European Resources and Technologies Inc vs Ingenieuburo Birkhahn (GR No. 159586 July 26, 2004)

European Resources and Technologies Inc vs Ingenieuburo Birkhahn
GR No. 159586 July 26, 2004

Facts: European Resources and Technologies Inc. (hereinafter “ERTI”), a corporation organized and existing under the laws of the Republic of the Philippines, is joined by Delfin J. Wenceslao as petitioner in this case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers & Brockstedt Gmbh & Co. are German corporations who are respondents in this case and shall be collectively referred to as the “German Consortium.” The German Consortium tendered and submitted its bid to the Clark Development Corporation (“CDC”) to construct, operate and manage the Integrated Waste Management Center at the Clark Special Economic Zone (“CSEZ”). CDC accepted the German Consortium’s bid and awarded the contract to it. On October 6, 1999, CDC and the German Consortium executed the Contract for Services which embodies the terms and conditions of their agreement. The Contract for Services provides that the German Consortium shall be empowered to enter into a contract or agreement for the use of the integrated waste management center by corporations, local government units, entities, and persons not only within the CSEZ but also outside. Article VIII, Section 7 of the Contract for Services provides that the German Consortium shall undertake to organize a local corporation as its representative for this project. On April 18, 2000, the German Consortium entered into a Joint Venture with D.M. Wenceslao and Associates, Inc. (“DMWAI”) and Ma. Elena B. Villarama (doing business as LBV and Associates), embodied in a Memorandum of Understanding7 (“MOU”) signed by the parties. Under the MOU, the parties agreed to jointly form a local corporation to which the German Consortium shall assign its rights under the Contract for Services. Pursuant to this agreement, petitioner European Resources and Technologies, Inc. was incorporated. On December 11, 2000, ERTI received a letter from BN Consultants Philippines, Inc., signed by Mr. Holger Holst for and on behalf of the German Consortium,12 stating that the German Consortium’s contract with DMWAI, LBV&A and ERTI has been terminated or extinguished. On February 20, 2001, petitioner ERTI, through counsel, sent a letter to CDC requesting for the reconsideration of its disapproval of the agreement between ERTI and the German Consortium. Before CDC could act upon petitioner ERTI’s letter, the German Consortium filed a complaint for injunction against herein petitioners before the Regional Trial Court of Angeles City, Branch 61.

Issue: Whether or not the German Consortium has the capacity to institute the petition for injunction.

Held: No. A corporation has legal status only within the state or territory in which it was organized. For this reason, a corporation organized in another country has no personality to file suits in the Philippines. In order to subject a foreign corporation doing business in the country to the jurisdiction of our courts, it must acquire a license from the Securities and Exchange Commission (SEC) and appoint an agent for service of process. Without such license, it cannot institute a suit in the Philippines.

However, there are exceptions to this rule. In a number of cases, we have declared a party estopped from challenging or questioning the capacity of an unlicensed foreign corporation from initiating a suit in our courts. In the case of Communication Materials and Design, Inc. v. Court of Appeals,a foreign corporation instituted an action before our courts seeking to enjoin a local corporation, with whom it had a “Representative Agreement”, from using its corporate name, letter heads, envelopes, sign boards and business dealings as well as the foreign corporation’s trademark. The case arose when the foreign corporation discovered that the local corporation has violated certain contractual commitments as stipulated in their agreement. In said case, we held that a foreign corporation doing business in the Philippines without license may sue in Philippine Courts a Philippine citizen or entity that had contracted with and benefited from it.

In the case at bar, petitioners have clearly not received any benefit from its transactions with the German Consortium. In fact, there is no question that petitioners were the ones who have expended a considerable amount of money and effort preparatory to the implementation of the MOA. Neither do petitioners seek to back out from their obligations under both the MOU and the MOA by challenging respondents’ capacity to sue. The reverse could not be any more accurate. Petitioners are insisting on the full validity and implementation of their agreements with the German Consortium.

To rule that the German Consortium has the capacity to institute an action against petitioners even when the latter have not committed any breach of its obligation would be tantamount to an unlicensed foreign corporation gaining access to our courts for protection and redress. We cannot allow this without violating the very rationale for the law prohibiting a foreign corporation not licensed to do business in the Philippines from suing or maintaining an action in Philippine courts. The object of requiring a license is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the steps necessary to render it amenable to suits in the local courts. In other words, the foreign corporation is merely prevented from being in a position where it takes the good without accepting the bad.

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