European Resources and Technologies, Inc and Delfin Wenceslao v Ingeneieuburo Birkhahn + Nolte (Ynares-Santiago, July 26, 2004)

Facts: Respondents were Germany Corporations (referred to as the German Consortium) that submitted a bid to construct, operate, and manage the Integrated Waste Management Center at the Clark Special Economic Zone (CSEZ). The bid was submitted to the Clark Development Corporation which awarded the bid to it. They executed a Contract for Services. The Contract provided: German Consortium could enter contract or agreements for use of the waste management center by corporations, LGUs, and persons inside and outside the CSEZ. For waste inside CSEZ, they could impose a tipping fee per ton of waste For waste outside the CSEZ, they had to pay CDC $1.50 per ton of nonhazardous solid waste. The CDC guaranteed 10,800 tons of solid waste would be collected from inside and outside the CSEZ. The contract had a term of 25 years. The German Consortium entered a joint venture with DM Wenceslao and LBV and Associates. They agreed to jointly form a local corporation to which the German Consortium would assign its rights under the contract for services. European Resources and Technologies was incorporated. The terms were as follows: They would prepare a Shareholders Agreement within 1 month from the execution of the Memorandum of Understanding The German Consortium would own 15% of the equity DMWAI shall own 70% LBV&A would own 15%. In the event parties failed to execute such agreement, the MOU would be considered null and void. Without the Shareholders Agreement being executed, the German Consortium entered into a MOA where the GC ceded its rights and obligations in favor of ERTI and assigned unto ERTI its license from CDC to engage in the business of providing environmental services needed in the CSEZ. Four months after, ERTI received a letter from BN Consultants on behalf of the GC, stating that the GCs contract with DMWAI, LBV&A, and ERTI had been terminated on the following grounds: a) the CDC did not give its approval to the Consortiums 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 was no more factual or legal basis for the joint venture to continue; and d) with the termination of the MOU, the MOA was also deemed terminated or extinguished. The CDC also wrote that the GCs assignment of an 85% majority interest to another party violated its representation to undertake both the financial and technical aspects of the project. The GC filed a complaint for injunction against ERTI, claiming it continuously misrepresented its right to accept solid waste from third parties for processing, causing irreparable damage to the Consortium and its exclusive right to operate the waste management center. At the trail, petitioners objected on the ground of lack of jurisdiction because the GC was composed of foreign corporations doing business in the Philippines without a license. The MOA also provided the dispute should be referred to arbitration. The injunction was granted. Issue: Was the German Consortium doing business without a license? Held: Yes. There is no general rule or governing principle as to what constitutes doing business. It has been often held that a corporation does business when it performs acts for which it was created or exercises some functions for which it was organized. Participating in a bidding process constitutes doing business because it shows the foreign corporations intention to engage in business in the Philippines. It is performance and not volume that determines the necessity of a license. The GC did business without a license by participating in the bidding, showing intent to transact business. Even though there was a local corporation mentioned, it was to merely act as a conduit or extension of the German Consortium. Unlicensed foreign non-resident corporations cannot file suits in the Philippines, as stated in 133 of the Corporation Code. This rule provides for exceptions such as estoppel. A corporation doing business in the Philippines may sue a citizen or entity that had contracted with and benefited from it. However, petitioners had clearly not received any benefit from the GC, in fact spending money to implement the MOA. They sought to implement their agreement with the German Consortium and were not trying to back out of their obligations.

To rule the GC has capacity to institute an action without breach on petitioners part would be tantamount to an unlicensed foreign corporation gaining access to our courts for protection. CA Reversed for lack of legal capacity of respondents to institute the action.