Case Summary (G.R. No. 207153)
Factual Background
From 1978 to 1983, MISCO, a Delaware corporation, sold acrylic fibers to Continental Manufacturing Corporation (CMC) through a local indentor, Robert Lipton and Co., Inc. (Lipton). Lipton inquired of CMC's requirements, relayed specifications to MISCO, received price and delivery terms, and documented purchases by preparing indent orders in five copies, distributing three to CMC and retaining copies for Lipton and MISCO. Payment was effected by drafts against acceptance prepared by MISCO, co-accepted by CMC and DBP, and paid on maturity.
Complaint and Pleadings
On 31 July 1986, MISCO sued for sum of money, alleging CMC purchased acrylic fibers aggregating US$1,417,980.89 and that unpaid balances on five drafts amounted to US$938,267.58. CMC admitted the obligation but pleaded that MISCO lacked capacity to sue because it was doing business in the Philippines without the required license under RA 5455. CMC also claimed novation through a revised draft agreement and partial payments totaling US$184,000.00. DBP denied liability as co-acceptor, contending the signatory lacked authority to bind DBP and likewise raised MISCO’s alleged lack of capacity to sue.
Substitution of Plaintiff
By motion of MISCO and without opposition from CMC and DBP, the RTC allowed amendment of the complaint substituting MISCO with Monsanto Company, described as MISCO’s mother company and assignee of MISCO’s receivables, including the subject drafts.
Ruling of the Regional Trial Court
The RTC found that MISCO transacted business in the Philippines without a license and therefore, under Section 133 of the Corporation Code, lacked capacity to sue. The RTC held that MISCO or its assignee could not maintain the action and dismissed the complaint. The RTC also dismissed the counterclaims of CMC and DBP for want of evidence.
Ruling of the Court of Appeals
The Court of Appeals reversed and set aside the RTC decision and remanded the case for disposition on the merits. The CA held that Monsanto was not deemed to be “doing business” in the Philippines as defined in Sec. 3(d), RA 7042, because the transactions were effected through a bona fide independent local indentor. The CA credited testimony of Lipton’s vice-president and treated Lipton as an independent distributor transacting in its own name and for its own account. The CA additionally held that, even if MISCO lacked capacity, CMC and DBP were estopped from raising that defense given CMC’s admission of the underlying obligation subject only to a defense of novation.
Issue on Review
The Supreme Court distilled the issue to whether the Court of Appeals erred in finding that MISCO, or its assignee Monsanto, an unlicensed foreign corporation, had the capacity to sue in Philippine courts despite allegations that MISCO was doing business in the Philippines without a license.
Statutory and Regulatory Framework
The Court recalled that the long-standing rule disqualifies an unlicensed foreign corporation transacting business in the Philippines from maintaining suits, citing Section 133 of the Corporation Code. Because the Corporation Code itself does not define “doing business,” the Court turned to PD 1789 and its IRR, which define “doing business” to include soliciting orders, appointing representatives or distributors domiciled in the Philippines, and other acts implying continuity of commercial dealings. The IRR, in Section 1(g), expressly stated that a foreign firm which does business through middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed to be doing business in the Philippines; rather, those middlemen shall be deemed to be doing business.
Nature and Legal Character of an Indentor
Relying on Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp., the Court explained that an indentor is a middleman who, for compensation, brings about purchase and sale transactions between a foreign supplier and a local purchaser, acting as intermediary and deriving commission. The Court observed that Lipton was a domestic corporation whose articles of incorporation and testimony demonstrated a business of representing foreign manufacturers, eliciting offers to local buyers, and earning commission by placing orders. Those facts supported the characterization of Lipton as transacting in its own name and account, thereby excluding MISCO from the category of a foreign corporation “doing business” under the relevant regulatory provisions.
Application to the Record
The Court found that both the RTC and the CA had determined that the sales were made through Lipton as indentor and that the record substantiated Lipton’s independent status. The Court rejected DBP’s contention that Lipton merely acted as a go-between without independence, noting that acting as a go-between is precisely the role of an indentor. Given the IRR’s explicit exclusion of transactions effected through indentors from the phrase “doing business,” the Court concluded that MISCO’s commerce through Lipton did not render MISCO a foreign corporation transacting business in the Philippines for purposes of Section 133.
Doctrine of Estoppel
The Court addressed estoppel, explaining that the doctrine prevents a party who contracted with and benefited from a corporation from later challenging that corporation’s capacity where the benefit has been received. The Court relied on precedents, including Merrill Lynch Futures, I
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Case Syllabus (G.R. No. 207153)
Parties and Posture
- Development Bank of the Philippines filed a 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.
- Monsanto Company was substituted as plaintiff below as assignee and mother company of Monsanto International Sales Company (MISCO), the original foreign seller.
- Continental Manufacturing Corporation (CMC) was the original local buyer and co-defendant below.
- The action below stemmed from a complaint for sum of money filed by MISCO on 31 July 1986 against CMC and DBP for unpaid drafts allegedly co-accepted by CMC and DBP.
- The dispositive relief sought in this Court was reversal of the Court of Appeals' ruling that allowed Monsanto to maintain the suit despite MISCO's alleged lack of license to do business in the Philippines.
Factual Background
- MISCO sold acrylic fibers to CMC from 1978 to 1983 through a local indentor, Robert Lipton and Co., Inc. (Lipton), under five indent orders and drafts against acceptance.
- The supplier prepared drafts against acceptance that were indorsed to a bank and paid at maturity according to the parties' practice.
- MISCO alleged aggregate purchases of US$1,417,980.89 and sought payment of an unpaid balance of US$938,267.58 covered by the drafts.
- CMC admitted the obligation but defended on the ground that MISCO had no capacity to sue for doing business without a license and asserted novation defenses as to payments.
- DBP denied being a co-acceptor and denied that any signer of the drafts had authority to bind it as acceptor.
- MISCO moved for substitution of plaintiff and the trial court allowed substitution of Monsanto Company as assignee of MISCO's receivables.
Issues
- The sole legal issue was 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, had the capacity to sue in Philippine courts.
- A subsidiary issue was whether transactions conducted through a local indentor, acting in its own name and for its own account, preclude a finding that the foreign principal was doing business in the Philippines.
Parties' Contentions
- DBP contended that MISCO transacted business in the Philippines in 1981 and thus lacked capacity to sue under Presidential Decree No. 1789 (PD 1789) and the applicable IRR rather than the later RA 7042.
- Monsanto maintained that the Court of Appeals correctly found that MISCO was not doing business because Lipton acted as an independent indentor transacting in its own name and for its own account.
- DBP also argued that estoppel should not apply and that Monsanto was not the real party in interest, while Monsanto relied on its status as MISCO's mother company and assignee to justify substitution.
Statutory Framework
- Section 133 of the Corporation Code provides that no foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted