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159586

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FIRST DIVISION

G.R. No. 159586 July 26, 2004

EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J. WENCESLAO, petitioners,

DECISION

YNARES-SANTIAGO, J.:

Assailed in this Petition for Review under Rule 45 of the Rules of Court is the Decision1 of the Court of Appeals
dated May 15, 2003, which sustained the Order of the Regional Trial Court of Angeles City, Branch 61, dated June
28, 2001, and its subsequent Resolution dated August 3, 2003 denying petitioner’s motion for reconsideration.

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 Services2 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. For waste collected within the CSEZ, the German
Consortium may impose a "tipping fee" per ton of waste collected from locators and residents of the CSEZ, which
fees shall be subject to the schedule agreed upon by the parties and specified in the Contract for Services. For its
operations outside of the CSEZ, the German Consortium shall pay CDC US$1.50 per ton of non-hazardous solid
waste collected.3 The CDC shall guarantee that nineteen thousand eighteen hundred (19,800) tons per year of solid
waste volume shall be collected from inside and outside the CSEZ.4 The contract has a term of twenty-five (25)
years,5 during which time the German Consortium shall operate the waste management center on a day-to-day
basis.6

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. The parties likewise agreed to prepare and finalize a Shareholders’ Agreement within one (1)
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month from the execution of the MOU, which shall provide that the German Consortium shall own fifteen percent
(15%) of the equity in the joint venture corporation, DMWAI shall own seventy percent (70%) and LBV&A shall own
fifteen percent (15%). In the event that the parties fail to execute the Shareholders’ Agreement, the MOU shall be
considered null and void.8

On August 1, 2000, without the Shareholders’ Agreement having been executed, the German Consortium and
petitioner ERTI entered into a Memorandum of Agreement (MOA)9 whereby the German Consortium ceded its rights
and obligations under the Contract for Services in favor of ERTI and assigned unto ERTI, among others, "its license
from CDC to engage in the business of providing environmental services needed in the CSEZ in connection with the
waste management within the CSEZ and other areas."10 Likewise, the parties agreed that should there be a
disagreement between or among them relative to the interpretation or implementation of the MOA and the collateral
documents including but not limited to the Contract for Services between the German Consortium and CDC, the
dispute shall be referred to a panel of arbitrators.11

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 the following grounds: (a) the CDC did not give its approval to the
Consortium’s request for the approval of the assignment or transfer by the German Consortium in favor of ERTI of
its rights and interests under the Contract for Services; (b) the parties failed to prepare and finalize the
Shareholders’ Agreement pursuant to the provision of the MOU; (c) there is no more factual or legal basis for the
joint venture to continue; and (d) with the termination of the MOU, the MOA is also deemed terminated or
extinguished.

Attached to the letter was a copy of the letter of the CDC,13 stating that the German Consortium’s assignment of an
eighty-five percent (85%) majority interest to another party violated its representation to undertake both the financial
and technical aspects of the project. The dilution of the Consortium’s interest in ERTI is a substantial modification of
the Consortium’s representations which were used as bases for the award of the project to it.

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, docketed as Civil Case No. 10049.
The German Consortium claimed that petitioner ERTI’s continued misrepresentation as to their right to accept solid
wastes from third parties for processing at the waste management center will cause irreparable damage to the
Consortium and its exclusive right to operate the waste management center at the CSEZ. Moreover, petitioner
ERTI’s acts destroy the Consortium’s credibility and undermine customer confidence in it. Hence, the German
Consortium prayed that a writ of temporary restraining order be issued against petitioner ERTI and, after hearing, a
writ of preliminary injunction be likewise issued ordering petitioner ERTI to cease and desist from misrepresenting to
third parties or the public that it has any right or interest in the waste management center at CSEZ.14

Petitioners filed their Opposition to the application for preliminary injunction on February 7, 2001. The following day,
February 8, 2001, petitioners sent respondents, through Mr. Holger Holst, a letter demanding that the parties
proceed to arbitration in accordance with Section 17 of the MOA. At the hearings on the application for injunction,
petitioners objected to the presentation of evidence on the ground that the trial court had no jurisdiction over the
case since the German Consortium was composed of foreign corporations doing business in the country without a
license. Moreover, the MOA between the parties provides that the dispute should be referred to arbitration.

The trial court overruled the objection and proceeded with the hearing. On June 28, 2001, the trial court issued an
Order granting the writ of preliminary injunction.15 Petitioners filed a motion for reconsideration, which was denied in
a Resolution dated November 21, 2001.

On January 17, 2002, petitioners filed a petition for certiorari and prohibition under Rule 65 of the Rules of Court
before the Court of Appeals, assailing the trial court’s Orders dated June 28, 2001 and November 21, 2001.

Meanwhile, on February 11, 2002, the temporary restraining order issued was lifted in view of respondents’ failure to
file sufficient bond.16 On September 6, 2002, all proceedings in Civil Case No. 10049 were suspended until the
petition for certiorari pending before the Court of Appeals shall have been resolved.17

On May 15, 2003, the Court of Appeals dismissed the petition for certiorari. Petitioners’ Motion for Reconsideration
was denied in a Resolution dated August 25, 2003.

Hence, this petition arguing that the Court of Appeals committed reversible error in:

(a) Ruling that petitioners are estopped from assailing the capacity of the respondents to institute the suit for
injunction

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(b) Ruling that respondents are entitled to an injunctive writ.

(c) Not holding that the dispute is covered by the arbitration clause in the memorandum of agreement.

(d) Issuing the writ of preliminary injunction that is tantamount to a decision of the case on the merits.18

The petition is partly meritorious.

There is no general rule or governing principle laid down as to what constitutes "doing" or "engaging in" or
"transacting" business in the Philippines. Thus, it has often been held that a single act or transaction may be
considered as "doing business" when a corporation performs acts for which it was created or exercises some of the
functions for which it was organized.19 We have held that the act of participating in a bidding process constitutes
"doing business" because it shows the foreign corporation’s intention to engage in business in the Philippines. In
this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume
of business, that determines whether a foreign corporation needs a license or not.20

Consequently, the German Consortium is doing business in the Philippines without the appropriate license as
required by our laws. By participating in the bidding conducted by the CDC for the operation of the waste
management center, the German Consortium exhibited its intent to transact business in the Philippines. Although
the Contract for Services provided for the establishment of a local corporation to serve as respondents’
representative, it is clear from the other provisions of the Contract for Services as well as the letter by the CDC
containing the disapproval that it will be the German Consortium which shall manage and conduct the operations of
the waste management center for at least twenty-five years. Moreover, the German Consortium was allowed to
transact with other entities outside the CSEZ for solid waste collection. Thus, it is clear that the local corporation to
be established will merely act as a conduit or extension of the German Consortium.

As a general rule, unlicensed foreign non-resident corporations cannot file suits in the Philippines. Section 133 of
the Corporation Code specifically provides:

SECTION 133. No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines, but such corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine
laws.

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.21

However, there are exceptions to this rule. In a number of cases,22 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,23 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.

Hence, the party is estopped from questioning the capacity of a foreign corporation to institute an action in our
courts where it had obtained benefits from its dealings with such foreign corporation and thereafter committed a
breach of or sought to renege on its obligations. The rule relating to estoppel is deeply rooted in the axiom of
commodum ex injuria sua non habere debet—no person ought to derive any advantage from his own wrong.

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
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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.24 In other words, the foreign corporation is merely prevented from
being in a position where it takes the good without accepting the bad.

On the issue of whether the respondents were entitled to the injunctive writ, the petitioners claim that respondents’
right is not in esse but is rather a future right which is contingent upon a judicial declaration that the MOA has been
validly rescinded. The Court of Appeals, in its decision, held that the MOA should be deemed subject to a
suspensive condition, that is, that CDC’s prior written consent must be obtained for the validity of the assignment.

This issue must be resolved in a separate proceeding. It must be noted that the hearing conducted in the trial court
was merely a preliminary hearing relating to the issuance of the injunctive writ. In order to fully appreciate the facts
of this case and the surrounding circumstances relating to the agreements and contract involved, further proof
should be presented for consideration of the court. Likewise, corollary matters, such as whether either of the parties
is liable for damages and to what extent, cannot be resolved with absolute certainty, thus rendering any decision we
might make incomplete as to fully dispose of this case.

More importantly, it is evident that CDC must be made a proper party in any case which seeks to resolve the
effectivity or ineffectivity of its disapproval of the assignment made between petitioners and respondent German
Consortium. Where, as in the instant case, CDC is not impleaded as a party, any decision of the court which will
inevitably affect or involve CDC cannot be deemed binding on it.

For the same reason, petitioners’ assertion that the instant case should be referred to arbitration pursuant to the
provision of the MOA is untenable.

We have ruled in several cases that arbitration agreements are valid, binding, enforceable and not contrary to public
policy such that when there obtains a written provision for arbitration which is not complied with, the trial court
should suspend the proceedings and order the parties to proceed to arbitration in accordance with the terms of their
agreement.25 In the case at bar, the MOA between petitioner ERTI and respondent German Consortium provided:

17. Should there be a disagreement between or among the Parties relative to the interpretation or
implementation of this Agreement and the collateral documents including but not limited to the Contract for
Services between GERMAN CONSORTIUM and CDC and the Parties cannot resolve the same by
themselves, the same shall be endorsed to a panel of arbitrators which shall be convened in accordance with
the process ordained under the Arbitration Law of the Republic of the Philippines.26

Indeed, to brush aside a contractual agreement calling for arbitration in case of disagreement between parties would
be a step backward.27 But there are exceptions to this rule. Even if there is an arbitration clause, there are instances
when referral to arbitration does not appear to be the most prudent action. The object of arbitration is to allow the
expeditious determination of a dispute. Clearly, the issue before us could not be speedily and efficiently resolved in
its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration.28

As discussed earlier, the dispute between respondent German Consortium and petitioners involves the disapproval
by the CDC of the assignment by the German Consortium of its rights under the Contract for Services to petitioner
ERTI. Admittedly, the arbitration clause is contained in the MOA to which only the German Consortium and
petitioner ERTI were parties. Even if the case is brought before an arbitration panel, the decision will not be binding
upon CDC who is a non-party to the arbitration agreement. What is more, the arbitration panel will not be able to
completely dispose of all the issues of this case without including CDC in its proceedings. Accordingly, the interest
of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.

Lastly, petitioners question the propriety of the issuance of writ of preliminary injunction claiming that such is already
tantamount to granting the main prayer of respondents’ complaint without the benefit of a trial. Petitioners point out
that the purpose of a preliminary injunction is to prevent threatened or continuous irremediable injury to some of the
parties before their claims can be thoroughly studied and decided. It cannot be used to railroad the main case and
seek a judgment without a full-blown trial as in the instant case.

The Court of Appeals ruled that since petitioners did not raise this issue during the hearing on the application for
preliminary injunction before the trial court, the same cannot be raised for the first time on appeal and even in
special civil actions for certiorari as in this case.

At the outset, it must be noted that with the finding that the German Consortium is without any personality to file the
petition with the trial court, the propriety of the injunction writ issued is already moot and academic. Even assuming
for the sake of argument that respondents have the capacity to file the petition, we find merit in the issue raised by
petitioners against the injunction writ issued.

Before an injunctive writ can be issued, it is essential that the following requisites are present: (1) there must be a
right in esse or the existence of a right to be protected; and (2) the act against which injunction to be directed is a
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29
violation of such right. The onus probandi is on movant to show that there exists a right to be protected, which is
directly threatened by the act sought to be enjoined. Further, there must be a showing that the invasion of the right is
material and substantial and that there is an urgent and paramount necessity for the writ to prevent a serious
damage.30

Thus, it is clear that for the issuance of the writ of preliminary injunction to be proper, it must be shown that the
invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and
unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.31 At the
time of its application for an injunctive writ, respondents’ right to operate and manage the waste management
center, to the exclusion of or without any participation by petitioner ERTI, cannot be said to be clear and
unmistakable. The MOA executed between respondents and petitioner ERTI has not yet been judicially declared as
rescinded when the complaint was lodged in court.32 Hence, a cloud of doubt exists over respondent German
Consortium’s exclusive right relating to the waste management center.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 68923 dated May 15, 2003 is REVERSED
and SET ASIDE. The Orders of the trial court dated June 28, 2001 and November 21, 2001 are ANNULLED and
SET ASIDE and Civil Case No. 10049 is DISMISSED for lack of legal capacity of respondents to institute the action.
Costs against respondents.

SO ORDERED.

Davide, Jr., C.J., Quisumbing, Carpio, and Azcuna, JJ., concur.

Footnotes
1
Penned by Justice Renato A. Dacudao as concurred in by Justices Godardo A. Jacinto and Danilo B. Pine of
the Fourth Division of the Court of Appeals.
2
Annex C, Rollo, p. 63.
3
Article VII, Section 1.
4
Article IX, Section 7.
5
Article XII, Section 1.
6
Article V, Section 1(b)(vi).
7
Annex D, Rollo, p. 77.
8
Paragraph 8.
9
Annex E, Rollo, p. 82.
10
Paragraphs 1 and 2(a).
11
Paragraph 17.
12
Annex F, Rollo, p. 89.
13
Rollo, p. 91.
14
Complaint, Annex I, Rollo, p. 98.
15
Annex B, Rollo, p. 57.
16
Annex J, Rollo, p. 108.
17
Annex K, Rollo, p. 109.
18
Rollo, pp. 22-23.
19
Communication Materials and Design, Inc. v. Court of Appeals, G.R. No. 102223, 22 August 1996, 260
SCRA 673.
20
Hutchison Ports Philippines Limited v. Subic Bay Metropolitan Authority, G.R. No. 131367, 31 August 2000,
339 SCRA 434.
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21
Subic Bay Metropolitan Authority v. Universal International Group of Taiwan, G.R. No. 131680, 14
September 2000, 340 SCRA 359, citing Communication Materials and Design v. Court of Appeals, supra.
22
Asia Banking Corporation v. Standard Products, 46 Phil. 144 (1924); Antam Consolidated v. Court of
Appeals, G.R. No. L-61523, 31 July 1986, 143 SCRA 288; Merril Lynch Futures v. Court of Appeals, G.R. No.
97816, 24 July 1992, 211 SCRA 824; Georg Grotjahn GMBH & Co. v. Isnani, G.R. No. 109272, 10 August
1994, 235 SCRA 216.
23
G.R. No. 102223, 22 August 1996, 260 SCRA 673.
24
Marshall-Wells Co. v. Elser and Co., 46 Phil. 70 (1924).
25
Mindanao Portland Cement Corporation v. McDonough Construction Company of Florida, 126 Phil. 78
(1967); Chung Fu Industries (Phils.), Inc. v. Court of Appeals, G.R. No. 96283, 25 February 1992, 206 SCRA
545; Puromines, Inc. v. Court of Appeals, G.R. No. 91228, 22 March 1993, 220 SCRA 281; National Power
Corporation v. Court of Appeals, G.R. No. 107631, 26 February 1996, 254 SCRA 116.
26
Rollo, p. 86.
27
BF Corporation v. Court of Appeals, G.R. No. 120105, 27 March 1998, 288 SCRA 267.
28
Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154, 7 February 2001, 351 SCRA 373; see
also Agan, Jr. v. Philippine International Air Terminals Co., Inc., G.R. No. 155001, 5 May 2003, 402 SCRA
612.
29
Philippine Sinter Corporation and Phividec Industrial Authority v. Cagayan Electric Power And Light Co.,
Inc., G.R. No. 127371, 25 April 2002, 381 SCRA 582; see also Public Estates Authority v. Court of Appeals,
G.R. No. 112172, 20 November 2000, 345 SCRA 96.
30
Gustilo v. Real, Sr., A.M. No. MTJ-00-1250, 28 February 2001, 353 SCRA 1.
31
Zabat v. Court of Appeals, G.R. No. 122089, 23 August 2000, 338 SCRA 551.
32
Article 1191 of the Civil Code of the Philippines.

The Lawphil Project - Arellano Law Foundation

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