Cargill, Inc. vs. Intra Strata Assurance Corporation

A foreign corporation that merely imports goods from Philippine exporters without performing specific commercial acts within Philippine territory on a continuing basis in its own name and for its own account is not "doing business" in the Philippines under Section 133 of the Corporation Code, and therefore does not require a license to maintain an action in Philippine courts.

The case involves the interpretation of "doing business" under Philippine corporate law, specifically regarding foreign corporations that enter into purchase contracts with domestic suppliers. The dispute arose when a surety company (respondent) sought to avoid liability on performance and surety bonds by claiming that the beneficiary foreign corporation (petitioner) was doing business in the Philippines without a license, and thus lacked capacity to sue.

• Petitioner Cargill, Inc. is a corporation organized and existing under the laws of Delaware, United States of America.
• On August 16, 1989, petitioner and Northern Mindanao Corporation (NMC), a domestic corporation, executed a contract whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of molasses for delivery from January 1 to June 30, 1990, at $44 per metric ton.
• Petitioner opened a Letter of Credit with the Bank of Philippine Islands containing a "red clause" permitting NMC to draw up to $500,000 upon presentation of certain documents.
• The contract was amended three times: (1) on January 11, 1990, increasing the price to $47.50 per metric ton; (2) on June 18, 1990, reducing the quantity to 10,500 metric tons and increasing the price to $55 per metric ton; and (3) on August 22, 1990, rescheduling delivery and requiring NMC to put up a performance bond equivalent to $451,500.
• In compliance with the third amendment, respondent Intra Strata Assurance Corporation issued a performance bond for P11,287,500 and a surety bond for P9,978,125 on October 10, 1990.
• NMC was only able to deliver 219.551 metric tons out of the agreed 10,500 metric tons.
• Petitioner sent demand letters to respondent claiming payment under the bonds, but respondent refused to pay.
• Petitioner does not have an office in the Philippines; it imports products through a non-exclusive local broker (Agrotex Commodities, Inc.) whose authority is limited to soliciting purchases and who acts as an independent contractor, not as petitioner's agent.
• The Head of the International Operations Department of the Bank of Philippine Islands testified that the $500,000 advance payment was released to NMC only after submission of complete required documents under the Letter of Credit.

• Petitioner is not doing business in the Philippines under the Corporation Code and established jurisprudence; its transactions with NMC were isolated purchases, not a continuity of commercial dealings.
• Respondent is estopped from invoking the defense that petitioner lacks legal capacity to sue in the Philippines.
• Petitioner is not seeking a review of findings of fact per se, but asserts that the Court of Appeals erred in finding that it was doing business in the Philippines.
• The advance payment of $500,000 was released to NMC only upon submission of the supporting documents required under the contract and the "red clause" Letter of Credit.

• Petitioner is doing business in the Philippines without the requisite license, and therefore cannot maintain or intervene in any action under Section 133 of the Corporation Code.
• Petitioner's purchases of molasses were in pursuance of its basic business and constituted systematic and regular activities, not merely isolated and incidental transactions.
• The burden of proving that the activities were casual or occasional lies with the petitioner, which respondent claims petitioner failed to discharge.

• Procedural Issues:
  • Whether the Supreme Court may review the findings of fact of the Court of Appeals which are in conflict with the findings of the trial court.
• Substantive Issues:
  • Whether petitioner, as a foreign corporation, was doing business in the Philippines without a license, thereby barring it from maintaining suit under Section 133 of the Corporation Code.
  • Whether respondent is estopped from invoking petitioner's lack of legal capacity to sue.
  • Whether the advance payment of $500,000 was released to NMC without the submission of the supporting documents required in the contract and the "red clause" Letter of Credit.

• Procedural:
  • The Supreme Court may review the findings of fact of the Court of Appeals when such findings conflict with those of the trial court. The Court found that the Court of Appeals' conclusion that petitioner was doing business in the Philippines is not supported by evidence.
• Substantive:
  • Petitioner is not "doing business" in the Philippines requiring a license. The determination of whether a foreign corporation is doing business is factual and depends on the circumstances of each case. The element of continuity of commercial dealings is essential; isolated transactions or a series of amendments to a single contract to give the domestic party a chance to perform do not indicate an intent to establish continuous business operations. Mere importation of goods from the Philippines, where the foreign corporation has no office, appoints no agent (the local broker being an independent contractor), and does not derive profit from activities within the country (the domestic supplier being the one earning income), does not constitute doing business. Under Section 3(d) of RA 7042, "soliciting purchases" has been deleted from the enumeration of acts constituting doing business.
  • The Court did not rule on the issue of estoppel, having resolved the capacity issue in favor of petitioner.
  • The trial court correctly held that the advance payment of $500,000 was released to NMC in accordance with the conditions of the "red clause" Letter of Credit, based on the testimony of the Bank of Philippine Islands' Head of International Operations that the bank would not have paid without complete documents.

• Doing Business Test — The phrase "doing business" implies a continuity of commercial dealings or arrangements, and contemplates the performance of acts or works normally incident to and in progressive prosecution of commercial gain. Isolated transactions, or amendments to a single contract made merely to allow the domestic party to fulfill its obligation, do not constitute doing business.
• Profit-Making Element — To constitute "doing business," the activity undertaken in the Philippines should involve profit-making by the foreign corporation. Mere purchasing from Philippine suppliers where the domestic seller derives income, but the foreign buyer merely imports for use abroad without earning profits locally, does not constitute doing business.
• Actual Transaction Requirement — For purposes of Section 133 of the Corporation Code, a foreign corporation must actually transact business within Philippine territory on a continuing basis in its own name and for its own account. Without such actual transaction of business within the territory, the Philippines has no jurisdiction to require the foreign corporation to secure a business license.
• Jurisdiction over Foreign Exporters — The mere act of exporting products from one's own country to the Philippines, without performing specific commercial acts within Philippine territory, cannot be deemed as doing business in the Philippines; otherwise, global trade would be impeded by requiring exporters to secure business licenses in every importing country.

• "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."
• "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."
• "Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by the importing countries to be doing business in those countries. This will require Philippine exporters to secure a business license in every foreign country where they usually export their products, even if they do not perform any specific commercial act within the territory of such importing countries. Such a legal concept will have deleterious effect not only on Philippine exports, but also on global trade."

• Antam Consolidated, Inc. v. Court of Appeals — Cited to establish that transactions entered into to recover losses from a previous breach, or amendments to give the domestic party a chance to perform, do not indicate an intent to engage in a continuity of transactions and thus do not constitute doing business.
• National Sugar Trading Corp. v. Court of Appeals — Applied for the principle that activities within Philippine jurisdiction that do not create earnings or profits to the foreign corporation (such as merely purchasing sugar from the Philippine government) do not constitute doing business.
• B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc. — Followed for the ruling that mere exporting from one's own country without performing specific commercial acts within the importing country is not doing business, and that actual transaction of business within the territory is required for jurisdiction to compel licensing.
• Agilent Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp. — Cited in support of the requirement that activities must involve profit-making to constitute doing business.
• Rimbunan Hijau Group of Companies v. Oriental Wood Processing Corporation, MR Holdings, Ltd. v. Sheriff Bajar, and Top-Weld Manufacturing, Inc. v. ECED, S.A. — Cited for the principle that the determination of whether a foreign corporation is doing business depends on the facts of each case.

• Section 133 of the Corporation Code (B.P. Blg. 68) — Provides that no foreign corporation transacting business in the Philippines without a license shall be permitted to maintain any action in Philippine courts.
• Section 123 of the Corporation Code — Defines foreign corporations and requires them to obtain a license and certificate of authority to transact business in the Philippines.
• Republic Act No. 5455 (Foreign Business Regulation Act), Section 1 — Provides a definition of "doing business" including soliciting orders, purchases, service contracts, opening offices, and appointing representatives.
• Republic Act No. 7042 (Foreign Investments Act of 1991), Section 3(d) — Enumerates acts constituting "doing business" and specifically excludes mere investment, having nominee directors, and appointing distributors that transact in their own name and account; notably deletes "soliciting purchases" from the definition of doing business.
• Article 44 of the Omnibus Investments Code of 1987 — Contains a definition of "doing business" identical to RA 5455.
• Section 1(f), Rule I of the Implementing Rules and Regulations of RA 7042 — Lists activities not deemed doing business, including performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis.