Title
MR Holdings, Ltd. vs. Bajar
Case
G.R. No. 138104
Decision Date
Apr 11, 2002
ADB loan to Marcopper defaulted; MR Holdings assumed debt, claimed ownership via assignment. Solidbank levied properties; MR Holdings sued, won injunction as foreign entity enforcing rights, assignments valid but not binding on Solidbank.
foreign corporation
legal capacity to sue
license
A

Case Summary (G.R. No. 138104)

Factual Background

Marcopper Mining Corporation contracted with the Asian Development Bank (ADB) under a Principal Loan Agreement and a Complementary Loan Agreement dated November 4, 1992, for an aggregate loan of US$40,000,000.00 to finance its mining project in Sta. Cruz, Marinduque. To secure the loan, Marcopper executed a Deed of Real Estate and Chattel Mortgage on November 11, 1992, covering substantially all of its properties and assets in Marinduque, which was registered on November 12, 1992. On the same date, ADB and Placer Dome, Inc. executed a Support and Standby Credit Agreement under which Placer Dome agreed to provide cash flow support for Marcopper’s obligations to ADB.

Subsequent Transfers and Judgment

When Marcopper defaulted, Placer Dome caused its subsidiary, MR Holdings, Ltd. (petitioner), to assume Marcopper’s obligation to ADB in the amount of US$18,453,450.02. Pursuant thereto, ADB executed an Assignment Agreement dated March 20, 1997 assigning its rights under the loan documents to petitioner, and Marcopper executed a Deed of Assignment dated December 8, 1997 conveying its properties, mining equipment, and facilities to petitioner.

Judgment and Execution by Solidbank

On May 7, 1997, Solidbank Corporation obtained a Partial Judgment against Marcopper from the RTC, Branch 26, Manila, in Civil Case No. 96-80083, ordering payment of PHP 52,970,756.89 plus interest, attorneys’ fees, and costs. The Manila RTC issued a writ of execution pending appeal. Sheriff Carlos P. Bajar issued notices of levy on Marcopper’s personal and real properties and, together with Sheriff Ferdinand M. Jandusay, set a public auction sale for August 27, 1998 at the Marcopper mine site.

Third-Party Claim and Reivindicatory Action

On August 26, 1998, petitioner served an Affidavit of Third-Party Claim asserting ownership over the levied mining properties, equipment, and facilities by virtue of the Assignment Agreement and Deed of Assignment. After the Manila RTC denied the affidavit, petitioner filed in the RTC, Branch 94, Boac, Marinduque, Civil Case No. 98-13, a complaint for reivindication of properties with a prayer for a writ of preliminary injunction and temporary restraining order against Solidbank, Marcopper, and the sheriffs.

Orders Denying Preliminary Relief and Appeal

Judge Leonardo P. Ansaldo of the RTC, Branch 94, denied petitioner’s application for a writ of preliminary injunction by Order dated October 6, 1998. The court ruled that petitioner had no legal capacity to sue because it was a foreign corporation doing business in the Philippines without a license; that an injunction would improperly stay the execution of a final judgment of a co-equal court; and that the Assignment Agreement and Deed of Assignment were put in serious question by their timing and registration. Petitioner sought relief in the Court of Appeals by Petition for Certiorari, Prohibition and Mandamus, docketed as CA-G.R. SP No. 49226.

Court of Appeals Decision

On January 8, 1999, the Court of Appeals held that Judge Ansaldo did not commit grave abuse of discretion in denying the preliminary injunction. The Court of Appeals concluded that petitioner was transacting business in the Philippines despite its characterization of isolated acts, that the assignments were not binding on Solidbank as a third party and were executed in bad faith and in fraud of creditors, and that petitioner lacked legal capacity to sue. The Court of Appeals relied on jurisprudence including Far East International Import and Export Corporation v. Nankai Kogyo Co. and on the presumption of fraud under Article 1387, New Civil Code.

Grounds Advanced Before the Supreme Court

Petitioner pursued a petition for review on certiorari to the Supreme Court. The petition urged, inter alia, that the Court of Appeals erred in disregarding the prior registered 1992 Deed of Real Estate and Chattel Mortgage which created ADB’s lien; in finding the Assignment Agreement unregistered; in holding the assignments fraudulent as against Solidbank; in declaring petitioner without legal capacity to sue under Section 133, Corporation Code; in treating petitioner, Placer Dome, and Marcopper as one and the same; and in finding forum shopping and rendering effectively a judgment on the merits.

Issues Framed by the Supreme Court

The Supreme Court distilled the principal issues as: (1) whether petitioner had legal capacity to sue in Philippine courts; (2) whether the Deed of Assignment was executed in fraud of creditors under Article 1387; (3) whether MR Holdings, Ltd., Placer Dome, Inc., and Marcopper were the same entity warranting disregard of corporate separateness; and (4) whether petitioner engaged in forum shopping.

Legal Standard on Foreign Corporations’ Capacity to Sue

The Court reiterated settled principles under Section 133, Corporation Code: a foreign corporation transacting business in the Philippines without a license cannot sue in local courts; a foreign corporation not doing business may sue on an isolated transaction or a cause of action independent of business; and a licensed foreign corporation may sue on any transaction. The Court surveyed statutory and jurisprudential definitions of “doing business,” including Republic Act No. 7042, Republic Act No. 5455, and judicial tests that emphasize continuity of commercial dealings and the performance of functions incident to the corporation’s purposes.

Application of the Doing-Business Test to the Facts

The Court found that the Court of Appeals’ conclusion that petitioner was doing business in the Philippines depended on conjecture rather than proof. The Court observed that petitioner’s acts were limited to the assignment transactions and that the record did not disclose the business purpose for which petitioner was organized or overt acts showing an intention to continue Marcopper’s business. The Court held that single or isolated acts, even if significant, do not automatically constitute doing business when there is no evidence of continuity or of intent to commence a series of transactions in the Philippines.

Fraudulent Conveyance Analysis under Article 1387

Addressing Solidbank’s contention that the assignments were fraudulent under Article 1387, the Court recalled the presumption that alienations after judgment are fraudulent but emphasized that the presumption is rebuttable by satisfactory evidence that a conveyance was for valuable consideration and in good faith. The Court found such evidence here: petitioner assumed and paid a substantial portion of Marcopper’s debt to ADB; significant funds were remitted to the Bank of Nova Scotia, a participant and a major stockholder of Solidbank; and the assignment transactions were connected to arrangements dating back to 1992, including the Support and Standby Credit Agreement between Placer Dome and ADB. The Court held that these circumstances rebutted the presumption of fraud.

Priority of Mortgage Lien and Effect on Solidbank’s Rights

The Court emphasized that the 1992 Deed of Real Estate and Chattel Mortgage in favor of ADB created a prior registered mortgage lien covering substantially all of Marcopper’s properties, and that mortgaged properties primarily answer for the mortgaged credit. Because petitioner stepped into ADB’s shoes as assignee of the mortgagee’s rights, Solidbank as an unsecured judgment creditor could not assert a superior right over the mortgaged properties. The Court concluded that Solidbank’s remedy against the mortgaged property was subordinate to the mortgagee’s rights.

Corporate Separateness and Piercing the Corporate Veil

The Court rejected the contention that petitioner, Placer Dome, and Marcopper were one and the same. It applied the indicia set forth in Philippine National Bank v. Ritratto Group Inc. and found only stock ownership present in the record. The Court held that mere ownership by a parent of a subsidiary’s shares is insufficient to disregard corporate separateness in the absence of other indicia such as common officers, inadequate capitalization, parent financing of subsidiary expenses, lack of independent corporate formalities, or use of subsidiary property as the parent’s own.

Forum Shopping and the Right of Third-Party Claimants

On forum shopping, the Court held that because petitioner was not identical to Marcopper, petitioner as a third-party claimant had the right to file an independent reivindicatory action under Rule 39, Section 16 of the 1997 Rules of Civil Procedure. The Court reiterated precedent holding that ownership claims over levied property by third parties call

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