Corporatio law Cases - Last Cases

8/19/2019 Corporatio law Cases - Last Cases

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Gelano vs. Hon. Court of Appeals

No. L-39050. February 24, 9!."

CA#L$% G&LAN$ an' G()LL*)NA *&N+$A +&G&LAN$, pettoners, vs. H& H$N$#A/L& C$(# $FA&AL% an' )N%(LA# %A1*)LL, )NC., respon'ents.

Corporation Law; Attorneys; Trustee; A corporation witha pending court action may still continue prosecuting ordefending the same for three years after its dissolution. Itslegal counsel may be considered its trustee for that case

only.—However a corporation that has a pending actionand which cannot be terminated within the three!yearperiod after its dissolution is authori"ed under #ection $% toconvey all its property to trustees to enable it to prosecuteand de fend suits by or against the corporation beyond thethree!year period. Although private respondent did notappoint any trustee yet the counsel who prosecuted anddefended the interest of the corporation in the instant caseand who in fact in behalf of the corporation may beconsidered a trustee of the corporation at least withrespect to the matter in litigation only. #aid counsel had

been handling the case when the same was pending beforethe trial court until it was appealed before the Court ofAppeals and &nally to this Court. 'e therefore hold thatthere was a substantial compliance with #ection $% of theCorporation Law and as such private respondent Insular#awmill Inc. could still continue prosecuting the presentcase even beyond the period of three ()* years from thetime of its dissolution.

#ame; #ame; #ame.—The word +trustee, as used inthe corporation statute must be understood in its generalconcept which could include the counsel to whom was

entrusted in the instant case the prosecution of the suit&led by the corporation. The purpose in the transfer of theassets of the corporation to a trustee upon its dissolution is

more for the protection of its creditor and stoc-holders.ebtors li-e the petitioners herein may not ta-e advantageof the failure of the corporation to transfer its assets to atrustee assuming it has any to transfer which petitionerhas failed to show in the &rst place. To sustain petitioners/contention would be to allow them to enrich themselves atthe e0pense of another which all enlighted legal systemscondemn.

Husband and 'ife; 1bligations; The con2ugalpartnership is liable for debts contracted by the husband.—3etitioners contend that the obligations contracted bypetitioner Carlos 4elano from 5ovember 67 678$ untilAugust 6% 679: (before the eectivity of the 5ew CivilCode* and from ecember uly 68 679<(during the eectivity of the 5ew Civil Code* were hispersonal obligations hence petitioners should not be held 2ointly and severally liable. As regards the said issuessu?ce it to say that with the &ndings of the Court of

Appeals that the obligation contracted by petitioner!husband Carlos 4elano redounded to the bene&t of thefamily the inevitable conclusion is that the con2ugalproperty is liable for his debt pursuant to paragraph 6Article 68:% Civil Code of 6%%7 which provision incidentallycan still be found in paragraph 6 Article 6=6 of the 5ewCivil Code. 1nly the con2ugal partnership is liable not 2ointand several as erroneously described by the Court ofAppeals the con2ugal partnership being only a single entity.

3@TITI15 to review the 2udgment of the Court ofAppeals.

The facts are stated in the opinion of the Court.

@ CA#T1; >.B

3rivate respondent Insular #awmill Inc. is a corporationorgani"ed on #eptember 6$ 6789 with a corporate life of &fty (9:* years or up to #eptember 6$ 6779 with theprimary purpose of carrying on a general lumber andsawmill business. To carry on this business privaterespondent leased the paraphernal property of petitioner!wife 4uillermina . 4elano at the corner of Canonigo and1tis 3aco anila for 36


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cash advances on account of rentals to be paid by thecorporation on the land.

Detween 5ovember 67 678$ to ecember


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Carlos 4elano and 4uillermina 4elano should be held liablefor the substantial portion of the claim.

1n August


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TH@ K@#315@5T C1TK @@ I5 H1LI54 THAT 'ITH TH@ GILI54 1G #3@CIAL 31C@@I54#51. 7


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the eect that suits by or against a corporation abatewhen it ceased to be an entity capable of suing orbeing sued ($ .C.L. Corps. 3ar. $9:*; but trustees towhom the corporate assets have been conveyedpursuant to the authority of #ection $% may sue andbe sued as such in all matters connected with theliJuidation. Dy the terms of the statute the eect of the conveyance is to ma-e the trustees the legalowners of the property conveyed sub2ect to the

bene&cial interest therein of creditors andstoc-holders. ;

'hen Insular #awmill Inc. was dissolved on ecember )667=: under #ection $$ of the Corporation Law it stin hasthe right until ecember )6 67=) to prosecute in its namethe present case. After the e0piration of said period thecorporation ceased to e0ist for all purposes and it can nolonger sue or be sued. !

However a corporation that has a pending action andwhich cannot be terminated within the three!year periodafter its dissolution is authori"ed under #ection $% toconvey all its property to trustees to enable it to prosecuteand defend suits by or against the corporation beyond the Three!year period although private respondent (did notappoint any trustee yet the counsel who prosecuted anddefended the interest of the corporation in the instant caseand who in fact appeared in behalf of the corporation maybe considered a trustee of the corporation at least withrespect to the matter in litigation only. #aid counsel hadbeen handling the case when the same was pending beforethe trial court until it was appealed before the Court of

Appeals and &nally to this Court. 'e therefore hold thatthere was a substantial compliance with #ection $% of theCorporation Law and as such private respondent Insular#awmill Inc. could still continue prosecuting the presentcase even beyond the period of three ()* years from thetime of its dissolution.

Grom the above Juoted commentary of >ustice Gisher thetrustee may commence a suit which can proceed to &nal 2udgment even beyond the three!year period. 5o reasoncan be conceived why a suit already commenced Dy thecorporation itself during its e0istence not by a meretrustee who by &ction merely continues the legalpersonality of the dissolved corporation should not be

accorded similar treatment allowed — to proceed to &nal 2udgment and e0ecution thereof.

The word KtrusteeK as sued in the corporation statute mustbe understood in its general concept which could includethe counsel to whom was entrusted in the instant case theprosecution of the suit &led by the corporation. Thepurpose in the transfer of the assets of the corporation to atrustee upon its dissolution is more for the protection of its

creditor and stoc-holders. ebtors li-e the petitionersherein may not ta-e advantage of the failure of thecorporation to transfer its assets to a trustee assuming ithas any to transfer which petitioner has failed to show inthe &rst place. To sustain petitionersE contention would beto allow them to enrich themselves at the e0pense of another which all enlightened legal systems condemn.

The observation of the Court of Appeals on the issue nowbefore s thatB

nder #ection $$ of the Corporation Law when thecorporate e0istence is terminated in any legalmanner the corporation shall nevertheless continueas a body corporate for three ()* years after thetime when it would have been dissolved for thepurpose of prosecuting and defending suits by oragainst it. According to authorities the corporationKbecomes incapable of ma-ing contracts orreceiving a grant. It does not however cease to bea body corporate for all purposes.K In the case of Pasay Credit and Finance Corp. vs. Isidro Lazaro andothers 8= 14 (66* 99


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litigation as otherwise corporations in liJuidationwould lose what should 2ustly belong to them orwould be e0empt from the payment of 2ustobligations through a mere technicality somethingthat courts should preventK (3hilippine CommercialLaws by artin 67=< @d. Nol.


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/uena.B

>aime T. DuenaQor has appealed the decision of the 3ublic#ervice Commission which re2ected his application to installand operate a 9!ton ice plant in #abang (CalabangaCamarines #ur* even as it permitted Camarines #urIndustry Corporation to build in that barrio a factory withthe same output.

1n >une


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conveyance and on 5ovember $ 679$ the Commissionprovisionally approved the transfer of assets plus thecerti&cates of public convenience.

1n 5ovember % 679$ the Camarines Corporation (new*answered the motion to dismiss by alleging — to theama"ement of DuenaQor — its recent incorporation plus itsacJuisition of the assets and certi&cates of the oldCamarines Corporation with the CommissionEs approval as

above described.

eiterating his application while resisting the CamarinesCorporation DuenaQor arguedB (a* he was &rst to apply; (b*although the old Camarines Corporation had beenoperating an ice plant in agarao town only si0 -ilometersaway it neglected to ta-e trouble of applying untilDuenaQor had made his application; (c* the preferencewhich the new Camarines Corporation claims by virtue of the old corporationEs having distributed ice in #abang forthe years previous to DuenaQorEs application should not begranted because since 679) such old corporation hadceased to be 2uridical entity and could not law'ully continue in (usiness nor invo-e any protection orpreference.

@vidence was presented in support of the applications andoppositions.

The Commission in its decision of ecember 6


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Camarines Corporation. His line of argument centersaround the e0piration of the old CorporationEs charter in679); and we thin- he touches the vital spot.

It is admitted — and the Commission found!!that the needsof #abang Darrio will be conveniently served with theestablishment of a 9!ton ice plant. Dut it elected to denyDuenaQorEs application even as it awarded the privilege tothe new Camarines Corporation on the ground that it (the

old corporation* had (een servin ice in "a(an up to thetime of DuenaQorEs application and was conseJuently thepioneer operator there.

The fact however is that since 679) the old Corporationhad been illeally plyin its (usiness o' sellin ice in#abang because under the Corporation Law #ec. $$ after5ovember 679) it could not law'ully continue the (usinessfor which it had been established (operate ice plant sellice etc*. After 5ovember 679) it could only continue toe0ist for three years for the purpose of prosecuting anddefending suits by or against it and of enabling it graduallyto settle and close its aairs to dispose and convey itsproperty and to divide its capital stoc-. It could not withoutviolating the law continue to sell ice. And yet theCommission awarded the certi&cate on the basis of suchserve and distribution of ice — applying the Kprior operatorKrule.6 In other words the new Camarines Corporation isrewarded precisely because the old corporation itspredecessor had violated the law during that period (679)!679$*. 'e can not and should not countenance suchanomalous result.

1n the other hand when the old Camarines Corporationdoc-eted its application 1ctober 6 679$ it had no 2uridicalpersonality it had ceased to e0ist as a corporation andcould not sueaime T. DuenaQor who besides being Juali&ed in theeyes of the Commission had applied for the privilegemonths in advance of the old Camarines Corporation andof the incorporation of the new Camarines Corporation.

'herefore revo-ing the appealed decision in so far as itawarded the certi&cate to said Corporation we herebyapprove DuenaQorEs application for &ve tons instead of oneton sub2ect to the usual conditions imposed by the 3ublic#ervice Commission on ice plant establishments.

Costs against Camarines Corporation.

Paras, C. J., Monte)ayor, *autista +nelo, La(rador,Concepcion, *arrera, and Gutierrez !avid, JJ., concur.


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No. L-:;;9. Au7ust :, 9:.

NA)$NAL A/ACA AN+ $H F)/%C$#$#A)$N, plant-appellant, vs. A$L$N)A

$#&, 'efen'ant-appellee.

Corporations; issolution; #tatus of pending actions byor against dissolved corporations.—In the absence ofstatutory provision to the contrary pending actions by oragainst a corporation are abated upon e0piration of theperiod allowed by law for the liJuidation of its aairs.

#ame; Absence of authority to continue in its corporatename actions instituted by a dissolved corporation withinthree years from dissolution.—The Corporation Law

contains no provision authori"ing a corporation after threeyears from the e0piration of its lifetime to continue in itscorporate name actions instituted by it within said period of three years. In fact section $$ of said law provides that thecorporation shall +be continued as a body corporate forthree ()* years after the time when it would have been 0 00 dissolved for the purpose of prosecuting and defendingsuits by or against it 0 0 0, so that thereafter it shall nolonger en2oy corporate e0istence for such purpose. Gor thisreason section $% of the same law authori"es thecorporation +at any time during said three years 0 0 0 toconvey all of its property to trustees for the bene&t ofmembers stoc-holders creditors and others in interest,evidently for the purpose among others of enabling saidtrustees to prosecute and defend suits by or against thecorporation begun before the e0piration of said period.

A33@AL from the orders of the Court of Girst Instance of Leyte.oscoso >.

The facts are stated in the opinion of the Court. A. Llamas S Arsenio 3. oman for plainti!appellant. #era&n amento for defendant!appellee.

C15C@3CI15 >.B

Appeal by plainti 5ational Abaca and other GibersCorporation from two (


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1n #eptember 6 679= said court issued anotherorder dismissing the case without pronouncement asto costs it appearing that the aforementionedamended had not been made despite the fact thatcopy of said order of August 6 679= had been sentby registered mail to plaintiEs counsel on August =679=. Copy of the last order was delivered on#eptember 6) 679= to counsel for the plaintiwhich &led on #eptember


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against the corporation shall continue beyondsuch period for a further named period after&nal 2udgment. (GletcherEs Cyclopedia onCorporations Nol. 6= pp. %7

1ur Corporation Law contains no provision authori"inga corporation after three ()* years from thee0piration of its lifetime to continue in its corporatename actions instituted by it within said period of three ()* years. in fact section $$ of said law providesthat the corporation shall Kbe continued as a bodycorporate for three ()* years after the time when itwould have been . . . dissolved 'or the purposed o'

prosecutin and de'endin suits (y or aainst it . . .Kso that thereafter it shall no longer en2oy corporatee0istence for such purpose. Gor this reason section $%of the same law authori"es the corporation Kat anytime during said three years . . . to convey all of itsproperty to trustees for the bene&t of membersstoc-holders creditors and other interestedKevidently for the purpose among others of enablingsaid trustees to prosecute and defend suits by oragainst the corporation begun before the e0piration of said period. Hence commenting on said sections

>udge Gisher in his wor- entitled 3hilippines Law on#toc- Corporations (67


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'H@@G1@ the orders appealed from dated#eptember 6 and 1ctober ) 679= are reversedplaintiEs amended complaint is hereby admitted andthe record remanded to the lower court for furtherproceedings with the costs of this instance againstdefendant!appellee Apolonio 3ore.

It is so ordered.


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an on7 /o vs. Cossoner of )nternal

#evenue

5o. L!69$$%. April


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3)69anuary 8 679


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and #y #eng Tong who appear in the Articles of Incorporation of the Central #yndicate Anne0 A (pp. =:!== CTA rec.* as incorporators and directors of thecorporation the second named being in addition its3resident and the seventh its Treasurer are herebyordered to pay 2ointly and severally to the Collector of Internal evenue the sum of 3))$7$.%% as de&ciencysales ta0 and surcharge on the surplus goods purchasedby them from the Goreign LiJuidation Commission on

>uly 9 678= from which they reali"ed an estimatedgross sales of 3688$996.=9 with costs. ..

3etitioners interposed the present appeal.

The important issues to be determined in this appeal areB(6* whether the importer of the surplus goods in Juestionthe sale of which is sub2ect to the present ta0 liability isee Hong Lue or the Central #yndicate who has beensubstituted by the present petitioners; (


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#yndicate was then still in the process of organi"ation;that !ee -on Lue held the said surplus properties intrust until the )ere 'or)al turnover to the corporationon +uust %, /012, when the corporation had already (een oranized and incorporated under the laws o' thePhilippines3 and that on >uly


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purchased price of 366


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bought from ee Hong Lue the Kystery 3ileK for36ose #. Lim decided to 2oin theproposed Central #yndicate and a re!allocation of shares was made for the reason that some of the aboveparties in turn had to get advances from third parties.KIf this were true why was it that essrs. Fu Phe Thai #y

#eng Tong Alfonso O. #ycip and Tan Tiong Dio whoadvanced 3


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of transfer as it should be under Article 6%76 of the 5ewCivil Code they have reduced (at least attempted to*their sales ta0 liability with the argument that ee HongLue was the original KpurchaserK or KimporterK of thegoods and therefore the ta0able sale was that onemade by him to the #yndicate and not the sales madeby the latter to the public. After going over the Articlesof Incorporation of the Central #yndicate and the othercircumstances of this case we draw the conclusion that

it was organi"ed 2ust for this particular transaction thatits life span was e0pressly limited to two (


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Hong Lue the entire stoc- of the surplus goods which the latterhad bought from the Goreign LiJuidation Commission and wastherefore depositing in his name the sum of 38)$9:.:: toanswer for his sales ta0 liability but this letter certainly cannotbe considered as a return that may set in operation theapplication of the prescriptive period provided for in #ection))6 of the Ta0 Code for evidently said letter if at all couldonly be considered as such in behalf of ee Hong Lue and notin behalf of the Central #yndicate because such is the only

nature and import of the letter. Desides how can such letterbe considered as a return of the sales of the Central #yndicatewhen it was only on Gebruary


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of the government cannot of course collect ta0es from adefunct corporation it loses thereby none of its rights toassess ta0es which had been due from the corporation and tocollect them from persons who by reason of transactions withthe corporation hold property against which the ta0 can beenforced and that the legal death of the corporation no moreprevents such action than would the physical death of anindividual prevent the government from assessing ta0esagainst him and collecting them from his administrator who

holds the property which the decedent had formerlypossessedK ('onder Da-eries Co. v. .#. 67)8V Ct. Cl. = G.#upp.


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Cna /an8n7 v. *eln

=No. 3:930. ?une 30, 933>

In the matter of the Noluntary issolution of 4eorge1EGarrell S Cie. Inc. CHI5A DA5PI54 C131ATI15 andL@131L1 PAH5 claimants and appellants vs. .ICH@LI5 S CI@. claimant and appellee.

6. C131ATI15#; @C@IN@#HI3; 31C@@ DFC1T I5 A331NI54 CLAI#.—Claims against acorporation in the hands of a receiver should not beapproved and paid without some formal and regularproceeding whereby their 2ustice and correctness may beinJuired into after a reasonable opportunity has been givento all the parties in interest to present ob2ections andsubmit evidence in support of such ob2ections. ('halen vs.3asig Iron 'or-s 6) 3hil. 86$.*


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ban-/s motion for reconsideration of the order of the saidcourt of 5ovember % 67): allowing the claim of theappellee . ichelin S Cie. as a preferred claim againstthe corporation in dissolution 4eorge 1/Garrell S Cie. Inc.to which reference will be made as the Kcorporation.K

The appellant China Dan-ing Corporation is a claimantagainst the corporation as the holder of a note for 3%9:::signed 2ointly and severally by the corporation and theother appellant Leopoldo Pahn who has 2oined the appeal

to protect his interest.

4eorge 1/Garrell S Cie. Inc. is a domestic corporationorgani"ed in 67


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the appellee &led an Ke0 parte petitionK praying for anorder directing the liJuidator 4aston 1/Garrell to payappellee/s claim within three days and acting on saidpetition the court granted the same and directed theliJuidator to pay the claim within three days withpreference to all other claims. Again nobody was servedwith notice of this order and pursuant thereto the receiverpaid the appellee on ecember 7 67): the sum of 39:::on account which was receipted for by appellee/s attorney.(ecord of Appeal pages 6=!


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corporation provides that the court Kmay . . . appoint areceiver to ta-e chargeK of the estate and eects of thecorporation Kand to pay the outstanding debts thereof andto divide the money and other properties that shall remainover among the stoc-holders or membersK and consistentwith said provision section == of the Corporation Lawprovides with respect to decrees of dissolution renderedupon voluntary application that the court Kmay appointreceivers to collect and ta-e charge of the assets of thecorporation.K #uch language found in both statutes on the

sub2ect is permissive rather than mandatory and tends torecogni"e that in cases of voluntary dissolution there is nooccasion for the appointment of a receiver e0cept underspecial circumstances and upon proper showing. There canbe no doubt that when enacting the Corporation Law theLegislature intended to let the shareholders have thecontrol of the assets of the corporation upon dissolution inwinding up its aairs. The normal method of procedure isfor the directors and e0ecutive o?cers to have charge ofthe winding up operations though there is the alternativemethod of assigning the property of the corporation totrustees for the bene&t of its creditors and shareholders.

#ection $$ and $% of the Corporation Law ma-e the generalpurpose of the law manifest. #ection $$ provides that everycorporation whose charter e0pires by its own limitation orwhose corporate e0istence terminates in Kany othermannerK shall nevertheless be continued as a bodycorporate for three years Kafter the time when it wouldhave been so dissolvedK for winding up operations; andsection $% provides that Ksaid corporations at any timeduring the three years term may convey its property totrustees for the bene&t of creditors stoc-holders andothers concerned.K

#tatutes authori"ing voluntary dissolutions are generallyheld to apply only to a dissolution brought about by thestoc-holders themselves and while the appointment of areceiver rests within the sound 2udicial discretion of thecourt such discretion must however always be e0ercisedwith caution and governed by legal and eJuitableprinciples the violation of which will amount to its abuseand in ma-ing such appointment the court should ta-e intoconsideration all the facts and weigh the relativeadvantages and disadvantages of appointing a receiver towind up the corporate business. The court should only acton facts which have been proved by competent legal

evidence. (% Thompson on Corp.


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receiver herein besides being the principal promoter of thecorporation and the holder of the largest number of shareswas elected president and general manager and that heheld the said o?ces ever since the organi"ation of thecorporation and his conduct in e0ecuting a mortgage on hisown house and giving a pledge on his shares of stoc- andon those of osario #anche" represented by him asattorney in fact in favor of the appellee to guarantee thelatter/s claim lends itself to a serious suspicion. The factsappearing of record leave no room for doubt that his

administration of the business of the corporation left muchto be desired and that he alone ought to be blamed for theshortage claimed by the appellee but to save himself frompersonal liability he made the corporation shoulder theburden of the obligation in e0change for a simulatedconveyance of his house to the corporation. 5o sooner hadthe corporation become delinJuent in the payment of theobligation under the terms of the written agreement thanhe resorted to a 2udicial proceeding of voluntary dissolutionin an attempt to settle appellee/s claim and to free himselffrom all harm but fearing that the alleged preference ofappellee/s claim might be defeated in collusion with the

appellee they had the claim allowed summarily as apreferred claim ignoring the rest of the world.

Appellants/ contention that appellee/s claim cannot beallowed as a preferred claim is well ta-en for evenadmitting for the sa-e of argument that the merchandisewhich sale price is the sub2ect of appellee/s claim wasshipped to the corporation under a commission agreementor any other agreement carrying the obligation to returneither the goods or its price the fact is that themerchandise in the case at bar was no longer in thecorporation/s possession nor could the appellee trace the

proceeds from its sale and this is made manifest by thevery fact of the written agreement entered into betweenthe appellee and the corporation whereby the appelleeaccepted payment of the obligation by installments dulysecured with a mortgage of property to guarantee itspayment. Dut such is not the case however for the veryagreement of ay )6 67): mentioned in paragraph 9 ofappellee/s claim shows that the rubber tires consigned tothe corporation were to be sold by the latter Kpor ordencuenta y riesgo de los #res. . ichelin S Cie.K and that thecustomers/ accounts were opened Kpor orden cuenta yriesgo de . ichelin S Cie.K and so much is this true thatthe uncollected accounts were turned over to and receivedby the appellee . ichelin S Cie. nder such

circumstances the amount of appellee/s claim appears tobe in the nature of a balance of a current account betweenthe two &rms more than anything else. (ecord of Appealpage =% together with the 8th and 9th paragraphs of theagreement.*

The order appealed from is reversed and the appellee/sclaim is hereby declared to be an ordinary claim. Theappellee is ordered to refund to the corporation the sum of

39::: erroneously paid by the receiver with costs againstthe appellee. #o ordered.


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#epubl v. *arsan

No. L-!95:. Aprl 2;, 9;2.

@3DLIC 1G TH@ 3HILI33I5@# plainti!appellee vs.A#A5 @N@L13@5T C13A5F andor G. H.D4@## in his capacity as LiJuidator of the arsmanevelopment Company defendants!appellants.

Ta0ation; Ta0 Assessment; otion for reconsiderationthereof not suspend running of period for collection ofta0; Assessment considered &nal and e0ecutory.—The

appellant corporation by its own omission made itimpossible for the Dureau of Internal evenue to act onits motion for reconsideration. It has been held that themere &ling of such a motion does not suspend therunning of the period for the collection of the ta0 andthis implies that any assessment made by the Dureau issupposed to be &nal and e0ecutory insofar as theta0payer is concerned unless revised by the Dureau inaccordance with law and regulations but it is to beemphasi"ed that a ta0payer cannot delay the collectionof ta0es by the simple e0pedient of barely as-ing for

clari&cation or reconsideration very often unnecessaryand unwarranted without doing anything to comply withthe statutory and reglementary reJuirements for thereconsideration of the assessment made against him.

#ame; #ame; 3rescription; 'here ta0payer failed to&le return.—#ection


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DA@1 >.B

Appeal from the decision of the Court of Girst Instance of anila the Honorable Conrado . NasJue" presidingsentencing defendants!appellants to pay the amounts of 3886)8.)9 3==:).


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6799 wherein for the reasons therein stated hereJuested e0emption from the reJuirementscontained in the letter @0hibit C (@0hibit *. In eplyto @0hibit the Collector of Internal evenue wroteAtty. oya on ay ) 6799 informing him that hisreJuest to e0empt his client from the reJuirementscontained in the letter dated Gebruary 66 6799cannot be favorably considered and that in orderthat the Conference #ta may be directed to hear

the case on the merits the said reJuirements mustbe complied with within &ve days from receipt of said letter; otherwise the Kassessment will beconsidered &nalK (@0hibit @*. A follow!up letter dated >une 8 6799 was addressed to Atty. oya afterdiscovering that the reJuirements mentioned in theletters dated Gebruary 66 6799 and arch ) 6799have not been complied with inspite of theconsiderable length of time that had alreadyelapsed (@0hibit G*. In the last paragraph of the saidletter @0hibit G the defendant corporation waswarned that unless the aforementioned

reJuirements are complied with within &ve (9* daysfrom receipt the Kcase will be consideredabandoned and appropriate action will be ta-en inaccordance with lawK. Again on 5ovember 68 6799after discovering that the letters dated Gebruary 666799 arch ) 6799 and >une 8 6799 haveremained unheeded by the defendant corporationthe latter was given another chance of complyingwith the reJuirements mentioned within &ve daysfrom receipt of said letter otherwise the Dureau of Internal evenue Kwill be constrained to enforce the

immediate collection of the de&ciency percentageta0 and forest charges dueK (@0hibit 4*.

1n April . In said @0hibit H defendant

corporation again protested the assessment of 389986.== and reiterated its reJuest for

speci&cation of the items disputing the assessmentin Juestion. It further reJuests for a period of ):days from the receipt of the speci&cations withinwhich to consider its ta0 liability further reservingits right to contest the legality or validity of theassessment or any particular items thereof withinthe said period of ): days. efendant corporationalso protested the sending of &nal notices andreJuested that they be countermanded or withheld.

Ginding no merit in the protests of the defendantcorporation a warrant of distraint and levy wasissued against it by the Dureau of Internal evenueon >uly ) 679= (@0hibit 1*.

1n August ) 679= defendant corporation againwrote the Collector of Internal evenueac-nowledging the receipt of the warrant of distraintand levy served upon it and reiterating its reJuestfor a speci&cation of the dierent items of theassessment sub2ect to the right to contest thelegality and validity of the same within ): days afterreceipt of said speci&cations (@0h. >*. The recorddoes not show what action was ta-en on the reJuestcontained in said letter on August ) 679=. The ne0tcommunication appearing in the record is that of theCommissioner of Internal evenue dated >uly ):6797 addressed to the defendant corporationdemanding on the letter the payment of theassessment of 389986.== which has remainedunpaid and informing the said corporation that if they do not settle said ta0 obligation within &vedays from receipt thereof the Dureau of Internal

evenue will be constrained to &le an action in Courtfor the collection thereof without further notice(@0hibit I*. efendant corporation replied to @0hibit Iin a letter dated August 6$ 6797 stating that itneeded more time to go over the records andvouchers and reJuesting for an e0tension of 6:days (@0hibit @*. In another letter of same date thedefendant corporation reiterated its e0ception to thevalidity and legality of the assessment against it inthe sum of 389986.== and its reJuest for a detailedstatement of the transactions involved (@0hibit L*.

ecord on Appeal pp. 6%%!6%7 67:!679.V


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According to the ecord on Appeal and as additionallystated also by the trial court the original complaint &ledon #eptember 9 679% prayed for the payment of only36)=79.7= and it was only in an amended complaint&led on August


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reserving once more its right to contest the legality orvalidity of the assessment and to protest the issuance of the K&nal ta0 noticesK; that evidently tired of awaitingcompliance by the said appellant the Dureau of Internalevenue issued on >uly ) 679= a warrant of distraintand levy against it which it ac-nowledged on August )679= only to reiterate again its position previouslystated of as-ing for speci&cation and reserving its rightto contest the validity of the assessment; that &nally on

>uly ): 6797 after three years the Commissioner of Internal evenue made e0tra2udicial demand forpayment of the amounts in Juestion within &ve (9* daysand since no payment came and instead defendantsas-ed for more time to go over the records and underseparate cover Juestioned for the nth time the validityof the assessment the present action was &led.

nder these circumstances it is plain that His Honorcommitted no error in holding that the period toJuestion the ta0 assessments herein involved hadalready e0pired when the Commissioner of Internalevenue initiated this suit against defendants.efendant corporation a-nowledged receipt of the saidassessments way bac- on ecember


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fraudulent return or of a failure to &le a return theta0 may be assessed ... at anytime within tenyears after the discovery of the falsity fraud oromission.K The assessments made on 1ctober 69679) #eptember 6) 6798 and 5ovember ) 6798were all within the aforecited 6:!year period forthe assessment of the ta0.

@ven if the Court were to consider as appellants

suggest the fact brought out in their brief but not foundby the trial court that what are being sought to becollected are de&ciency ta0es thereby implying a returnmust have been &led nothing can he gained byappellants for in order that the &ling of a return mayserve as the starting point of the period for the ma-ingof an assessment the return must be as substantivecomplete as to include the needed details on which thefull assessment may be made and appellants have notshown that such was the nature of the return they wouldinfer had been &led by the corporation. 3

AppellantsE third assignment of error does not reJuireany e0tended discussion. The argument thereunder thatthe 2udicial action for the recovery of the bigger amountof 389986.== was not &led within &ve (9* years from#eptember 6) 6798 the date of the earliestassessment has neither factual nor legal basis. As aptlye0plained by his Honor such argument proceeds fromthe erroneous premises that because the amendedcomplaint in which the said amount was &rst alleged anddemanded was formally admitted by the court only on#eptember


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which bars an action for the recovery of the debts of the corporation against the liJuidator thereof afterthe lapse of the said three!year period.

'e agree with His Honor. The stress given by appellants tothe e0tinction of the corporate and 2uridical personality assuch of appellant corporation by virtue of its e0tra!2udicialdissolution which admittedly too- place on April


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Avon )nsurane LC v. Court of Appeals

G.#. No. 9;:42. Au7ust 29, 99;."

AN15 I5#A5C@ 3LC DITI#H @#@N@ I5#A5C@C1. LT. C15HILL I5#A5C@ 3LC I3@I1@I5#A5C@ C1. (P* LT. I5#TITT@ @ @#@41#1 DAOIL I5#A5C@ C131ATI15 1G I@LA5 3LCL@4AL A5 4@5@AL A##A5C@ #1CI@TF LT.31NI5CIAL I5#A5C@ 3LC WDL I5#A5C@ (P* LT.1FAL I5#A5C@ C1. LT. TI5ITF I5#A5C@ C1. LT.4@5@AL ACCI@5T GI@ A5 LIG@ A##A5C@ C13. LT.C113@ATIN@ I5#A5C@ #1CI@TF A5 3@AL A##A5C@

C1. LT. petitioners vs. C1T 1G A33@AL# @4I15AL TIAL C1T 1G A5ILA DA5CH 96 F3A54C1 C1TT15ILL# '1L'I@ #@TF S I5#A5C@ C1. I5C.respondents.

emedial Law; Courts; >urisdiction; A single act ortransaction made in the 3hilippines could Jualify a foreigncorporation to be doing business in the 3hilippines if suchsingular act is not merely incidental or casual but indicatesthe foreign corporation/s intention to do business in the3hilippines.—The term ordinarily implies a continuity ofcommercial dealings and arrangements and contemplates

to that e0tent the performance of acts or wor-s or thee0ercise of the functions normally incident to and inprogressive prosecution of the purpose and ob2ect of itsorgani"ation. A single act or transaction made in the3hilippines however could Jualify a foreign corporation tobe doing business in the 3hilippines if such singular act isnot merely incidental or casual but indicates the foreigncorporation/s intention to do business in the 3hilippines.

#ame; #ame; #ame; There is authority to the eectthat a reinsurance company is not doing business in acertain state merely because the property or lives which

are insured by the original insurer company are located inthat state.—As it is private respondent has made no

allegation or demonstration of the e0istence of petitioners/domestic agent but avers simply that they are doingbusiness not only abroad but in the 3hilippines as well. Itdoes not appear at all that the petitioners had performedany act which would give the general public the impressionthat it had been engaging or intends to engage in itsordinary and usual business underta-ings in the country. The reinsurance treaties between the petitioners and'orldwide #urety and Insurance were made through an

international insurance bro-er and not through any entityor means remotely connected with the 3hilippines.oreover there is authority to the eect that a reinsurancecompany is not doing business in a certain state merelybecause the property or lives which are insured by theoriginal insurer company are located in that state. Thereason for this is that a contract of reinsurance is generallya separate and distinct arrangement from the originalcontract of insurance whose contracted ris- is insured inthe reinsurance agreement. Hence the original insured hasgenerally no interest in the contract of reinsurance.

#ame; #ame; #ame; There is no showing thatpetitioners had performed any act in the country that wouldplace it within the sphere of the court/s 2urisdiction.—As wehave found there is no showing that petitioners hadperformed any act in the country that would place it withinthe sphere of the court/s 2urisdiction. A general allegationstanding alone that a party is doing business in the3hilippines does not ma-e it so. A conclusion of fact or lawcannot be derived from the unsubstantiated assertions ofparties notwithstanding the demands of convenience ordispatch in legal actions otherwise the Court would beguilty of sorcery; e0tracting substance out of nothingness.In addition the assertion that a resident of the 3hilippineswill be inconvenienced by an out!of!town suit against aforeign entity is irrelevant and unavailing to sustain thecontinuance of a local action for 2urisdiction is notdependent upon the convenience or inconvenience of aparty.

#ame; #ame; #ame; #ummons; >urisdiction over theperson of the defendant in civil cases is acJuired either byhis voluntary appearance in court and his submission to itsauthority or by service of summons.—In civil cases 2urisdiction over the person of the defendant is acJuiredeither by his voluntary appearance in court and hissubmission to its authority or by service of summons.

# # # # Th i f # # # If b id hi b2 ti t th


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#ame; #ame; #ame; #ame; The service of summonsupon the defendant becomes an important element in theoperation of a court/s 2urisdiction upon a party to a suit asservice of summons upon the defendant is the means bywhich the court acJuires 2urisdiction over his person.—Gundamentally the service of summons is intended to giveo?cial notice to the defendant or respondent that an actionhas been commenced against it. The defendant orrespondent is thus put on guard as to the demands of theplainti as stated in the complaint. The service of summonsupon the defendant becomes an important element in theoperation of a court/s 2urisdiction upon a party to a suit asservice of summons upon the defendant is the means bywhich the court acJuires 2urisdiction over his person.'ithout service of summons or when summons areimproperly made both the trial and the 2udgment being inviolation of due process are null and void unless thedefendant waives the service of summons by voluntarilyappearing and answering the suit.

#ame; #ame; #ame; The action of a court in refusing torule or deferring its ruling on a motion to dismiss for lac- ore0cess of 2urisdiction is correctable by a writ of prohibitionor certiorari sued out in the appellate court even beforetrial on the merits is had.—'hen a defendant voluntarilyappears he is deemed to have submitted himself to the 2urisdiction of the court. This is not however always thecase. Admittedly and without sub2ecting himself to thecourt/s 2urisdiction the defendant in an action can byspecial appearance ob2ect to the court/s assumption on theground of lac- of 2urisdiction. If he so wishes to assert thisdefense he must do so seasonably by motion for thepurpose of ob2ecting to the 2urisdiction of the court

otherwise he shall be deemed to have submitted himselfto that 2urisdiction. In the case of foreign corporations ithas been held that they may see- relief against thewrongful assumption of 2urisdiction by local courts. In TimeInc. vs. eyes it was held that the action of a court inrefusing to rule or deferring its ruling on a motion todismiss for lac- or e0cess of 2urisdiction is correctable by awrit of prohibition or certiorari sued out in the appellatecourt even before trial on the merits is had. The sameremedy is available should the motion to dismiss bedenied and the court over the foreign corporation/sob2ections threatens to impose its 2urisdiction upon the

same.

#ame; #ame; #ame; If besides his ob2ection to the 2urisdiction of the court defendant alleges in his motion todismiss any other ground for dismissing the action or see-san a?rmative relief in the motion he is deemed to havesubmitted himself to the 2urisdiction of the court.—If thedefendant besides setting up in a motion to dismiss hisob2ection to the 2urisdiction of the court alleges at thesame time any other ground for dismissing the action orsee-s an a?rmative relief in the motion he is deemed tohave submitted himself to the 2urisdiction of the court.

#ame; #ame; #ame; If the appearance of a party in asuit is precisely to Juestion the 2urisdiction of the saidtribunal over the person of the defendant then thisappearance is not eJuivalent to service of summons nordoes it constitute an acJuiescence to the court/s 2urisdiction.—As we have consistently held if theappearance of a party in a suit is precisely to Juestion the 2urisdiction of the said tribunal over the person of thedefendant then this appearance is not eJuivalent toservice of summons nor does it constitute an acJuiescenceto the court/s 2urisdiction. Thus it cannot be argued thatthe petitioners had abandoned their ob2ections to the 2urisdiction of the court as their motions to dismiss in thetrial court and all their subseJuent posturings were all inprotest of the private respondent/s insistence on holdingthem to answer a charge in a forum where they believethey are not sub2ect to. Clearly to continue theproceedings in a case such as those before s would 2ust+be useless and a waste of time.,

3@TITI15 for review on certiorari of a decision of the

Court of Appeals.


#yJuia Law 1?ces for petitioners.

1.G. #antos S 3.C. 5olasco for Fupangco Cotton illsInc.

icardo @. eyes for 'orldwide Insurance S #uretyCo. Inc.

T1@# >. >.B

> t h f t t 2 i di ti th l I d d t d > 8 677: d t


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>ust how far can our courts assert 2urisdiction over thepersons of foreign entities being charged with contractualliabilities by residents of the 3hilippinesU

Appealing from the Court of AppealsE 1ctober 66 677:ecision in CA!4.. 5o. uly = 67$7 to >uly = 67%: asunder 3olicy 5o.


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In a 3etition for Certiorari &led with the Court of Appealspetitioners submitted that respondent Court has no 2urisdiction over them being all foreign corporations notdoing business in the 3hilippines with no o?ce place of business or agents in the 3hilippines. The remedy of Certiorari was resorted to by the petitioners on the premisethat if petitioners had &led an answer to the complaint asordered by the respondent court they would ris-abandoning the issue of 2urisdiction. oreover e0tra!territorial service of summons on petitioners is null and

void because the complaint for collection is not oneaecting plaintis status and not relating to property withinthe 3hilippines.

The Court of Appeals found the petition devoid of meritstating thatB

6. 3etitioners were properly served with summons andwhatever defect if any in the service of summons werecured by their voluntary appearance in court via motion todismiss.


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). The voluntary appearance of the petitioners (thendefendants* before the Honorable Trial Courtamounted in eect to voluntary submission to its 2urisdiction over their persons. ;

In the decisions of the courts below there is much left tospeculation and con2ecture as to whether or not thepetitioners were determined to be Kdoing business in the3hilippinesK or not.

To Jualify the petitionersE business of reinsurance within the3hilippine forum resort must be made to the establishedprinciples in determining what is meant by Kdoing businessin the 3hilippines.K In Co))unication Materials and !esin,Inc. et . al. vs. Court o' +ppeals ! it was observed that.

There is no e0act rule or governing principle as towhat constitutes doing or engaging in or transactingbusiness. Indeed such case must be 2udged in thelight of its peculiar circumstances upon its peculiarfacts and upon the language of the statute

applicable. The true test however seems to bewhether the foreign corporation is continuing thebody or substance of the business or enterprise forwhich it was organi"ed.

Article 88 of the 1mnibus Investments Code of 67%$de&nes the phrase to includeB

soliciting orders purchases service contractsopening o?ces whether called KliaisonK o?cesor branches; appointing representatives or

distributors who are domiciled in the 3hilippinesor who in any calendar year stay in the3hilippines for a period or periods totaling onehundred eighty (6%:* days or more; participatingin the management supervision or control of any domestic business &rm entity or corporationin the 3hilippines and any other act or acts thatimply a continuity or commercial dealings orarrangements and contemplate to that e0tentthe performance of acts or wor-s or the e0erciseof some of the functions normally incident toand in progressive prosecution of commercialgain or of the purpose and ob2ect of the businessorgani"ation.

The term ordinarily implies a continuity of commercialdealings and arrangements and contemplates to thate0tent the performance of acts or wor-s or the e0ercise of the functions normally incident to and in progressiveprosecution of the purpose and ob2ect of its organi"ation. 9

A single act or transaction made in the 3hilippineshowever could Jualify a foreign corporation to be doingbusiness in the 3hilippines if such singular act is notmerely incidental or casual but indicates the foreigncorporationEs intention to do business in the 3hilippines. 0

There is no su?cient basis in the records which would meritthe institution of this collection suit in the 3hilippines. orespeci&cally there is nothing to substantiate the privaterespondentEs submission that the petitioners had engagedin business activities in this country. This is not an instancewhere the erroneous service of summons upon thedefendant can be cured by the issuance and service of aliassummons as in the absence of showing that petitionershad been doing business in the country they cannot be

summoned to answer for the charges leveled against them.

The Court is cogni"ant of the doctrine in "inetics Corp. vs.Court o' +ppeals that for the purpose of acJuiring 2urisdiction by way of summons on a defendant foreigncorporation there is no need to prove &rst the fact thatdefendant is doing business in the 3hilippines. The plainti only has to allege in the complaint that the defendant hasan agent in the 3hilippines for summons to be validlyserved thereto even without prior evidence advancingsuch factual allegation.

As it is private respondent has made no allegation ordemonstration of the e0istence of petitionersE domesticagent but avers simply that they are doing business notonly abroad but in the 3hilippines as well. It does notappear at all that the petitioners had performed any actwhich would give the general public the impression that ithad been engaging or intends to engage in its ordinaryand usual business underta-ings in the country. Thereinsurance treaties between the petitioners and 'orldwide#urety and Insurance were made through an internationalinsurance bro-er and not through any entity or means

remotely connected with the 3hilippines. oreover there isauthority to the eect that a reinsurance company is not

doing business in a certain state merely because the 3hilippines Indeed if a foreign corporation does not do


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doing business in a certain state merely because theproperty or lives which are insured by the original insurercompany are located in that state. 2 The reason for this isthat a contract of reinsurance is generally a separate anddistinct arrangement from the original contract of insurance whose contracted ris- is insured in thereinsurance agreement. 3 Hence the original insured hasgenerally no interest in the contract of reinsurance. 4

A foreign corporation is one which owes its e0istence tothe laws of another state 5 and generally has no legale0istence within the state in which it is foreign. In Marshall;ells Co. vs.


41/78

foreign entity is irrelevant and unavailing to sustain thecontinuance of a local action for 2urisdiction is notdependent upon the convenience or inconvenience of aparty. 2

It is also argued that having &led a motion to dismiss in theproceedings before the trial court petitioners have thusacJuiesced to the courtEs 2urisdiction and they cannotmaintain the contrary at this 2uncture.

This argument is at the most Qimsy.

In civil cases 2urisdiction over the person of the defendantis acJuired either by his voluntary appearance in court andhis submission to its authority or by service of summons. 22

Gundamentally the service of summons is intended to giveo?cial notice to the defendant or respondent that an actionhas been commenced against it. The defendant orrespondent is thus put on guard as to the demands of theplainti as stated in the complaint. 23 The service of summons upon the defendant becomes an importantelement in the operation of a courtEs 2urisdiction upon aparty to a suit as service of summons upon the defendantis the means by which the court acJuires 2urisdiction overhis person. 24 'ithout service of summons or whensummons are improperly made both the trial and the 2udgment being in violation of due process are null andvoid 25 unless the defendant waives the service of summons by voluntarily appearing and answering the suit.2:

'hen a defendant voluntarily appears he is deemed tohave submitted himself to the 2urisdiction of the court. 2;

This is not however always the case. Admittedly andwithout sub2ecting himself to the courtEs 2urisdiction thedefendant in an action can by special appearance ob2ect tothe courtEs assumption on the ground of lac- of 2urisdiction.If he so wishes to assert this defense he must do soseasonably by motion for the purpose of ob2ecting to the 2urisdiction of the court otherwise he shall be deemed tohave submitted himself to that 2urisdiction. 2! In the case of foreign corporations it has been held that they may see-relief against the wrongful assumption of 2urisdiction bylocal courts. In Ti)e, Inc. vs. 9eyes 29 it was held that theaction of a court in refusing to rule or deferring its ruling on

a motion to dismiss for lac- or e0cess of 2urisdiction iscorrectable by a writ of prohibition or certiorari sued out inthe appellate court even before trial on the merits is had. The same remedy is available should the motion to dismissbe denied and the court over the foreign corporationEsob2ections threatens to impose its 2urisdiction upon thesame.

If the defendant besides setting up in a motion to dismisshis ob2ection to the 2urisdiction of the court alleges at thesame time any other ground for dismissing the action orsee-s an a?rmative relief in the motion 30 he is deemed tohave submitted himself to the 2urisdiction of the court.

In this instance however the petitioners from the timethey &led their motions to dismiss their submissions havebeen consistently and unfailingly to ob2ect to the trialcourtEs assumption of 2urisdiction anchored on the fact thatthey are all foreign corporations not doing business in the3hilippines.

As we have consistently held if the appearance of a partyin a suit is precisely to Juestion the 2urisdiction of the saidtribunal over the person of the defendant then thisappearance is not eJuivalent to service of summons nordoes it constitute an acJuiescence to the courtEs 2urisdiction. 3 Thus it cannot be argued that the petitionershad abandoned their ob2ections to the 2urisdiction of thecourt as their motions to dismiss in the trial court and alltheir subseJuent posturings were all in protest of theprivate respondentEs insistence on holding them to answera charge in a forum where they believe they are not sub2ect

to. Clearly to continue the proceedings in a case such asthose before s would 2ust Kbe useless and a waste of time.K 32

ACC1I54LF the decision appealed from dated 1ctober66 677: is #@T A#I@ and the instant petition is hereby4A5T@. The respondent egional Trial Court of anilaDranch 96 is declared without 2urisdiction to ta-ecogni"ance of Civil Case 5o. %=!)$7)


42/78

#1 1@@.


43/78

4.. 5o. 66:)6% August


44/78

arrangements and contemplates to that e0tent theperformance of acts or wor-s or the e0ercise of some of thefunctions normally incident to or in progressive prosecutionof the purpose and sub2ect of its organi"ation.

#ame; #ame; There is no showing that under ourstatutory or case law petitioners are doing transactingengaging in or carrying on business in the 3hilippines aswould reJuire obtention of a license before they can see-redress from our courts.—Dased on Article 6)) of theCorporation Code and gauged by such statutory standardspetitioners are not barred from maintaining the presentaction. There is no showing that under our statutory orcase law petitioners are doing transacting engaging in orcarrying on business in the 3hilippines as would reJuireobtention of a license before they can see- redress fromour courts. 5o evidence has been oered to show thatpetitioners have performed any of the enumerated acts orany other speci&c act indicative of an intention to conductor transact business in the 3hilippines.

#ame; #ame; A foreign corporation will not be regardedas doing business in the #tate simply because it enters intocontracts with residents of the #tate where such contractsare consummated outside the #tate.—As a general rule aforeign corporation will not be regarded as doing businessin the #tate simply because it enters into contracts withresidents of the #tate where such contracts areconsummated outside the #tate. In fact a view is ta-enthat a foreign corporation is not doing business in the #tatemerely because sales of its product are made there orother business furthering its inter!

68=

68=

#3@@ C1T @31T# A551TAT@

Columbia 3ictures Inc. vs. Court of Appeals

ests is transacted there by an alleged agent whether acorporation or a natural person where such activities arenot under the direction and control of the foreigncorporation but are engaged in by the alleged agent as anindependent business.

#ame; #ame; #ales made to customers in the #tate byan independent dealer who has purchased and obtainedtitle from the corporation to the products sold are not adoing of business by the corporation.—It is generally heldthat sales made to customers in the #tate by anindependent dealer who has purchased and obtained titlefrom the corporation to the products sold are not a doing of business by the corporation. Li-ewise a foreign corporationwhich sells its products to persons styled +distributing

agents, in the #tate for distribution by them is not doingbusiness in the #tate so as to render it sub2ect to service ofprocess therein where the contract with these purchasersis that they shall buy e0clusively from the foreigncorporation such goods as it manufactures and shall sellthem at trade prices established by it.

#ame; #ame; The act of a foreign corporation inengaging an attorney to represent it in a Gederal courtsitting in a particular #tate is not doing business within thescope of the minimum contract test.—It has moreover been

held that the act of a foreign corporation in engaging anattorney to represent it in a Gederal court sitting in aparticular #tate is not doing business within the scope ofthe minimum contact test. 'ith much more reason shouldthis doctrine apply to the mere retainer of Atty. omingo forlegal protection against contingent acts of intellectualpiracy.

#ame; #ame; The mere institution and prosecution ordefense of a suit do not amount to the doing of business in

the #tate.—In accordance with the rule that +doingbusiness, imports only acts in furtherance of the purposes

for which a foreign corporation organi"ed it is held that the sue.K—The term +lac- of capacity to sue, should not be


45/78

g p g mere institution and prosecution or defense of a suitparticularly if the transaction which is the basis of the suittoo- place out of the #tate do not amount to the doing ofbusiness in the #tate. The institution of a suit or theremoval thereof is neither the ma-ing of a contract nor thedoing of business within a constitutional provision placingforeign corporation/s licensed to do business in the #tateunder the same regulations limitations and liabilities withrespect to such acts as domestic corporations. erely

engaging in litigation has been considered as not asu?cient minimum contact to warrant the e0ercise of 2urisdiction over a foreign corporation.

68$

N1L.


46/78

Columbia 3ictures Inc. vs. Court of Appeals

fair play it is our considered view that the udicial decisions though not laws are nonethelessevidence of what the laws mean and it is for this reasonthat they are part of the legal system of the 3hilippines. >udicial decisions of the #upreme Court assume the same

authority as the statute itself.

#ame; #ame; #ame; The principle of prospectivityapplies not only to original or amendatory statutes andadministrative rulings and circulars but also and properlyso to 2udicial decisions.—Interpreting the aforeJuotedcorrelated provisions of the Civil Code and in light of theabove disJuisition this Court emphatically declared in Covs. Court of Appeals et al. that the principle ofprospectivity applies not only to original or amendatory

statutes and administrative rulings and circulars but alsoand properly so to 2udicial decisions.

#ame; #ame; #ame; A search warrant not based onprobable cause is a nullity or is void and the issuancethereof is in legal contemplation arbitrary.—Theconstitutional and statutory provisions of various 2urisdictions reJuiring a showing of probable cause before asearch warrant can be issued are mandatory and must becomplied with and such a showing has been held to be anunJuali&ed condition precedent to the issuance of a

warrant. A search warrant not

687

N1L.


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g git is not necessary that the whole or even a large portion ofthe wor- shall have been copied.—In determining theJuestion of infringement the amount of matter copied fromthe copyrighted wor- is an important consideration. Toconstitute infringement it is not necessary that the wholeor even a large portion of the wor- shall have been copied.If so much is ta-en that the value of the original is sensiblydiminished or the labors of the original author aresubstantially and to an in2urious e0tent appropriated by

another that is su?cient in point of law to constitute apiracy.

3@TITI15 for review on certiorari of a decision of theCourt of Appeals.


#iguion eyna ontecillo S 1ng-i-o for petitioners.

odrigue" S Nerano Law 1?ces for privaterespondents.

Cesar 4. avid collaborating counsel for privaterespondents.

@4ALA1 >.B

Defore us is a petition for review on certiorari of thedecision of the Court of Appeals promulgated on >uly


48/78

accomplished by the raiding team. Copy of thereceipt was furnished andor tendered to r. aniloA. 3elindario registered owner!proprietor of #unshine Home Nideo.

1n ecember 6= 67%$ a Keturn of #earch'arrantK was &led with the Court.

A Kotion To Lift the 1rder of #earch 'arrantK was&led but was later denied for lac- of merit (p. Fil) Corporation vs. Court o' +ppeals, et al. : in dismissing petitionersE appeal andupholding the Juashal of the search warrant by the trialcourt.

I

the matter of and the challenge to petitionersE legalstanding in our courts they being foreign corporations notlicensed to do business in the 3hilippines.

3rivate respondents aver that being foreign corporationspetitioners should have such license to be able to maintainan action in 3hilippine courts. In so challenging petitionersEpersonality to sue private respondents point to the factthat petitioners are the copyright owners or owners of e0clusive rights of distribution in the 3hilippines of copyrighted motion pictures or &lms and also to theappointment of Atty. ico N. omingo as their attorney!in!fact as being constitutive of Kdoing business in the3hilippinesK under #ection 6 (f*(6* and (


49/78

on any valid cause of action recogni"ed under3hilippine laws.

The obtainment of a license prescribed by #ection 6


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progressive prosecution of commercial gain or of the purpose and ob2ect of the business organi"ation.

3residential ecree 5o. 6$%7 ! in Article =9 thereofde&nes Kdoing businessK to include soliciting orderspurchases service contracts opening o?ces whethercalled KliaisonK o?ces or branches; appointingrepresentatives or distributors who are domiciled in the3hilippines or who in any calendar year stay in the

3hilippines for a period or periods totalling one hundredeighty days or more; participating in the managementsupervision or control of any domestic business &rm entityor corporation in the 3hilippines and any other act or actsthat imply a continuity of commercial dealings orarrangements and contemplate to that e0tent theperformance of acts or wor-s or the e0ercise of some of the functions normally incident to and in progressiveprosecution of commercial gain or of the purpose andob2ect of the business organi"ation.

The implementing rules and regulations of said presidentialdecree conclude the enumeration of acts constitutingKdoing businessK with a catch!all de&nition thusB

#ec. 6(g*. Koing DusinessK shall be any act orcombination of acts enumerated in Article =9 of theCode. In particular Kdoing businessK includesB

000 000 000

(6:* Any other act or acts which imply a continuity

of commercial dealings or arrangements andcontemplate to that e0tent the performance of actsor wor-s or the e0ercise of some of the functionsnormally incident to or in the progressiveprosecution of commercial gain or of the purposeand ob2ect of the business organi"ation.

Ginally epublic Act 5o. $:8


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as aforestated said foreign &lm corporations do nottransact or do business in the 3hilippines and therefore donot need to be licensed in order to ta-e recourse to ourcourts.

Although #ection 6(g* of the Implementing ules andegulations of the 1mnibus Investments Code lists amongothers —

(6* #oliciting orders purchases (sales* or servicecontracts. Concrete and speci&c solicitations by aforeign &rm or by an agent of such foreign &rm notacting independently of the foreign &rm amountingto negotiations or &0ing of the terms and conditionsof sales or service contracts regardless of where thecontracts are actually reduced to writing shallconstitute doing business even if the enterprise hasno o?ce or &0ed place of business in the3hilippines. The arrangements agreed upon as tomanner time and terms of delivery of the goods or

the transfer of title thereto is immaterial. A foreign&rm which does business through the middlemenacting in their own names such as indentorscommercial bro-ers or commission merchants shallnot be deemed doing business in the 3hilippines.Dut such indentors commercial bro-ers orcommission merchants shall be the ones deemed tobe doing business in the 3hilippines.

(


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#tate by an independent dealer who has purchased andobtained title from the corporation to the products sold arenot a doing of business by the corporation. 24 Li-ewise aforeign corporation which sells its products to personsstyled Kdistributing agentsK in the #tate for distribution bythem is not doing business in the #tate so as to render itsub2ect to service of process therein where the contractwith these purchasers is that they shall buy e0clusivelyfrom the foreign corporation such goods as it manufactures

and shall sell them at trade prices established by it. 25

It has moreover been held that the act of a foreigncorporation in engaging an attorney to represent it in aGederal court sitting in a particular #tate is not doingbusiness within the scope of the minimum contact test. 2:

'ith much more reason should this doctrine apply to themere retainer of Atty. omingo for legal protection againstcontingent acts of intellectual piracy.

In accordance with the rule that Kdoing businessK imports

only acts in furtherance of the purposes for which a foreigncorporation was organi"ed it is held that the mereinstitution and prosecution or defense of a suit particularlyif the transaction which is the basis of the suit too- placeout of the #tate do not amount to the doing of business inthe #tate. The institution of a suit or the removal thereof isneither the ma-ing of a contract nor the doing of businesswithin a constitutional provision placing foreigncorporations licensed to do business in the #tate under thesame regulations limitations and liabilities with respect tosuch acts as domestic corporations. erely engaging inlitigation has been considered as not a su?cient minimum

contact to warrant the e0ercise of 2urisdiction over a foreigncorporation. 2;

As a consideration aside we have perforce to comment onprivate respondentsE basis for arguing that petitioners arebarred from maintaining suit in the 3hilippines. Gorallegedly being foreign corporations doing business in the3hilippines without a license private respondentsrepeatedly maintain in all their pleadings that petitionershave thereby no leal personality to bring an action before3hilippine Courts. 2!

of Courtare lac- of legal capacity to sue 29 and that the complaintstates no cause of action. 30 Lac- of legal capacity to suemeans that the plainti is not in the e0ercise of his civilrights or does not have the necessary Juali&cation toappear in the case or does not have the character orrepresentation he claims. 3 1n the other hand a case isdismissible for lac- of personality to sue upon proof thatthe plainti is not the real party in interest hence grounded

on failure to state a cause of action. 32 The term Klac- of capacity to sueK should not be confused with the term Klac-of personality to sue.K 'hile the former refers to aplaintiEs general disability to sue such as on account of minority insanity incompetence lac- of 2uridicalpersonality or any other general disJuali&cations of a partythe latter refers to the fact that the plainti is not the realparty in interest. Correspondingly the &rst can be a groundfor a motion to dismiss based on the ground of lac- of legalcapacity to sue; 33 whereas the second can be used as aground for a motion to dismiss based on the fact that thecomplaint on the face thereof evidently states no cause of action. 34

Applying the above discussion to the instant petition theground available for barring recourse to our courts by anunlicensed foreign corporation doing or transactingbusiness in the 3hilippines should properly be Klac- of capacity to sueK not Klac- of personality to sue.K Certainlya corporation whose legal rights have been violated isundeniably such if not the only real party in interest tobring suit thereon although for failure to comply with thelicensing reJuirement it is not capacitated to maintain any

suit before our courts.

Lastly on this point we reiterate this CourtEs re2ection of the common procedural tactics of erring local companieswhich when sued by unlicensed foreign corporations notengaged in business in the 3hilippines invo-e the latterEssupposed lac- of capacity to sue. The doctrine of lac- of capacity to sue based on failure to &rst acJuire a locallicense is based on considerations of public policy. It wasnever intended to favor nor insulate from suit unscrupulousestablishments or nationals in case of breach of valid

obligations or violation of legal rights of unsuspecting

foreign &rms or entities simply because they are notlicensed to do business in the countr 35

3rivate respondents predictably argue in support of theruling of the Court of Appeals sustaining the Juashal of the


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licensed to do business in the country. 35

II

'e now proceed to the main issue of the retroactiveapplication to the present controversy of the ruling in %thCentury Fo> Fil) Corporation vs. Court o' +ppeals, et al.promulgated on August 67 67%% 3: that for thedetermination of probable cause to support the issuance of a search warrant in copyright infringement cases involvingvideograms the production of the master tape forcomparison with the allegedly pirate copies is necessary.

3etitioners assert that the issuance of a search warrant isaddressed to the discretion of the court sub2ect to thedetermination of probable cause in accordance with theprocedure prescribed therefore under #ections ) and 8 of ule 6


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)ust (e presented 'or co)parison to satis'y there=uire)ent o' @pro(a(le cause.@ #o it goes bac- tothe very e0istence of probablecause. . . . 39

indful as we are of the rami&cations of the doctrine of stare decisis and the rudiments of fair play it is ourconsidered view that the %th Century Fo> ruling cannot beretroactively applied to the instant case to 2ustify the

Juashal of #earch 'arrant 5o. %$!:9). Herein petitionersEconsistent position that the order of the lower court of #eptember 9 67%% denying therein defendantsE motion tolift the order of search warrant was properly issued therehaving been satisfactory compliance with the thenprevailing standards under the law for determination of probable cause is indeed well ta-en. The lower court couldnot possibly have e0pected more evidence from petitionersin their application for a search warrant other than what thelaw and 2urisprudence then e>istin and Audicially accepted reJuired with respect to the &nding of probable

cause.

Article 8 of the Civil Code provides that K(l*aws shall haveno retroactive eect unless the contrary is provided.Correlatively Article % of the same Code declares thatK(2*udicial decisions applying the laws or the Constitutionshall form part of the legal system of the 3hilippines.K

>urisprudence in our system of government cannot beconsidered as an independent source of law; it cannotcreate law. 40 'hile it is true that 2udicial decisions whichapply or interpret the Constitution or the laws are part of the legal system of the 3hilippines still they are not laws. >udicial decisions though not laws are nonethelessevidence of what the laws mean and it is for this reasonthat they are part of the legal system of the 3hilippines. 4

>udicial decisions of the #upreme Court assume the sameauthority as the statuteitself. 42

Interpreting the aforeJuoted correlated provisions of theCivil Code and in light of the above disJuisition this Courtemphatically declared in Co vs. Court o' +ppeals, et al. 43

that the principle of prospectivity applies not only tooriginal or amendatory statutes and administrative rulings

decisions. 1ur holding in the earlier case of People vs. Ja(inal 44 echoes the rationale for this 2udicial declarationviz .B

ecisions of this Court although in themselves notlaws are nevertheless evidence of what the lawsmean and this is the reason why under Article % of the 5ew Civil Code K>udicial decisions applying orinterpreting the laws or the Constitution shall form

part of the legal system.K The interpretation upon alaw by this Court constitutes in a way a part of thelaw as of the date that the law was originallypassed since this CourtEs construction merelyestablishes the contemporaneous legislative intentthat the law thus construed intends to eectuate. The settled rule supported by numerous authoritiesis a restatement of the legal ma0im Kleisinterpretatio leis vi) o(tinet K — the interpretationplaced upon the written law by a competent courthas the force of law. . . . but when a doctrine of this

Court is overruled and a dierent view is adoptedthe new doctrine should (e applied prospectively,and should not apply to parties who had relied onthe old doctrine and acted on the 'aith thereo' . . . .(@mphasis supplied*.

This was forcefully reiterated in "pouses *enzonan vs.Court o' +ppeals et al. 45 where the Court e0poundedB

. . . . Dut while our decisions form part of the law of the land they are also sub2ect to Article 8 of theCivil Code which provides that Klaws shall have noretroactive eect unless the contrary is provided.K This is e0pressed in the familiar legal ma0im le> prospicit non respicit the law loo-s forward notbac-ward. The rationale against retroactivity is easyto perceive. The retroactive application of a lawusually divests rights that have already becomevested or impairs the obligations of contract andhence is unconstitutional (Grancisco v. Certe"a )#CA 9=9 67=6V*. The same consideration underliesour rulings giving only prospective eect todecisions enunciating new doctrines. . . . .

The reasoning behind "enarillos vs. -er)osisi)a 4: that2udicial interpretation of a statute constitutes part of the

did it fail to comply with any legal reJuirement forthe valid issuance of search warrant


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2udicial interpretation of a statute constitutes part of thelaw as of the date it was originally passed since the CourtEsconstruction merely establishes the contemporaneouslegislative intent that the interpreted law carried intoeect is all too familiar. #uch 2udicial doctrine does notamount to the passage of a new law but consists merely of a construction or interpretation of a pre!e0isting one andthat is precisely the situation obtaining in this case.

It is conseJuently clear that a 2udicial interpretationbecomes a part of the law as of the date that law wasoriginally passed sub2ect only to the Juali&cation thatwhen a doctrine of this Court is overruled and a dierentview is adopted and more so when there is a reversalthereof the new doctrine should be applied prospectivelyand should not apply to parties who relied on the olddoctrine and acted in good faith. 4; To hold otherwise wouldbe to deprive the law of its Juality of fairness and 2usticethen if there is no recognition of what had transpired priorto such ad2udication. 4!

There is merit in petitionersE impassioned and well!foundedargumentationB

The case of %th Century Fo> Fil) Corporation vs.Court o' +ppeals et al. 6=8 #CA =99 (August 6767%%* (hereinafter calling for the production of the master

tapes of the copyrighted &lms for determination of probable

cause in copyright infringement cases needs revisiting andclari&cation

of the copyrighted &lms cannot serve as basis forthe issuance of a search warrant


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clari&cation.

It will be recalled that the %th Century Fo> case arose fromsearch warrant proceedings in anticipation of the &ling of acase for the unauthori"ed sale or renting out of copyrighted&lms in videotape format in violation of 3residential ecree5o. 87. It revolved around the meaning of probable causewithin the conte0t of the constitutional provision againstillegal searches and sei"ures as applied to copyright

infringement cases involving videotapes.

Therein it was ruled that —

The presentation of master tapes of the copyrighted&lms from which the pirated &lms were allegedlycopied was necessary for the validity of searchwarrants against those who have in their possessionthe pirated &lms. The petitionerEs argument to theeect that the presentation of the master tapes atthe time of application may not be necessary as

these would be merely evidentiary in nature and notdeterminative of whether or not a probable causee0ists to 2ustify the issuance of the search warrantsis not meritorious. The court cannot presume thatduplicate or copied tapes were necessarilyreproduced from master tapes that it owns.

The application for search warrants was directedagainst video tape outlets which allegedly wereengaged in the unauthori"ed sale and renting out of copyrighted &lms belonging to the petitionerpursuant to 3.. 87.

The essence of a copyright infringement is thesimilarity or at least substantial similarity of thepurported pirated wor-s to the copyrighted wor-.Hence the applicant must present to the court thecopyrighted &lms to compare them with thepurchased evidence of the video tapes allegedlypirated to determine whether the latter is anunauthori"ed reproduction of the former. Thislin-age of the copyrighted &lms to the pirated &lmsmust be established to satisfy the reJuirements of

probable cause. ere allegations as to the e0istence

the issuance of a search warrant.

Gor a closer and more perspicuous appreciation of thefactual antecedents of %th Century Fo> the pertinentportions of the decision therein are Juoted hereunder towitB

In the instant case the lower court lifted the threeJuestioned search warrants against the privaterespondents on the ground that it acted on theapplication for the issuance of the said searchwarrants and granted it on the misrepresentationsof applicant 5DI and its witnesses that infringementof copyright or a piracy of a particular &lm havebeen committed. Thus the lower court stated in itsJuestioned order dated >anuary


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of the allegedly pirated tapes wereshown to him and he madecomparisons of the tapes with thosepurchased by their man Dacani. 'hythe master tapes or at least the &lmreels of the allegedly pirated tapeswere not shown to the Court duringthe application gives some misgivingsas to the truth of that bare statement

of the 5DI agent on the witness stand.

Again as the application and searchproceedings is a prelude to the &lingof criminal cases under 3 87 thecopyright infringement law andalthough what is reJuired for theissuance thereof is merely thepresence of probable cause thatprobable cause must be satisfactoryto the Court for it is a time!honored

precept that proceedings to put aman to tas- as an oender under ourlaws should be interpreted instrictissi)i Auris against thegovernment and liberally in favor of the alleged oender.

000 000 000

This doctrine has never beenoverturned and as a matter of fact ithad been enshrined in the Dill of ights in our 67$) Constitution.

the allegation that master tapes wereviewed by the 5DI and werecompared to the purchased andsei"ed video tapes from therespondentsE establishments itshould be dismissed as not supportedby competent evidence and for thatmatter the probable cause hovers inthat grey debatable twilight "one

between blac- and white resolvable infavor of respondents herein.

Dut the glaring fact is that KCocoonKthe &rst video tape mentioned in thesearch warrant was not even dulyregistered or copyrighted in the3hilippines. (Anne0 C of 1pposition p.69< record.* #o that lac-ing in thereJuisite presentation to the Court of an alleged master tape for purposes

of comparison with the purchasedevidence of the video tapes allegedlypirated and those sei"ed fromrespondents there was no way todetermine whether there really waspiracy or copying of the &lm of thecomplainant Twentieth Century Go0.

000 000 000

The lower court, there'ore, li'ted the three DE=uestioned search warrants in the a(sence o' pro(a(le cause that the private respondentsviolated P.!. 10. +s 'ound out (y the court, the $*Iaents who acted as witnesses did not have personal knowlede o' the su(Aect )atter o' their testi)ony which was the alleed co))ission o' theoense (y the private respondents. 1nly thepetitionerEs counsel who was also a witness duringthe application for the issuance of the searchwarrants stated that he had personal -nowledgethat the con&scated tapes owned by the privaterespondents were pirated tapes ta-en from master

tapes belonging to the petitioner. However thelower court did not give much credence to his

testimony in view of the fact that the master tapesof the allegedly pirated tapes were not shown to the

attorney!in!fact stated in his a?davit 53 and furthere0pounded in his deposition 54 that he personally -new of


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of the allegedly pirated tapes were not shown to thecourt during the application (@mphasis ours*.

The italici"ed passages readily e0pose the reason why thetrial court therein reJuired the presentation of the mastertapes of the allegedly pirated &lms in order to convinceitself of the e0istence of probable cause under the factualmilieu peculiar to that case. In the case at bar respondentappellate court itself observedB

'e feel that the rationale behind the aforeJuoteddoctrine is that the pirated copies as well as themaster tapes unli-e the other types of personalproperties which may be sei"ed were availa(le 'or presentation to the court at the ti)e o' theapplication 'or a search warrant to determine thee0istence of the lin-age of the copyrighted &lmswith the pirated ones. Thus there is no reason notthe present them (@mphasis supplied *. 50

In &ne the supposed pronuncia)ento in said caseregarding the necessity for the presentation of the mastertapes of the copyrighted &lms for the validity of searchwarrants should at most be understood to merely serve asa guidepost in determining the e0istence of probable causein copyright infringement cases where there is dou(t as tothe true ne>us (etween the )aster tape and the piratedcopies. An ob2ective and careful reading of the decision insaid case could lead to no other conclusion than that saiddirective was hardly intended to be a sweeping andinQe0ible reJuirement in all or similar copyrightinfringement cases. >udicial dicta should always beconstrued within the factual matri0 of their parturitionotherwise a careless interpretation thereof could unfairlyfault the writer with the vice of overstatement and thereader with the fallacy of undue generali"ation.

In the case at bar 5DI #enior Agent Lauro C. eyes who&led the application for search warrant with the lower courtfollowing a formal complaint lodged by petitioners 2udgingfrom his a?davit 5 and his deposition 52 did testify onmatters within his personal -nowledge based on saidcomplaint of petitioners

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