and unconvincing. Such amendment, aside from being extremely significant, was introduced way back in 1978 or almost twenty (20) years before respondent filed his application. We cannot fathom why such a prestigious and exclusive golf country club, like the CCCI, whose members are all affluent, did not have enough money to cause the printing of an updated application form.

It is thus clear that respondent was left groping in the dark wondering why his application was disapproved. He was not even informed that a unanimous vote of the Board members was required. When he sent a letter for reconsideration and an inquiry whether there was an objection to his application, petitioners apparently ignored him. Certainly, respondent did not deserve this kind of treatment. Having been designated by San Miguel Corporation as a special non-proprietary member of CCCI, he should have been treated by petitioners with courtesy and civility. At the very least, they should have informed him why his application was disapproved.

The exercise of a right, though legal by itself, must nonetheless be in accordance with the proper norm. When the right is exercised arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is committed for which the wrongdoer must be held responsible.

Section 31 of the Corporation Code provides:

SEC. 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 in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. (Emphasis ours)

The challenged Decision and Resolution of the Court of Appeals are AFFIRMED with modification in the sense that (a) the award of moral damages is reduced fromP2,000,000.00 to P50,000.00; (b) the award of exemplary damages is reduced from P1,000,000.00 toP25,000.00; and (c) the award of attorney’s fees and litigation expenses is reduced from P500,000.00 andP50,000.00 to P50,000.00 and P25,000.00, respectively.

 

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Bank of the Philippine Islands v. BPI Employees Union Davao Chapter – Federation of Unions in BPI Unibank, G.R. No. 164301, October 19, 2011.

[LEONARDO-DE CASTRO, J.]

FACTS

In the present incident, petitioner Bank of the Philippine Islands (BPI) moves for reconsideration of our Decision dated August 10, 2010, holding that former employees of the Far East Bank and Trust Company (FEBTC) “absorbed” by BPI pursuant to the two banks’ merger were covered by the Union Shop Clause in the then existing collective bargaining agreement (CBA) of BPI with respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union).

ISSUE

Whether or not employees are absorbed in a merger of the two corporations.

 

RULING

YES.

It is more in keeping with the dictates of social justice and the State policy of according full protection to labor to deem employment contracts as automatically assumed by the surviving corporation in a merger, even in the absence of an express stipulation in the articles of merger or the merger plan. In his dissenting opinion, Justice Brion reasoned that:

To my mind, due consideration of Section 80 of the Corporation Code, the constitutionally declared policies on work, labor and employment, and the specific FEBTC-BPI situation — i.e., a merger with complete “body and soul” transfer of all that FEBTC embodied and possessed and where both participating banks were willing (albeit by deed, not by their written agreement) to provide for the affected human resources by recognizing continuity of employment — should point this Court to a declaration that in a complete merger situation where there is total takeover by one corporation over another and there is silence in the merger agreement on what the fate of the human resource complement shall be, the latter should not be left in legal limbo and should be properly provided for, by compelling the surviving entity to absorb these employees. This is what Section 80 of the Corporation Code commands, as the surviving corporation has the legal obligation to assume all the obligations and liabilities of the merged constituent corporation.

Not to be forgotten is that the affected employees managed, operated and worked on the transferred assets and properties as their means of livelihood; they constituted a basic component of their corporation during its existence. In a merger and consolidation situation, they cannot be treated without consideration of the applicable constitutional declarations and directives, or, worse, be simply disregarded. If they are so treated, it is up to this Court to read and interpret the law so that they are treated in accordance with the legal requirements of mergers and consolidation, read in light of the social justice, economic and social provisions of our Constitution. Hence, there is a need for the surviving corporation to take responsibility for the affected employees and to absorb them into its workforce where no appropriate provision for the merged corporation’s human resources component is made in the Merger Plan.

By upholding the automatic assumption of the non-surviving corporation’s existing employment contracts by the surviving corporation in a merger, the Court strengthens judicial protection of the right to security of tenure of employees affected by a merger and avoids confusion regarding the status of their various benefits which were among the chief objections of our dissenting colleagues.  However, nothing in this Resolution shall impair the right of an employer to terminate the employment of the absorbed employees for a lawful or authorized cause or the right of such an employee to resign, retire or otherwise sever his employment, whether before or after the merger, subject  to existing contractual obligations.  In this manner, Justice Brion’s theory of automatic assumption may be reconciled with the majority’s concerns with the successor employer’s prerogative to choose its employees and the prohibition against involuntary servitude.

Notwithstanding this concession, the Court finds no reason to reverse our previous pronouncement that the absorbed FEBTC employees are covered by the Union Shop Clause.

[See the original Decision dated August 10, 2010, reversing the ruling on the absorption of employees in a merger.]

 

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