MR Holdings vs. Sheriff Bajar

A foreign corporation that merely assumes a debt and accepts assignment of mortgaged properties and equipment as security, without performing acts indicating a continuity of commercial dealings or the exercise of functions normally incident to the progressive prosecution of its business purpose, is engaged only in isolated transactions and does not constitute "doing business" in the Philippines under Section 133 of the Corporation Code; consequently, it may maintain an action in Philippine courts without a license.

The case arose from a complex financial restructuring involving Marcopper Mining Corporation (Marcopper), which had obtained loans from the Asian Development Bank (ADB) secured by a real estate and chattel mortgage over substantially all its properties. When Marcopper defaulted, Placer Dome, Inc. (a 40% shareholder of Marcopper and parent of petitioner MR Holdings, Ltd.), caused MR Holdings to assume Marcopper's indebtedness to ADB. This resulted in assignment agreements transferring ADB's rights and Marcopper's assets to MR Holdings. Meanwhile, Solidbank Corporation had obtained a partial judgment against Marcopper and sought to execute upon the same properties, leading to a conflict between the rights of a judgment creditor and an assignee of a prior registered mortgage.

• On November 4, 1992, the Asian Development Bank (ADB) and Marcopper executed Principal and Complementary Loan Agreements for US$40,000,000.00 to finance Marcopper's mining project in Marinduque.
• On the same date, ADB and Placer Dome, Inc. (which owns 40% of Marcopper) executed a "Support and Standby Credit Agreement" whereby Placer Dome agreed to provide cash flow support for Marcopper's payment of obligations to ADB.
• On November 11, 1992, Marcopper executed a "Deed of Real Estate and Chattel Mortgage" in favor of ADB covering substantially all its properties and assets, registered on November 12, 1992.
• When Marcopper defaulted, Placer Dome caused its wholly-owned subsidiary, petitioner MR Holdings, Ltd., to assume Marcopper's obligation to ADB in the amount of US$18,453,450.02.
• On March 20, 1997, ADB executed an "Assignment Agreement" assigning to petitioner all its rights under the loan and mortgage agreements.
• On December 8, 1997, Marcopper executed a "Deed of Assignment" transferring all its properties, mining equipment, and facilities to petitioner.
• On September 19, 1996, Solidbank filed a collection case against Marcopper (Civil Case No. 96-80083), obtaining a Partial Judgment on May 7, 1997 for P52,970,756.89.
• Solidbank secured a writ of execution pending appeal, leading to the levy and scheduled auction sale of Marcopper's properties on August 27, 1998 by respondents Sheriffs Bajar and Jandusay.
• On August 26, 1998, petitioner filed an Affidavit of Third-Party Claim asserting ownership over the levied properties by virtue of the assignment agreements; the RTC of Manila denied this claim.
• Petitioner subsequently filed a reivindicatory action (Civil Case No. 98-13) with the RTC of Boac, Marinduque, with prayer for preliminary injunction to stop the auction sale.

• Petitioner is a non-resident foreign corporation not doing business in the Philippines; its participation in the assignment contracts constitutes isolated transactions, not requiring a license to sue under Section 133 of the Corporation Code.
• The assignment agreements were supported by valuable consideration (payment of US$18,453,450.02 to ADB) and were executed in connection with prior transactions dating back to 1992, not as fraudulent conveyances to defeat Solidbank's claim.
• By assuming Marcopper's debt to ADB, petitioner stepped into the shoes of ADB as a preferred creditor under the prior registered mortgage, whose lien has preference over Solidbank's judgment credit.
• Petitioner, Placer Dome, and Marcopper are separate and distinct corporate entities; there is no basis to pierce the corporate veil.
• As a third-party claimant, petitioner has the right under Rule 39, Section 16 of the 1997 Rules of Civil Procedure to file an independent reivindicatory action, which does not constitute forum shopping as it involves different parties and causes of action from the execution proceedings.

• Solidbank contended that petitioner is "doing business" in the Philippines as evidenced by its huge financial investments in the assignment contracts, and that the nature of the transaction reveals an intention to continue Marcopper's mining operations or begin a series of transactions.
• Solidbank argued that the assignment agreements were executed in fraud of creditors, noting that the first assignment (March 20, 1997) occurred after Solidbank filed its collection case (September 19, 1996), and the second (December 8, 1997) occurred after the Partial Judgment (May 7, 1997) and issuance of the writ of execution.
• Solidbank maintained that petitioner, Placer Dome, and Marcopper are one and the same entity, with petitioner being a mere instrumentality used to shield Marcopper's assets from legitimate creditors.
• Solidbank alleged forum shopping, claiming that the reivindicatory action was similar to other cases filed by Marcopper to forestall the sale of levied properties.
• Marcopper stated it was merely a nominal party and that its principal concerns were being ventilated in another case.

• Procedural:
  • Whether petitioner has legal capacity to sue in Philippine courts despite being a foreign corporation allegedly doing business without a license.
  • Whether petitioner is guilty of forum shopping.
• Substantive Issues:
  • Whether the "Assignment Agreement" and "Deed of Assignment" were executed in fraud of creditors under Article 1387 of the Civil Code.
  • Whether petitioner MR Holdings, Placer Dome, Inc., and Marcopper Mining Corporation are one and the same entity such that the corporate veil should be pierced.
  • Whether petitioner is entitled to the issuance of a writ of preliminary injunction to restrain the execution sale.

• Procedural:
  • The Court held that petitioner has legal capacity to sue because it is not "doing business" in the Philippines within the meaning of Section 133 of the Corporation Code. The test is whether the foreign corporation is continuing the body or substance of the business for which it was organized. Petitioner's acts—assuming Marcopper's debt and accepting assignment of mortgaged properties—were isolated transactions lacking the continuity of commercial dealings required to constitute "doing business." The Court emphasized that the mere ownership of property, unaccompanied by active use in furtherance of the corporate business, is insufficient to constitute doing business.
  • The Court found no forum shopping because the reivindicatory action filed by petitioner is an entirely separate and independent action from the execution proceedings under Rule 39, Section 16 of the 1997 Rules of Civil Procedure. There is no identity of parties and causes of action between the reivindicatory action and the cases filed by Marcopper.
• Substantive:
  • The Court ruled that the assignment agreements were not fraudulent conveyances. While Article 1387 creates a presumption of fraud when alienations are made after judgment, this presumption is not conclusive and may be rebutted by evidence of good faith and valuable consideration. The Court found that petitioner paid US$18,453,450.02 to assume Marcopper's debt, and the assignments were connected to the 1992 Support and Standby Credit Agreement and mortgage, long predating Solidbank's judgment. The timing of the assignments was necessitated by Marcopper's default and Placer Dome's pre-existing obligation to provide cash flow support.
  • The Court declined to pierce the corporate veil, holding that while petitioner is a wholly-owned subsidiary of Placer Dome, which owns 40% of Marcopper, stock ownership alone is insufficient to justify treating them as one entity. None of the other factors indicating that a subsidiary is a mere instrumentality (such as common directors, financing by parent, inadequate capital, or failure to observe legal formalities) were present.
  • The Court held that petitioner is entitled to a writ of preliminary injunction because an execution can only be issued against a party to the judgment, not against a third person. Allowing the sale of properties claimed by petitioner would work injustice and render the judgment in the reivindicatory action ineffectual.

• Doing Business vs. Isolated Transactions — The term "doing business" implies a continuity of commercial dealings and the performance of acts normally incident to the progressive prosecution of the purpose for which the corporation was organized. Single or isolated acts, such as the making of a single contract or the assumption of a debt secured by mortgage, do not constitute doing business. A foreign corporation engaged only in isolated transactions may sue in Philippine courts without a license.
• Fraudulent Conveyance (Article 1387) — While alienations made after the rendition of a judgment are presumed fraudulent, this presumption is not conclusive and may be overcome by satisfactory evidence that the conveyance was made in good faith and for sufficient valuable consideration.
• Piercing the Veil of Corporate Fiction — The mere ownership by a parent corporation of all or most of the stock of a subsidiary is not, taken alone, sufficient to justify disregarding the subsidiary's separate existence. The subsidiary's separate personality will be respected unless other factors are present showing that it is a mere instrumentality of the parent.
• Third-Party Claim (Rule 39, Section 16) — A third-party claimant may vindicate ownership of property levied upon execution by filing a separate and independent reivindicatory action, which is distinct from the execution proceedings and does not interfere with the court that rendered the judgment.

• "The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another."
• "Courts should never base its judgments on a state of facts so inadequately developed that it cannot be determined where inference ends and conjecture begins."
• "The mere ownership by a foreign corporation of a property in a certain state, unaccompanied by its active use in furtherance of the business for which it was formed, is insufficient in itself to constitute doing business."
• "An execution can be issued only against a party and not against one who did not have his day in court."
• "One man's goods shall not be sold for another man's debts."
• "If that be so – and it is so because the property, being that of a stranger, is not subject to levy – then an interlocutory order such as injunction, upon a claim and prima facie showing of ownership by the claimant, cannot be considered as such interference either."

• Mentholatum Co. Inc. vs. Mangaliman — Established the test for determining whether a foreign corporation is "doing business" (continuity of business operations).
• Far East International Import and Export Corporation vs. Nankai Kogyo Co., Ltd. — Distinguished by the Court; held that a single act may constitute doing business if it indicates an intention to do other business, but the Court found no such evidence in the present case.
• Marshall-Wells Co. vs. Elser & Co. — Cited for the interpretation that the statute preventing foreign corporations from suing without a license was not intended to exclude foreign corporations with isolated transactions from securing redress.
• Columbia Pictures, Inc. vs. Court of Appeals — Cited for the definition of "doing business" requiring continuity of commercial dealings.
• Philippine National Bank vs. Rittrato Group Inc. — Cited for the factors to consider in determining whether a subsidiary is a mere instrumentality of the parent corporation.
• Rodriguez vs. Court of Appeals — Cited for the principle that a third-party claim presents an entirely different matter requiring a new adjudication in a separate action.
• Arabay, Inc. vs. Salvador — Cited for the rule that injunction is a proper remedy to prevent a sheriff from selling the property of one person to pay the debts of another.

• Section 133 of the Corporation Code — Prohibits foreign corporations transacting business in the Philippines without a license from maintaining any action in local courts.
• Article 1387 of the Civil Code — Presumes fraud in alienations made by a debtor after a judgment has been rendered against him.
• Article 1625 of the Civil Code — Requires registration of assignments of credits with the Registry of Property to bind third parties.
• Rule 39, Section 16 of the 1997 Rules of Civil Procedure — Allows a third-party claimant to file a separate action to vindicate ownership of property levied upon execution.
• Rule 58, Section 3 of the 1997 Rules of Civil Procedure — States the grounds for issuance of preliminary injunction.
• Republic Act No. 7042 (Foreign Investment Act of 1991) — Provides the statutory definition of "doing business" emphasizing continuity of commercial dealings.
• Republic Act No. 5455 — Contains a similar definition of "doing business" requiring continuity of commercial dealings.