GLOBAL BUSINESS HOLDINGS, INC. (FORMERLY GLOBAL BUSINESS BANK, INC.), PETITIONER, VS. SURECOMP SOFTWARE, B.V., RESPONDENT.

Global Business Holdings versus Surecomp Software

The Case

This is a petition for review on certiorari brought by Global Business Holdings, formerly Global Business Bank, against Surecomp Software, a corporation organized under the laws of the Netherlands. Surecomp sued Global in the Regional Trial Court of Makati for breach of a software license agreement, with damages. Global moved to dismiss, insisting that Surecomp, an unlicensed foreign corporation, had no capacity to sue. The case matters because it gathers in one place the rule on an unlicensed foreign corporation's incapacity to sue, the exception of estoppel, and the effect of a merger on the surviving corporation's liabilities. It also reminds us that the denial of a motion to dismiss is an interlocutory order, reviewable only on a showing of grave abuse of discretion.

Procedural History

Surecomp filed a complaint for breach of contract with damages before the Regional Trial Court of Makati. Instead of answering, Global filed a motion to dismiss on two grounds: that Surecomp had no capacity to sue because it was doing business in the Philippines without a license, and that the claim was unenforceable under the Intellectual Property Code. Global also sought leave to serve written interrogatories. In an order dated June 18, 2002, the trial court held Global estopped from denying Surecomp's capacity to sue, granted the interrogatories insofar as the unenforceability ground was concerned, and held the motion to dismiss in abeyance. On reconsideration, in an order dated November 27, 2002, the trial court denied the motion to dismiss on both grounds, directed Global to file its answer, and held the interrogatories in abeyance as premature. Global went to the Court of Appeals on certiorari under Rule 65. The Court of Appeals denied the petition and affirmed both orders. It likewise denied Global's motion for reconsideration. Hence this petition for review on certiorari under Rule 45 before the Supreme Court.

Facts

On March 29, 1999, Surecomp, a foreign corporation organized under the laws of the Netherlands, entered into a software license agreement with Asian Bank Corporation, a domestic corporation, for the use of the IMEX Software System in the bank's computer system for a period of twenty years. Under the agreement, Surecomp installed the system for a license fee of 298,000 dollars, and the bank undertook to pay professional services and annual maintenance fees, and to purchase remote access solutions at discounted prices. In a separate transaction, the bank asked Surecomp to purchase on its behalf a software called MF Cobol Runtime, promising to reimburse the cost.

In July 2000, Asian Bank Corporation merged with Global, with Global as the surviving corporation. When Global took over the operations of the bank, it found the system unworkable for its operations and informed Surecomp of its decision to discontinue the agreement and to stop further payments. Despite demands, Global failed to pay its obligations.

Surecomp then sued for breach of contract with damages, alleging that it was a foreign corporation not doing business in the Philippines and was suing on an isolated transaction. Global moved to dismiss, arguing that the twenty-year contract was not an isolated transaction, that it had taken no part in the negotiation and execution of the agreement, and that the agreement, being a technology transfer arrangement, failed to comply with the Intellectual Property Code.

Issues

• Whether or not a special civil action for certiorari is the proper remedy to question the denial of a motion to dismiss.
• Whether or not Global is estopped from questioning Surecomp's capacity to sue.

Applicable Provisions

Section 133 of the Corporation Code provides:

Section 133. Doing business without a license. 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 is the rule that an unlicensed foreign corporation doing business here cannot sue, and it frames the capacity question at the heart of the case.

Ruling

On the first issue, the Court held that the petition must fail. The denial of a motion to dismiss is an interlocutory order that neither terminates nor finally disposes of the case, and the general rule is that such a denial cannot be questioned in a special civil action for certiorari, which corrects errors of jurisdiction and not errors of judgment. Certiorari lies only if the denial was tainted with grave abuse of discretion, meaning a capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, so patent and gross as to amount to an evasion of a positive duty. Global failed to substantiate any arbitrariness, capriciousness, or ill motive on the part of the trial judge, so the Court upheld the ruling, especially since the Court of Appeals had affirmed it.

On the second issue, the Court held that Global is estopped from challenging Surecomp's capacity to sue. The determination of a corporation's capacity is a factual question. As a rule, an unlicensed foreign non-resident corporation doing business in the Philippines cannot file suits here, because a corporation has legal status only within the state where it was organized. But the exception is the doctrine of estoppel. A foreign corporation doing business here without a license may sue a Filipino citizen or a Philippine entity that had contracted with and benefited from it. A party is estopped from challenging the personality of a corporation after having acknowledged the same by entering into a contract with it, and the principle prevents a person who has received the benefits of the contract from later taking advantage of the corporation's noncompliance with the statutes.

Because of its merger with Asian Bank Corporation, Global, as the surviving corporation, is treated as if it were the one that entered into the contract with Surecomp. In a merger, one corporation survives and continues the business while the other is dissolved, and all its rights, properties, and liabilities are acquired by the surviving corporation. Under the terms of the merger, Global assumed all the liabilities and obligations of the bank as if it had incurred them itself, and it may exercise all the defenses, rights, privileges, and counter-claims the bank may have had. These findings of fact were never contested by Global.

Doctrine

An unlicensed foreign corporation transacting business in the Philippines cannot maintain an action in Philippine courts, under Section 133 of the Corporation Code. The exception is estoppel: a foreign corporation doing business here without a license may sue a Filipino citizen or Philippine entity that contracted with and benefited from it, and a party who has acknowledged the corporation's personality by contracting with it, and who has received the benefits of that contract, is barred from later challenging its capacity to sue. In a merger, the surviving corporation acquires all the rights, properties, and liabilities of the dissolved corporation, and may exercise its defenses, rights, privileges, and counter-claims. Finally, the denial of a motion to dismiss is an interlocutory order, correctable by certiorari only upon a showing of grave abuse of discretion.

Disposition

The Supreme Court denied the petition and affirmed the decision and resolution of the Court of Appeals, with costs against Global.

Remember This

The single line to memorize: a party who contracts with and benefits from an unlicensed foreign corporation is estopped from later challenging its capacity to sue. Examiners use this case to test the estoppel exception to Section 133 of the Corporation Code and the rule that the denial of a motion to dismiss is an interlocutory order reviewable only for grave abuse of discretion.