**Facts:**
1. **Contract Formation:**
– On January 2, 1972, Top-weld Manufacturing, Inc. (Top-weld), a Philippine corporation, entered into a “LICENSE AND TECHNICAL ASSISTANCE AGREEMENT” with IRTI, S.A. (IRTI), a corporation under Swiss laws. This agreement made Top-weld a licensee to manufacture welding products with raw materials from designated suppliers.
– On January 1, 1975, Top-weld entered a “DISTRIBUTOR AGREEMENT” with ECED, S.A. (ECED), a Panamanian company. This agreement designated Top-weld as ECED’s distributor in the Philippines for welding products and equipment.
2. **Termination Notice:**
– Both agreements were terminated by IRTI and ECED through separate notices dated July 25, 1975.
3. **Litigation Initiation:**
– On June 16, 1975, Top-weld filed Civil Case No. 21409 against IRTI, ECED, EUTECTIC Corporation (a New York corporation), and Victor C. Gaerlan, seeking to restrain the corporations from negotiating with third parties and from terminating their contracts.
– The court issued a restraining order on June 17, 1975.
4. **Motion for Preliminary Injunction:**
– On September 3, 1975, Top-weld filed an amended and supplemental complaint to enforce injunctions against the defendant corporations.
– On October 9, 1975, the trial court granted the injunctions requested by Top-weld.
5. **Corporate Defense:**
– IRTI and ECED alleged violations of agreements by Top-weld, such as failure to pay royalties, use of wrong materials, and selling substandard products.
– They argued that Section 4 (9) of R.A. 5455 was inapplicable as they did not obtain a written certificate from the Board of Investments.
6. **Court of First Instance’s Decision:**
– Denied motions for reconsideration from the defendants.
– The corporations filed a petition for certiorari with the Court of Appeals.
7. **Court of Appeals Decision:**
– The appellate court annulled the orders of the Court of First Instance, ruling that Section 4 (9) of R.A. 5455 did not apply as the corporations had not secured the necessary certificates from the Board of Investments.
**Issues:**
1. Whether Section 4 (9) of R.A. 5455 applies to IRTI and ECED, given they were doing business without securing the necessary licenses.
2. Whether the Court of Appeals erred in holding that Top-weld could not invoke Section 4(9) nor apply for an injunction against IRTI and ECED.
3. Whether Top-weld’s knowledge (or lack thereof) of the authorization status of IRTI and ECED estopped it from invoking R.A. 5455.
4. Whether there was “just cause” for the termination of the contracts between Top-weld and the respondents.
**Court’s Decision:**
1. **Applicability of R.A. 5455:**
– Supreme Court affirmed that IRTI and ECED were “doing business” and thus fell under R.A. No. 5455 due to their continuous commercial dealings.
– However, lacking the required certificates from the Board of Investments, conditions such as compensation for termination could not be imposed.
2. **In Pari Delicto Doctrine:**
– Though both parties violated R.A. No. 5455 by not securing the necessary certificate, this does not invalidate the contracts but precludes the petitioner from seeking the relieves under an illegal contractual environment.
3. **Just Cause for Termination:**
– The Court ruled that respondents’ allegations regarding Top-weld’s contract breaches were sufficiently proven and justified the contract terminations.
– The affidavits and evidence presented by the respondents were uncontroverted by Top-weld.
4. **Contractual Period Lapse:**
– Any awaited relief was rendered moot and academic as the disputed “License and Technical Assistance Agreement” expired on December 31, 1975.
– Courts cannot extend the life of expired contracts as it requires mutual consent on principal terms between parties.
**Doctrine:**
– **In Pari Delicto:** When both parties to a contract are equally at fault, neither party can seek legal remedy. This principle is central to upholding the legitimacy and enforcement of agreements conducted within legal confines.
– **Ex dolo malo non eritur actio:** No action arises from a base cause.
– **In pari delicto potior est conditio defendentis:** In cases of equal fault, the condition of the defendant is preferable.
**Class Notes:**
– **Key Concepts:**
1. **Doing Business** – Defined by continuous dealings and substantial operational presence.
2. **R.A. No. 5455** – Governs foreign entities’ business operations in the Philippines; requires a certificate from the Board of Investments.
3. **In Pari Delicto Doctrine** – Bars legal relief to parties who engage in illegal agreements.
4. **Injunctions** – Equitable relief cannot be used to perpetuate an illegal situation.
– **Statutory Provisions:**
– **Section 4, R.A. No. 5455:**
– Alien companies must secure a certificate from the Board of Investments before operation.
– Termination of contracts by foreign entities must include compensation for the local party unless legally justified.
**Historical Background:**
During the 1970s, the Philippine government heavily regulated foreign investments to protect local industries and economy. The enactment of R.A. No. 5455 required foreign corporations to obtain necessary certifications to ensure compliance with local laws and competitive equality. This case highlights the importance of adherence to statutory mandates in international commercial agreements.
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