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Cargill Inc. vs Intra Strata Assurance Corporation

Facts:

Cargill (foreign) is a corporation organized and existing under the laws of the State of Delaware.
Cargill executed a contract with Northern Mindanao Corporation (NMC) (domestic), whereby NMC agreed to sell to petitioner
20,000 to 24,000 metric tons of molasses to be delivered from Jan 1 to 30 1990 for $44 per metric ton

The contract provided that CARGILL was to open a Letter of Credit with the BPI. NMC was permitted to draw up 500,000
representing the minimum price of the contract

The contract was amended 3 times (in relation to the amount and the price). But the third amendment required NMC to put

up a performance bond which was intended to guarantee NMCs performance to deliver the molasses during the prescribed
shipment periods
In compliance, INTRA STRATA issued a performance bond to guarantee NMCs delivery.
NMC was only able to deliver 219551 metric tons out of the agreed 10,500. Thus CARGILL sent demand letters to INTRA
claiming payment under the performance and surety bonds. When INTRA failed to pay, CARGILL filed a complaint.
CARGILL NMC and INTRA entered into a compromise agreement approved by the court, such provided that NMC would pay
CARGILL 3 million upon signing and would deliver to CARGILL 6,991 metric tons of molasses. But NMC still failed to comply
RTC in favor of CARGILL
CA CARGILL does not have the capacity to file suit since it was a foreign corporation doing business in the PH without the
requisite license. The purchase of molasses were in pursuance of its basic business and not just mere isolated and
incidental transactions

Issue: Whether or not petitioner is doing or transacting business in the Philippines in contemplation of the law and established
jurisprudence/ Whether or not CARGILL, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts.
Held: YES
According to Article 123 of the Corporation Code, a foreign corporation must first obtain a license and a certificate from the
appropriate government agency before it can transact business in the Philippines. Where a foreign corporation does
business in the Philippines without the proper license, it cannot maintain any action or proceeding before Philippine courts,
according to Article 133 of the Corporation Code
Doing Business
o .. 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.
Since INTRA is relying on Section 133 of the Corporation Code to bar petitioner from maintaining an action in Philippine
courts, INTRA bears the burden of proving that CARGILL was doing business in the PH. In this case, we find that INTRA failed
to prove that CARGILLs activities in the Philippines constitute doing business as would prevent it from bringing an action.

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There is no showing that the transactions between petitioner and NMC signify the intent of petitioner to establish a

continuous business or extend its operations in the Philippines.

In this case, the contract between petitioner and NMC involved the purchase of molasses by petitioner from NMC. It was
NMC, the domestic corporation, which derived income from the transaction and not petitioner. To constitute doing business, the activity
undertaken in the Philippines should involve profit-making.
Other factors which support the finding that petitioner is not doing business in the Philippines are: (1) petitioner does not
have an office in the Philippines; (2) petitioner imports products from the Philippines through its non-exclusive local broker,
whose authority to act on behalf of petitioner is limited to soliciting purchases of products from suppliers engaged in the
sugar trade in the Philippines; and (3) the local broker is an independent contractor and not an agent of petitioner.
To be doing or transacting business in the Philippines for purposes of Section 133 of the Corporation Code, the foreign
corporation must actually transact business in the Philippines, that is, perform specific business transactions within the
Philippine territory on a continuing basis in its own name and for its own account
CARGILL is a foreign company merely importing molasses from a Philipine exporter. A foreign company that merely imports
goods from a Philippine exporter, without opening an office or appointing an agent in the Philippines, is not doing business
in the Philippines.

In Steelcase, Inc. vs. Design International Selections, Inc., G.R. No. 171995, 18 April 2012,
the Philippine Supreme Court declared that a foreign corporation doing business in the Philippines without the requisite license
may sue in Philippine Courts against a Philippine citizen or entity who had contracted with and benefited by said corporation. In
other words, a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into
a contract with it.
Background
Petitioner Steelcase, Inc. ("Steelcase") is a foreign corporation existing under the laws of Michigan, United States of America
(U.S.A.), and engaged in the manufacture of office furniture with dealers worldwide. Respondent Design International Selections,
Inc. ("DISI") is a corporation existing under Philippine Laws and engaged in the furniture business, including the distribution of
furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right
to market, sell, distribute, install, and service its products to end-user customers within the Philippines. The business relationship
continued smoothly until it was terminated sometime in January 1999 after the agreement was breached with neither party
admitting any fault. Steelcase filed a complaint for sum of money against DISI alleging, among others, that DISI had an unpaid
account of US$600,000.00. Steelcase prayed that DISI be ordered to pay actual or compensatory damages, exemplary damages,
attorneys fees, and costs of suit. Among the counter-arguments raised, DISI alleged that the complaint failed to state a cause of

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action and to contain the required allegations on Steelcases capacity to sue in the Philippines despite the fact that Steelcase was
doing business in the Philippines without the required license to do so. Consequently, it posited that the complaint should be
dismissed because of Steelcases lack of legal capacity to sue in Philippine courts.
The Regional Trial Court (RTC) dismissed the complaint and granted the temporary restraining order prayed for by DISI. The RTC
stated that in requiring DISI to meet the Dealer Performance Expectation and in terminating the dealership agreement with DISI
based on its failure to improve its performance in the areas of business planning, organizational structure, operational
effectiveness, and efficiency, Steelcase unwittingly revealed that it participated in the operations of DISI. Despite a showing that
DISI transacted with the local customers in its own name and for its own account, the RTC stated that any doubt in the factual
environment should be resolved in favor of a pronouncement that a foreign corporation was doing business in the Philippines,
considering the twelve-year period that DISI had been distributing Steelcase products in the Philippines. The RTC concluded that
Steelcase was "doing business" in the Philippines, as contemplated by the Foreign Investments Act of 1991, and since it did not
have the license to do business in the country, it was barred from seeking redress from our courts until it obtained the requisite
license to do so. Steelcase moved for the reconsideration of the dismissal but the same was denied.
Aggrieved, Steelcase appealed the case to the Court of Appeals. The Court of Appeals rendered its Decision affirming the RTC
orders, ruling that Steelcase was a foreign corporation doing or transacting business in the Philippines without a license. Steelcase
filed a motion for reconsideration but it was denied by the Court of Appeals.
Steelcase filed a Petition for Review with the Supreme Court. The issues in the Supreme Court petition are: (a) whether or not
Steelcase is doing business in the Philippines without a license; and (b) whether or not DISI is estopped from challenging the
Steelcases legal capacity to sue.
Supreme Courts Ruling
The Supreme Court ruled in favor of Steelcase.
Steelcase is an unlicensed foreign corporation not doing business in the Philippines
According to the Supreme Court, the following acts shall not be deemed "doing business" in the Philippines: (a) 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; (b) having a nominee director or officer to represent its interest in such corporation; (c) appointing a representative or
distributor domiciled in the Philippines which transacts business in the representative's or distributor's own name and account; (d)
the publication of a general advertisement through any print or broadcast media; (e) maintaining a stock of goods in the
Philippines solely for the purpose of having the same processed by another entity in the Philippines; (f) consignment by a foreign
entity of equipment with a local company to be used in the processing of products for export; (g) collecting information in the
Philippines; and (h) performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such

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as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic
workers to operate it, and similar incidental services.
Based on this list, the Supreme Court said that the appointment of a distributor in the Philippines is not sufficient to constitute
"doing business" unless it is under the full control of the foreign corporation. If the distributor is an independent entity which buys
and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be
considered to be doing business in the Philippines.
Applying these rules, the Supreme Court said that DISI was founded in 1979 and is independently owned and managed. In addition
to Steelcase products, DISI also distributed products of other companies including carpet tiles, relocatable walls and theater
settings. The dealership agreement between Steelcase and DISI had been described by the owner himself as a buy and sell
arrangement. This clearly belies DISIs assertion that it was a mere conduit through which Steelcase conducted its business in the
country. From the preceding facts, the only reasonable conclusion that can be reached is that DISI was an independent contractor,
distributing various products of Steelcase and of other companies, acting in its own name and for its own account. As a result,
Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor as it falls under one of
the exceptions under R.A. No. 7042.
DISI is estopped from challenging Steelcase's capacity to sue
On this point, the Supreme Court declared that if indeed Steelcase had been doing business in the Philippines without a license,
DISI would nonetheless be estopped from challenging the formers legal capacity to sue xxx A foreign corporation doing business in
the Philippines may sue in Philippine Courts although not authorized to do business here against a Philippine citizen or entity who
had contracted with and benefited by said corporation. To put it in another way, a party is estopped to challenge the personality of
a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny
corporate existence applies to a foreign as well as to domestic corporations. One who has dealt with a corporation of foreign origin
as a corporate entity is estopped to deny its corporate existence and capacity.
Relevance
Although the foreign corporation in this case was declared to be not doing business in the Philippines, this case, nonetheless,
explicitly declares another exception to the rule provided in Section 133 of the Corporation Code of the Philippines that [n]o
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 Following the
ruling in this case, a foreign corporation doing business in the Philippines without a license may maintain suit in the Philippines
against a domestic corporation or person who is party to a contract as the domestic corporation or person is deemed estopped
from challenging the personality of the foreign corporation.

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State Investment House, Inc. vs. Citibank, et al, G.R. No. 79926-27, Oct. 17, 1991

FACTS:
Consolidated Mines, Inc. (CMI) obtained loans from Citibank, Bank of America and HSBC, all foreign corporations but with branches
in the Philippines. Meanwhile, State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI), also creditors of CMI, filed
collection suits against the latter with writs of preliminary attachment. Subsequently, the three banks jointly filed with the court a
petition for involuntary insolvency of CMI. SHI and SFCI opposed the petition on the ground that the petitioners are not resident
creditors in contemplation of the Insolvency Law.
ISSUE: Whether or not a foreign corporation with a branch in the Philippines and doing business therein can be considered a
resident
HELD:
Foreign corporations duly licensed to do business in the Philippines are considered residents of the Philippines, as the word is
understood in Sec. 20 of the Insolvency Law, authorizing at least three resident creditors of the Philippines to file a petition to
declare a corporation insolvent. The Tax Code declares that the term resident foreign corporation applies to foreign corporation
engaged in trade or business within the Philippines as distinguished from a non-resident foreign corporation which is not
engaged in trade or business within the Philippines. The Offshore Banking Law sates that: Branches, subsidiaries, affiliates,
extension offices or any other units of corporation or juridical person organized under the laws of any foreign country operating in
the Philippines shall be considered residents of the Philippines. The General Banking Act places branches and agencies in the
Philippines of foreign banks in the category as commercial banks, rural banks, stock savings and loan association making no
distinction between the former ad the latter in so far as the terms banking institutions and banks are used in said Act.
FULL TEXT: The chief question in the appeal at bar is whether or not foreign banks licensed to do business in the Philippines, may
be considered "residents of the Philippine Islands" within the meaning of Section 20 of the Insolvency Law (Act No. 1956, as
amended, eff. May 20, 1909) reading in part as follows: 1
An adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippine Islands, whose
credits or demands accrued in the Philippine Islands, and the amount of which credits or demands are in the aggregate not less
than one thousand pesos: Provided, that none of said creditors has become a creditor by assignment, however made, within thirty
days prior to the filing of said petition. Such petition must be filed in the Court of First Instance of the province or city in which the
debtor resides or has his principal place of business, and must be verified by at least three (3) of the petitioners. . . .

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The foreign banks involved in the controversy are Bank of America NT and SA, Citibank N.A. and Hongkong and Shanghai Banking
Corporation. On December 11, 1981, they jointly filed with the Court of First Instance of Rizal a petition for involuntary insolvency
of Consolidated Mines, Inc. (CMI), which they amended four days later. 2 The case was docketed as Sp. Proc. No. 9263 and
assigned to Branch 28 of the Court.
The petition for involuntary insolvency alleged:
1)
that CMI had obtained loans from the three petitioning banks, and that as of November/December, 1981, its outstanding
obligations were as follows:
a)

In favor of Bank of America (BA)

P15,297,367.67

(as of December 10, 1981) US$ 4,175,831.88

(b)

In favor of Citibank

US$ 4,920,548.85

(as of December 10, 1981)

c)

In favor of Hongkong & Shanghai Bank

US$ 5,389,434.12

(as of November 30, 1981); P6,233,969.24

2)
that in November, 1981, State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI) had separately
instituted actions for collection of sums of money and damages in the Court of First Instance of Rizal against CMI, docketed
respectively as Civil Cases Numbered 43588 and 43677; and that on application of said plaintiffs, writs of preliminary attachment
had been issued which were executed on "the royalty/profit sharing payments due CMI from Benguet Consolidated Mining, Inc;"
and
3)

that CMI had "committed specific acts of insolvency as provided in Section 20 of the Insolvency Law, to wit:

xxx

xxx

xxx

5.
that he (CMI) has suffered his (CMI's) property to remain under attachment or legal process for three days for the purpose of
hindering or delaying or defrauding his (CMI's) creditors;
xxx

xxx

xxx

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11.
that being a merchant or tradesman he (CMI) has generally defaulted in the payment of his (CMI's) current obligations for a
period of thirty days; . . .
The petition was opposed by State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI). 3 It claimed that:
1)
the three petitioner banks had come to court with unclean hands in that they filed the petition for insolvency alleging the
CMI was defrauding its creditors, and they wished all creditors to share in its assets although a few days earlier, they had
"received for the account of CMI substantial payments aggregating P10,800,000.00;"
2)
the Court had no jurisdiction because the alleged acts of insolvency were false: the writs of attachment against CMI had
remained in force because there were "just, valid and lawful grounds for the(ir) issuance," and CMI was not a "merchant or
tradesman" nor had it "generally defaulted in the payment of (its) obligations for a period of thirty days . . . ;"
3)
the Court had no jurisdiction to take cognizance of the petition for insolvency because petitioners are not resident creditors
of CMI in contemplation of the Insolvency Law; and
4)

the Court has no power to set aside the attachment issued in favor of intervenors-oppositors SIHI and SFCI.

CMI filed its Answer to the petition for insolvency, asserting in the main that it was not insolvent, 4 and later filed a "Motion to
Dismiss Based on Affirmative Defense of Petitioner's Lack of Capacity to Sue," echoing the theory of SIHI and SFCI that the
petitioner banks are not "Philippine residents." 5 Resolution on the motion was "deferred until after hearing of the case on the
merits" it appearing to the Court that the grounds therefor did not appear to be indubitable. 6
SIHI and SFCI filed their own Answer-in-Intervention, 7 and served on the three petitioner banks requests for admission of certain
facts in accordance with Rule 26 of the Rules of Court, 8 receiving a response only from Hongkong & Shanghai Bank. 9
SIHI and SFCI then filed a Motion for Summary Judgment dated May 23, 1983 "on the ground that, based on the pleadings and
admissions on record, the trial court had no jurisdiction to adjudicate CMI insolvent since the petitioners (respondent foreign banks)
are not "resident creditors" of CMI as required under the Insolvency Law." 10 Oppositions to the motion were filed, 11 to which a
reply was submitted. 12
The Regional Trial Court 13 found merit in the motion for summary judgment. By Order dated October 10, 1983, it rendered
"summary judgment dismissing the . . . petition for lack of jurisdiction over the subject matter, with costs against petitioners." 14 It
ruled that on the basis of the "facts on record, as shown in the pleadings, motions and admissions of the parties, an insolvency
court could "not acquire jurisdiction to adjudicate the debtor as insolvent if the creditors petitioning for adjudication of insolvency
are not "residents" of the Philippines" citing a decision of the California Supreme Court which it declared "squarely applicable
especially considering that one of the sources of our Insolvency Law is the Insolvency Act of California of 1895 . . . " And it declared
that since petitioners had been merely licensed to do business in the Philippines, they could not be deemed residents thereof.

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The three foreign banks sought to take an appeal from the Order of October 10, 1983. They filed a notice of appeal and a record on
appeal. 15 SIHI and SFCI moved to dismiss their appeal claiming it was attempted out of time. The Trial Court denied the motion.
SIHI and SFCI filed with this Court a petition for certiorari and prohibition (G.R. NO. 66449), impugning that denial. The Court
dismissed the petition and instead required the three banks to file a petition for review in accordance with Rule 45 of the Rules of
Court. 16 This the banks did (their petition was docketed as G.R. No. 66804). However, by Resolution dated May 16, 1984, the
court referred the petition for review to the Intermediate Appellate Court, where it was docketed as AC SP-03674. 17
In the meantime, the Trial Court approved on May 3, 1985 the banks' record on appeal and transmitted it to this Court, where it
was recorded as UDK-6866. As might have been expected, this Court required the banks to file a petition for review under Rule 45,
but they asked to be excused from doing so since they had already filed such a petition, which had been referred to the
Intermediate Appellate Court and was there pending as AC-G.R. No. SP 03674, supra. This Court then also referred UDK-6866 to the
Intermediate Appellate Court where it was docketed as AC-G.R. No. CV 07830.
Both referred cases, AC-G.R. No. SP 03674 and AC-G.R. No. CV 07830, were consolidated by Resolution of the Court of Appeals
dated April 9, 1986, and Decision thereon was promulgated on July 14, 1987 by the Fifteenth Division of said Court. 18
The Appellate Court reversed the Trial Court's Order of October 10, 1983 and remanded the case to it for further proceedings. It
ruled:
1)
that the purpose of the Insolvency Law was "to convert the assets of the bankrupt in cash for distribution among creditors,
and then to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start life anew, free from the
obligations and responsibilities consequent upon business misfortunes;" 19 and that it was "crystal clear" that the law was
"designed not only for the benefit of the creditors but more importantly for the benefit of the debtor himself," the object being "to
provide not only for the suspension of payments and the protection of creditors but also the discharge of insolvent honest debtors
to enable them to have a fresh start;"
2)
that the Trial Court had placed "a very strained and restrictive interpretation of the term "resident," as to exclude foreign
banks which have been operating in this country since the early part of the century," and "the better approach . . . would have
been to harmonize the provisions . . . (of the Insolvency Law) with similar provisions of other succeeding laws, like the Corporation
Code of the Philippines, the General Banking Act, the Offshore Banking Law and the National Internal Revenue Code in connection
with or related to their doing business in the Philippines;"
3)
that in light of said statutes, the three banks "are in truth and in fact considered as "residents" of the Philippines for
purposes of doing business in the Philippines and even for taxation matters;"

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4)
that the banks had "complied with all the laws, rules and regulations (for doing business in the country) and have been
doing business in the Philippines for many years now;" that the authority granted to them by the Securities and Exchange
Commission upon orders of the Monetary Board "covers not only transacting banking business . . . but likewise maintaining suits
"for recovery of any debt, claims or demand whatsoever," and that their petition for involuntary insolvency was "nothing more than
a suit aimed at recovering a debt granted by them to Consolidated Mines, Inc., or at least a portion thereof;"
4)
that to deprive the foreign banks of their right to proceed against their debtors through insolvency proceedings would
"contravene the basic standards of equity and fair play, . . . would discourage their operations in economic development projects
that create not only jobs for our people but also opportunities for advancement as a nation;" and
5)
that the terms "residence" and "domicile" do not mean the same thing, and that as regards a corporation, it is generally
deemed an "inhabitant" of the state under whose law it is incorporated, and has a "residence" wherever it conducts its ordinary
business, and may have its legal "domicile" in one place and "residence" in another.
SIHI and SFCI moved for reconsideration and then, when rebuffed, took an appeal to this Court. Here, they argue that the Appellate
Court's judgment should be reversed because it failed to declare that
1)
the failure of the three foreign banks to allege under oath in their petition for involuntary insolvency that they are Philippine
residents, wishing only to "be considered Philippine residents," is fatal to their cause;
2)
also fatal to their cause is their failure to prove, much less allege, that under the domiciliary laws of the foreign banks, a
Philippine corporation is allowed the reciprocal right to petition for a debtor's involuntary insolvency;
3)

in fact and in law, the three banks are not Philippine residents because:

a)
corporations have domicile and residence only in the state of their incorporation or in the place designated by law, although
for limited and exclusive purposes, other states may consider them as residents;
b)

juridical persons may not have residence separate from their domicile;

4)

actually, the non-resident status of the banks within the context of the Insolvency Law is confirmed by other laws;

5)

the license granted to the banks to do business in the Philippines does not make them residents;

6)
no substantive law explicitly grants foreign banks the power to petition for the adjudication of the Philippine corporation as
a bankrupt;

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7)
the Monetary Board can not appoint a conservator or receiver for a foreign bank or orders its liquidation having only the
power to revoke its license, subject to such proceedings as the Solicitor General may thereafter deem proper to protect its
creditors;
8)
the foreign banks are not denied the right to collect their credits against Philippine debtors, only the right to "petition for the
harsh remedy of involuntary insolvency" not being conceded to them;
9)
said banks have come to court with unclean hands, their filing of the petition for involuntary insolvency being an attempt to
defeat validly acquired rights of domestic corporations.
The concept of a foreign corporation under Section 123 of the Corporation Code is of "one formed, organized or existing under laws
other than those of the Philippines and . . . (which) laws allow Filipino citizens and corporations to do business . . . ." There is no
question that the three banks are foreign corporations in this sence, with principal offices situated outside of the Philippines. There
is no question either that said banks have been licensed to do business in this country and have in fact been doing business here
for many years, through branch offices or agencies, including "foreign currency deposit units;" in fact, one of them, Hongkong &
Shanghai Bank has been doing business in the Philippines since as early as 1875.
The issue is whether these Philippine branches or units may be considered "residents of the Philippine Islands" as that term is used
in Section 20 of the Insolvency Law, supra, 20 or residents of the state under the laws of which they were respectively
incorporated. The answer cannot be found in the Insolvency Law itself, which contains no definition of the term, resident, or any
clear indication of its meaning. There are however other statutes, albeit of subsequent enactment and effectivity, from which
enlightening notions of the term may be derived.
The National Internal Revenue Code declares that the term "'resident foreign corporation' applies to a foreign corporation engaged
in trade or business within the Philippines," as distinguished from a " "non-resident foreign corporation" . . . (which is one) not
engaged in trade or business within the Philippines." 21
The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries, affiliation, extension offices or any
other units of corporation or juridical person organized under the laws of any foreign country operating in the Philippines shall be
considered residents of the Philippines." 22
The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of foreign banks . . . (which are)
called Philippine branches," in the same category as "commercial banks, savings associations, mortgage banks, development
banks, rural banks, stock savings and loan associations" (which have been formed and organized under Philippine laws), making no
distinction between the former and the later in so far, as the terms "banking institutions" and "bank" are used in the Act, 23
declaring on the contrary that in "all matters not specifically covered by special provisions applicable only to foreign banks, or their
branches and agencies in the Philippines, said foreign banks or their branches and agencies lawfully doing business in the
Philippines "shall be bound by all laws, rules, and regulations applicable to domestic banking corporations of the same class,

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except such laws, rules and regulations as provided for the creation, formation, organization, or dissolution of corporations or as fix
the relation, liabilities, responsibilities, or duties of members, stockholders or officers or corporations." 24
This Court itself has already had occasion to hold 25 that a foreign corporation licitly doing business in the Philippines, which is a
defendant in a civil suit, may not be considered a non-resident within the scope of the legal provision authorizing attachment
against a defendant not residing in the Philippine Islands;" 26 in other words, a preliminary attachment may not be applied for and
granted solely on the asserted fact that the defendant is a foreign corporation authorized to do business in the Philippines and is
consequently and necessarily, "a party who resides out of the Philippines." Parenthetically, if it may not be considered as a party
not residing in the Philippines, or as a party who resides out of the country, then, logically, it must be considered a party who does
reside in the Philippines, who is a resident of the country. Be this as it may, this Court pointed out that:
. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed to do business here, to the
status of domestic corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells Co. vs. Henry W. Elser & Co., 46 Phil. 70, 76; Yu;
Cong Eng vs. Trinidad, 47 Phil. 385, 411) We think it would be entirely out of line with this policy should we make a discrimination
against a foreign corporation, like the petitioner, and subject its property to the harsh writ of seizure by attachment when it has
complied not only with every requirement of law made specially of foreign corporations, but in addition with every requirement of
law made of domestic corporations. . . . .
Obviously, the assimilation of foreign corporations authorized to do business in the Philippines "to the status of domestic
corporations," subsumes their being found and operating as corporations, hence, residing, in the country.
The same principle is recognized in American law: that the "residence of a corporation, if it can be said to have a residence, is
necessarily where it exercises corporate functions . . . ;" that it is .considered as dwelling "in the place where its business is done . .
. ," as being "located where its franchises are exercised . . . ," and as being "present where it is engaged in the prosecution of the
corporate enterprise;" that a "foreign corporation licensed to do business in a state is a resident of any country where it maintains
an office or agent for transaction of its usual and customary business for venue purposes;" and that the "necessary element in its
signification is locality of existence." 27 Courts have held that "a domestic corporation is regarded as having a residence within the
state at any place where it is engaged in the particulars of the corporate enterprise, and not only at its chief place or home office;"
28 that "a corporation may be domiciled in one state and resident in another; its legal domicil in the state of its creation presents
no impediment to its residence in a real and practical sense in the state of its business activities." 29
The foregoing propositions are in accord with the dictionary concept of residence as applied to juridical persons, a term which
appears to comprehend permanent as well as temporary residence.
The Court cannot thus accept the petitioners' theory that corporations may not have a residence (i.e., the place where they
operate and transact business) separate from their domicile (i.e., the state of their formation or organization), and that they may
be considered by other states as residents only for limited and exclusive purposes. Of course, as petitioners correctly aver, it is not
really the grant of a license to a foreign corporation to do business in this country that makes it a resident; the license merely gives

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legitimacy to its doing business here. What effectively makes such a foreign corporation a resident corporation in the Philippines is
its actually being in the Philippines and licitly doing business here, "locality of existence" being, to repeat, the "necessary element
in . . . (the) signification" of the term, resident corporation.
Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an explicit and
categorical statement that they are "residents of the Philippine Islands," is fatal to their cause. In truth, in light of the concept of
resident foreign corporations just expounded, when they alleged in that petition that they are foreign banking corporations,
licensed to do business in the Philippines, and actually doing business in this Country through branch offices or agencies, they were
in effect stating that they are resident foreign corporations in the Philippines.
There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the power to petition for the
adjudication of a Philippine corporation as a bankrupt. This is inconsequential, for neither is there any legal provision expressly
giving domestic banks the same power, although their capacity to petition for insolvency can scarcely be disputed and is not in
truth disputed by petitioners. The law plainly grants to a juridical person, whether it be a bank or not or it be a foreign or domestic
corporation, as to natural persons as well, such a power to petition for the adjudication of bankruptcy of any person, natural or
juridical, provided that it is a resident corporation and joins at least two other residents in presenting the petition to the Bankruptcy
Court.
The petitioners next argue that "Philippine law is emphatic that only foreign corporations whose own laws give Philippine nationals
reciprocal rights may do business in the Philippines." As basis for the argument they invoke Section 123 of the Corporation Code
which, however, does not formulate the proposition in the same way. Section 123 does not say, as petitioners assert, that it is
required that the laws under which foreign corporations are formed "give Philippine nationals, reciprocal rights." What it does say is
that the laws of the country or state under which a foreign corporation is "formed, organized or existing . . . allow Filipino citizens
and corporations to do business in its own country or state," which is not quite the same thing. Now, it seems to the Court that
there can be no serious debate about the fact that the laws of the countries under which the three (3) respondent banks were
formed or organized (Hongkong and the United States) do "allow Filipino citizens and corporations to do business" in their own
territory and jurisdiction. It also seems to the Court quite apparent that the Insolvency Law contains no requirement that the laws
of the state under which a foreign corporation has been formed or organized should grant reciprocal rights to Philippine citizens to
apply for involuntary insolvency of a resident or citizen thereof. The petitioners' point is thus not well taken and need not be
belabored.
That the Monetary Board can not appoint a conservator or receiver for a foreign bank or order its liquidation having only the power
to revoke its license, subject to such proceedings as the Solicitor General may thereafter deem proper to protect its creditors,
which is another point that petitioners seek to make, is of no moment. It has no logical connection to the matter of whether or not
the foreign bank may properly ask for a judicial declaration of the involuntary insolvency of a domestic corporation, which is the
issue at hand. The fact is, in any event, that the law is not lacking in sanctions against foreign banks or powerless to protect the
latter's creditors.

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The petitioners contend, too, that the respondent banks have come to court with unclean hands, their filing of the petition for
involuntary insolvency being an attempt to defeat validly acquired rights of domestic corporations. The Court wishes to simply
point out that the effects of the institution of bankruptcy proceedings on all the creditors of the alleged bankrupt are clearly spelled
out by the law, and will be observed by the Insolvency Court regardless of whatever motives apart from the desire to share in
the assets of the insolvent in satisfying its credits that the party instituting the proceedings might have.
Still another argument put forth by the petitioners is that the three banks' failure to incorporate their branches in the Philippines
into new banks in accordance with said Section 68 of the General Banking Act connotes an intention on their part to continue as
residents of their respective states of incorporation and not to be regarded as residents of the Philippines. The argument is based
on an incomplete and inaccurate quotation of the cited Section. What Section 68 required of a "foreign bank presently having
branches and agencies in the Philippines, . . . within one year from the effectivity" of the General Banking Act, was to comply with
any of three (3) options, not merely with one sole requirement. These three (3) options are the following:
1)
(that singled out and quoted by the petitioners, i.e.:) "incorporate its branch or branches into a new bank in accordance
with Philippine laws . . . ; or
2) "assign capital permanently to the local branch with the concurrent maintenance of a 'net due to' head office account which
shall include all net amounts due to other branches outside the Philippines in an amount which when added to the assigned capital
shall at all times be not less than the minimum amount of capital accounts required for domestic commercial banks under section
twenty-two of this Act;" or
3)
"maintain a "net due to" head office account which shall include all net amounts due to other branches outside the
Philippines, in an amount which shall not be less than the minimum amount of capital accounts required for domestic commercial
banks under section twenty-two of this Act."
The less said about this argument then, the better.
The petitioners allege that three days before respondent banks filed their petition for involuntary insolvency against CMI, they
received from the latter substantial payments on account in the aggregate amount of P6,010,800.00, with the result that they were
"preferred in the distribution of CMI's assets thereby defrauding other creditors of CMI." Non sequitur. It is in any case a
circumstance that the Bankruptcy Court may well take into consideration in determining the manner and proportion by which the
assets of the insolvent company shall be distributed among its creditors; but it should not be considered a ground for giving the
petition for insolvency short shrift. Moreover, the payment adverted to does not appear to be all that large. The total liabilities of
CMI to the three respondent banks as of December, 1981 was P21,531,336.91, and US$14,485,814.85. Converted into Philippine
currency at the rate of P7.899 to the dollar, the average rate of exchange during December, 1981, 30 the dollar account would be
P114,423,451.50. Thus, the aggregate liabilities of CMI to the banks, expressed in Philippine currency, was P135,954,788.41 as of
December, 1981, and therefore the payment to them of P6,010,800.00 constituted only some 4.42% of the total indebtedness.

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WHEREFORE, the petition is DENIED and the challenged Decision of the Court of Appeals is AFFIRMED in toto, with costs against
the petitioners.
SO ORDERED.
Grio-Aquino and Medialdea, JJ., concur.
Cruz, J., took no part.
Western Airlines v. Sdbieski
A minority group of stockholders exercised their charter right of cumulative voting in a Delaware corporation which had its principal
place of business, as well as most of its assets and thirty percent of its stockholders, in California. Management then attempted to
amend the charter to eliminate the cumulative voting provisions. California requires its domestic corporations to have cumulative
voting, but Delaware does not. The California Corporations Commissioner took the position that the proposed amendment was a
"sale," that it was unfair" to a large number of California security holders, and that on this issue the fiction of the plaintiff's
Delaware residence should yield to the totality of California contacts so as to require his approval as a condition to eliminating the
right of cumulative voting by the share- holders. In an action by the corporation against the Commissioner the trial court held that
because the amendment of the articles of incorpora- tion was an "internal affair" between the foreign corporation and its
jurisdiction. The
shareholders, the Commissioner had exceeded his
District Court of Appeal reversed, however, reasoning that a
state could regulate such a change to protect its residents. Although the corporation emphatically contended that the California
legislature had*repealed a provision requiring foreign corporations to have cumulative voting, the court held that the legislature

had granted the Commissioner the power to appraise the fairness of changes in the corporate structures of foreign as well as
domestic corporations. Finally, the court concluded that the Commissioner's action was not unconstitutional because the foreign
corporation did a substantial amount of business within Cali- fornia.
corporate practhen
Western' Airlines focuses attention on the familiar
tice of incorporating in states with less stringent laws and
operating
a continent away,
the entire business in one or more states that could be
as in the instant case. Such corporations have
come to be known as pseudo-foreign or migratory corporations.' A large body of law has grown up involving shareholder suits
against foreign corporations,' and it was these analogous precedents on which the trial court in Western Airlines relied. The general
rule has been said to be that courts will not take jurisdiction of a suit involving the internal affairs of a foreign corporation, nor, in

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9
the exercise of visitorial powers, inter- fere with the management of a foreign corporation. Unfortunately, however, this rule has
been applied broadly to both pseudo-foreign and true foreign corporations alike, with little consideration of whether a decree
10
rendered by the court could actually be enforced.
Early de- cisions asserted that the suits could not be entertained because of a
12
lack of jurisdiction," but later cases considered the question a matter of discretion only.
In suits brought by shareholders, most
3
courts now would view the rule as merely one of forum non conveniens.'
If the foreign state takes jurisdiction of "internal affairs" litigation, the traditional conflict-of-laws rule requires that the law of the in4
corporating state be applied to the controversy.' Delaware is the only jurisdiction whose courts have dearly upheld a charter
5
amendment eliminating cumulative voting,' although the statutory language in many other states seems at least equally
permissive.' If the California Corporations Commissioner in asserting jurisdiction to challenge the proposed amendment in Western
Airlines had measured its legality by Delaware law, the elimination of cumulative voting would have been valid. This result would
have frustrated a clear legislative mandate to the Commissioner to measure all changes by their "fairness." How- ever, the
Commissioner interpreted the "fairness" test to mean that on this issue he could apply California law to the Delaware corporation
to protect California shareholders, and this choice of law was upheld by the District Court of Appeal. One scholar argues that there
is no consti- tutional prohibition against courts in conflict-of-laws cases looking as a matter of course to the law of the forum for the
governing rule, and then applying local law if there is a particular policy to be served.1 7
There is little doubt of the soundness of Western Airlines under this conflict-of-laws standard, for the subject matter of the
controversy was strongly related to the governmental policy of the forum. 8
Western Airlines certainly does not indicate, however, that all foreign corporations must have cumulative voting in order to sell
1
shares or do business in California. The court made it clear that the Com- missioner's power of appraisal was a flexible one,
implying that California neither could nor should exert such veto power over a foreign corporation having little contact with the
state.?
If a state wishes to undertake a reasonable regulation of changes in the corporate structure, no good reason exists why this policy
should be thwarted by an essentially domestic corporation through the simple process of incorporating in another state. Judicial
utterances to the effect that corporations are the creature of the incorporating state and te powers granted them by those states

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2
are the same elsewhere as at home ' have no place.in the modern business world. Most modem courts have had little difficulty
22
recognizing the "pseudo-foreign" corpo- ration in shareholder litigation when strong local considerations were involved.
. The
New York legislature has gone one step further and defined a "domiciled foreign corporation" in order to delineate accurate- ly the
23

limits of that state's new corporation law's applicability to foreign corporations.

of states to apply
corporations
Western Airlines emphasizes the growing tendency
their own law to the "internal affairs" of foreign
which are
than with any other. The
permit this
more closely identified with that state
United States Supreme Court will undoubtedly
trend to
situation, just as it has
continue, perhaps beyond the pseudo-foreign
allowed states to proportionately tax interstate
5
corporate revenues,24 and subject foreign corporations to local suit if they are "doing business" there.
will be essential for the
rule is that
Reappraisal of supposedly settled doctrines
interstate corporation. For intance, the general
6
legality of
law of the domiciliary
its
dividend payments is to be measured by the
state. If a foreign corporation conducts most of
operations in a
Airlines suggests
could be
state other than that of its incorporation, Western
that the dividend law of the latter forum
28
appliedVT One
has
already
come
to
this
conclusion.
case
in the
A more vexing question is posed by a true "interstate" corporation, one, for example, that conducts a third of its business
state of incorporation, State A, and has its offices there, but has equal contact with State B, a state with more stringent dividend
restrictions than the domiciliary state. If the dividend's legality were litigated in State B, no valid constitutional objections could be
raised to State B's prefer- ence of its own law to that of the domiciliary state. The United States Supreme Court has held that the
full faith and credit clause does not require a state, when it has legitimate interests to protect, to subordinate its own law to that of
another state." That Court has also said that a state could, for the protection of its citizens, regulate to some degree the
distribution of dividends by a foreign corporation headquartered elsewhere, at least with respect to money earned in the regulating
30
state.
If Western Airlines is extended to apply to the interstate corporation's "internal affairs," some initial confusion will doubtless
31
result.
However, the benefits to be gained by allowing states to enforce strong local policies for the protection of its citizens
dearly outweigh the certainty of application of lax corporation laws.

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The broader implications of Western Airlines seem far-reaching. The decision dearly will cause pseudo-foreign corporations to reappraise the merits of foreign incorporation. If the choice-of-law principle implicit in Western Airlines were carried to its logical con32
dusion,
a state would be able to impose regulatory control whenever a foreign corporation's contacts with that state were
sufficient. As a result, states, given comprehensive regulatory control over both do,mestic and.foreign corporations, might further examine the evils long intrinsic in corporate reorganization and recapitalization. But
what- ever effect Western Airlines may have on regulatory aspects of corpo- ration law, the California court's rejection of the internal
33
affairs rule joins other well-reasoned decisions
and New York legislation in formulating a sensible approach to the problem of
which state's law is applicable to pseudo-foreign corporations.

G.R. No. 161026

October 24, 2005

HYATT ELEVATORS AND ESCALATORS CORPORATION, PETITIONER,

vs.
GOLDSTAR ELEVATORS, PHILS., INC.,* RESPONDENT.
DECISION
PANGANIBAN, J.:
Well established in our jurisprudence is the rule that the residence of a corporation is the place where its principal office is located,
as stated in its Articles of Incorporation.
The Case
Before us is a Petition for Review[1] on Certiorari, under Rule 45 of the Rules of Court, assailing the June 26, 2003
Decision[2] and the November 27, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 74319. The decretal portion of
the Decision reads as follows:
WHEREFORE, in view of the foregoing, the assailed Orders dated May 27, 2002 and October 1, 2002
of the RTC, Branch 213, Mandaluyong City in Civil Case No. 99-600, are hereby SET ASIDE. The said case is
hereby ordered DISMISSED on the ground of improper venue.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.

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The Facts
The relevant facts of the case are summarized by the CA in this wise:
Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc. (GOLDSTAR for brevity) is a
domestic corporation primarily engaged in the business of marketing, distributing, selling, importing, installing,
and maintaining elevators and escalators, with address at 6 th Floor, Jacinta II Building, 64 EDSA, Guadalupe,
Makati City.
On the other hand, private respondent [herein petitioner] Hyatt Elevators and Escalators Company
(HYATT for brevity) is a domestic corporation similarly engaged in the business of selling, installing and
maintaining/servicing elevators, escalators and parking equipment, with address at the 6 th Floor, Dao I
Condominium, Salcedo St., Legaspi Village, Makati, as stated in its Articles of Incorporation.
On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages under Articles
19, 20 and 21 of the Civil Code of the Philippines against LG Industrial Systems Co. Ltd. (LGISC) and LG
International Corporation (LGIC), alleging among others, that: in 1988, it was appointed by LGIC and LGISC as
the exclusive distributor of LG elevators and escalators in the Philippines under a Distributorship Agreement; x
x x LGISC, in the latter part of 1996, made a proposal to change the exclusive distributorship agency to that of a
joint venture partnership; while it looked forward to a healthy and fruitful negotiation for a joint venture,
however, the various meetings it had with LGISC and LGIC, through the latters representatives, were conducted
in utmost bad faith and with malevolent intentions; in the middle of the negotiations, in order to put pressures
upon it, LGISC and LGIC terminated the Exclusive Distributorship Agreement;
x x x [A]s a consequence,
[HYATT] suffered P120,000,000.00 as actual damages, representing loss of earnings and business opportunities,
P20,000,000.00 as damages for its reputation and goodwill, P1,000,000.00 as and by way of exemplary
damages, and P500,000.00 as and by way of attorneys fees.
On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss raising the following grounds: (1) lack of
jurisdiction over the persons of defendants, summons not having been served on its resident agent; (2)
improper venue; and (3) failure to state a cause of action. The [trial] court denied the said motion in an Order
dated January 7, 2000.
On March 6, 2000, LGISC and LGIC filed an Answer with Compulsory Counterclaim ex abundante cautela.
Thereafter, they filed a Motion for Reconsideration and to Expunge Complaint which was denied.
On December 4, 2000, HYATT filed a motion for leave of court to amend the complaint, alleging that
subsequent to the filing of the complaint, it learned that LGISC transferred all its organization, assets and
goodwill, as a consequence of a joint venture agreement with Otis Elevator Company of the USA, to LG Otis

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Elevator Company (LG OTIS, for brevity). Thus, LGISC was to be substituted or changed to LG OTIS, its
successor-in-interest. Likewise, the motion averred that x x x GOLDSTAR was being utilized by LG OTIS and LGIC
in perpetrating their unlawful and unjustified acts against HYATT. Consequently, in order to afford complete
relief, GOLDSTAR was to be additionally impleaded as a party-defendant. Hence, in the Amended Complaint,
HYATT impleaded x x x GOLDSTAR as a party-defendant, and all references to LGISC were correspondingly
replaced with LG OTIS.
On December 18, 2000, LG OTIS (LGISC) and LGIC filed their opposition to HYATTs motion to amend
the complaint. It argued that: (1) the inclusion of GOLDSTAR as party-defendant would lead to a change in the
theory of the case since the latter took no part in the negotiations which led to the alleged unfair trade
practices subject of the case; and (b) HYATTs move to amend the complaint at that time was dilatory,
considering that HYATT was aware of the existence of GOLDSTAR for almost two years before it sought its
inclusion as party-defendant.
On January 8, 2001, the [trial] court admitted the Amended Complaint. LG OTIS (LGISC) and LGIC filed
a motion for reconsideration thereto but was similarly rebuffed on October 4, 2001.
On April 12, 2002, x x x GOLDSTAR filed a Motion to Dismiss the amended complaint, raising the
following grounds: (1) the venue was improperly laid, as neither HYATT nor defendants reside in Mandaluyong
City, where the original case was filed; and (2) failure to state a cause of action against [respondent], since the
amended complaint fails to allege with certainty what specific ultimate acts x x x Goldstar performed in
violation of x x x Hyatts rights. In the Order dated May 27, 2002, which is the main subject of the present
petition, the [trial] court denied the motion to dismiss, ratiocinating as follows:
Upon perusal of the factual and legal arguments raised by the movants-defendants, the
court finds that these are substantially the same issues posed by the then defendant LG
Industrial System Co. particularly the matter dealing [with] the issues of improper venue,
failure to state cause of action as well as this courts lack of jurisdiction. Under the
circumstances obtaining, the court resolves to rule that the complaint sufficiently states a
cause of action and that the venue is properly laid. It is significant to note that in the
amended complaint, the same allegations are adopted as in the original complaint with
respect to the Goldstar Philippines to enable this court to adjudicate a complete
determination or settlement of the claim subject of the action it appearing preliminarily as
sufficiently alleged in the plaintiffs pleading that said Goldstar Elevator Philippines Inc., is
being managed and operated by the same Korean officers of defendants LG-OTIS Elevator
Company and LG International Corporation.
On June 11, 2002, [Respondent] GOLDSTAR filed a motion for reconsideration thereto. On June 18,

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2002, without waiving the grounds it raised in its motion to dismiss, [it] also filed an Answer Ad Cautelam. On
October 1, 2002, [its] motion for reconsideration was denied.
From the aforesaid Order denying x x x Goldstars motion for reconsideration, it filed the x x x petition
for certiorari [before the CA] alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the [trial] court in issuing the assailed Orders dated May 27, 2002 and October 1, 2002.[5]
Ruling of the Court of Appeals
The CA ruled that the trial court had committed palpable error amounting to grave abuse of discretion when the latter
denied respondents Motion to Dismiss. The appellate court held that the venue was clearly improper, because none of the
litigants resided in Mandaluyong City, where the case was filed.
According to the appellate court, since Makati was the principal place of business of both respondent and petitioner, as
stated in the latters Articles of Incorporation, that place was controlling for purposes of determining the proper venue. The fact
that petitioner had abandoned its principal office in Makati years prior to the filing of the original case did not affect the venue
where personal actions could be commenced and tried.
Hence, this Petition.[6]
The Issue
In its Memorandum, petitioner submits this sole issue for our consideration:
Whether or not the Court of Appeals, in reversing the ruling of the Regional Trial Court, erred as a
matter of law and jurisprudence, as well as committed grave abuse of discretion, in holding that in the light of
the peculiar facts of this case, venue was improper[.][7]

This Courts Ruling

The Petition has no merit.
Sole Issue:
Venue
The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the 1997 Revised Rules of Court:

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Sec. 2. Venue of personal actions. All other actions may be commenced and tried where the plaintiff or
any of the principal plaintiff resides, or where the defendant or any of the principal defendant resides, or in the
case of a non-resident defendant where he may be found, at the election of the plaintiff.
Since both parties to this case are corporations, there is a need to clarify the meaning of residence. The law recognizes
two types of persons: (1) natural and (2) juridical. Corporations come under the latter in accordance with Article 44(3) of the Civil
Code.[8]
Residence is the permanent home -- the place to which, whenever absent for business or pleasure, one intends to return.
[9] Residence is vital when dealing with venue.[10] A corporation, however, has no residence in the same sense in which this term
is applied to a natural person. This is precisely the reason why the Court in Young Auto Supply Company v. Court of Appeals[11] ruled
that for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as
stated in the articles of incorporation.[12] Even before this ruling, it has already been established that the residence of a
corporation is the place where its principal office is established.[13]
This Court has also definitively ruled that for purposes of venue, the term residence is synonymous with domicile.[14]
Correspondingly, the Civil Code provides:
Art. 51. When the law creating or recognizing them, or any other provision does not fix the domicile of
juridical persons, the same shall be understood to be the place where their legal representation is established or
where they exercise their principal functions.[15]
It now becomes apparent that the residence or domicile of a juridical person is fixed by the law creating or recognizing
it. Under Section 14(3) of the Corporation Code, the place where the principal office of the corporation is to be located is one of the
required contents of the articles of incorporation, which shall be filed with the Securities and Exchange Commission (SEC).
In the present case, there is no question as to the residence of respondent. What needs to be examined is that of
petitioner. Admittedly,[16] the latters principal place of business is Makati, as indicated in its Articles of Incorporation. Since the
principal place of business of a corporation determines its residence or domicile, then the place indicated in petitioner s articles of
incorporation becomes controlling in determining the venue for this case.
Petitioner argues that the Rules of Court do not provide that when the plaintiff is a corporation, the complaint should be
filed in the location of its principal office as indicated in its articles of incorporation.[17] Jurisprudence has, however, settled that
the place where the principal office of a corporation is located, as stated in the articles, indeed establishes its residence.[18] This
ruling is important in determining the venue of an action by or against a corporation,[19] as in the present case.
Without merit is the argument of petitioner that the locality stated in its Articles of Incorporation does not conclusively

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indicate that its principal office is still in the same place. We agree with the appellate court in its observation that the requirement
to state in the articles the place where the principal office of the corporation is to be located is not a meaningless requirement.
That proviso would be rendered nugatory if corporations were to be allowed to simply disregard what is expressly stated in their
Articles of Incorporation.[20]
Inconclusive are the bare allegations of petitioner that it had closed its Makati office and relocated to Mandaluyong City,
and that respondent was well aware of those circumstances. Assuming arguendo that they transacted business with each other in
the Mandaluyong office of petitioner, the fact remains that, in law, the latters residence was still the place indicated in its Articles
of Incorporation. Further unacceptable is its faulty reasoning that the ground for the CAs dismissal of its Complaint was its failure
to amend its Articles of Incorporation so as to reflect its actual and present principal office. The appellate court was clear enough
in its ruling that the Complaint was dismissed because the venue had been improperly laid, not because of the failure of petitioner
to amend the latters Articles of Incorporation.
Indeed, it is a legal truism that the rules on the venue of personal actions are fixed for the convenience of the plaintiffs
and their witnesses. Equally settled, however, is the principle that choosing the venue of an action is not left to a plaintiff s
caprice; the matter is regulated by the Rules of Court.[21] Allowing petitioners arguments may lead precisely to what this Court
was trying to avoid in Young Auto Supply Company v. CA:[22] the creation of confusion and untold inconveniences to party litigants.
Thus enunciated the CA:
x x x. To insist that the proper venue is the actual principal office and not that stated in its Articles of
Incorporation would indeed create confusion and work untold inconvenience. Enterprising litigants may, out of
some ulterior motives, easily circumvent the rules on venue by the simple expedient of closing old offices and
opening new ones in another place that they may find well to suit their needs.[23]
We find it necessary to remind party litigants, especially corporations, as follows:
The rules on venue, like the other procedural rules, are designed to insure a just and orderly
administration of justice or the impartial and evenhanded determination of every action and proceeding.
Obviously, this objective will not be attained if the plaintiff is given unrestricted freedom to choose the court
where he may file his complaint or petition.
The choice of venue should not be left to the plaintiffs whim or caprice. He may be impelled by some
ulterior motivation in choosing to file a case in a particular court even if not allowed by the rules on venue.[24]
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.

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CLAVECILLA RADIO SYSTEM, Petitioner-Appellant, v. HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of
Cagayan de Oro City and NEW CAGAYAN GROCERY, Respondents-Appellees.
B. C . Padua for Petitioner-Appellant.
Pablo S. Reyes for Respondents-Appellees.
SYLLABUS
1. VENUE OF ACTIONS; INFERIOR COURTS; ACTIONS BASED ON TORT. Where the action is based on tort the venue of
action is in the municipality where the defendant or any of the defendants resides or may be served with summons. (Rule 4, Sec.
1(b) (3) New rule.)chanroblesvirtuallawlibrary
2. ID.; SUIT AGAINST CORPORATION; CASE AT BAR. Settled is the principle in corporation law that the residence of the
corporation is the place where its principal office is established. The defendant Clavecilla Radio System has its principal Office in
Manila, it follows that the suit against it may properly be filed in the city of Manila. The fact that it maintains branch offices in
some parts of the country does not mean that it can be sued in any of these places. To allow an action to be instituted in any
place where a corporate entity has its branch offices would create confusion and work untold inconvenience to the corporation.
3. ID.; PHRASE "MAY BE SERVED WITH SUMMONS" INTERPRETED. The term "may be served with summons" does not
apply when the defendant resides in the Philippines for, in such case, he may be sued only in the municipality of his residence,
regardless of the place where he may be found and served with summons.
4. ID.; PLAINTIFF MAY NOT FIX VENUE OF ACTION. The laying of the venue of an action is not left to plaintiffs caprice
because the matter is regulated by the Rules of Court.
DECISION
REGALA, J.:
This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the Clavecilla
Radio System to prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048 for
damages.chanroblesvirtuallawlibrary:red

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It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System,
alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter s Bacolod
Branch Office for transmittal thru its branch office at Cagayan de Oro:jgc:chanrobles.com.ph
"NECAGRO
CAGAYANDEORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY
POHANG"
The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan
Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the
same and causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio System filed a motion to
dismiss the complaint on the grounds that it states no cause of action and that the venue is improperly laid. The New Cagayan
Grocery interposed an opposition to which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on
September 18, 1963, denied the motion to dismiss for lack of merit and set the case for hearing.
Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First
Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case on the
ground of improper venue. The respondents filed a motion to dismiss the petition but this was opposed by the petitioner. Later,
the motion was submitted for resolution on the pleadings.
In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has its
principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with summons through the Manager
of its branch office in said city. In other words, the court upheld the authority of the city court to take cognizance of the case.
In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its
principal office.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract. Section 1
of Rule 4 of the New Rules of Court, governing venue of action in inferior courts, provides in its paragraph (b) (3) that when "the
action is not upon a written contract, then in the municipality where the defendant or any of the defendants resides or may be
served with summons." (Emphasis supplied)
Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is

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established. Since it is not disputed that the Clavecilla Radio system has its principal office in Manila, it follows that the suit
against it may properly be filed in the City of Manila.
The appellees maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on the
principle that the appellant may also be served with summons in that city where it maintains a branch office. This Court has
already held in the case of Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 526, that the term "may be served with summons"
does not apply when the defendant resides in the Philippines for, in such case, he may be sued only in the municipality of his
residence, regardless of the place where he may be found and served with summons. As any other corporation, the Clavecilla
Radio System maintains a residence which is Manila in this case, and a person can have only one residence at a time (See
Alcantara v. Secretary of the Interior, 61 Phil. 459; Evangelista v. Santos, 86 Phil. 387). The fact that it maintains branch offices
in some parts of the country does not mean that it can be sued in any of these places. To allow an action to be instituted in any
place where a corporate entity has its branch offices would create confusion and work untold inconvenience to the corporation.
It is important to remember, as was stated by this Court in Evangelista v. Santos, Et Al., supra, that the laying of the
venue of an action is not left to plaintiffs caprice because the matter is regulated by the Rules of Court. Applying the provision of
the Rules of Court, the venue in this case was improperly laid.
The order appealed from is therefore reversed, but without prejudice to the filing of the action in which the venue shall be
laid properly. With costs against the Respondents-Appellees.chanrobles law library
G.R. No. 195580

April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR MINING, INC.,
Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
FACTS:
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized
and existing under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring
with the Department of Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake
exploration and mining activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
issued.

Petitioner McArthur Narra and Tesoro, filed an application for an MPSA and Exploration Permit (EP) which was subsequently

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On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the
denial of petitioners applications for MPSA.
Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI
Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners filing of the MPSAs over the areas covered by applications since it knows
that it can only participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given
that petitioners capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.
Petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
Mining Act of 1995. They stated that their nationality as applicants is immaterial because they also applied for Financial or
Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for
Narra, which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should not be
raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the
Philippines.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. The POA considered
petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian company and declared their MPSAs
null and void.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint with the Securities and
Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground that they are
foreign-owned or controlled corporations engaged in mining in violation of Philippine laws.
CA found that there was doubt as to the nationality of petitioners when it realized that petitioners had a common major
investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of Justice
(DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and
other laws pertaining to the exploitation of natural resources, the CA used the "grandfather rule" to determine the nationality of
petitioners.
In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through joint venture agreements.
The CA found that through a "web of corporate layering, it is clear that one common controlling investor in all mining corporations
involved x x x is MBMI." Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-ininterest of, MBMI.

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ISSUE:
Whether or not the Court of Appeals ruling that Narra, Tesoro and McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as amended, and
the FIA Rules.
HELD:

No. There are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather
rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources
owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality (CONTROL TEST), but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted
as of Philippine nationality (GRANDFATHER RULE). Thus, if 100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares
shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the
other 50,000 shall be recorded as belonging to aliens.
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a "Philippine
National" under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule "has been abandoned and is
no longer the applicable rule." They also opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate
layering" scheme of corporations. Petitioners claim that the clear and unambiguous wordings of the statute preclude the court from
construing it and prevent the courts use of discretion in applying the law. They said that the plain, literal meaning of the statute
meant the application of the control test is obligatory.
SC disagreed. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and
pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been
abandoned must be discredited for lack of basis.
Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioners corporate owners, namely: MMI, SMMI and PLMDC. The
"control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of
Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources
of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the
60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."

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