Case Summary (G.R. No. 254440)
Key Dates and Procedural Posture
Transactions: 1978–1983. Complaint for sum of money filed by MISCO: 31 July 1986. Trial court decision dismissing plaintiff’s complaint: 15 August 2006. CA decision reversing and remanding: 26 September 2012; CA resolution denying reconsideration: 30 April 2013. Supreme Court decision denying the petition and affirming the CA: January 25, 2023. The petition to the Supreme Court contested the CA’s finding that MISCO/Monsanto were not “doing business” in the Philippines and therefore had capacity to sue.
Applicable Law and Regulatory Framework
Primary statutes and rules relied upon in the decisions include: Section 133 of the Corporation Code (now Section 150 of RA 11232) on doing business without license and capacity to sue; Presidential Decree No. 1789 (Omnibus Investments Code of 1981) and its Implementing Rules and Regulations (IRR), which define “doing business” and expressly address transactions through indentors, commercial brokers, or commission merchants; Republic Act No. 7042 (Foreign Investments Act of 1991) and its Section 3(d), which contains language substantially similar to PD 1789 and the IRR definitions; Republic Act No. 5455 (earlier statute defining “doing business”); and procedural provisions such as Section 9, Rule 3 of the Rules of Court on real party in interest. The Court applied the legal framework in force and relevant to the transactions and disputes, with particular reliance on PD 1789 and its IRR to determine what constitutes “doing business.”
Factual Background and Transaction Mechanics
MISCO sold acrylic fibers to CMC between 1978 and 1983 through Lipton, a registered domestic corporation operating as an indentor and broker for foreign manufacturers. The sales were effected by indent orders prepared in quintuplicate (three copies to CMC, one to Lipton, one to MISCO). Payment was by draft against acceptance prepared by the supplier, endorsed by the buyer to a bank, and paid at maturity. CMC defaulted on obligations evidenced by five co-accepted drafts, prompting MISCO to sue for the unpaid balance. CMC admitted the obligation but raised defenses including MISCO’s alleged lack of capacity to sue (for transacting business without a license) and novation based on a revised draft agreement with partial payments. DBP denied being a co-acceptor, disputed the authority of the signatory, and also raised MISCO’s lack of capacity to sue.
Trial Court Findings
The RTC found MISCO to have transacted business in the Philippines without the necessary license and, citing the prohibition in the Corporation Code (Section 133), held that MISCO and its assign were not permitted to maintain suit. The RTC therefore dismissed the complaint and also dismissed the counterclaims of CMC and DBP for lack of evidence. The RTC’s disposition rested on the conclusion that MISCO had engaged in unlicensed business activities in the country.
Court of Appeals Ruling
The CA reversed and set aside the RTC decision and remanded the case for determination on the merits. The CA concluded that MISCO (and by assignment Monsanto) was not “doing business” in the Philippines because the sales were effected through an independent local indentor, Lipton. The CA relied on testimony establishing that Lipton acted as a bona fide middleman, purchasing or arranging sales in its own name and for its own account, and emphasized the IRR principle that transactions effected through such independent intermediaries do not render the foreign principal as “doing business” in the Philippines. The CA also held that, even if MISCO lacked capacity, the defense was estopped because CMC had contracted with and benefited from MISCO’s supplies; thus CMC could not later challenge MISCO’s capacity to sue.
Supreme Court Issue Presented
The Supreme Court framed the dispositive issue as whether the CA erred in finding that MISCO, or its assignee Monsanto, was not “doing business” in the Philippines and therefore had capacity to sue despite lacking a license. The Court recognized the settled rule that an unlicensed foreign corporation transacting business in the Philippines lacks capacity to sue under Section 133 of the Corporation Code, but also acknowledged that the phrase “doing business” requires case-by-case determination and that PD 1789 and its IRR provide definitions and clarifications.
Supreme Court Reasoning on “Doing Business” and Indentor Doctrine
The Court analyzed the statutory and regulatory language in PD 1789 and its IRR (and compared similar language in RA 7042 and RA 5455), highlighting that those provisions expressly exclude from “doing business” transactions conducted through middlemen acting in their own names — specifically indentors, commercial brokers, or commission merchants. The Court relied on Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp. to explain the nature of an indentor as a middleman who brings about purchases and sales between foreign suppliers and local purchasers, acting to earn commissions and transacting business in its own name and for its own account. Applying these principles to the record, the Court found that Lipton’s established business practices, articles of incorporation, testimony, and mode of operation showed that it acted as an independent indentor transacting in its own name and for its own account. Consequently, MISCO’s use of Lipton did not, under the IRR and the legal framework, constitute MISCO’s “doing business” in the Philippines that would bar its capacity to sue.
Consideration of DBP’s Arguments and Estoppel
The Court addressed DBP’s contention that PD 1789, not RA 7042, governed the transactions and that Lipton did not operate in its own name and account. The Court agreed PD 1789 a
...continue readingCase Syllabus (G.R. No. 254440)
Case Caption, Citation and Authorship
- G.R. No. 207153; Decision dated January 25, 2023, First Division.
- Petition for Review on Certiorari from the Court of Appeals Decision dated 26 September 2012 and Resolution dated 30 April 2013 in CA-G.R. CV No. 88100.
- Decision penned by Justice Zalameda; Chief Justice Gesmundo (Chairperson), Justices Hernando and Marquez concur; Justice Rosario on official leave.
- Record and source references appear throughout the rollo (e.g., rollo pp. 23-46; CA decision pp. 49-63; RTC decision pp. 148-169).
Antecedent Facts and Transactional Structure
- Monsanto International Sales Company (MISCO), a Delaware foreign corporation, sold acrylic fibers to Continental Manufacturing Corporation (CMC) from 1978 to 1983.
- Sales were effected through a local indentor, Robert Lipton and Co., Inc. (Lipton).
- Typical transaction mechanics:
- As indentor, Lipton would inquire whether CMC wanted to buy acrylic fiber; CMC provided specifications which Lipton relayed to MISCO.
- If available, MISCO gave Lipton the price inclusive of delivery charge and terms of payment, which Lipton relayed to CMC.
- Transactions were documented by an indent order prepared and signed in five copies: three given to CMC, one kept by Lipton, and one by MISCO.
- Mode of payment was draft against acceptance: supplier prepared the draft, sent it to the buyer, who indorsed it to the bank; drafts were paid on maturity.
- Monetary particulars of dispute:
- MISCO alleged aggregate purchases by CMC totaling US$1,417,980.89, covered by five drafts co-accepted by CMC and petitioner Development Bank of the Philippines (DBP).
- MISCO claimed unpaid outstanding balance of US$938,267.58 arising from those drafts.
Parties, Their Positions and Pleadings
- MISCO (later substituted by Monsanto) — plaintiff/assignee of MISCO’s receivables; alleged unpaid balance and sought recovery on drafts.
- Monsanto — mother company of MISCO; substituted as plaintiff by court-granted amendment upon MISCO’s unopposed motion; asserted rights as MISCO’s assignee.
- Continental Manufacturing Corporation (CMC) — defendant; admitted obligation but raised defenses:
- Alleged MISCO was "doing business" in the Philippines without required license and thus lacked capacity to sue under applicable laws.
- Asserted that MISCO appointed Lipton as its representative in the Philippines, an act considered "doing business" under RA 5455.
- Alternatively alleged novation by a revised draft agreement and that it made payments totalling US$184,000 which MISCO accepted.
- Development Bank of the Philippines (DBP) — defendant; asserted:
- Complaint did not state a cause of action against DBP; DBP not privy to transactions between MISCO and CMC.
- Denied being a co-acceptor of the drafts and denied authority of signatory to bind DBP as acceptor.
- Raised MISCO’s alleged lack of capacity to sue.
Procedural History and Disposition Below
- Regional Trial Court (Branch 165, Pasig City) — Decision dated 15 August 2006:
- Found MISCO transacted business in the Philippines without license.
- Ruled MISCO, or its assignee Monsanto, lacked capacity to sue pursuant to Section 133 of the Corporation Code.
- Dismissed plaintiff’s complaint; counterclaims of CMC and DBP dismissed for want of evidence.
- Court of Appeals — Decision dated 26 September 2012 (CA-G.R. CV No. 88100):
- Reversed and set aside the RTC decision; remanded the case to the trial court to decide on merits with dispatch.
- Held Monsanto not deemed “doing business” in the Philippines as defined in Sec. 3(d) of RA 7042 (Foreign Investments Act of 1991).
- Found that transactions were made through a bona fide local indentor (Lipton); gave credence to Lipton Vice-President Desiderio F. Torres’s testimony.
- Further held that even if MISCO lacked capacity to sue, CMC was estopped from raising the defense due to its admission of obligation and benefit from the contract.
- Motion for reconsideration denied in CA Resolution dated 30 April 2013.
- Supreme Court — Petition for Review on Certiorari filed by DBP; petition denied and CA Decision and Resolution affirmed (January 25, 2023).
Central Issue Presented to the Supreme Court
- Whether the Court of Appeals erred in finding that MISCO, or its assignee Monsanto, a foreign corporation without a license to transact business in the Philippines, has the capacity to sue in Philippine courts.
Governing Statutes, Regulations and Doctrinal Authorities Cited
- Section 133 of the Corporation Code (Batasang Pambansa Blg. 68; now Section 150 of RA 11232 — Revised Corporation Code): textual prohibition on foreign corporations transacting business without license from maintaining or intervening in actions or proceedings in Philippine courts; but may be sued on valid causes of action.
- Presidential Decree No. 1789 (Omnibus Investments Act of 1981) — Article 65 definition of "doing business" and "investment" as used in the Book; text reproduced in the decision and emphasized.
- Section 1(g), Implementing Rules and Regulations (IRR) of PD 1789 — clarifies that “doing business” includes soliciting orders, but expressly provides that a foreign firm doing business through middlemen acting in their own names (indentors, brokers, commission merchants) shall not be deemed doing business in the Philippines; the middlemen are deemed to be doing business.
- Republic Act No. 7042 (Foreign Investments Act of 1991) — Sec. 3(d) definition of “doing business,” similar in relevant parts to PD 1789 and its IRR; provides that appointing a representative or distributor domiciled in the Philippines shall not be deemed doing business if such representative/distributor transacts business in its own name and for its own account.
- Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp., 248 Phil. 727 (1988) — elucidation on the nature of an indentor as a middleman, the chief features of commercial brokers/comm