•Y-1 Leisure Phils. vs. Yats International Ltd.

(770 SCRA 56 [2015])

https://chanrobles.com/cralaw/2015septemberdecisions.php?id=683

**Facts:**

James Yu purchased shares of a golf and country club from Mt. Arayat Development Co., Inc. (MADCI)
for a total price of P650,000. However, upon full payment and a visit to the supposed site, Yu discovered
that the golf and country club did not exist. He filed a complaint against MADCI and its president,
Rogelio Sangil, to recover his payment, alleging that Sangil used MADCI's corporate personality to
defraud him. The trial court ruled in favor of Yu, holding MADCI liable for the return of his payments and
Sangil solidarily liable as an alter ego. The Court of Appeals partly granted the appeals, holding YIL and
its affiliated companies, YILPI and YICRI, jointly and severally liable for Yu's claim.

**Issues:**

1. Whether Yats Group should be held jointly and severally liable to James Yu despite the absence of
fraud in the sale of assets and bad faith on the part of Yats Group.

**Ruling:**

The Supreme Court held that Yats Group should be held jointly and severally liable to James Yu despite
the absence of fraud in the sale of assets and bad faith on the part of Yats Group. The Court applied the
Nell Doctrine, which states that a transferee corporation is not liable for the debts and liabilities of the
transferor unless certain exceptions are present. One of the exceptions is when the transferee
corporation continues the business of the transferor. In this case, MADCI sold all its assets to YILPI and
YICRI, rendering it incapable of continuing its intended golf and country club business. Therefore, the
business-enterprise transfer rule applied, and YILPI and YICRI became liable for MADCI's obligations to
James Yu.

The Court also clarified that fraud is not an essential element for the application of the business-
enterprise transfer. The purpose of the business-enterprise transfer is to protect the creditors of the
business, and it does not depend on any deceit committed by the transferee corporation. Therefore, the
absence of fraud did not preclude YILPI and YICRI from assuming MADCI's liabilities.

However, the Court noted that YILPI and YICRI could invoke the free and harmless clause in the
Memorandum of Agreement (MOA) to recover damages from Sangil, but this clause did not affect James
Yu as a creditor. The MOA's provision stating that Sangil undertook to redeem MADCI proprietary shares
or settle claims for refunds could not prejudice James Yu since his consent was not secured for the MOA.
Therefore, MADCI remained liable to James Yu, and YILPI and YICRI inherited that liability.

In conclusion, Yats Group, specifically YILPI and YICRI, were held jointly and severally liable to James Yu
for MADCI's obligations due to the business-enterprise transfer, even in the absence of fraud or bad
faith on their part.

**Disposition:**

The petition was denied, and the Court of Appeals' decision was affirmed in toto.
The Nell Doctrine states the general rule that the transfer of all the assets of a
corporation to another shall not render the latter liable to the liabilities of the
transferor. If any of the above-cited exceptions are present, then the
transferee corporation shall assume the liabilities of the transferor.

Exceptions:

under Article 204735 of the Civil Code. When a person binds himself solidarity with the
principal debtor, then a contract of suretyship is produced. Necessarily, the
corporation which expressly or impliedly agrees to assume the transferor's
debts shall be liable to the same.

Sections 76 to 80, Title X of the Corporation Code. If the transfer of assets of one corporation to
another amounts to a merger or consolidation, then the transferee corporation must take over the
liabilities of the transferor.

where the sale of all corporate assets is entered into fraudulently to escape liability
for transferor's debts, can be found under Article 1388 of the Civil Code. It provides
that whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered. Thus, if there is fraud in the transfer of all
the assets of the transferor corporation, its creditors can hold the transferee liable

where the purchasing corporation is merely a continuation of the selling

corporation, is challenging to determine. In his book, Philippine Corporate Law,36
Dean Cesar Villanueva explained that this exception contemplates the "business-
enterprise transfer." In such transfer, the transferee corporation's interest goes beyond
the assets of the transferor's assets and its desires to acquire the latter's business
enterprise, including its goodwill.
•Global Business Holdings vs. Surecompsoftware, B.V. (633 SCRA 94 [2010])

https://lawphil.net/judjuris/juri2010/oct2010/gr_173463_2010.html

**Facts:**

Surecomp Software, a Dutch corporation, entered into a 20-year software license agreement with Asian
Bank Corporation (ABC). In 2000, ABC merged with Global Business Holdings, with Global as the
surviving entity. After the merger, Global found the software system provided by Surecomp to be
unsuitable for its operations. Global informed Surecomp of its intention to terminate the agreement and
cease payments. Surecomp, in response, filed a lawsuit against Global for breach of contract.

In its complaint, Surecomp contended that it was a foreign corporation not conducting regular business
in the Philippines and that it had entered into an isolated transaction with ABC. Surecomp claimed that
ABC agreed to pay a license fee, professional services, annual maintenance fees, and committed to
purchasing additional software. However, Global had not fulfilled its payment obligations, despite the
services and products delivered. Surecomp sought actual damages, an additional sum for unilateral
contract termination, exemplary damages, attorney's fees, and legal costs.

Global responded with a motion to dismiss the case based on two main grounds:

1. Surecomp's lack of capacity to sue due to it allegedly conducting business in the Philippines
without proper authorization.
2. The unenforceability of the contract under the Intellectual Property Code of the Philippines,
as the agreement was deemed a technology transfer arrangement and was not compliant
with specific sections of the code.

Global filed a motion for leave to serve written interrogatories to Surecomp in preparation for the
hearing on the motion to dismiss.

The Regional Trial Court (RTC) issued an order that recognized Global's contractual obligations as the
successor of ABC, preventing it from denying Surecomp's capacity to sue. However, the RTC decided to
postpone the resolution of the motion to dismiss until after a hearing regarding the second ground,
which concerned the contract's compliance with the Intellectual Property Code. In response, Surecomp
filed a complaint for breach of contract against Global in the Regional Trial Court (RTC) of Makati.
Surecomp contended that the contract was an isolated transaction and that it was entitled to damages
due to Global's failure to meet its contractual obligations.

**Issues:**

1. Whether or not foreign corporation doing business in the Philippines without a license permitted to
sue in Philippine courts.

2. Is Global estopped from challenging Surecomp's capacity to sue?

**Rulings:**

1. Foreign corporations doing business in the Philippines without a license are generally barred from
initiating legal actions in the country. Section 133 of the Corporation Code explicitly states this
prohibition. Nevertheless, foreign corporations may sue in Philippine courts if the suit is against a
Filipino citizen or Philippine entity that had contracted with and benefited from the foreign corporation.
In this case, the doctrine of estoppel applies, meaning that Global, as a result of its merger with ABC and
its role as the surviving corporation, is considered the party that entered into the contract with
Surecomp. Global assumed all the liabilities and obligations of ABC, and it had the right to assert
defenses and counterclaims. As such, Global was estopped from challenging Surecomp's capacity to sue.

In conclusion, the Court affirmed the decision of the Court of Appeals, dismissing Global's petition. The
RTC's orders were upheld, and Global was directed to respond to the complaint filed by Surecomp. The
case would proceed accordingly.

Doctrines/Applicable Law:
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.

A corporation has a legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the Philippines.
In order to subject a foreign corporation doing business in the country to the jurisdiction of our
courts, it must acquire a license from the Securities and Exchange Commission and appoint an
agent for service of process. Without such license, it cannot institute a suit in the Philippines. 24
1avvphi1

The exception to this rule is 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.26 The principle is 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.

Due to Global’s merger with ABC and because it is the surviving corporation, it is as if it was the one
which entered into contract with Surecomp. In the merger of two existing corporations, one of
the corporations survives and continues the business, while the other is dissolved, and all its
rights, properties, and liabilities are acquired by the surviving corporation.28 This is particularly
true in this case. Based on the findings of fact of the RTC, as affirmed by the CA, under the terms of
the merger or consolidation, Global assumed all the liabilities and obligations of ABC as if it had
incurred such liabilities or obligations itself.
•Poliand Industrial Ltd. vs. NDC (467 SCRA 500 [2005])

https://lawphil.net/judjuris/juri2005/aug2005/gr_143866_2005.html

Facts:

Between October 1979 and March 1981, Galleon Shipping Corporation (GALLEON) received credit
accommodations from Asian Hardwood Limited (Asian Hardwood), a Hong Kong corporation, totaling
US$3,317,747.32. These funds were used to boost GALLEON's working capital due to the purchase of
several vessels. GALLEON also secured loans from Japanese lenders, and the Development Bank of the
Philippines (DBP) guaranteed these loans. This guarantee required GALLEON to mortgage its vessels with
DBP. Subsequently, a Letter of Instruction (LOI) was issued, instructing the National Development
Company (NDC) to acquire GALLEON's shares.

GALLEON and NDC executed a Memorandum of Agreement, with NDC taking over GALLEON's
management. NDC made a partial payment to Asian Hardwood using its own funds. LOI No. 1195
directed the foreclosure of the mortgage on GALLEON's vessels. After GALLEON failed to pay its debts,
the vessels were foreclosed and acquired by DBP. Asian Hardwood's rights were assigned to World
Universal Trading and Investment Company, who later assigned the credit to POLIAND.

A subsequent administrative order led to the transfer of assets to the government's Asset Privatization
Trust (APT). POLIAND made written demands on GALLEON, NDC, and DBP to settle the outstanding
balance. POLIAND then filed a collection suit against NDC, DBP, and GALLEON, claiming that NDC and
DBP were liable for GALLEON's obligations under LOI No. 1155 and the Memorandum of Agreement.
POLIAND also asserted a preferred maritime lien.

The trial court ruled in favor of POLIAND, holding NDC and DBP liable for GALLEON's obligations based
on LOI No. 1155 and the Memorandum of Agreement. NDC's argument that the Memorandum of
Agreement was preliminary was dismissed, and POLIAND's maritime lien was upheld.

The Court of Appeals issued a modified judgment, which absolved the Development Bank of the
Philippines (DBP) of any liability in the case because POLIAND failed to provide clear evidence of its
claims against DBP.

Issues:

1. Whether or not NDC or DBP, or both, are liable for GALLEON's loan obligations.

2. Whether or not POLIAND has a maritime lien enforceable against NDC, DBP, or both.

Ruling:

The Court held that NDC and DBP were not liable for GALLEON's loan obligations. Although LOI No. 1155,
which directed NDC and DBP to assist GALLEON, was issued during the period when then President
Marcos had legislative powers, it was not connected to a grave emergency or threat to national security.
The LOI lacked the nature of a statute; therefore, it did not create a privity of contract between DBP or
NDC and POLIAND. The authority granted by LOI No. 1155 was merely administrative, and it did not
impose any obligations on the government entities.
The Court also found that NDC's role was primarily administrative and that NDC's acquisition of
GALLEON's shares did not make it an owner of the vessels or liable for GALLEON's debts. Hence, NDC
could not be held responsible for GALLEON's obligations to POLIAND.

In conclusion, NDC and DBP were absolved from liability. POLIAND's maritime lien was enforceable, but
it could only be exercised against GALLEON.
Ordinarily, in the merger of two or more existing corporations, one of the combining corporations
survives and continues the combined business, while the rest are dissolved and all their rights,
properties and liabilities are acquired by the surviving corporation. The merger, however, does not
35

become effective upon the mere agreement of the constituent corporations. 3

As specifically provided under Section 79 of said Code, the merger shall only be effective upon
37

the issuance of a certificate of merger by the Securities and Exchange Commission (SEC ),
subject to its prior determination that the merger is not inconsistent with the Code or existing laws.
Where a party to the merger is a special corporation governed by its own charter, the Code
particularly mandates that a favorable recommendation of the appropriate government agency
should first be obtained. The issuance of the certificate of merger is crucial because not only does it
bear out SEC’s approval but also marks the moment whereupon the consequences of a merger take
place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to
exist but its rights, and properties as well as liabilities shall be taken and deemed transferred to and
vested in the surviving corporation.

In the absence of SEC approval, there was no effective transfer of the shareholdings in GALLEON
to NDC. Hence, NDC did not acquire the rights or interests of GALLEON, including its liabilities.
•BPI vs. BPI Employees Union-Davao Chapter (627 SCRA 590 [2010])

https://lawphil.net/judjuris/juri2011/oct2011/gr_164301_2011.html

FACTS:

Bank of the Philippine Islands (BPI) sought a reconsideration of a previous decision from 2010. The
earlier decision determined that employees from the Far East Bank and Trust Company (FEBTC), who
had been "absorbed" by BPI following a merger in 2000, were covered by the Union Shop Clause in the
existing collective bargaining agreement (CBA) between BPI and the BPI Employees Union-Davao
Chapter-Federation of Unions in BPI Unibank (the Union).

The Union Shop Clause required newly hired employees who became regular workers to join the union
within 30 days as a condition of their continued employment. The key dispute was whether the
absorbed FEBTC employees fell under the definition of "new employees" according to the Union Shop
Clause, which would oblige them to join the union.

BPI initially succeeded at the voluntary arbitrator level but later had its position rejected by the Court of
Appeals, which was further upheld by the Supreme Court. The earlier decision affirmed that the
absorbed FEBTC employees were considered "new employees" under the Union Shop Clause.

The key issue was whether the absorbed FEBTC employees qualified as "new employees" under the
Union Shop Clause.

ISSUES:

1. Whether former FEBTC employees absorbed by BPI through a merger should be considered "new
employees" under the Union Shop Clause.

2. Whether the court's ruling adversely affected the rights and job security of the absorbed employees
from the constituent corporations.

RULINGS:

1. The court affirmed its previous ruling, stating that the absorbed FEBTC employees were indeed
covered by the Union Shop Clause. The Union Shop Clause applied to employees who became regular
employees during the effectivity of the CBA, irrespective of their initial employment status. The court
emphasized that the Union Shop Clause should apply equally to both types of new employees. It
reasoned that both categories were in similar situations, and there was no cogent reason to exclude
absorbed employees.

2. The court recognized that the automatic assumption of the employment contracts of absorbed
employees by the surviving corporation upon a merger was in line with the principles of social justice,
labor protection, and security of tenure. This ensured that employees retained their jobs and benefits
without any break in their employment. While the court upheld the application of the Union Shop
Clause, it clarified that this did not violate the right to security of tenure of the absorbed employees.
The court balanced the interests of the union, employees, and the surviving corporation. It allowed for
the termination of absorbed employees' contracts but only for just causes, in compliance with due
process. The court aimed to safeguard the rights of the employees while upholding the validity of union
security clauses within CBAs, particularly in the context of corporate mergers. This ruling ensures that
employees from constituent corporations maintain their job security during and after mergers while
being subject to the terms of the existing CBA.

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.

By virtue of the merger BPI steps into the shoes of FEBTC as a successor employer as if the
former had been the employer of the latter’s employees from the beginning it must be
emphasized that, in reality, the legal consequences of the merger only occur at a specific date, i.e.,
upon its effectivity which is the date of approval of the merger by the SEC.

We already observed that the legal fiction in the law on mergers (that the surviving corporation
continues the corporate existence of the non-surviving corporation) is mainly a tool to adjudicate
the rights and obligations between and among the merged corporations and the persons that
deal with them

Petitioner is deemed to have assumed the employment contracts of the Far East Bank and Trust
Company (FEBTC) employees upon effectivity of the merger without break in the continuity of their
employment, even without express stipulation in the Articles of Merger

•Sumifru Corp. vs. Baya (822 SCRA 564 [2017])

https://chanrobles.com/cralaw/2017aprildecisions.php?id=311

**Facts:**

The case involved a complaint filed by an employee, Baya, against AMSFC (Agrinanas Marketing
Cooperative, Inc.) and DFC (Davao Fruits Corporation) for constructive dismissal. Baya had been
employed with AMSFC since 1985 and had worked his way up to a supervisory position. He was also
actively involved in the union of supervisors. Baya later formed AMSKARBEMCO (AMS Kapalong Agrarian
Reform Beneficiaries Multipurpose Cooperative), which represented regular employees of AMSFC. The
Department of Agrarian Reform (DAR) awarded a portion of AMSFC's land to its employees under the
Comprehensive Agrarian Reform Law. Subsequently, AMSFC and DFC subjected Baya to harassment and
demoted him when he refused to switch his loyalty to SAFFPAI, a pro-company cooperative. Baya filed a
complaint alleging constructive dismissal, which was initially ruled in his favor by the Labor Arbiter.

**Issues:**

Whether Sumifru (Philippines) Corporation, which had merged with DFC, should be held solidarily liable
for Baya's monetary awards.

**Rulings:**

Sumifru (Philippines) Corporation, which had merged with DFC, was held solidarily liable with AMSFC
and DFC for the monetary awards in favor of Baya. Under the Corporation Code, the surviving
corporation inherits both the assets and liabilities of the merged corporation, making it liable for the
actions of the merged corporation.

The case underscores the significance of understanding the effects of mergers or consolidations on
employees of constituent corporations. When two corporations merge, the surviving corporation
assumes not only the assets but also the liabilities of the merged corporation. In this case, Sumifru
(Philippines) Corporation, as the surviving entity, was held responsible for the actions and liabilities of
DFC, which had merged with it. Therefore, employees of the merged corporation continue to have legal
recourse against the surviving corporation for any employment-related issues or claims, as
demonstrated by the case of Baya.

Section 80 of the Corporation Code of the Philippines clearly states that one of
the effects of a merger is that the surviving company shall inherit not only the
assets, but also the liabilities of the corporation it merged with.

•Manuel R. Dulay Ent. vs. CA (225 SCRA 678 [1993])

https://lawphil.net/judjuris/juri1993/aug1993/gr_91889_1993.html

**Facts:**

Manuel R. Dulay Enterprises, Inc. was a domestic corporation, primarily owned and controlled by
members of the Dulay family, engaging in real estate activities. The corporation sold Dulay Apartment, a
property in Pasay City, to private respondents, Maria Theresa and Castrense Veloso. The sale was
contested by the petitioners, claiming that it was invalid due to alleged irregularities in the board
resolution that authorized the sale. The sale resulted in foreclosure, and the property's title was
transferred to another private respondent, Manuel A. Torres. Various legal actions ensued.

**Issue:**
The central issue in this case was the validity of the sale of Dulay Apartment. The petitioners argued that
the sale was null and void due to alleged irregularities in the board resolution authorizing it. This case is
significant because it involves the concept of a close corporation and the implications of its internal
governance.

**Rulings:**

The Supreme Court considered and upheld the concept of a close corporation in its ruling. It recognized
that a close corporation operates differently from a typical corporation, as its actions can be taken
without formal board meetings if certain conditions are met. In a close corporation, actions are deemed
valid if they have the express or implied knowledge and consent of the stockholders or directors, and
objections must be raised in writing promptly.

The court noted that this particular corporation was indeed a close corporation since most of its
incorporators and directors belonged to a single family. Given the familial nature of the corporation, it
was determined that Manuel Dulay's authority to sell the subject property on behalf of the corporation
was well-established. His multiple roles, including president, treasurer, and general manager, conferred
him significant control over the corporation's affairs.

The Supreme Court concluded that the sale of Dulay Apartment by the corporation's president, Manuel
Dulay, to the Veloso spouses was a corporate act and not a personal transaction of Manuel Dulay.
Therefore, the sale was valid and binding on the corporation. Additionally, the court clarified that the
mere execution of a deed of sale in a public document was equivalent to the delivery of the property, as
per Article 1498 of the New Civil Code. Consequently, the property was considered delivered to Torres
upon the execution of the deed of sale in a public document.

This case highlights the importance of understanding the legal framework of close corporations, where
the rules governing internal governance and corporate actions can differ from those of regular
corporations. In close corporations, corporate actions can be ratified with less formal process if specific
conditions are met, and such actions can significantly affect property transactions and other legal
matters.
petitioner corporation is classified as a close corporation and consequently a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the
corporation for the action of its president. At any rate, corporate action taken at a board
meeting without proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay
failed to do

Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be
deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiesce of all
the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them
makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof
•Iglesia Evangelica Metodista en las Islas Filipinas (IEMELIF) vs. Lazaro (624 SCRA 224 [2010])

https://lawphil.net/judjuris/juri2010/jul2010/gr_184088_2010.html

**Facts:**

In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas
Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its "General Superintendent."
In 1948, IEMELIF registered by-laws that established a Supreme Consistory of Elders (the Consistory) to
manage its affairs. The Consistory acted as a board of directors. In 1973, IEMELIF's general membership
voted to convert from a corporation sole to a corporation aggregate, which was approved by the
Securities and Exchange Commission (SEC) in 2001.

Petitioners, members of a faction that did not support the conversion, filed a civil case against members
of the Consistory, claiming that the conversion required the dissolution of IEMELIF and subsequent re-
incorporation.

**Issue:**

The main issue was whether a corporation sole, such as IEMELIF, could be converted into a corporation
aggregate by amending its articles of incorporation, or if it required dissolution and re-incorporation.

**Rulings:**

The Court ruled that a corporation sole could be converted into a corporation aggregate by amending its
articles of incorporation. While the Corporation Code did not have a specific provision for amending the
articles of incorporation of a corporation sole, the general provisions governing non-stock corporations
applied. For non-stock corporations, amendments required the approval of two-thirds of the members.
In the case of IEMELIF, the General Superintendent, as the sole member, needed the concurrence of
two-thirds of the membership. The evidence showed that IEMELIF's General Superintendent had
obtained approval from the Consistory and the required two-thirds vote of its membership, thus
satisfying the amendment requirements.

The Court emphasized that dissolution was unnecessary, and the amendment merely had to comply
with the Corporation Code and serve a legitimate purpose. The SEC's prior action on the IEMELIF issue,
based on its interpretation of the Corporation Code, was accorded great weight.

In summary, the conversion of a corporation sole to a corporation aggregate could be achieved by

amending the articles of incorporation, and no dissolution and re-incorporation were required. The
SEC's interpretation of the Corporation Code carried significant weight in the case.
Section 17 of the Corporation Code10 provides that amendment shall be disapproved if, among
others, the prescribed form of the articles of incorporation or amendment to it is not observed, or if
the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary
to government rules and regulations, or if the required percentage of ownership is not complied with.

Although a non-stock corporation has a personality that is distinct from those of its members who
established it, its articles of incorporation cannot be amended solely through the action of its board
of trustees. The amendment needs the concurrence of at least two-thirds of its membership. If such
approval mechanism is made to operate in a corporation sole, its one member in whom all the
powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its
membership. The one member, here the General Superintendent, is but a trustee, according to
Section 110 of the Corporation Code, of its membership. 1avvphi1

•European Resources and Technologies, Inc. vs. Ingenieuburo Birkhanh+Nolte (435 SCRA 246 [2004])

https://lawphil.net/judjuris/juri2004/jul2004/gr_159586_2004.html

**Facts:**

European Resources and Technologies Inc. (ERTI), a Philippine corporation, and the German Consortium,
composed of foreign corporations (Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers &
Brockstedt Gmbh & Co), entered into agreements regarding the management of an Integrated Waste
Management Center in the Clark Special Economic Zone (CSEZ). The German Consortium secured a
contract from the Clark Development Corporation (CDC) and had plans to establish a local corporation in
the Philippines for this project. However, due to various disputes and non-execution of the intended
Shareholders' Agreement, the German Consortium ceded its rights and obligations under the contract to
ERTI through a Memorandum of Agreement (MOA).

CDC, which approved the contract between the German Consortium and CDC, later disapproved of the
assignment of rights to ERTI. This led to a conflict between the parties. The German Consortium filed a
case for preliminary injunction against ERTI, alleging irreparable damage and misrepresentation. ERTI
objected, stating that the dispute should be resolved through arbitration. The trial court issued a
preliminary injunction in favor of the German Consortium. ERTI then appealed to the Court of Appeals.

**Issue:**

1. Whether the German Consortium, foreign corporations doing business in the Philippines without a
license, can file a case in Philippine courts.

**Rulings:**

1. The Court ruled that the German Consortium, foreign corporations doing business in the Philippines
without a license, could not file a case in Philippine courts. The law requires foreign corporations to
obtain a license from the Securities and Exchange Commission (SEC) to transact business in the
Philippines. There are exceptions to this rule, but the German Consortium did not meet these
exceptions. They had not received any benefits from the transactions with ERTI, and ERTI was not
seeking to back out from its obligations. Therefore, the German Consortium could not sue in Philippine
courts.
SECTION 133. 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.

A corporation has legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the Philippines.

In order to subject a foreign corporation doing business in the country to the jurisdiction of our
courts, it must acquire a license from the Securities and Exchange Commission (SEC) and appoint
an agent for service of process. Without such license, it cannot institute a suit in the Philippines.
21

the party is estopped from questioning the capacity of a foreign corporation to institute an action in
our courts where it had obtained benefits from its dealings with such foreign corporation and
thereafter committed a breach of or sought to renege on its obligations. The rule relating to estoppel
is deeply rooted in the axiom of commodum ex injuria sua non habere debet—no person ought to
derive any advantage from his own wrong

• Merrill Lynch Futures, Inc. vs. CA (G.R. No. 97816, July 24, 1992)

https://lawphil.net/judjuris/juri1992/jul1992/gr_97816_1992.html

Facts:

Merrill Lynch Futures, Inc. (ML FUTURES), a non-resident foreign corporation organized under the laws
of Delaware, USA, filed a complaint in the Regional Trial Court of Quezon City against the Spouses Pedro
M. Lara and Elisa G. Lara. The complaint sought recovery of a debt, interest, damages, and attorney's
fees, relating to futures contracts trading conducted between the parties. ML FUTURES had been
conducting business in the Philippines through Merrill Lynch Philippines, Inc. (MLPI), and the Lara
Spouses alleged that this business operation was illegal because ML FUTURES was not licensed to do
business in the Philippines.

Issues:

1. Whether a foreign corporation that conducts business in the Philippines without the required license
has the capacity to sue in Philippine courts.

2. Whether the Lara Spouses are estopped from denying the capacity of ML FUTURES to sue due to their
involvement in business transactions with the company.

Rulings:

The Supreme Court ruled in favor of ML FUTURES and emphasized the consequences of not obtaining
the necessary license when doing business in the Philippines. The Court held that a party is estopped
from challenging the capacity of a corporation to sue in court after having acknowledged its existence
through a contractual relationship. Even if ML FUTURES had been operating without a license, the Lara
Spouses had actively engaged in business transactions with it for several years, receiving financial
benefits from these dealings. The Court found it inequitable for the Lara Spouses to avoid their financial
obligations based on the absence of a license, given their knowledge of this fact. As a result, the case
was ordered to be reinstated in the trial court for further proceedings to determine the merits of the
dispute.

In corporate law, this case illustrates that foreign corporations conducting business in the Philippines
without the proper license can still seek legal remedies in Philippine courts, but the parties they transact
with may be estopped from challenging their legal capacity if they have actively participated in the
business transactions. It underscores the importance of adhering to licensing requirements to ensure
that contracts and obligations are enforceable and that businesses operate within the confines of the
law. Failure to obtain the necessary licenses may lead to legal challenges and potential financial
liabilities.
And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic
corporations;" "one who has dealt with a corporation of foreign origin as a corporate entity is
17

estopped to deny its corporate existence and capacity." The principle "will be applied to prevent a
18

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.

•Communication Materials and Design, Inc. vs. CA (260 SCRA 673 [1996])

https://lawphil.net/judjuris/juri1996/aug1996/gr_102223_1996.html

**Facts**:

ITEC, Inc. is a foreign corporation organized under the laws of the State of Alabama, United States of
America. It is essential to note that ITEC, Inc. is not licensed to conduct business in the Philippines. On
August 14, 1987, ITEC entered into a "Representative Agreement" with Aspac, designating Aspac as its
"exclusive representative" in the Philippines for the sale of ITEC's products. Aspac was responsible for
selling ITEC's electronic products, primarily to the Philippine Long Distance Telephone Company (PLDT).

Additionally, on November 10, 1988, ITEC and Aspac entered into a "License Agreement" that allowed
Aspac to incorporate and use the name "ITEC" in its own name. As a result, Aspac became known as
"Aspac-ITEC (Philippines)." Through these contracts, Aspac was primarily engaged in selling ITEC
products within the Philippines.

To facilitate their business transactions, Aspac and PLDT executed a document titled "PLDT-Aspac/ITEC
Protocol," outlining project details for the supply of ITEC's Interface Equipment in connection with the
Fifth Expansion Program of PLDT.

However, one year into the second term of their Representative Agreement, ITEC decided to terminate
the contract. ITEC alleged that Aspac had violated its contractual commitments by using ITEC's product
specifications to develop similar equipment and offering them to PLDT, ITEC's former customer.

Consequently, ITEC filed a complaint (Civil Case No. 91-294) in the Regional Trial Court of Makati, Branch
134, on January 31, 1991. In this complaint, ITEC sought both preliminary and permanent injunctions,
aiming to prevent several parties, including Aspac and Francisco S. Aguirre, from selling products similar
to ITEC's and from using ITEC's trademark. ITEC also sought damages and attorney's fees.
As defendants, CMDI, Aspac, and Francisco S. Aguirre filed a motion to dismiss the complaint. They
argued that ITEC, Inc., as a foreign corporation not licensed to do business in the Philippines, lacked legal
capacity to sue. Furthermore, they contended that ITEC was engaged in forum shopping, making the
principle of "forum non conveniens" applicable. On February 8, 1991, ITEC amended the complaint by
substituting ITEC International, Inc. as the plaintiff.

In their supplemental motion to dismiss, the defendants requested the court to consider their initial
motion to dismiss and the supplemental motion as their answer to the amended complaint. After
hearings on the preliminary injunction, the court issued an order on February 22, 1991, denying the
motion to dismiss and directing the issuance of a writ of preliminary injunction. This order led the
defendants to elevate the case to the Court of Appeals, seeking the nullification of the lower court's
order.

**Issues**:

Whether ITEC, Inc., a foreign corporation, is considered as "doing business" in the Philippines without
the necessary licenses.

Whether ASPAC, having entered into agreements with ITEC, can now challenge ITEC's legal capacity to
sue based on its lack of a license, and if the defense of forum non conveniens is applicable.

**Rulings**:

The court first determined that ITEC, Inc. was indeed engaged in business activities within the
Philippines, based on its contractual arrangements and operations in the country. The court found that
ITEC's agreements and activities demonstrated a continuous business presence rather than a mere
occasional or isolated transaction. Thus, ITEC was considered as "doing business" without the necessary
license.

The court further ruled that ASPAC, having entered into agreements with ITEC, was estopped from
challenging ITEC's legal capacity to sue. It is a well-established principle that a party cannot deny the
legal existence of a corporation with which it had transacted business. ASPAC was found to have
benefited from its contractual relationship with ITEC and had, therefore, waived its right to challenge
ITEC's capacity to sue.

Finally, the defense of forum non conveniens, which suggests that the Philippine court was not the most
convenient forum for the lawsuit, was deemed irrelevant. The court had already acquired jurisdiction
over the case, and ASPAC's attempt to invoke forum non conveniens was not a valid ground for
dismissal.

This case underscores the importance of corporate compliance with local laws and the principle that a
party who has dealt with a corporation is estopped from denying its legal existence. Additionally, it
highlights the court's authority to decide whether to assume jurisdiction based on the principles of
forum non conveniens, provided certain requisites are met.
"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.

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.

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. To put it in another way, a party is estopped to challenge the
41

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. One who has dealt with a corporation of foreign origin as a corporate entity is
42

estopped to deny its corporate existence and capacity: The 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

• Global Business Holdings, Inc. vs. Surecomp Software (G.R. No.173463, Oct.13,2010)

https://lawphil.net/judjuris/juri2010/oct2010/gr_173463_2010.html

**Facts**:

Surecomp Software, B.V. (Surecomp), a foreign corporation based in the Netherlands, entered into a
software license agreement with Asian Bank Corporation (ABC), a domestic corporation in the
Philippines, for the use of its IMEX Software System. Following a merger in which Global Business
Holdings, Inc. (Global) became the surviving corporation, Global decided to discontinue the agreement
and cease payments. As a result, Surecomp filed a complaint for breach of contract with damages
against Global in the Regional Trial Court (RTC) of Makati. Global responded by filing a motion to dismiss,
raising issues related to Surecomp's capacity to sue and the enforceability of the contract under the
Intellectual Property Code.

**Issues**:

1. Whether a special civil action for certiorari is the appropriate remedy for the denial of a motion to
dismiss.

2. Whether Global is estopped from challenging Surecomp's capacity to sue.

**Rulings**:

1. The Court of Appeals (CA) and the Supreme Court emphasized that the denial of a motion to dismiss is
generally an interlocutory order that cannot be challenged through a special civil action for certiorari,
unless it involves grave abuse of discretion. No arbitrariness or capriciousness on the part of the trial
judge was substantiated, so the RTC's decision was upheld.
 2. The doctrine of estoppel applied to the case. Although foreign corporations doing business in the
Philippines without a license typically cannot sue in Philippine courts, exceptions exist. One such
exception is when a Filipino citizen or a Philippine entity has contracted with and benefited from the
foreign corporation. In this case, due to the merger between Global and ABC, Global was as if it had
entered into the contract with Surecomp. The terms of the merger required Global to assume all of
ABC's liabilities and obligations, and it had the right to exercise all defenses and rights related to the
agreement. Global was thus estopped from challenging Surecomp's capacity to sue.

The decision of the CA was affirmed, and Global was required to proceed with the case.

A corporation has a legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the Philippines

The exception to this rule is 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.

In the merger of two existing corporations, one of the corporations survives and continues the
business, while the other is dissolved, and all its rights, properties, and liabilities are acquired by the
surviving corporation