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CARGILL, INC.
, Petitioner, v INTRA STATEMENT OF CASE
STRATA ASSURANCE CORPORATION, Respondent. ISAC’s refusal prompted Cargill to file a complaint for sum of G.R. No. 168266 March 15, 2010 money on 12 April 1991 against NMC and ISAC.
TOPIC Subsequently, a compromise agreement duly approved by the trial
Article 123 - capacity of a foreign corporation to sue in court was entered into by the three corporations. The compromise the Philippines agreement provides that NMC would pay Cargill P3,000,000 upon signing of the compromise agreement and would deliver to Cargill STATEMENT OF FACTS 6,991 metric tons of molasses from 16-31 December 1991. However, NMC still failed to comply with its obligation under the Cargill, Inc. (CARGILL) is a corporation organized and compromise agreement. Hence, trial proceeded against ISACt. existing under the laws of the State of Delaware, United States of America. On 23 November 1994, the trial court rendered a decision in favor of Cargill and dismissed the counterclaim of ISAC. Cargill and Northern Mindanao Corporation (NMC) executed a contract dated 16 August 1989 whereby NMC agreed to sell On appeal, the Court of Appeals reversed the trial courts decision to Cargill 20,000 to 24,000 metric tons of molasses, to be and dismissed the complaint on the ground that Cargill does not delivered from 1 Januaryto 30 June 1990 at the price of $44 have the capacity to file the suit since it is a foreign corporation per metric ton. The contract provides that Cargill would open doing business in the Philippines without the requisite license. The a Letter of Credit with the Bank of Philippine Islands. Under Court of Appeals held that Cargill’s purchases of molasses were in the red clause of the Letter of Credit, NMC was permitted to pursuance of its basic business and not just mere isolated and draw up to $500,000 representing the minimum price of the incidental transactions. contract upon presentation of some documents. ISSUE The contract was amended three times: WON Cargill has legal capacity to sue in the Philippines. (1) 11 January 1990, increasing the purchase price of the molasses to $47.50 per metric ton; HELD (2) 18 June 1990, reducing the quantity of the No, Cargill has no legal capacity to sue before Philippine courts. molasses to 10,500 metric tons and increasing the price to $55 per metric ton; Under Article 123 of the Corporation Code, a foreign corporation (3) 22 August 1990, providing for the shipment of must first obtain a license and a certificate from the appropriate 5,250 metric tons of molasses on the last half of government agency before it can transact business in December 1990 through the first half of January the Philippines. Where a foreign corporation does business in 1991, and the balance of 5,250 metric tons on the the Philippines without the proper license, it cannot maintain any last half of January 1991 through the first half of action or proceeding before Philippine courts as provided under February 1991. Section 133 of the Corporation Code:
The third amendment also required NMC to put up a Sec. 133. Doing business without a license. No performance bond equivalent to $451,500, representing the foreign corporation transacting business in the value of 10,500 metric tons of molasses computed at $43 Philippines without a license, or its successors or per metric ton. The performance bond was intended to assigns, shall be permitted to maintain or guarantee NMCs performance to deliver the molasses intervene in any action, suit or proceeding in any during the prescribed shipment periods according to the court or administrative agency of the terms of the amended contract. Philippines; but such corporation may be sued or proceeded against before Philippine courts or In compliance with the terms of the third amendment of the administrative tribunals on any valid cause of contract, Intra Strata Assurance Corporation (ISAC) issued action recognized under Philippine laws. on 10 October 1990 a performance bond in the sum of P11,287,500 to guarantee NMCs delivery of the 10,500 Thus, the threshold question in this case is whether petitioner was tons of molasses, and a surety bond in the sum doing business in the Philippines. The Corporation Code provides of P9,978,125 to guarantee the repayment of the down no definition for the phrase doing business. payment, as provided in the contract. xxxx NMC was only able to deliver 219.551 metric tons of molasses out of the agreed 10,500 metric tons. Thus, Cargill To be doing or transacting business in the Philippines for sent demand letters to respondent claiming payment under purposes of Section 133 of the Corporation Code, the the performance and surety bonds.. However, ISAC refused foreign corporation must actually transact business in the to pay. 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 1. Mere investment as a shareholder by a foreign requisite for the Philippines to to acquire jurisdiction over a entity in domestic corporations duly registered to do foreign corporation and thus require the foreign business, and/or the exercise of rights as such investor; corporation to secure a Philippine business license. If a 2. Having a nominee director or officer to represent its foreign corporation does not transact such kind of business in interests in such corporation; the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign 3. Appointing a representative or distributor domiciled corporation to secure a Philippine business license. in the Philippines which transacts business in the [23] (Emphasis supplied) representative's or distributor's own name and account; 4. The publication of a general advertisement through In the present case, petitioner is a foreign company merely any print or broadcast media; importing molasses from a Philipine exporter. A foreign company that merely imports goods from a Philippine exporter, 5. Maintaining a stock of goods in without opening an office or appointing an agent in the Philippines solely for the purpose of having the the Philippines, is not doing business in the Philippines. same processed by another entity in the Philippines; 6. Consignment by a foreign entity of equipment with DISPOSITIVE PORTION a local company to be used in the processing of products for export; WHEREFORE , we GRANT the petition. We REVERSE the 7. Collecting information in the Philippines; and Decision dated 26 May 2005 of the Court of Appeals in CA- G.R. CV No. 48447. We REINSTATE the 8. Performing services auxiliary to an existing isolated Decision dated 23 November 1994 of the trial court. 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 << SIDE NOTES >> similar incidental services.
Republic Act No. 7042 (RA 7042), otherwise known as
the Foreign Investments Act of 1991, which repealed Articles 44-56 of Book II of the Omnibus Investments Code of 1987, enumerated not only the acts or activities which constitute doing business but also those activities which are not deemed doing business. Section 3(d) of RA 7042 states:
[T]he phrase doing business shall include soliciting orders,
service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods 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 progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.
The Implementing Rules and Regulations of RA 7042 provide
under Section 1(f), Rule I, that doing business does not include the following acts:
A Short View of the Laws Now Subsisting with Respect to the Powers of the East India Company
To Borrow Money under their Seal, and to Incur Debts in
the Course of their Trade, by the Purchase of Goods on
Credit, and by Freighting Ships or other Mercantile
Transactions
