MR HOLDINGS, LTD., PETITIONER, VS. SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION, AND MARCOPPER MINING CORPORATION, RESPONDENTS.

MR Holdings versus Sheriff Bajar

The Case

This is a petition for review on certiorari brought by MR Holdings, Ltd., a foreign corporation, against Sheriff Carlos P. Bajar, Sheriff Ferdinand M. Jandusay, Solidbank Corporation, and Marcopper Mining Corporation. The petitioner asks the Supreme Court to reverse the Court of Appeals, which had found no grave abuse of discretion in the trial court's denial of the petitioner's application for a writ of preliminary injunction. The case matters because it settles when a foreign corporation may sue in Philippine courts, when a conveyance is a fraud upon creditors, and how strictly the rule against forum shopping is applied.

Procedural History

Solidbank obtained a partial judgment against Marcopper from the Regional Trial Court of Manila, Branch 26, in a collection case. Upon Solidbank's motion, that court issued a writ of execution pending appeal. The respondent sheriffs then levied on Marcopper's properties and scheduled a public auction sale.

MR Holdings filed an Affidavit of Third-Party Claim with the sheriffs, asserting ownership over the levied properties. When the Regional Trial Court of Manila denied the third-party claim, MR Holdings filed a complaint for reivindication with prayer for preliminary injunction and temporary restraining order before the Regional Trial Court of Boac, Marinduque, Branch 94, presided by Judge Leonardo P. Ansaldo. In an order dated October 6, 1998, Judge Ansaldo denied the application for a writ of preliminary injunction.

MR Holdings elevated the matter to the Court of Appeals on a petition for certiorari, prohibition, and mandamus. The Court of Appeals rendered a decision on January 8, 1999, holding that Judge Ansaldo did not commit grave abuse of discretion. It denied the motion for reconsideration on March 29, 1999. Hence, this petition for review on certiorari before the Supreme Court.

Facts

On November 4, 1992, the Asian Development Bank agreed to extend to Marcopper Mining Corporation a loan in the aggregate amount of 40,000,000 dollars to finance its mining project in Sta. Cruz, Marinduque. To secure the loan, Marcopper executed a Deed of Real Estate and Chattel Mortgage dated November 11, 1992, covering substantially all of its properties and assets in Marinduque, registered with the Register of Deeds on November 12, 1992.

When Marcopper defaulted, Placer Dome, Inc., which owns 40 percent of Marcopper, agreed to have its subsidiary, MR Holdings, Ltd., assume Marcopper's obligation to the Asian Development Bank in the amount of 18,453,450.02 dollars. In an Assignment Agreement dated March 20, 1997, the Asian Development Bank assigned to MR Holdings all its rights, interests, and obligations under the loan agreements and the mortgage. On December 8, 1997, Marcopper executed a Deed of Assignment in favor of MR Holdings, conveying all of its properties, mining equipment, and facilities.

Meanwhile, on May 7, 1997, Solidbank obtained a partial judgment against Marcopper from the Regional Trial Court of Manila, ordering Marcopper to pay 52,970,756.89 pesos plus interest and charges, attorney's fees, and costs. Upon Solidbank's motion, a writ of execution pending appeal was issued. The sheriffs levied on Marcopper's properties and scheduled a public auction sale on August 27, 1998. MR Holdings filed an Affidavit of Third-Party Claim on August 26, 1998, asserting ownership. When the claim was denied, it filed a complaint for reivindication with prayer for preliminary injunction, which the trial court denied.

Issues

• Whether or not petitioner MR Holdings, Ltd. has the legal capacity to sue in Philippine courts.
• Whether or not the Deed of Assignment between Marcopper and petitioner was executed in fraud of creditors.
• Whether or not petitioner MR Holdings, Ltd., Placer Dome, Inc., and Marcopper Mining Corporation are one and the same entity.
• Whether or not petitioner is guilty of forum shopping.

Applicable Provisions

Section 133 of the Corporation Code provides:

No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

This provision bars a foreign corporation doing business in the Philippines without a license from suing in Philippine courts, which is the threshold question in this case.

Republic Act No. 7042, the Foreign Investments Act of 1991, defines doing business as follows:

The phrase doing business shall include soliciting orders, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business, firm, entity, or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works; or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization; Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and or the exercise of rights as such investor, nor having a nominee director or officer to represent its interests in such corporation, nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.

This definition supplies the statutory test for whether a foreign corporation is doing business, which determines whether it needs a license to sue.

Section 1 of Republic Act No. 5455 provides:

The phrase doing business shall include soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

This provision reinforces the concept of continuity as the common denominator in defining doing business.

Ruling

On the first issue, the Court held that petitioner has the legal capacity to sue. The Court laid down three principles: first, if a foreign corporation does business in the Philippines without a license, it cannot sue before Philippine courts; second, if a foreign corporation is not doing business in the Philippines, it needs no license to sue on an isolated transaction or on a cause of action entirely independent of any business transaction; and third, if a foreign corporation does business with the required license, it can sue on any transaction. The Court emphasized that it is not the absence of the prescribed license but the doing of business in the Philippines without such license which debars the foreign corporation from access to our courts.

The Court found that the Court of Appeals categorized petitioner's participation in the assignment contracts as doing business, but this was untenable. The expression doing business should not be given such a strict and literal construction as to make it apply to any corporate dealing whatever. At this early stage, with petitioner's acts limited to the assignment contracts, it cannot be said that it had performed acts intended to continue the business for which it was organized. The Court noted that the purpose or business for which petitioner was organized is not discernible in the records, and no effort was exerted by the Court of Appeals to establish the nexus between petitioner's business and the acts supposed to constitute doing business. The Court held that the Court of Appeals' holding was based mainly on conjectures and speculation.

On the second issue, the Court found that the Deed of Assignment was executed in fraud of creditors. The Court noted that the first Assignment Agreement was executed on March 20, 1997, after Solidbank had filed its collection case on September 19, 1996. The second Deed of Assignment was executed on December 28, 1997, after the trial court had issued a writ of execution. The Court held that the deeds of assignment cannot be binding on the judgment creditor, Solidbank, under the general legal principle that contracts can only bind the parties who had entered into them, and it cannot favor or prejudice a third person. The Court also noted that the assignments were not registered with the Registry of Property as required by Article 1625 of the New Civil Code, and thus produce no effect as against third parties.

On the third issue, the Court held that petitioner, Placer Dome, and Marcopper are not one and the same entity. The Court found no factual or legal basis for the Court of Appeals' holding that they are one and the same entity.

On the fourth issue, the Court held that petitioner is not guilty of forum shopping. The Court found that neither litis pendentia nor res judicata may bar the reivindicatory action, and that as a third-party claimant, the law affords petitioner the right to file such reivindicatory action.

Doctrine

A foreign corporation doing business in the Philippines without a license cannot sue before Philippine courts. However, if a foreign corporation is not doing business in the Philippines, it needs no license to sue on an isolated transaction or on a cause of action entirely independent of any business transaction. The test for doing business is whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized, or whether it has substantially retired from it and turned it over to another. The concept of continuity is the common denominator in statutory definitions of doing business.

A conveyance made by a debtor after a creditor has filed a collection case and after a writ of execution has been issued is presumed to be in fraud of creditors. Contracts can only bind the parties who entered into them and cannot favor or prejudice a third person. An assignment not registered with the Registry of Property as required by Article 1625 of the New Civil Code produces no effect as against third parties.

Disposition

The petition is granted. The Court reversed the decision of the Court of Appeals and the order of the Regional Trial Court denying the application for a writ of preliminary injunction, and remanded the case for further proceedings.

Remember This

The single line worth memorizing is that it is not the absence of a license but the doing of business in the Philippines without a license that bars a foreign corporation from suing in Philippine courts. Examiners like to use this case to test the definition of doing business, the concept of continuity, and the rules on fraud of creditors and forum shopping.