Top-weld Manufacturing, Inc. v. Eced, S.A.
REITERATIONFacts
The Antecedents: Petitioner Top-weld Manufacturing, Inc. (Top-weld), a Philippine corporation, entered into a "LICENSE AND TECHNICAL ASSISTANCE AGREEMENT" with IRTI, S.A. (IRTI), a Swiss corporation, and a "DISTRIBUTOR AGREEMENT" with ECED, S.A. (ECED), a Panamanian corporation. These agreements involved manufacturing and distribution of welding products. Upon learning that IRTI and ECED were negotiating to replace Top-weld, Top-weld filed a civil case seeking a writ of preliminary injunction to restrain the foreign corporations from negotiating with third parties and from terminating their contracts. Subsequently, IRTI and ECED sent notices of termination to Top-weld. Top-weld amended its complaint, seeking a preliminary mandatory injunction to compel ECED to ship products and to prohibit the corporations from importing EUTECTIC materials except through Top-weld, invoking Republic Act No. 5455. Procedural History: The trial court initially issued a restraining order, then granted Top-weld's application for a preliminary injunction and a writ of preliminary mandatory injunction. Upon reconsideration, the trial court denied the motion to lift the preliminary injunction but granted the prayer to lift the writ of preliminary mandatory injunction. The foreign corporations elevated the case to the Court of Appeals via certiorari. The Court of Appeals annulled the orders of the trial court, holding that Top-weld could not invoke Section 4(9) of R.A. No. 5455 to enjoin the termination of the contracts because the foreign corporations had not secured the required certificate from the Board of Investments, and Top-weld, by entering into the agreements with knowledge of the law, was not entitled to the equitable remedy of injunction. The Petition: Top-weld filed a petition for review, assailing the Court of Appeals' decision that foreign corporations doing business in the Philippines without a license are not subject to the strictures of R.A. No. 5455, that Top-weld's failure to know the licensing status of the respondents bars it from invoking R.A. No. 5455, and that Top-weld cannot invoke the remedy of injunction.
Issue(s)
Whether respondent corporations were "doing business" in the Philippines and thus subject to R.A. No. 5455. Whether Top-weld, having entered into contracts with foreign corporations not licensed to do business in the Philippines, can invoke the provisions of R.A. No. 5455, specifically Section 4(9), to enjoin the termination of the contracts. Whether Top-weld is entitled to the equitable remedy of injunction.
Ruling
The petition is dismissed. The decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of whether respondent corporations were "doing business" in the Philippines and thus subject to R.A. No. 5455: The Court affirmed the appellate court's finding that IRTI and ECED were "doing business" and engaging in economic activity in the Philippines. The Court reasoned that by entering into the licensing and distributorship contracts with Top-weld, the foreign corporations were carrying out the very purposes for which they were created, establishing a continuous business presence in the country, not merely a temporary one. This conclusion was further strengthened by their admission of negotiating to transfer these rights to another group. Such acts brought them within the mainstream of the Philippine economic life, making them subject to the provisions of R.A. No. 5455, as a prerequisite to which they should have secured a written certificate from the Board of Investments. On the issue of whether Top-weld can invoke R.A. No. 5455 to enjoin the termination of the contracts: The Court agreed with the appellate court that Top-weld could not invoke Section 4(9) of R.A. No. 5455 to enjoin the termination. While acknowledging that the foreign corporations should have secured a certificate from the Board of Investments, the Court found a more compelling reason: the principle of in pari delicto. The Court held that both Top-weld and the foreign corporations were aware of the law and voluntarily entered into the agreements despite the prohibition of R.A. No. 5455. Top-weld, by propounding the statute to bolster its claim, demonstrated its knowledge of its applicability. Therefore, Top-weld could not invoke the equitable remedy of injunction to perpetuate an illegal situation it helped create. The law does not declare contracts void for failure to secure a license, but equity will not aid parties in pari delicto. On the issue of whether Top-weld is entitled to the equitable remedy of injunction: The Court ruled that Top-weld was not entitled to the remedy of injunction. This was primarily due to the in pari delicto principle discussed above. The Court found that Top-weld did not come to court with clean hands, having voluntarily participated in an illegal business operation by contracting with unlicensed foreign entities. Equity demands that parties in such a situation be left where they are found, without judicial intervention to enforce rights arising from their illegal agreement. Furthermore, the Court noted that the dispute regarding contract termination had become moot and academic as the extended contract period had already expired by the time the case reached the Supreme Court, and courts cannot extend the life of contracts beyond the parties' agreement.
Main Doctrine
Foreign corporations doing business in the Philippines without the requisite license are considered in pari delicto with a Philippine entity that knowingly entered into such agreements, precluding the latter from seeking equitable relief like injunction to enforce rights arising from the illegal transaction.