SECOND DIVISION

[G.R. No. 97642. August 29, 1997]

AVON INSURANCE PLC, BRITISH RESERVE INSURANCE. CO. LTD., CORNHILL
INSURANCE PLC, IMPERIO REINSURANCE CO. (UK) LTD., INSTITUTE DE
RESEGURROS DO BRAZIL, INSURANCE CORPORATION OF IRELAND PLC,
LEGAL AND GENERAL ASSURANCE SOCIETY LTD., PROVINCIAL INSURANCE
PLC, QBL INSURANCE (UK) LTD., ROYAL INSURANCE CO. LTD., TRINITY
INSURANCE CO. LTD., GENERAL ACCIDENT FIRE AND LIFE ASSURANCE
CORP. LTD., COOPERATIVE INSURANCE SOCIETY and PEARL ASSURANCE
CO. LTD., Petitioners, v. COURT OF APPEALS, REGIONAL TRIAL COURT OF
MANILA, BRANCH 51, YUPANGCO COTTON MILLS, WORLDWIDE SURETY &
INSURANCE CO., INC., Respondents.
.
DECISION
TORRES, JR., J.:
Just how far can our court assert jurisdiction over the persons of foreign
entities being charged with contractual liabilities by residents of the
Philippines?
Appealing from the Court of Appeals October 11, 1990 Decision1 in CA-G.R.
No. 22005, petitioners claim that the trial courts jurisdiction does not
extend to them, since they are foreign reinsurance companies that are not
doing business in the Philippines. Having entered into reinsurance contracts
abroad, petitioners are beyond the jurisdictional ambit of our courts and
cannot be rendered summons through extraterritorial service, as under
Section 17, Rule 14 of the Rules of Court, nor through the Insurance
Commissioner, under Section 14. Private respondent Yupangco Cotton Mills
contend on the other hand that petitioners are within our courts cognitive
powers, having submitted voluntarily to their jurisdiction by filing motions
to dismiss2 the private respondents suit below.
The antecedent facts, as found by the appellate court, are as follows:

Respondent Yupangco Cotton Mills filed a complaint against several foreign

reinsurance companies (among which are petitioners) to collect their
alleged percentage liability under contract treaties between the foreign
insurance companies and the international insurance broker C.J. Boatright,
acting as agent for respondent Worldwide Surety and Insurance Company.
Inasmuch as petitioners are not engaged in business in the Philippines with
no offices, places of business or agents in the Philippines, the reinsurance
treaties having been rendered abroad, service of summons upon motion of
respondent Yupangco, was made upon petitioners through the office of the
Insurance Commissioner. Petitioners, by counsel on special appearance,
seasonably filed motions to dismiss disputing the jurisdiction of respondent
Court and the extra-territorial service of summons. Respondent Yupangco
filed its opposition to the motion to dismiss, petitioners filed their reply, and
respondent Yupangco filed its rejoinder. In an order dated April 30, 1990
respondent Court denied the motions to dismiss and directed petitioners to
file their answer. On May 29, 1990, petitioners filed their notice of appeal.
In an order dated June 4, 1990, respondent court denied due course to the
appeal.3chanroblesvirtuallawlibrary
To this day, trial on the merits of the collection suit has not proceeded as in
the present petition, petitioners continue vigorously to dispute the trial
courts assumption of jurisdiction over them.
It will be remembered that in the plaintiffs complaint,4 it was contended
that on July 6, 1979 and on October 1, 1980, Yupangco Cotton Mills engaged
to secure with Worldwide Security and Insurance Co. Inc., several of its
properties for the periods July 6, 1979 to July 6, 1980 as under Policy No.
20719 for a coverage of P100,000,000.00 and from October 1, 1980 to
October 1, 1981, under Policy No. 25896, also for P100,000,000.00. Both
contracts were covered by reinsurance treaties between Worldwide Surety
and Insurance and several foreign reinsurance companies, including the
petitioners. The reinsurance arrangements had been made through
international broker C.J. Boatright and Co. Ltd., acting as agent of
Worldwide Surety and Insurance.
As fate would have it, on December 16, 1979 and May 2, 1981, with in the
respective effectivity periods of Policies 20719 and 25896, the properties
therein insured were razed by fire, thereby giving rise to the obligation of
the insurer to indemnify the Yupangco Cotton Mills. Partial payments were

made by Worldwide Surety and Insurance and some of the reinsurance

companies.
On May 2, 1983, Worldwide Surety and Insurance, in a deed of Assignment,
acknowledge a remaining balance of P19,444,447.75 still due Yupangco
Cotton Mills, and assigned to the latter all reinsurance proceeds still
collectible from all the foreign reinsurance companies. Thus, in its interest
as assignee and original insured, Yupangco Cotton Mills instituted this
collection suit against the petitioners.
Service of summons upon the petitioners was made by notification to the
Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of
Court.5chanroblesvirtuallawlibrary

a defendant personally appears before a court complaining that he had not

been validly summoned, that the case filed against him should be dismissed.
An alias summons can be actually served on said defendant.
3. Being reinsurers of respondent Worlwide Surety and Insurance of the risk
which the latter assumed when it issued the fire insurance policies in
dispute in favor of respondent Yupangco, petitioners cannot now validly
argue that they do not do business in this country. At the very least,
petitioners must be deemed to have engaged in business in the Philippines
no matter how isolated or singular such business might be, even on the
assumption that among the local domestic insurance corporations of this
country, it is only in favor of Worldwide Surety and Insurance that they have
ever reinsured any risk arising from reinsurance within the territory.

In a Petition for Certiorari filed with the Court of Appeals, petitioners

submitted that respondent Court has no jurisdiction over them, being all
foreign corporations not doing business in the Philippines with no office,
place of business or agents in the Philippines. The remedy of Certiorari was
resorted to by petitioners on the premise that if petitioners had filed an
answer to the complaint as ordered by the respondent court, they would
risk abandoning the issue of jurisdiction. Moreover, extra-territorial service
of summons on petitioners is null and void because the complaint for
collection is not one affecting plaintiffs status and not relating to property
within the Philippines.

4. The issue of whether or not petitioners are doing business in the country
is a matter best reffered to a trial on the merits of the case and so should be
addressed there.

The Court of Appeals found the petition devoid of merit, stating that:

The complaint for sum of money being a personal action not affecting status
or relating to property, extraterritorial service of summons on petitioners all
not doing business in the Philippines is null and void.

1. Petitioners were properly served with summons and whatever defect, if

any, in the service of summons were cured by their voluntary appearance in
court, via motion to dismiss.
2. Even assuming that petitioners have not yet voluntarily appeared as codefendants in the case below even after having filed the motion to dismiss
adverted to, still the situation does not deserve dismissal of the complaint
as far as they are concerned, since as held by this Court in Linger Fisher
GMBH v. IAC, 125 SCRA 253.
A case should not be dismissed simply because an original summons was
wrongfully served. It should be difficult to conceive for example, that when

Maintaining its submission that they are beyond the jurisdiction of the
Philippine Courts, petitioners are now before us, stating:
Petitioners, being foreign corporations, as found by the trial court, not doing
business in the Philippines with no office, place of business or agents in the
Philippines, are not subject to the jurisdiction of the Philippine courts.

The appearance of counsel for petitioners being explicitly by special

appearance without waiving objections to the jurisdiction over their persons
or the subject matter and the motions do dismiss having excluded nonjurisdictional grounds, there is no voluntary submission to the jurisdiction of
the trial court.6chanroblesvirtuallawlibrary
For its part, private respondent Yupangco counter-submits:

1. Foreign corporations, such as petitioners, not doing business in the

Philippines, can be sued in the Philippine Courts, not withstanding
petitioners claim to the contrary.
2. While the complaint before the Honorable Trial Court is for a sum of
money, not affecting status or relating to property, petitioners (then
defendants) can submit themselves voluntarily to the jurisdiction of
Philippine Courts, even if there is no extra-judicial (sic) service of summons
upon them.
3. The voluntary appearance of the petitioners (then defendants) before the
Honorable Trial Court amounted, in effect, to voluntary submission to its
jurisdiction over their persons.7chanroblesvirtuallawlibrary
In the decisions of the courts below, there is much left to speculation and
conjecture as to whether or not the petitioners were determined to be
doing business in the Philippines or not.
To qualify the petitioners business of reinsurance within the Philippine
forum, resort must be made to established principles in determining what is
meant by doing business in the Philippines. In Communication Materials and
Design, Inc. et. al v. Court of Appeals,8 it was observed that:
There is no exact rule of governing principle as to what constitutes doing or
engaging in or transacting business. Indeed, such case must be judged in the
light of its peculiar circumstances, upon its peculiar facts and upon the
language of the statute applicable. 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.
Article 44 of the Omnibus Investments Code of 1987 defines the phrase to
include:
'soliciting orders, purchases, service contracts opening offices, whether
called liaison offices of branches; appointing representatives or distributors
who are domiciled in the Philippines or who in any calendar year stay in the
Philippines for a period or periods totaling one hundred eighty (180) days or
more; participating in the management, supervision or control of any
domestic business firm, entity or corporation in the Philippines, and any

other act or acts that imply a continuity or commercial dealings or

arrangements and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to and in
progressive prosecution of, commercial gain or of purpose and object of the
business organization.
The term ordinarily implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of the functions normally incident to and in
progressive prosecution of the purpose and object of its
organization.9chanroblesvirtuallawlibrary
A single act or transaction made in the Philippines, however, could not
qualify a foreign corporation to be doing business in the Philippines, if such
singular act is not merely incidental or casual, but indicates the foreign
corporations
intention
to
do
business
in
the
Philippines.10chanroblesvirtuallawlibrary
There is no sufficient basis in the records which would merit the institution
of this collection suit in the Philippines. More specifically, there is nothing to
substantiate the private respondents submission that the petitioners had
engaged in business activities in this country. This is not an instance where
the erroneous service of summons upon the defendant can be cured by the
issuance and service of alias summons, as in the absence of showing that
petitioners had been doing business in the country, they cannot be
summoned to answer for the charges leveled against them.
The Court is cognizant of the doctrine is Signetics Corp. v. Court of
Appeals11 that for the purpose of acquiring jurisdiction by way of summons
on a defendant foreign corporation, there is no need to prove first the fact
that defendant is doing business in the Philippines. The plaintiff only has to
allege in the complaint that the defendant has an agent in the Philippines
for summons to be validly served thereto, even without prior evidence
advancing such factual allegation.
As it is, private respondent has made no allegation or demonstration of the
existence of petitioners domestic agent, but avers simply that they are
doing business not only abroad but in the Philippines as well. It does not
appear at all that the petitioners had performed any act which would give
the general public the impression that it had been engaging, or intends to

engage in its ordinary and usual business undertakings in the country. The
reinsurance treaties between the petitioners and Worldwide Surety and
Insurance were made through an international insurance brokers, and not
through any entity of means remotely connected with the Philippines.
Moreover there is authority to the effect that a reinsurance company is not
doing business in a certain state merely because the property of lives which
are insured by the original insurer company are located in that state.12 The
reason for this is that a contract or reinsurance is generally a separate and
distinct arrangement from the original contract of insurance, whose
contracted risk is insured in the reinsurance agreement.13 Hence, the
original insured has generally no interest in the contract of
reinsurance.14chanroblesvirtuallawlibrary
A foreign corporation, is one which owes its existence to the laws of another
state,15 and generally has no legal existence within the state in which it is
foreign. In Marshall Wells Co. v. Elser,16 it was held that corporations have
no legal status beyond the bounds of sovereignty by which they are created.
Nevertheless, it is widely accepted that foreign corporations are, by reason
of state comity, allowed to transact business in other states and to sue in
the courts of such fora. In the Philippines foreign corporations are allowed
such privileges, subject to certain restrictions, arising from the states
sovereign right of regulation.
Before a foreign corporation can transact business in the country, it must
first obtain a license to transact business here17 and secure the proper
authorizations under existing law.
If a foreign corporation engages in business activities without the necessary
requirements, it opens itself to court actions against it, but it shall not be
allowed maintain or intervene in an action, suit or proceeding for its own
account
in any
court or tribunal or agency
in the
18
Philippines. chanroblesvirtuallawlibrary
The purpose of the law in requiring that foreign corporations doing business
in the country be licensed to do so, is to subject the foreign corporations
doing business in the Philippines to the jurisdiction of the
courts,19 otherwise, a foreign corporation illegally doing business here
because of its refusal or neglect to obtain the required license and authority
to do business may successfully though unfairly plead such neglect or illegal

act so as to avoid service and thereby impugn the jurisdiction of the local
courts.
The same danger does not exist among foreign corporations that are
indubitably not doing business in the Philippines. Indeed, if a foreign
corporation does not do business here, there would be no reason for it to
be subject to the States regulation. As we observed, in so far as State is
concerned, such foreign corporation has no legal existence. Therefore, to
subject such corporation to the courts jurisdiction would violate the essence
of sovereignty.
In the alternative, private respondent submits that foreign corporations not
doing business in the Philippines are not exempt from suits leveled against
them in courts, citing the case of Facilities Management
Corporation v. Leonardo Dela Osa, et. al.20 where we ruled that indeed, if a
foreign corporation, not engaged in business in the Philippines, is not barred
from seeking redress from Courts in the Philippines, a fortiori, that same
corporation cannot claim exemption from being sued in the Philippines
Courts for acts done against a person or persons in the Philippines.
We are not persuaded by the position taken by the private respondent. In
Facilities Management case, the principal issue presented was whether the
petitioner had been doing business in the Philippines, so that service of
summons upon its agent as under Section 14, Rule 14 of the Rules of Court
can be made in order that the Court of First Instance could assume
jurisdiction over it. The court ruled that the petitioner was doing business in
the Philippines, and that by serving summons upon its resident agent, the
trial court had effectively acquired jurisdiction. In that case, the court made
no prescription as the absolute suability of foreign corporations not doing
business in the country, but merely discounts the absolute exemption of
such foreign corporations from liabilities particularly arising from acts done
against a person or persons in the Philippines.
As we have found, there is no showing that petitioners had performed any
act in the country that would place it within the sphere of the courts
jurisdiction. A general allegation standing alone, that a party is doing
business in the Philippines does not make it so. A conclusion of fact or law
cannot be derived from the unsubstantiated assertions of parties
notwithstanding the demands of convenience or dispatch in legal actions,
otherwise, the Court would be guilty of sorcery; extracting substance out of

nothingness. In addition, the assertion that a resident of the Philippines will

be inconvenienced by an out-of-town suit against a foreign entity, is
irrelevant and unavailing to sustain the continuance of a local action, for
jurisdiction is not dependent upon the convenience or inconvenience of a
party.21chanroblesvirtuallawlibrary
It is also argued that having filed a motion to dismiss in the proceedings
before the trial court, petitioners have thus acquiesced to the courts
jurisdiction, and they cannot maintain the contrary at this juncture.
This argument is at the most, flimsy.
In civil cases, jurisdiction over the person of the defendant is acquired either
by his voluntary appearance in court and his submission to its authority or
by service of summons.22chanroblesvirtuallawlibrary
Fundamentally, the service of summons is intended to give official notice to
the defendant or respondent that an action had been commenced against it.
The defendant or respondent is thus put on guard as to the demands of the
plaintiff as stated in the complaint.23 The service of summons, upon the
defendant becomes an important element in the operation of a courts
jurisdiction upon a party to a suit, as service of summons upon the
defendant is the means by which the court acquires jurisdiction over his
person.24Without service of summons, or when summons are improperly
made, both the trial and the judgment, being in violation of due process, are
null and void,25 unless the defendant waives the service of summons by
voluntarily appearing and answering the suit.26chanroblesvirtuallawlibrary
When a defendant voluntarily appears, he is deemed to have submitted
himself to the jurisdiction of the court.27 This is not, however, always the
case. Admittedly, and without subjecting himself to the courts jurisdiction,
the defendant in an action can, by special appearance object to the courts
assumption on the ground of lack of jurisdiction. If he so wishes to assert
this defense, he must do so seasonably by motion for the purpose of
objecting to the jurisdiction of the court, otherwise, he shall be deemed to
have submitted himself to that jurisdiction.28 In the case of foreign
corporations, it has been held that they may seek relief against the wrongful
assumption of jurisdiction by local courts. In Time, Inc. v. Reyes,29 it was
held that the action of a court in refusing to rule of deferring its ruling on a
motion to dismiss for lack or excess of jurisdiction is correctable by a writ of

prohibition or certiorari sued out in the appellate court even before trial on
the merits is had. The same remedy is available should the motion to
dismiss be denied, and the court, over the foreign corporations objections,
theratens to impose its jurisdiction upon the same.
If the defendant, besides setting up in a motion to dismiss his objections to
the jurisdiction of the court, alleges at the same time any other ground for
dismissing the action, or seeks an affirmative refief in the motion,30 he is
deemed to have submitted himself to the jurisdiction of the court.
In this instance, however, the petitioners from the time they filed their
motions to dismiss, their submission have been consistently and unfailingly
to object to the trial courts assumption of jurisdiction, anchored on the fact
that they are all foreign corporations not doing business in the Philippines.
As we have consistently held, if the appearance of a party in a suit is
precisely to question the jurisdiction of the said tribunal over the person of
the defendant, then this appearance is not equivalent to service of
summons, nor does is constitute an acquiescence to the courts
jurisdiction.31 Thus it cannot be argued that the petitioners had abandoned
their objections to the jurisdiction of the court, as their motions to dismiss
in the trial court, and all their subsequent posturings, were all in protest of
the private respondent's insistence on holding them so answer a charge in a
forum where they believe they are not subject to. Clearly, to continue the
proceedings in a case such as those before Us would just be useless and a
waste of time.32chanroblesvirtuallawlibrary
ACCORDINGLY, the decision appealed from dated October 11, 1990, is SET
ASIDE and the instant petition is hereby GRANTED. The respondent Regional
Trial Court of Manila, Branch 51 is declared without jurisdiction to take
cognizance of Civil Case No. 86-37932, and all its orders and issuances in
connection therewith are hereby ANNULLED and SET ASIDE. The respondent
court is hereby ORDERED to DESIST from maintaining further proceeding in
the case aforestated.
SO ORDERED.
Romero, Puno and Mendoza, JJ., concur.

Regalado, J. (Chairman), on leave.

Endnotes:

EN BANC
G.R. No. L-45144 April 3, 1939
M.
E.
GREY, Plaintiff-Appellant,
COMPANY, defendant-appelle.

vs. INSULAR

C. H. Van Hoven and Harvey and O'Brien

Ross, Lawrence, Selph and Carrascoso for appellee.

for

LUMBER

appellant.

CONCEPCION, J.: chanrobles virtual law library

The only question of law raised in this appeal is whether the plaintiffappellant is entitled, as stockholder of the defendant-appellee Insular
Lumber Company, to inspect and examine the books records of the
transactions of said defendant.chanroblesvirtualawlibrary chanrobles virtual
law library
The parties submitted a stipulation of facts on which the lower court based
its judgment denying the mandamus against the defendant and absolving it
from the complaint.chanroblesvirtualawlibrary chanrobles virtual law library
According to the stipulation of facts, the defendants was and is a
corporation organized and existing under the laws of the State of New York,
licensed to engage in business in the Philippines, with offices in the City of
Manila, in Fabrica, Occidental Negros, in New York and in Philadelphia. The
plaintiff was and is the owner and possessor of 57 shares of the capital stock
of the defendant corporation, registered in his name in the books thereof;
that he does not own three per cent of the total capital stock of the
corporation, nor does he represent stockholders who own three per cent of
its capital; that during the years 1932 and 1933, the plaintiff asked the
offices of the defendant in Manila and in Fabrica to permit him to examine
the books and records of the business of said defendant, but he was not
allowed to do so; that under the law of New York, the right of a stockholder
to examine the books and records of a corporation organized under the
laws of that State, have been, during the entire period material to this
action, only those provided in section 77 of the Stock Corporation Law,
which reads as follows:

Financial Statement to Stockholders: Stockholders owning three per centum

of the shares of any corporation other than a moneyed corporation may
make a written request to the treasurer or other fiscal officer thereof for a
statement of its affairs, under oath, embracing a particular account of all its
assets and liabilities, and the treasurer shall make such statement and
deliver it to the person making the request within thirty days thereafter,
and keep on file in the office of the corporation for twelve months
thereafter a copy of such statement, which shall at all times during business
hours be exhibited to any stockholders demanding an examination thereof;
but the treasurer shall not be required to deliver more than one such
statement in any one year. The Supreme Court, or any justice thereof, may
upon application, for good cause shown, extend the time for making and
delivering such statement. For every neglect or refusal to comply with the
provisions of this section the corporation shall and pay to the person
making such request the sum of Fifty Dollars, and the further sum of ten
dollars for every twenty-four hours thereafter until such statement shall be
furnished. (S. C. L., sec. 77.)
That neither the plaintiff nor any other stockholder of the defendant
corporation has asked its treasurer or any of its officers for a statement of
its affairs, as provided in the statutes of New York; neither did the plaintiff
ask to be allowed to examine any of the statements prepared by the
defendant corporation and existing in its files, as provided by the statutes of
New York.chanroblesvirtualawlibrary chanrobles virtual law library
In the light of the foregoing facts agreed upon by the parties and in
accordance with section 77 of the Stock Corporation Law of New York which
is conceded to be the law that governs the right of a stockholder to examine
the books and papers of a corporation, it is a question fully settled that the
plaintiff not being a stockholder owning at least three per cent of the capital
stock of the defendant corporation, has no right to examine the books and
records of the corporation nor to require a statement of its affairs
embracing
a
particular
account
of
its
assets
and
liabilities.chanroblesvirtualawlibrary chanrobles virtual law library
Plaintiff-appellant contends, however, that, in accordance with our
Corporation Law, under which the defendant company was registered to do
business in the Philippines, the plaintiff, as stockholder, is entitled to inspect
the record of the transactions of the defendant corporation (sec. 51, Act No.
1459, and this right, which is recognized in the common law, has not been

altered by section 77 of the Stock Corporation Law of New York quoted in

the
stipulation
of
facts,
and
can
be
enforced
by mandamus.chanroblesvirtualawlibrary chanrobles virtual law library
To this, defendant corporation answers, in the first place, that stipulation of
facts is finding upon both parties and cannot be altered by either of them.
(25 R. C. L., 1104, 1105.) In the second place, on the strength of this
principle, plaintiff-appellant is bound to adhere to the agreement made by
him with the defendant corporation in paragraph four of the stipulation of
facts, to the effect that the rights of a stockholder, under the law of New
York, to examine the books and records of a corporation organized under
the laws of said State, and during the entire period material to this action,
are only those provided in section 77 Stock Corporation Law of New York.
Under this law, plaintiff has the right to be furnished by the treasurer or
other fiscal officer of the corporation with statement of its affairs embracing
a particular account of all its assets and liabilities. In the third place,
inasmuch as plaintiff, either at the hearing or in his motion for new trial, did
not ask to have the stipulation of facts altered or changed, he cannot now,
for the first time on appeal, raise the question that aside from the right
conferred upon him by section 77 of the Stock Corporation Law of New York,
he also entitled under the common law to examine and inspect the books
and records of the defendant corporation. In the fourth place, neither can
this right under the common law be granted the defendant in the present
case, since the same can only be granted at the discretion of the court,
under certain conditions, to wit:
( a) That the stockholder of a corporation in New York has the right to
inspect its books and records if it can be shown that he seeks information
for an honest purpose (14 C. J., 853), or to protect his interest as
stockholder. ( In reSteinway, 159 N. Y., 250; 53 N. E., 1103; 45 L. R. A., 461
[aff.
31
App.
Div.,
70;
52
N.
Y.
S.,
343]).chanroblesvirtualawlibrary chanrobles virtual law library
( b) That said right to examine and inspect the books of the corporation
must be exercised in good faith, for a specific and honest purpose, and not
to gratify curiosity, or for speculative or vexatious purposes. (14 C. J., 854,
855.)
The appellant has made no effort to prove or even allege that the
information he desired to obtain through the examination and inspection of

defendant's books was necessary to protect his interests as stockholder of

the corporation, or that it was for a specific and honest purpose, and not to
gratify
curiosity,
nor
for
speculative
or
vexatious
purposes.chanroblesvirtualawlibrary chanrobles virtual law library
In view of the foregoing, we affirm the judgment of the lower court, with
costs against the appellant. So ordered.
Avancea, C.J., Villa-Real, Imperial, Diaz, and Laurel, JJ., concur.

G.R. No. 75198 October 18, 1988

SCHMID
&
OBERLY,
vs.
RJL MARTINEZ FISHING CORPORATION, respondent.

INC., petitioner,

Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner.

defendant herein that it shall return the 12 generators as in

fact three of the 12 were actually returned to the defendant;
that the plaintiff sued the defendant on the warranty;
asking for rescission of the contract; that the defendant be
ordered to accept the generators and be ordered to pay
back the purchase money; and that the plaintiff asked for
damages. (Record on Appeal, pp. 27-28) [CA Decision, pp.
34; Rollo, pp. 47-48.]

Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.

CORTES, J.:
Petitioner seeks reversal of the decision and the resolution of the Court of
Appeals, ordering Schmid & Oberly Inc. (hereafter to be referred to simply
as "SCHMID") to refund the purchase price paid by RJL Martinez Fishing
Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D.
Nagata Co., Ltd. of Japan (hereafter to be referred to simply as NAGATA
CO.") for twelve (12) defective "Nagata"-brand generators, plus
consequential damages, and attorneys fees.
The facts as found by the Court of Appeals, are as follows:
The findings of facts by the trial court (Decision, pp. 21-28,
Record on Appeal) shows: that the plaintiff RJL Martinez
Fishing Corporation is engaged in deep-sea fishing, and in
the course of its business, needed electrical generators for
the operation of its business; that the defendant sells
electrical generators with the brand of "Nagata", a Japanese
product; that the supplier is the manufacturer, the D.
Nagata Co. Ltd., of Japan, that the defendant Schmid &
Oberly Inc. advertised the 12 Nagata generators for sale;
that the plaintiff purchased 12 brand new Nagata
generators, as advertised by herein defendant; that through
an irrevocable line of credit, the D. Nagata Co., Ltd., shipped
to the plaintiff 12 electric generators, and the latter paid the
amount of the purchase price; that the 12 generators were
found to be factory defective; that the plaintiff informed the

On the basis thereof, the Court of Appeals affirmed the decision of the trial
court ordering petitioner to refund to private respondent the purchase price
for the twelve (12) generators and to accept delivery of the same and to pay
s and attorney's fees, with a slight modification as to the amount to be
refunded. In its resolution of the motion for reconsideration, the Court of
Appeals further modified the trial courts decision as to the award of
consequential damages.
Ordinarily, the Court will not disturb the findings of fact of the Court of
Appeals in petitions to review the latter's decisions under Rule 45 of the
Revised Rules of Court, the scope of the Court's inquiry being limited to a
review of the imputed errors of law [Chan v. Court of Appeals, G.R. No. L27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R. No. L24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No.
62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it
is the petitioner's position that the appealed judgment is premised on a
misapprehension
of
facts, * the Court is compelled to review the Court of Appeal's factual
findings [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals,
G.R. No. I,48290, September 29, 1983, 124 SCRA 808.]
Considering the sketchiness of the respondent court's narration of facts,
whether or not the Court of Appeals indeed misapprehended the facts
could not be determined without a thorough review of the records.
Thus, after a careful scrutiny of the records, the Court has found the
appellate court's narration of facts incomplete. It failed to include certain
material facts.
The facts are actually as follows:

RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL

MARTINEZ needed electric generators for some of its boats and SCHMIID
sold electric generators of different brands, negotiations between them for
the acquisition thereof took place. The parties had two separate
transactions over "Nagata"-brand generators.
The first transaction was the sale of three (3) generators. In this transaction,
it is not disputed that SCHMID was the vendor of the generators. The
company supplied the generators from its stockroom; it was also SCHMID
which invoiced the sale.
The second transaction, which gave rise to the present controversy, involves
twelve (12) "Nagata"-brand generators. 'These are the facts surrounding
this particular transaction:
As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its
Quotation dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'brand generators with the following specifications:
"NAGATA" Single phase AC Alternators, 110/220 V, 60
cycles, 1800 rpm, unity power factor, rectifier type and
radio suppressor,, 5KVA (5KW) $546.75 @
It was stipulated that payment would be made by confirming an irrevocable
letter of credit in favor of NAGATA CO. Furthermore, among the General
Conditions of Sale appearing on the dorsal side of the Quotation is the
following:
Buyer will, upon request, promptly open irrevocable Letter
of Credit in favor of seller, in the amount stated on the face
of this memorandum, specifying shipment from any Foreign
port to Manila or any safe Philippine port, permitting partial
shipments and providing that in the event the shippers are
unable to ship within the specified period due to strikes,
lack of shipping space or other circumstances beyond their
reasonable control, Buyer agrees to extend the said Letter
of Credit for later shipment. The Letter of Credit shall
otherwise be subject to the conditions stated in this
memorandum of contract. [Emphasis supplied.]

Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of
credit in favor of NAGATA CO. Accordingly, on November 20,1975, SCHMID
transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12)
generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter
sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B") and, in
accordance with the order, shipped the generators directly to RJL MARTINEZ.
The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting
of twelve sets wasbought by order and for account risk of Messrs. RJL
Martinez Fishing Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of
$1,752.00 for the sale of the twelve generators to RJL MARTINEZ. [Exhibits
"9", "9-A", "9-B" and "9-C".]
All fifteen (15) generators subject of the two transactions burned out after
continuous use. RJL MARTINEZ informed SCHMID about this development.
In turn, SCHMID brought the matter to the attention of NAGATA CO. In July
1976, NAGATA CO. sent two technical representatives who made an ocular
inspection and conducted tests on some of the burned out generators,
which by then had been delivered to the premises of SCHMID.
The tests revealed that the generators were overrated. As indicated both in
the quotation and in the invoice, the capacity of a generator was supposed
to be 5 KVA (kilovolt amperes). However, it turned out that the actual
capacity was only 4 KVA.
SCHMID replaced the three (3) generators subject of the first sale with
generators of a different brand.
As for the twelve (12) generators subject of the second transaction, the
Japanese technicians advised RJL MARTINEZ to ship three (3) generators to
Japan, which the company did. These three (3) generators were repaired by
NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining
nine (9) were neither repaired nor replaced. NAGATA CO., however, wrote
SCHMID suggesting that the latter check the generators, request for spare
parts for replacement free of charge, and send to NAGATA CO. SCHMID's
warranty claim including the labor cost for repairs [Exhibit "I".] In its reply
letter, SCHMID indicated that it was not agreeable to these terms [Exhibit
"10".]

As not all of the generators were replaced or repaired, RJL MARTINEZ

formally demanded that it be refunded the cost of the generators and paid
damages. SCHMID in its reply maintained that it was not the seller of the
twelve (12) generators and thus refused to refund the purchase price
therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit against
SCHMID on the theory that the latter was the vendor of the twelve (12)
generators and, as such vendor, was liable under its warranty against
hidden defects.
Both the trial court and the Court of Appeals upheld the contention of RJL
MARTINEZ that SCHMID was the vendor in the second transaction and was
liable under its warranty. Accordingly, the courts a quo rendered judgment
in favor of RJL MARTINEZ. Hence, the instant recourse to this Court.
In this petition for review, SCHMID seeks reversal on the following grounds:
(i) Schmid was merely the indentor in the sale [of the twelve
(12) generators] between Nagata Co., the exporter and RJL
Martinez, the importer;
(ii) as mere indentor, Schmid is not liable for the seller's
implied warranty against hidden defects, Schmid not having
personally assumed any such warranty.
(iii) in any event, conformably with Article 1563 of the Civil
Code, there was no implied warranty against hidden defects
in the sale of these twelve (12) generators because these
were sold under their trade name "Nagata"; and
(iv) Schmid, accordingly, is not liable for the reimbursement
claimed by RJL Martinez nor for the latter's unsubstantiated
claim of PI 10.33 operational losses a day nor for exemplary
damages, attorney's fees and costs. [Petition, p. 6.]
1. As may be expected, the basic issue confronting this Court is whether the
second transaction between the parties was a sale or an indent transaction.
SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a
sale.

At the outset, it must be understood that a contract is what the law defines
it to be, considering its essential elements, and not what it is caged by the
contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]
The Civil Code defines a contract of sale, thus:
ART. 458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
It has been said that the essence of the contract of sale is transfer of title or
agreement to transfer it for a price paid or promised [Commissioner of
Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31
SCRA 779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such
transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not
merely as an agent who must account for the proceeds of a resale, the
transaction is, a sale." [Ibid.]
On the other hand, there is no statutory definition of "indent" in this
jurisdiction. However, the Rules and Regulations to Implement Presidential
Decree No. 1789 (the Omnibus Investments Code) lumps "indentors"
together with "commercial brokers" and "commission merchants" in this
manner:
... A foreign firm which does business through
the middlemen acting in their own names, such asindentors,
commercial brokers or commission merchants, shall not be
deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants
shall be the ones deemed to be doing business in the
Philippines [Part I, Rule I, Section 1, par. g (1).]
Therefore, an indentor is a middlemen in the same class as commercial
brokers and commission merchants. To get an Idea of what an indentor is, a
look at the definition of those in his class may prove helpful.

A broker is generally defined as one who is engaged, for

others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own
name but in the name of those who employed him; he is
strictly a middleman and for some purpose the agent of
both parties. (1 9 Cyc 186; Henderson vs. The State, 50 Ind.,
234; Black's Law Dictionary.) A broker is one whose
occupation it is to bring parties together to bargain, or to
bargain for them, in matters of trade, commerce or
navigation. Mechem on Agency, sec. 13; Wharton on
Agency, sec. 695.) Judge Storey, in his work on Agency,
defines a broker as an agent employed to make bargains
and contracts between other persons, in matters of trade,
commerce or navigation, for compensation commonly
called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer
and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274, 279-80
(1916).]
A commission merchant is one engaged in the purchase or
sale for another of personal property which, for this
purpose, is placed in his possession and at his disposal. He
maintains a relation not only with his principal and the
purchasers or vendors, but also with the property which is
subject matter of the transaction. [Pacific Commercial Co. v.
Yatco, 68 Phil. 398, 401 (1939).]
Thus, the chief feature of a commercial broker and a commercial merchant
is that in effecting a sale, they are merely intermediaries or middle-men,
and act in a certain sense as the agent of both parties to the transaction.
Webster defines an indent as "a purchase order for goods especially when
sent from a foreign country." [Webster's Ninth New Collegiate Dictionary
612 (1986).] It would appear that there are three parties to an indent
transaction, namely, the buyer, the indentor, and the supplier who is usually
a non-resident manufacturer residing in the country where the goods are to
be bought [Commissioner of Internal Revenue v. Cadwallader Pacific
Company, G.R. No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor
may therefore be best described as one who, for compensation, acts as a

middleman in bringing about a purchase and sale of goods between a

foreign supplier and a local purchaser.
Coming now to the case at bar, the admissions of the parties and the facts
appearing on record more than suffice to warrant the conclusion that
SCHMID was not a vendor, but was merely an indentor, in the second
transaction.
In its complaint, RJL MARTINEZ admitted that the generators were
purchased "through indent order" [Record on Appeal, p. 6.] In the same vein,
it admitted in its demand letter previously sent to SCHMID that twelve (12)
of en (15) Nagata-brand generators "were purchased through your company
(SCHMID), by indent order and three (3) by direct purchase." [Exhibit "D".]
The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for
the generators, and that the latter company itself invoiced the sale [Exhibit
"B"], and shipped the generators directly to the former. The only
participation of SCHMID was to act as an intermediary or middleman
between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL
MARTINEZ and forwarding the same to NAGATA CO. for which the company
received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9C".]
The above transaction is significantly different from the first transaction
wherein SCHMID delivered the goods from its own stock (which it had itself
imported from NAGATA CO.), issued its own invoice, and collected payment
directly from the purchaser.
These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the
vendor of the twelve generators on the following grounds:
First, it is contended that the Quotation and the General Conditions of Sale
on the dorsal side thereof do not necessarily lead to the conclusion that
NAGATA CO., and not SCHMID, was the real seller in the case of the twelve
(12) generators in that:
(i) the signing of the quotation, which was under SCHMID's
letter-head, perfected the contract of sale (impliedly, as
between the signatories theretoi.e., RJL MARTINEZ and
SCHMID);

(ii) the qualification that the letter of credit shall be in favor

of NAGATA CO. constituted simply the manner of payment
requested by SCHMID (implying that SCHMID, as seller,
merely chose to waive direct payment, stipulating delivery
of payment instead to NAGATA CO. as supplier);
Second, it is asserted that the acts of SCHMID after it was informed of the
defect in the generators were indicative of its awareness that it was the
vendor and acknowledgment of its liability as such vendor. Attention is
called to these facts: When RJL MARTINEZ complained to SCHMID that the
generators were defective, SCHMID immediately asked RJL MARTINEZ to
send the defective generators to its shop to determine what was wrong.
SCHMID likewise informed NAGATA CO. about the complaint of RJL
MARTINEZ. When the Japanese technicians arrived, SCHMID made available
its technicians, its shop and its testing equipment. After the generators were
found to have factory defects, SCHMID facilitated the shipment of three (3)
generators to Japan and, after their repair, back to the Philippines
[Memorandum for the Respondent, p. 8.]
Third, it is argued that the contents of the letter from NAGATA CO. to
SCHMID regarding the repair of the generators indicated that the latter was
"within the purview of a seller." [Ibid.]
Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA
CO., a foreign corporation not licensed to do business in the Philippines,
then the officers and employees of the former may be penalized for
violation of the old Corporation Law which provided:
Sec. 69 ... Any officer or agent of the corporation or any
person transacting business for any foreign corporation not
having the license prescribed shall be punished by
imprisonment for not less than six months nor more than
two years or by a fine 'of not less than two hundred pesos
nor more than one thousand pesos or both such
imprisonment and fine, in the discretion of the Court.

The first contention disregards the circumstances surrounding the second

transaction as distinguished from those surrounding the first transaction, as
noted above.
Neither does the solicitous manner by which SCHMID responded to RJL
MARTINEZ's complaint prove that the former was the seller of the
generators. As aptly stated by counsel, no indentor will just fold its hands
when a client complains about the goods it has bought upon the indentor's
mediation. In its desire to promote the product of the seller and to retain
the goodwill of the buyer, a prudent indentor desirous of maintaining his
business would have to act considerably. towards his clients.
Note that in contrast to its act of replacing the three (3) generators subject
of the first transaction, SCHMID did not replace any of the twelve (12)
generators, but merely rendered assistance to both RJL TINES and NAGATA
CO. so that the latter could repair the defective generators.
The proposal of NAGATA CO. rejected by SCHMID that the latter undertake
the repair of the nine (9) other defective generators, with the former
supplying the replacement parts free of charge and subsequently
reimbursing the latter for labor costs [Exhibit "I"], cannot support the
conclusion that SCHMID is vendor of the generators of the second
transaction or was acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the Corporation Law finds no
application to SCHMID and its officers and employees relative to the
transactions in the instant case. What the law seeks to prevent, through
said provision, is the circumvention by foreign corporations of licensing
requirements through the device of employing local representatives. An
indentor, acting in his own name, is not, however, covered by the abovequoted provision. In fact, the provision of the Rules and Regulations
implementing the Omnibus Investments Code quoted above, which was
copied from the Rules implementing Republic Act No. 5455, recognizes the
distinct role of an indentor, such that when a foreign corporation does
business through such indentor, the foreign corporation is not deemed
doing business in the Philippines.

The facts do not bear out these contentions.

In view of the above considerations, this Court rules that SCHMID was
merely acting as an indentor in the purchase and sale of the twelve (12)
generators subject of the second transaction. Not being the vendor,

SCHMID cannot be held liable for the implied warranty for hidden defects
under the Civil Code [Art. 1561, et seq.]
2. However, even as SCHMID was merely an indentor, there was nothing to
prevent it from voluntarily warranting that twelve (12) generators subject of
the second transaction are free from any hidden defects. In other words,
SCHMID may be held answerable for some other contractual obligation, if
indeed it had so bound itself. As stated above, an indentor is to some extent
an agent of both the vendor and the vendee. As such agent, therefore, he
may expressly obligate himself to undertake the obligations of his principal
(See Art. 1897, Civil Code.)

Moreover, a closer examination of the statements allegedly made by the

representative of SCHMID reveals that they merely constituted an
expression of opinion which cannot by any means be construed as a
warranty [See Art. 1546, Civil Code.]
We quote from Balagtas' testimony:
Atty. CATRAL:

The Court's inquiry, therefore, shifts to a determination of whether or not

SCHMID expressly bound itself to warrant that the twelve (12) generators
are free of any hidden defects.

Q Did you not say at the start of your cross

examination, Mr. Balagtas, that the only
participation you had in the acquisition of
those twelve (12) units [of] generators was
your having issued a purchase order to your
own company for the purchase of the units?

Again, we consider the facts.

ATTY. AQUINO:

The Quotation (Exhibit A is in writing. It is the repository of the contract

between RJL MARTINEZ and SCHMID. Notably, nowhere is it stated therein
that SCHMID did bind itself to answer for the defects of the things sold.
There being no allegation nor any proof that the Quotation does not express
the true intent and agreement of the contracting parties, extrinsic parol
evidence of warranty will be to no avail [See Rule 123, Sec. 22.]

Misleading, your Honor.

Atty. CATRAL:
I am asking the witness.
COURT:

The trial court, however, relied on the testimony of Patrocinio Balagtas, the
head of the Electrical Department of RJL MARTINEZ, to support the finding
that SCHMID did warrant the twelve (12) generators against defects.
Upon careful examination of Balagtas' testimony, what is at once apparent
is that Balagtas failed to disclose the nature or terms and conditions of the
warranty allegedly given by SC Was it a warranty that the generators would
be fit for the fishing business of the buyer? Was it a warranty that the
generators to be delivered would meet the specifications indicated in the
Quotation? Considering the different kinds of warranties that may be
contracted, unless the nature or terms and conditions of the warranty are
known, it would not be possible to determine whether there has been a
breach thereof.

He has the right to ask that question

because he is on cross. Moreover, if I
remember, he mentioned something like
that. Witness may answer.
A Yes, sir. Before I submitted that, we
negotiated with Schmid and Oberly the beat
generators they can recommend because
we are looking for generators. The
representative of Schmid and Oberly said
that Nagata is very good. That is why I
recommended that to the management.
[t.s.n., October 14, 1977, pp. 23-25.]

At any rate, when asked where SCHMID's warranty was contained, Balagtas
testified initially that it was in the receipts covering the sale. (At this point, it
may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO. and
nowhere is it stated therein that SCHMID warranted the generators against
defects.) When confronted with a copy of the invoice issued by NAGATA CO.,
he changed his assertion and claimed that what he meant was that the date
of the commencement of the period of SCHMID's warranty would be based
on the date of the invoice. On further examination, he again changed his
mind and asserted that the warranty was given verbally [TSN, October 14,
1977, pp. 19-22.] But then again, as stated earlier, the witness failed to
disclose the nature or terms and conditions of the warranty allegedly given
by SCHMID.
On the other hand, Hernan Adad SCHMID's General Manager, was
categorical that the company does not warrant goods bought on indent and
that the company warrants only the goods bought directly from it, like the
three generators earlier bought by RJL MARTINEZ itself [TSN, December 19,
1977, pp. 63-64.] It must be recalled that SCHMID readily replaced the three
generators from its own stock. In the face of these conflicting testimonies,
this Court is of the view that RJL has failed to prove that SCHMID had given
a warranty on the twelve (12) generators subject of the second transaction.
Even assuming that a warranty was given, there is no way to determine
whether there has been a breach thereof, considering that its nature or
terms and conditions have not been shown.
3. In view of the foregoing, it becomes unnecessary to pass upon the other
issues.

SCHMID

&

OBERLY,

INC.

vs.

RJL

MARTINEZ

G.R. No. 75198 October 18, 1988

Facts:
RJL Martinez Fishing Corporation is engaged in deep-sea fishing. In the
course of its business, it needed electrical generators for the operation of its
business. Schmid and Oberly sells electrical generators with the brand of
Nagata, a Japanese product. D. Nagata Co. Ltd. of Japan was Schmids
supplier. Schmid advertised the 12 Nagata generators for sale and RJL
purchased 12 brand new generators. Through an irrevocable line of credit,
Nagata shipped to the Schmid the generators and RJL paid the amount of
the purchase price. (First sale = 3 generators; Second sale = 12 generators).
Later, the generators were found to be factory defective. RJL informed the
Schmid that it shall return the 12 generators. 3 were returned. Schmid
replaced the 3 generators subject of the first sale with generators of a
different brand. As to the second sale, 3 were shipped to Japan and the
remaining 9 were not replaced.
RJL sued the defendant on the warranty, asking for rescission of the

WHEREFORE, finding the Court of Appeals to have committed a reversible

error, the petition is GRANTED and the appealed Decision and Resolution of
the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing
Corporation is hereby DISMISSED. No costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.
Feliciano, J., took no part.

contract and that Schmid be ordered to accept the generators and be

ordered to pay back the purchase money as well as be liable for damages.
Schmid opposes such liability averring that it was merely the indentor in the
sale between Nagata Co., the exporter and RJL Martinez, the importer. As
mere indentor, it avers that is not liable for the sellers implied warranty
against hidden defects, Schmid not having personally assumed any such
warranty.
Issue:

1) WON the second transaction between the parties was a sale or an indent

forwarding the same to Nagata for which the company received a

transaction?

commission from Nagata.

INDENT

TRANSACTION

2) Even is Schmid is merely an indentor, may it still be liable for the

warranty? YES, under its contractual obligations it may be liable. But in this

Sale

vs.

Indent

Transaction:

case, Schmid did not warrant the products.

The essence of the contract of sale is transfer of title or agreement to

transfer it for a price paid or promised. If such transfer puts the transferee

Held:

in the attitude or position of an owner and makes him liable to the

transferor as a debtor for the agreed price, and not merely as an agent who

An indentor is a middlemen in the same class as commercial brokers and

must account for the proceeds of a resale, the transaction is, a sale.

commission merchants. A broker is generally defined as one who is engaged,

3 evidences pointing to fact that Schmid is merely an indentor:

for others, on a commission, negotiating contracts relative to property with

a. the Quotation and the General Conditions of Sale on the dorsal side

the custody of which he has no concern; the negotiator between other

thereof do not necessarily lead to the conclusion that NAGATA CO., was the

parties, never acting in his own name but in the name of those who

real

employed him; he is strictly a middleman and for some purpose the agent of

b. When RJL complained to SCHMID, it immediately asked RJL to send the

both parties. There are 3 parties to an indent transaction, (1) buyer, (2)

defective generators to its shop to determine what was wrong. SCHMID

indentor, and (3) supplier who is usually a non-resident manufacturer

informed NAGATA about the complaint of RJL. After the generators were

residing in the country where the goods are to be bought. The chief feature

found to have factory defects, SCHMID facilitated the shipment of three (3)

of a commercial broker and a commercial merchant is that in effecting a

generators to Japan and, after their repair, back to the Philippines.

sale, they are merely intermediaries or middle-men, and act in a certain

c. the letter from NAGATA CO. to SCHMID regarding the repair of the

sense as the agent of both parties to the transaction.

generators indicated that the latter was within the purview of a seller.

seller

of

the

12

generators.

2)
RJL MARTINEZ admitted that the generators were purchased through
indent order. RJL admitted in its demand letter previously sent to SCHMID

Even as SCHMID was merely an indentor, there was nothing to prevent it

that 12 of 15 generators were purchased through your company, by indent

from voluntarily warranting that twelve (12) generators subject of the

order and three (3) by direct purchase. The evidence also show that RJL

second transaction are free from any hidden defects. In other words,

MARTINEZ paid directly NAGATA CO, for the generators, and that the latter

SCHMID may be held answerable for some other contractual obligation, if

company itself invoiced the sale and shipped the generators directly to the

indeed it had so bound itself. As stated above, an indentor is to some extent

former. The only participation of Schmid was to act as an intermediary or

an agent of both the vendor and the vendee. As such agent, therefore, he

middleman between Nagata and RJL, by procuring an order from RJL and

may expressly obligate himself to undertake the obligations of his principal.

Notably, nowhere in the Quotation is it stated therein that SCHMID did bind
itself to answer for the defects of the things sold. Balagtas testified initially
that the warranty was in the receipts covering the sale. Nowhere is it stated
in the invoice that SCHMID warranted the generators against defects. He
again changed his mind and asserted that the warranty was given verbally.
Hence, RJL has failed to prove that SCHMID had given a warranty on the 12
generators subject of the second transaction.

G.R. No. L-49695 April 7, 1986

HATHIBHAI
BULAKHIDAS, petitioner,
vs.
THE HONORABLE PEDRO L. NAVARRO, as Presiding Judge of the Court of
First Instance of Rizal, Seventh Judicial District, Pasig, Metro Manila,
Branch 11 and DIAMOND SHIPPING CORPORATION, respondent.
Teves, Campos, Hernandez & Lim Law Office for private respondent.

PATAJO, J.:
This is a petition for review on certiorari of the order of the then Court of
First Instance of Rizal, Branch 11 dated August 21, 1978, dismissing
petitioner's complaint.
Petitioner, a foreign partnership, filed a complaint against a domestic
corporation, Diamond Shipping Corporation, before the Court of First
Instance of Rizal for the recovery of damages allegedly caused by the failure
of the said shipping corporation to deliver the goods shipped to it by
petitioner to their proper destination. Paragraph 1 of said complaint alleged
that plaintiff is "a foreign partnership firm not doing business in the
Philippines" and that it is "suing under an isolated transaction." Defendant
filed a motion to dismiss the complaint on the ground that plaintiff has no
capacity to sue and that the complaint does not state a valid cause of action
against defendant.
Acting on said motion to dismiss, the Court of First Instance dismissed the
complaint on the ground that plaintiff being "a foreign corporation or
partnership not doing business in the Philippines it cannot exercise the right
to maintain suits before our Courts."
Hence, this petition.
The issue of whether or not a foreign corporation not engaged in business in
the Philippines can institute an action before our courts is already wen
settled in this jurisdiction.

Aetna Casualty and Surety Co. vs. Pacific Star Lines, 80 SCRA 635, is a case
similar to the present one in that the action is also one for recovery of
damages sustained by cargo shipped on defendants' vessels. Defendants set
up the defense that plaintiff is a foreign corporation not duly licensed to do
business in the Philippines and, therefore, without capacity to sue and be
sued. In overruling said defense, this Court said:
It is settled that if a foreign corporation is not engaged in
business in the Philippines, it may not be denied the right to
file an action in Philippine courts for isolated transactions.
The object of Sections 68 and 69 of the Corporation law was
not to prevent the foreign corporation from performing
single acts, but to prevent it from acquiring a domicile for
the purpose of business without taking the steps necessary
to render it amenable to suit in the local courts. It was
never the purpose of the Legislature to exclude a foreign
corporation which happens to obtain an isolated order for
business from the Philippines, from securing redress in the
Philippine courts.
In Mentholatum Co. Inc. et al. vs. Mangaliman, et al., this Court ruled that:
No general rule or governing principle can be laid down as
to what constitutes 'doing' or 'engaging' in or 'transacting'
business. Indeed, each case must be judged in the light of
its peculiar environmental circumstances. 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.
(Traction Cos. vs. Collectors of Int. Revenue (C.C. A. Ohio],
223 F. 984, 987.) The term implies a continuity of
commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and
in progressive prosecution of, the purpose and object of its
organization. (Griffin vs. Implement Dealers Mut. Fire Ins.
Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. vs. Mutual Tank
Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material

Co. vs. American Standard Metal Products Corp., 158 N.E.

698, 703, 327 III. 367.)
And in Eastboard Navigation, Ltd. et al vs. Juan Ysmael &
Co., Inc., this Court held that:
(d) While plaintiff is a foreign corporation without license to
transact business in the Philippines, it does not follow that it
has no capacity to bring the present action. Such license is
not necessary because it is not engaged in business in the
Philippines. In fact, the transaction herein involved is the
first business undertaken by plaintiff in the Philippines,
although on a previous occasion plaintiff's vessel was
chartered by the National Rice and Corn Corporation to
carry rice cargo from abroad to the Philippines. These two
isolated transactions do not constitute engaging in business
in the Philippines within the purview of Sections 68 and 69
of the Corporation Law so as to bar plaintiff from seeking
redress in our courts. (Marshall Wells Co. vs. Henry W. Elser
& Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs.
Angle O. Singson, G.R. No. L-7917, April 29, 1955.)
Again, in Facilities Management Corporation vs. De la Osa 89 SCRA 131, 139,
following Aetna Casualty & Surety Co. vs. Pacific Star Line, supra, held a
foreign corporation not engaged in business in the Philippines is not barred
from seeking redress from the courts of the Philippines.
The case of Atlantic Mutual Insurance Co. vs. Cebu Stevedoring Co., 17 SCRA
1037, cited by respondent finds no application to the case at bar. It must be
observed in the Atlantic case that there was no allegation in the complaint
that the two foreign corporations involved therein were not engaged in
business in the Philippines. All that was averred in the complaint was that
they were both foreign corporations existing under the laws of the United
States. Thus, the qualifying circumstance of the said foreign corporations'
capacity to sue is wanting. Contrary to theAtlantic case, the complaint filed
by petitioner herein sufficiently alleged that it is a foreign partnership (or
corporation) not engaged in business in the Philippines and that it was suing
under an isolated transaction.

WHEREFORE, the order of respondent Court dismissing the petitioner's

complaint is hereby set aside and the case remanded for further
proceedings, with costs against private respondent.
SO ORDERED.
Teehankee, C.J., Melencio-Herrera, Plana and Gutierrez, Jr., JJ., concur.

SECOND DIVISION
[G.R. No. 113074. January 22, 1997]
ALFRED HAHN, Petitioner, v. COURT OF APPEALS and BAYERISCHE
MOTOREN WERKE AKTIENGESELLSCHAFT (BMW), Respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision1 of the Court of Appeals
dismissing a complaint for specific performance which petitioner had filed
against private respondent on the ground that the Regional Trial Court of
Quezon City did not acquire jurisdiction over private respondent, a
nonresident foreign corporation, and of the appellate court's order denying
petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name
and style "Hahn-Manila." On the other hand, private respondent Bayerische
Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign
corporation existing under the laws of the former Federal Republic of
Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a
"Deed of Assignment with Special Power of Attorney," which reads in full as
follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW
trademark and device in the Philippines which ASSIGNOR uses and has been
using on the products manufactured by ASSIGNEE, and for which ASSIGNOR
is the authorized exclusive Dealer of the ASSIGNEE in the Philippines, the
same being evidenced by certificate of registration issued by the Director of
Patents on 12 December 1963 and is referred to as Trademark No. 10625;

WHEREAS, the ASSIGNOR has agreed to transfer and consequently record

said transfer of the said BMW trademark and device in favor of the
ASSIGNEE herein with the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the
stipulations hereunder stated, the ASSIGNOR hereby affirms the said
assignment and transfer in favor of the ASSIGNEE under the following terms
and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines, for such
purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any such
use or infringement of the said trademark which comes to his knowledge
and upon such information the ASSIGNOR shall automatically act as
Attorney-In-Fact of the ASSIGNEE for such case, with full power, authority
and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any
such infringer of the subject mark and for purposes hereof the ASSIGNOR is
hereby named and constituted as ASSIGNEE's Attorney-In-Fact, but any such
suit without ASSIGNEE's consent will exclusively be the responsibility and for
the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as
has been usual in the past without a formal contract, and for that purpose,
the dealership of ASSIGNOR shall cover the ASSIGNEE's complete
production program with the only limitation that, for the present, in view of
ASSIGNEE's limited production, the latter shall not be able to supply
automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been
usual in the past without a formal contract." But on February 16, 1993, in a
meeting with a BMW representative and the president of Columbia Motors
Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was
arranging to grant the exclusive dealership of BMW cars and products to
CMC, which had expressed interest in acquiring the same. On February 24,
1993, petitioner received confirmation of the information from BMW which,
in a letter, expressed dissatisfaction with various aspects of petitioner's
business, mentioning among other things, decline in sales, deteriorating
services, and inadequate showroom and warehouse facilities, and
petitioner's alleged failure to comply with the standards for an exclusive
BMW dealer.2 Nonetheless, BMW expressed willingness to continue

business relations with the petitioner on the basis of a "standard BMW

importer" contract, otherwise, it said, if this was not acceptable to
petitioner, BMW would have no alternative but to terminate petitioner's
exclusive dealership effective June 30, 1993.

5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed

of Assignment with Special Power of Attorney covering the trademark and
in consideration thereof, under its first whereas clause, Plaintiff was duly
acknowledged as the "exclusive Dealer of the Assignee in the Philippines"....

Petitioner protested, claiming that the termination of his exclusive

dealership would be a breach of the Deed of Assignment.3 Hahn insisted
that as long as the assignment of its trademark and device subsisted, he
remained BMW's exclusive dealer in the Philippines because the assignment
was made in consideration of the exclusive dealership. In the same letter
petitioner explained that the decline in sales was due to lower prices
offered for BMW cars in the United States and the fact that few customers
returned for repairs and servicing because of the durability of BMW parts
and the efficiency of petitioner's service.

....

Because of Hahn's insistence on the former business relation, BMW

withdrew on March 26, 1993 its offer of a "standard importer contract" and
terminated the exclusive dealer relationship effective June 30, 1993.4 At a
conference of BMW Regional Importers held on April 26, 1993 in Singapore,
Hahn was surprised to find Alvarez among those invited from the Asian
region. On April 29, 1993, BMW proposed that Hahn and CMC jointly import
and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a
complaint for specific performance and damages against BMW to compel it
to continue the exclusive dealership. Later he filed an amended complaint
to include an application for temporary restraining order and for writs of
preliminary, mandatory and prohibitory injunction to enjoin BMW from
terminating his exclusive dealership. Hahn's amended complaint alleged in
pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the
Philippines with principal offices at Munich, Germany. It may be served with
summons and other court processes through the Secretary of the
Department of Trade and Industry of the Philippines....
....

8. From the time the trademark "BMW & DEVICE" was first used by the
Plaintiff in the Philippines up to the present, Plaintiff, through its firm name
"HAHN MANILA" and without any monetary contribution from defendant
BMW, established BMW's goodwill and market presence in the Philippines.
Pursuant thereto, Plaintiff has invested a lot of money and resources in
order to single-handedly compete against other motorcycle and car
companies.... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and
promote the car and products of defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff
that it was willing to maintain with Plaintiff a relationship but only "on the
basis of a standard BMW importer contract as adjusted to reflect the
particular situation in the Philippines" subject to certain conditions,
otherwise, defendant BMW would terminate Plaintiff's exclusive dealership
and any relationship for cause effective June 30, 1993....
....
15. The actuations of defendant BMW are in breach of the assignment
agreement between itself and plaintiff since the consideration for the
assignment of the BMW trademark is the continuance of the exclusive
dealership agreement. It thus, follows that the exclusive dealership should
continue for so long as defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch
104 of the Quezon City Regional Trial Court, which on June 14, 1993 issued a
temporary restraining order. Summons and copies of the complaint and
amended complaint were thereafter served on the private respondent

through the Department of Trade and Industry, pursuant to Rule 14, 14 of

the Rules of Court. The order, summons and copies of the complaint and
amended complaint were later sent by the DTI to BMW via registered mail
on June 15, 19935 and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial court issued an order
granting the writ of preliminary injunction upon the filing of a bond
of P100,000.00. On July 13, 1993, following the posting of the required bond,
a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial
court did not acquire jurisdiction over it through the service of summons on
the Department of Trade and Industry, because it (BMW) was a foreign
corporation and it was not doing business in the Philippines. It contended
that the execution of the Deed of Assignment was an isolated transaction;
that Hahn was not its agent because the latter undertook to assemble and
sell BMW cars and products without the participation of BMW and sold
other products; and that Hahn was an indentor or middleman transacting
business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing
business in the Philippines through him as its agent, as shown by the fact
that BMW invoices and order forms were used to document his transactions;
that he gave warranties as exclusive BMW dealer; that BMW officials
periodically inspected standards of service rendered by him; and that he
was described in service booklets and international publications of BMW as
a "BMW Importer" or "BMW Trading Company" in the Philippines.
The trial court6 deferred resolution of the Motion to dismiss until after trial
on the merits for the reason that the grounds advanced by BMW in its
motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a
petition forcertiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE

WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR

THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF
LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY
DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order
and, after hearing, for a writ of preliminary injunction, to enjoin the trial
court from proceeding further in Civil Case No. Q-93-15933. Private
respondent pointed out that, unless the trial court's order was set aside, it
would be forced to submit to the jurisdiction of the court by filing its answer
or to accept judgment in default, when the very question was whether the
court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's
complaint. On December 20, 1993, it rendered judgment finding the trial
court guilty of grave abuse of discretion in deferring resolution of the
motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it
came out with its questioned order of July 26, 1993, we rule and so hold
that petitioner's (BMW) motion to dismiss could be resolved then and there,
and that the respondent judge's deferment of his action thereon until after
trial on the merit constitutes, to our mind, grave abuse of discretion.
....
... [T]here is not much appreciable disagreement as regards the factual
matters relating, to the motion to dismiss. What truly divide (sic) the parties
and to which they greatly differ is the legal conclusions they respectively
draw from such facts, (sic) with Hahn maintaining that on the basis thereof,
BMW is doing business in the Philippines while the latter asserts that it is
not.
Then, after stating that any ruling which the trial court might make on the
motion to dismiss would anyway be elevated to it on appeal, the Court of
Appeals itself resolved the motion. It ruled that BMW was not doing

business in the country and, therefore, jurisdiction over it could not be

acquired through service of summons on the DTI pursuant to Rule 14,
Section 14. The court upheld private respondent's contention that Hahn
acted in his own name and for his own account and independently of BMW,
based on Alfred Hahn's allegations that he had invested his own money and
resources in establishing BMW's goodwill in the Philippines and on BMW's
claim that Hahn sold products other than those of BMW. It held that
petitioner was a mere indentor or broker and not an agent through whom
private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint against
BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1)
in finding that the trial court gravely abused its discretion in deferring action
on the motion to dismiss and (2) in finding that private respondent BMW is
not doing business in the Philippines and, for this reason, dismissing
petitioner's case.

the functions normally incident to, and in progressive prosecution of,

commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase"doing business" shall not
be deemed to include mere investment as a shareholder by a foreign entity
in domestic corporations duly registered to do business, and/or the exercise
of rights as such investor; nor having, a nominee director or officer to
represent its interests in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which transacts business in its
own name and for its own account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the
Philippines" but not when the representative or distributor "transacts
business in its name and for its own account." In addition, Section 1(f)(1) of
the Rules and Regulations implementing (IRR) the Omnibus Investment
Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in
Article 44 of the Code. In particular, "doing business" includes:

Petitioner's appeal is well taken. Rule 14, 14 provides:

14. Service upon foreign corporations. If the defendant is a foreign
corporation, or a nonresident joint stock company or association, doing
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no such
agent, on the government official designated by law to that effect, or on any
of its officers or agents within the Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are
enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042)
as follows:7
d) the phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or
branches, appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business, firm, entity
or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements and contemplate to
that extent the performance of acts or works, or the exercise of some of

(1).... A foreign firm which does business through middlemen acting in their
own names, such as indentors, commercial brokers or commission
merchants, shall not be deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants shall be the ones
deemed to be doing business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in
the Philippines of private respondent BMW. If he is, BMW may be
considered doing business in the Philippines and the trial court acquired
jurisdiction over it (BMW) by virtue of the service of summons on the
Department of Trade and Industry. Otherwise, if Hahn is not the agent of
BMW but an independent dealer, albeit of BMW cars and products, BMW, a
foreign corporation, is not considered doing business in the Philippines
within the meaning of the Foreign Investments Act of 1991 and the IRR, and
the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own
name and for his own account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone had contacts with
individuals or entities interested in acquiring BMW vehicles. Independence
characterizes Hahn's undertakings, for which reason he is to be considered,

under governing statutes, as doing business." (p. 13) In support of this

conclusion, the appellate court cited the following allegations in Hahn's
amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the
Plaintiff in the Philippines up to the present, Plaintiff, through its firm name
"HAHN MANILA" and without any monetary contributions from defendant
BMW; established BMW's goodwill and market presence in the Philippines.
Pursuant thereto, Plaintiff invested a lot of money and resources in order to
single-handedly compete against other motorcycle and car companies....
Moreover, Plaintiff has built buildings and other infrastructures such as
service centers and showrooms to maintain and promote the car and
products of defendant BMW.
As the above quoted allegations of the amended complaint show, however,
there is nothing to support the appellate court's finding that Hahn solicited
orders alone and for his own account and without "interference from, let
alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took
orders for BMW cars and transmitted them to BMW. Upon receipt of the
orders, BMW fixed the down payment and pricing charges, notified Hahn of
the scheduled production month for the orders, and reconfirmed the orders
by signing and returning to Hahn the acceptance sheets. Payment was made
by the buyer directly to BMW. Title to cars purchased passed directly to the
buyer and Hahn never paid for the purchase price of BMW cars sold in the
Philippines. Hahn was credited with a commission equal to 14% of the
purchase price upon the invoicing of a vehicle order by BMW. Upon
confirmation in writing that the vehicles had been registered in the
Philippines and serviced by him, Hahn received an additional 3% of the full
purchase price. Hahn performed after-sale services, including, warranty
services, for which he received reimbursement from BMW. All orders were
on invoices and forms of BMW.8
These allegations were substantially admitted by BMW which, in its petition
for certioraribefore
the
Court
of
Appeals,
9
stated: chanroblesvirtuallawlibrary
9.4. As soon as the vehicles are fully manufactured and full payment of the
purchase prices are made, the vehicles are shipped to the Philippines. (The
payments may be made by the purchasers or third-persons or even by

Hahn.) The bills of lading are made up in the name of the purchasers, but
Hahn-Manila is therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for
purposes of conducting pre-delivery inspections. Thereafter, he delivers the
vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof,
and as soon as he confirms in writing, that the vehicles have been registered
in the Philippines and have been serviced by him, he will receive an
additional three percent (3%) of the full purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an
agency. An agent receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by bringing the buyer
and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his
own expense, Hahn said that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW standards
were maintained. Indeed, it would seem from BMW's letter to Hahn that it
was for Hahn's alleged failure to maintain BMW standards that BMW was
terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers
and showrooms does not necessarily prove that he is not an agent of BMW.
For as already noted, there are facts in the record which suggest that BMW
exercised control over Hahn's activities as a dealer and made regular
inspections of Hahn's premises to enforce compliance with BMW standards
and specifications.10 For example, in its letter to Hahn dated February 23,
1996, BMW stated:
In the last years we have pointed out to you in several discussions and
letters that we have to tackle the Philippine market more professionally and
that we are through your present activities not adequately prepared to cope
with the forthcoming challenges.11chanroblesvirtuallawlibrary

In effect, BMW was holding Hahn accountable to it under the 1967

Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals,12 in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by
virtue of which the latter was appointed "exclusive representative" in the
Philippines for a stipulated commission. Pursuant to these contracts, the
domestic corporation sold products exported by the foreign corporation and
put up a service center for the products sold locally. This Court held that
these acts constituted doing business in the Philippines. The arrangement
showed that the foreign corporation's purpose was to penetrate the
Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive
distributor in the Philippines, even as it announced in the Asian region that
Hahn
was
the
"official
BMW
agent"
in
the
Philippines.13chanroblesvirtuallawlibrary
The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled
that Hahn was not an agent of BMW. (p. 14) This finding is based entirely on
allegations of BMW in its motion to dismiss filed in the trial court and in its
petition for certiorari before the Court of Appeals.14 But this allegation was
denied by Hahn15 and therefore the Court of Appeals should not have cited
it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated
to the Court of Appeals the necessity of affirming the trial court's order
deferring resolution of BMW's motion to dismiss. Petitioner alleged that
whether or not he is considered an agent of BMW, the fact is that BMW did
business in the Philippines because it sold cars directly to Philippine
buyers. 16 This was denied by BMW, which claimed that Hahn was not its
agent and that, while it was true that it had sold cars to Philippine buyers,
this was done without solicitation on its part.17chanroblesvirtuallawlibrary
It is not true then that the question whether BMW is doing business could
have been resolved simply by considering the parties' pleadings. There are
genuine issues of facts which can only be determined on the basis of
evidence duly presented. BMW cannot short circuit the process on the plea

that to compel it to go to trial would be to deny its right not to submit to the
jurisdiction of the trial court which precisely it denies. Rule 16, 3 authorizes
courts to defer the resolution of a motion to dismiss until after the trial if
the ground on which the motion is based does not appear to be indubitable.
Here the record of the case bristles with factual issues and it is not at all
clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the
summons it would be waiving its objection to the trial court's jurisdiction. It
is now settled that. for purposes of having summons served on a foreign
corporation in accordance with Rule 14, 14, it is sufficient that it be alleged
in the complaint that the foreign corporation is doing business in the
Philippines. The court need not go beyond the allegations of the complaint
in order to determine whether it has jurisdiction.18 A determination that the
foreign corporation is doing business is only tentative and is made only for
the purpose of enabling the local court to acquire jurisdiction over the
foreign corporation through service of summons pursuant to Rule 14, 14.
Such determination does not foreclose a contrary finding should evidence
later show that it is not transacting business in the country. As this Court
has explained:
This is not to say, however, that the petitioner's right to question the
jurisdiction of the court over its person is now to be deemed a foreclosed
matter. If it is true, as Signetics claims, that its only involvement in the
Philippines was through a passive investment in Sigfil, which it even later
disposed of, and that TEAM Pacific is not its agent, then it cannot really be
said to be doing business in the Philippines. It is a defense, however, that
requires the contravention of the allegations of the complaint, as well as a
full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue
posed by the petitioner as to whether a foreign corporation which has done
business in the country, but which has ceased to do business at the time of
the filing, of a complaint, can still be made to answer for a cause of action
which accrued while it was doing, business, is another matter that would yet
have to await the reception and admission of evidence. Since these points
have seasonably been raised by the petitioner, there should be no real
cause for what may understandably be its apprehension, i.e., that by its
participation during the trial on the merits, it may, absent an invocation of
separate or independent reliefs of its own, be considered to have
voluntarily submitted itself to the court's jurisdiction.19

Far from committing an abuse of discretion, the trial court properly

deferred resolution of the motion to dismiss and thus avoided prematurely
deciding a question which requires a factual basis, with the same result if it
had denied the motion and conditionally assumed jurisdiction. It is the
Court of Appeals which, by ruling that BMW is not doing business on the
basis merely of uncertain allegations in the pleadings, disposed of the whole
case with finality and thereby deprived petitioner of his right to be heard on
his cause of action. Nor was there justification for nullifying the writ of
preliminary injunction issued by the trial court. Although the injunction was
issued ex parte, the fact is that BMW was subsequently heard on its defense
by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case
is REMANDED to the trial court for further proceedings.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Torres, Jr., JJ., concur.d

[G.R. No. 118843. February 6, 1997]

ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS and DELFIN F.

ENRIQUEZ, JR., respondents.

On various dates covering the period January 17 -- August 16, 1989,

private respondent Delfin Enriquez, Jr., doing business under the name and
style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered
and received from petitioner various elements used in sealing pumps, valves,
pipes and control equipment, PVC pipes and fittings. The ordered materials
were delivered via airfreight under the following invoices:[3]

PANGANIBAN, J.:

Date
17 Jan 89
24 Feb 89
02 Mar 89

Is a foreign corporation which sold its products sixteen times over a

five-month period to the same Filipino buyer without first obtaining a
license to do business in the Philippines, prohibited from maintaining an
action to collect payment therefor in Philippine courts? In other words, is
such foreign corporation doing business in the Philippines without the
required license and thus barred access to our court system?

03 Mar 89
03 Mar 89
10 Mar 89

27876
27877
28046

21 Mar 89
14 Apr 89
19 Apr 89
16 Aug 89

28258
28901
29001
31669

21 Mar 89
04 Apr 89
14 Apr 89
25 Apr 89
02 May 89
05 May 89
15 May 89

28257
28601
28900
29127
29232
29332
29497

31 May 89

29844

DECISION

This is the main issue presented for resolution in the instant petition
for review, which seeks the reversal of the Decision[1] of the Court of
Appeals, Seventh Division, promulgated on January 25, 1995, in CA-G.R. CV
No. 41275 which affirmed, for want of capacity to sue, the trial courts
dismissal of the collection suit instituted by petitioner.

The Facts
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged
in the manufacture and sale of elements used in sealing pumps, valves and
pipes for industrial purposes, valves and control equipment used for
industrial fluid control and PVC pipes and fittings for industrial uses. In its
complaint, it alleged that:[2]

Invoice No.
27065
27738
27855

AWB No.
618-7496-2941
618-7553-6672
(freight & handling charges per
Inv. 27738)
618-7553-7501
618-7553-7501
618-7578-3256/
618-7578-3481
618-7578-4634
618-7741-7631
Self-collect
(handcarried by buyer)
618-7578-4634
618-7741-7605
618-7741-7631
618-7741-9720
(By seafreight)
618-7796-3255
(Freight & handling charges per
Inv. 29127)
618-7796-5646

(I)t is a corporation duly organized and existing under the laws of the
Republic of Singapore with address at 18 Pasir Panjang Road #09-01, PSA
Multi-Storey Complex, Singapore 0511. It is not licensed to do business in
the Philippines and i(s) not so engaged and is suing on an isolated
transaction for which it has capacity to sue x x x. (par. 1, Complaint; p. 1,
Record)

Total
The transfers of goods were perfected in Singapore, for private
respondents account, F.O.B. Singapore, with a 90-day credit

term. Subsequently, demands were made by petitioner upon private

respondent to settle his account, but the latter failed/refused to do so.
On August 28, 1991, petitioner corporation filed with the Regional Trial
Court of Makati, Branch 138,[4] Civil Case No. 91-2373 entitled Eriks Pte. Ltd.
vs. Delfin Enriquez, Jr. for the recovery of S$41,939.63 or its equivalent in
Philippine currency, plus interest thereon and damages. Private respondent
responded with a Motion to Dismiss, contending that petitioner corporation
had no legal capacity to sue. In an Order dated March 8, 1993,[5] the trial
court dismissed the action on the ground that petitioner is a foreign
corporation doing business in the Philippines without a license. The
dispositive portion of said order reads:[6]
WHEREFORE, in view of the foregoing, the motion to dismiss is hereby
GRANTED and accordingly, the above-entitled case is hereby DISMISSED.
SO ORDERED.
On appeal, respondent Court affirmed said order as it deemed the
series of transactions between petitioner corporation and private
respondent not to be an isolated or casual transaction. Thus, respondent
Court likewise found petitioner to be without legal capacity to sue, and
disposed of the appeal as follows:[7]
WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED. The
complaint is dismissed. No costs.
SO ORDERED.
Hence, this petition.

The Issue
The main issue in this petition is whether petitioner-corporation may
maintain an action in Philippine courts considering that it has no license to
do business in the country. The resolution of this issue depends on whether
petitioners business with private respondent may be treated as isolated
transactions.

Petitioner insists that the series of sales made to private respondent

would still constitute isolated transactions despite the number of invoices
covering several separate and distinct items sold and shipped over a span of
four to five months, and that an affirmation of respondent Courts ruling
would result in injustice and unjust enrichment.
Private respondent counters that to declare petitioner as possessing
capacity to sue will render nugatory the provisions of the Corporation Code
and constitute a gross violation of our laws. Thus, he argues, petitioner is
undeserving of legal protection.
The Courts Ruling
The petition has no merit.
The Concept of Doing Business
The Corporation Code provides:
Sec. 133. Doing business without a license. - 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.
The aforementioned provision prohibits, not merely absence of the
prescribed license, but it also bars a foreign corporation doing business in
the Philippines without such license access to our courts.[8] A foreign
corporation without such license is not ipso facto incapacitated from
bringing an action. A license is necessary only if it is transacting or doing
business in the country.
However, there is no definitive rule on what constitutes doing,
engaging in, or transacting business. The Corporation Code itself does
not define such terms. To fill the gap, the evolution of its statutory
definition has produced a rather all-encompassing concept in Republic Act
No. 7042[9] in this wise:

SEC. 3. Definitions. - As used in this Act:

& Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111;
Automotive Material Co. v. American Standard Metal Products Corp., 158
N.E. 698, 703, 327 III. 367.)

xxx
xxx

xxx

(d) the phrase doing business shall include soliciting orders,

service contracts, opening offices, whether called liaison
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in
the country for a period or periods totalling one hundred
eight(y) (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain
or of the purpose and object of the business organization:
Provided, however, That the phrase doing business shall not
be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor
having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts
business in its own name and for its own account.
(underscoring supplied)
In the durable case of The Mentholatum Co. vs. Mangaliman, this Court
discoursed on the test to determine whether a foreign company is doing
business in the Philippines, thus:[10]
x x x 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. (Traction Cos. v. Collectors of Int. Revenue [C.C.A., Ohio],
223 F. 984, 987.] The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization.] (sic)
(Griffin v. Implement Dealers Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil

The accepted rule in jurisprudence is that each case must be judged in

the light of its own environmental circumstances.[11] It should be kept in
mind that the purpose of the law is to subject the foreign corporation doing
business in the Philippines to the jurisdiction of our courts. It is not to
prevent the foreign corporation from performing single or isolated acts, but
to bar it from acquiring a domicile for the purpose of business without first
taking the steps necessary to render it amenable to suits in the local courts.
The trial court held that petitioner-corporation was doing business
without a license, finding that:[12]
The invoices and delivery receipts covering the period of (sic) from January
17, 1989 to August 16, 1989 cannot be treated to mean a singular and
isolated business transaction that is temporary in character. Granting that
there is no distributorship agreement between herein parties, yet by the
mere fact that plaintiff, each time that the defendant posts an order
delivers the items as evidenced by the several invoices and receipts of
various dates only indicates that plaintiff has the intention and desire to
repeat the (sic) said transaction in the future in pursuit of its ordinary
business. Furthermore, and if the corporation is doing that for which it was
created, the amount or volume of the business done is immaterial and a
single act of that character may constitute doing business. (See p. 603, Corp.
Code, De Leon - 1986 Ed.).
Respondent Court affirmed this finding in its assailed Decision with this
explanation:[13]
x x x Considering the factual background as laid out above, the transaction
cannot be considered as an isolated one. Note that there were 17 orders
and deliveries (only sixteen per our count) over a four-month period. The
appellee (private respondent) made separate orders at various dates. The
transactions did not consist of separate deliveries for one single order. In
the case at bar, the transactions entered into by the appellant with the
appellee are a series of commercial dealings which would signify an intent
on the part of the appellant (petitioner) to do business in the Philippines

and could not by any stretch of the imagination be considered an isolated

one, thus would fall under the category of doing business.
Even if We were to view, as contended by the appellant, that the
transactions which occurred between January to August 1989, constitute a
single act or isolated business transaction, this being the ordinary business
of appellant corporation, it can be said to be illegally doing or transacting
business without a license. x x x Here it can be clearly gleaned from the
four-month period of transactions between appellant and appellee that it
was a continuing business relationship, which would, without doubt,
constitute doing business without a license. For all intents and purposes,
appellant corporation is doing or transacting business in the Philippines
without a license and that, therefore, in accordance with the specific
mandate of Section 144 of the Corporation Code, it has no capacity to sue.
(addition ours)
We find no reason to disagree with both lower courts. More than the
sheer number of transactions entered into, a clear and unmistakable
intention on the part of petitioner to continue the body of its business in
the Philippines is more than apparent. As alleged in its complaint, it is
engaged in the manufacture and sale of elements used in sealing pumps,
valves, and pipes for industrial purposes, valves and control equipment used
for industrial fluid control and PVC pipes and fittings for industrial use. Thus,
the sale by petitioner of the items covered by the receipts, which are part
and parcel of its main product line, was actually carried out in the
progressive prosecution of commercial gain and the pursuit of the purpose
and object of its business, pure and simple. Further, its grant and extension
of 90-day credit terms to private respondent for every purchase made,
unarguably shows an intention to continue transacting with private
respondent, since in the usual course of commercial transactions, credit is
extended only to customers in good standing or to those on whom there is
an intention to maintain long-term relationship. This being so, the existence
of a distributorship agreement between the parties, as alleged but not
proven by private respondent, would, if duly established by competent
evidence, be merely corroborative, and failure to sufficiently prove said
allegation will not significantly affect the finding of the courts below. Nor
our own ruling. It is precisely upon the set of facts above-detailed that we
concur with respondent Court that petitioner corporation was doing
business in the country.

Equally important is the absence of any fact or circumstance which

might tend even remotely to negate such intention to continue the
progressive prosecution of petitioners business activities in this
country. Had private respondent not turned out to be a bad risk, in all
likelihood petitioner would have indefinitely continued its commercial
transactions with him, and not surprisingly, in ever increasing volumes.
Thus, we hold that the series of transactions in question could not have
been isolated or casual transactions. What is determinative of doing
business is not really the number or the quantity of the transactions, but
more importantly, the intention of an entity to continue the body of its
business in the country. The number and quantity are merely evidence of
such intention. The phrase isolated transaction has a definite and fixed
meaning, i.e. a transaction or series of transactions set apart from the
common business of a foreign enterprise in the sense that there is no
intention to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is doing business
does not necessarily depend upon the frequency of its transactions, but
more upon the nature and character of the transactions.[14]
Given the facts of this case, we cannot see how petitioners business
dealings will fit the category of isolated transactions considering that its
intention to continue and pursue the corpus of its business in the country
had been clearly established. It has not presented any convincing argument
with equally convincing evidence for us to rule otherwise.

Incapacitated to Maintain Suit

Accordingly and ineluctably, petitioner must be held to be
incapacitated to maintain the action a quo against private respondent.
It was never the intent of the legislature to bar court access to a foreign
corporation or entity which happens to obtain an isolated order for business
in the Philippines. Neither, did it intend to shield debtors from their
legitimate liabilities or obligations.[15] But it cannot allow foreign
corporations or entities which conduct regular business any access to courts
without the fulfillment by such corporations of the necessary requisites to
be subjected to our governments regulation and authority. By securing a

license, the foreign entity would be giving assurance that it will abide by the
decisions of our courts, even if adverse to it.

Other Remedy Still Available

By this judgment, we are not foreclosing petitioners right to collect
payment. Res judicata does not set in a case dismissed for lack of capacity
to sue, because there has been no determination on the
merits.[16] Moreover, this Court has ruled that subsequent acquisition of the
license will cure the lack of capacity at the time of the execution of the
contract.[17]
The requirement of a license is not meant to put foreign corporations
at a disadvantage. Rather, the doctrine of lack of capacity to sue is based on
considerations of sound public policy.[18] Thus, it has been ruled in Home
Insurance that:[19]
x x x The primary purpose of our statute is to compel a foreign
corporation desiring to do business within the state to submit itself to the
jurisdiction of the courts of this state. The statute was not intended to
exclude foreign corporations from the state. x x x x The better reason, the
wiser and fairer policy, and the greater weight lie with those decisions
which hold that where, as here, there is a prohibition with a penalty, with
no express or implied declarations respecting the validity of enforceability
of contracts made by qualified foreign corporations, the contracts x x x are
enforceable x x x upon compliance with the law.(Peter & Burghard Stone Co.
v. Carper, 172 N.E. 319 *1930+.)
While we agree with petitioner that the country needs to develop
trade relations and foster friendly commercial relations with other states,
we also need to enforce our laws that regulate the conduct of foreigners
who desire to do business here. Such strangers must follow our laws and
must subject themselves to reasonable regulation by our government.
WHEREFORE, premises considered, the instant
hereby DENIED and the assailed Decision is AFFIRMED.

petition

SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

is

G.R. No. 73722 February 26, 1990

THE
COMMISSIONER
OF
CUSTOMS, petitioner,
vs.
K.M.K. GANI, INDRAPAL & CO., and the HONORABLE COURT OF TAX
APPEALS, respondents.
Armando S. Padilla for private respondent.

SARMIENTO, J.:
This is a review of the decision of the Court of Tax Appeals disposing as
follows:
WHEREFORE. the subject ten (10) cartons of articles are
hereby released to the carrying airline for immediate
transshipment to the country of destination under the
terms of the contract of carriage. No costs.
SO ORDERED. 1
The pertinent facts may be summarized thus:
On September 11, 1982, two (2,) containers loaded with 103 cartons of
merchandise covered by eleven (11) airway bills of several supposedly
Singapore-based consignees arrived at the Manila International Airport on
board Philippine Air Lines (PAL) Flight PR 311 from Hongkong. The cargoes
were consigned to these different entities: K.M.K. Gani (hereafter referred
to as K.M.K.) and Indrapal and Company (hereafter referred to as
INDRAPAL), the private respondents in the petition before us; and Sin Hong
Lee Trading Co., Ltd., AAR TEE Enterprises, and C. Ratilal all purportedly
based in Singapore.
While the cargoes were at the Manila International Airport, a "reliable
source" tipped off the Bureau of customs that the said cargoes were going
to be unloaded in Manila. Forthwith, the Bureau's agency on such matters,
the Suspected Cargo and Anti-Narcotics (SCAN), dispatched an agent to

verify the information. Upon arriving at the airport, the SCAN agent saw an
empty PAL van parked directly alongside the plane's belly from which
cargoes were being unloaded. When the SCAN agent asked the van's driver
why he was at the site, the driver drove away in his vehicle. The SCAN agent
then sequestered the unloaded cargoes.
The seized cargoes consisted of 103 cartons "containing Mogadon and
Mandrax tablets, Sony T.V. sets 1546R/176R kw, Sony Betamax SL5800, and
SL5000, Cassette Stereos with Headphone (ala walkman), Casio Calculators,
Pioneer Car Stereos, Yamaha Watches, Eyeglass Frames, Sunglasses, Plastic
Utility Bags, Perfumes, etc." These goods were transferred to the
International Cargo Terminal under Warrant of Seizure and Detention and
thereafter subjected to Seizure and Forfeiture proceedings for "technical
smuggling."
At the hearing, Atty. Armando S. Padilla entered his appearance for the
consignees K.M.K. and INDRAPAL. The records of the case do not show any
appearance of the consignees in person. Atty. Padilla moved for the
transshipment of the cargoes consigned to his clients. On the other hand,
the Solicitor General avers that K.M.K. and INDRAPAL did not present any
testimonial or documentary evidence. The, collector of Customs at the then
Manila International Airport (MIA), now Ninoy Aquino International Airport
(NAIA), ruled for the forfeiture of all the cargoes in the said containers
(Seizure Identification No. 4993-82, dated July 14, 1983). Consequently, Atty.
Padilla, ostensibly on behalf of his two clients, K.M.K. and INDRAPAL,
appealed the order to the Commissioner. of Customs. 2
The Commissioner of Customs affirmed the finding of the Collector of
Customs (Customs Case No. 83-85, January, 1984), of the presence of the
intention to import the said goods in violation of the Dangerous Drugs
Act 3 and Central Bank Circular No. 808 in relation to the Tariff and Customs
Code. 4
The Commissioner added the following findings of fact: 5
1. There is a direct flight from Hongkong to Singapore, thus
making the transit through Manila more expensive, tedious,
and circuitous.

2. The articles were grossly misdeclared, considering that

Singapore is a free port.
3. The television sets and betamax units seized were of the
American standard which is popularly used in Manila, and
not of the European standard which is used in Singapore.
4. One of the shippers is a Filipino national with no business
connection with her alleged consignee in Singapore.
5. The alleged consignee of the prohibited drugs confiscated
has no authority to import Mogadon or Mandrax.
Upon these findings, the Commissioner concluded that there was an "intent
to unlade" in Manila, thus, an attempt to smuggle goods into the country.
Taking exception to these findings, Atty. Armando S. Padilla, again as
counsel of the consignees K.M.K. and Indrapal, appealed to the respondent
Court of Tax Appeals (CTA). He argued in the CTA that K.M.K. and INDRAPAL
were "entitled to the release of their cargoes for transshipment to
Singapore so manifested and covered by the Airway bills as in transit, ...
contending that the goods were never intended importations into the
Philippines and the same suffer none of any affiliating breaches allegedly
found attributable to the other shipments under the Customs and related
laws." 6
The CTA reversed the decision of the Commissioner of Customs. Hence this
petition.
The petitioner raises the following errors:
1. THE COURT OF TAX APPEALS ERRED IN
ENTERTAINING THE PETITION FOR REVIEW
NOTWITHSTANDING
HEREIN
PRIVATE
RESPONDENTS' FAILURE TO ESTABLISH
THEIR PERSONALITY TO SUE IN A
REPRESENTATIVE CAPACITY.

2. THE COURT OF TAX APPEALS ERRED IN

RULING THAT THE SUBJECT GOODS WERE
IMPORTATIONS NOT INTENDED FOR THE
PHILIPPINES BUT FOR SINGAPORE, THUS,
NOT VIOLATING THE LAW ON TECHNICAL
SMUGGLING UNDER THE TARIFF AND
CUSTOMS CODE.
The issues before us are therefore: (1) whether or not the private
respondents failed to establish their personality to sue in a representative
capacity, hence making their action dismissable, and (2) whether or not the
subject goods were importations intended for the Philippines in violation of
the Tariff and Customs Code.
We answer both questions in the affirmative.
The law is clear: "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." 7
However, the Court in a long line of cases has held that a foreign
corporation not engaged in business in the Philippines may not be denied
the right to file an action in the Philippine courts for an isolated
transaction. 8
Therefore, the issue on whether or not a foreign corporation which does not
have a license to engage in business in this country can seek redress in
Philippine courts boils down as to whether it is doing business or merely
entered into an isolated transaction in the Philippines.
The fact that a foreign corporation is not doing business in the Philippines
must be disclosed if it desires to sue in Philippine courts under the "isolated
transaction rule." Without this disclosure, the court may choose to deny it
the right to sue. 9

In the case at bar, the private respondents K.M.K. and INDRAPAL aver that
they are "suing upon a singular and isolated transaction." But they failed to
prove their legal existence or juridical personality as foreign corporations.
Their unverified petition before the respondent Court of Tax Appeals merely
stated:
1. That petitioner "K.M.K. Gani" is a single
proprietorship doing business in accordance
with the laws of Singapore with address at
99 Greenfield Drive, Singapore, Rep. of
Singapore, while Petitioner INDRAPAL and
COMPANY" is a firm doing business in
accordance with the laws of Singapore with
office address at 97 High Street, Singapore
0641, Republic of Singapore, and summons
as well as other Court process may be
served to the undersigned lawyer;
2. That the Petitioner's (sic) are sueing (sic)
upon a singular and isolated transaction. 10
We are cognizant of the fact that under the "isolated transaction rule," only
foreign corporations and not just any business organization or entity can
avail themselves of the privilege of suing before Philippine courts even
without a license. Counsel Armando S. Padilla stated before the respondent
Court of Tax Appeals that his clients are "suing upon a singular and isolated
transaction." But there is no proof to show that K.M.K. and INDRAPAL are
indeed what they are represented to be. It has been simply stated by
Attorney Padilla that K.M.K. Gani is "a single proprietorship," while
INDRAPAL is "a firm," and both are "doing business in accordance with the
laws of Singapore ... ," with specified addresses in Singapore. In cases of this
nature, these allegations are not sufficient to clothe a claimant of suspected
smuggled goods of juridical personality and existence. The "isolated
transaction rule" refers only to foreign corporations. Here the petitioners
are not foreign corporations. They do not even pretend to be so. The first
paragraph of their petition before the Court, containing the allegation of
their identities, does not even aver their corporate character. On the
contrary, K.M.K. alleges that it is a "single proprietorship" while INDRAPAL
hides under the vague identification as a "firm," although both describe

themselves with the phrase "doing business in accordance with the laws of
Singapore."
Absent such proof that the private respondents are corporations (foreign or
not), the respondent Court of Tax Appeals should have barred their
invocation of the right to sue within Philippine jurisdiction under the
"isolated transaction rule" since they do not qualify for the availment of
such right.
As we had stated before:
But merely to say that a foreign corporation not doing
business in the Philippines does not need a license in order
to sue in our courts does not completely resolve the issue in
the present case. The proposition as stated, refers to the
right to sue; the question here refers to pleading and
procedure. It should be noted that insofar as the allegations
in the complaint have a bearing on appellant's capacity to
sue, all that is averred is that they are both foreign
corporations existing under the laws of the United States.
This averment conjures two alternative possibilities: either
they are engaged in business in the Philippines or they are
not so engaged. If the first, they must have been duly
licensed in order to maintain this suit; if the second, if (sic)
the transaction sued upon is singular and isolated, no such
license is required. In either case, the qualifying
circumstance is an essential part of the element of plaintiffs
capacity to sue and must be affirmatively pleaded. 11
In this connection, we note also a fatal defect in the pleadings of the private
respondents. There is no allegation as to who is the duly authorized
representative or resident agent in our jurisdiction. All we have on record
are the pleadings filed by Attorney Armando S. Padilla who represents
himself as the counsel for the private respondents.
xxx xxx xxx
It is incumbent on plaintiff to allege sufficient facts to show
that he is concerned with the cause of action averred, and is

the party who has suffered injury by reason of the acts of

defendant; in other words, it is not enough that he alleges a
cause of action existing in favor of someone, but he must
show that it exists in favor of himself. The burden should
not be placed on defendant to show that plaintiff is not the
aggrieved person and that he has sustained no damages. It
is also necessary for plaintiff to allege facts showing that the
causes of action alleged accrued to him in the capacity in
which he sues, and for this purpose it is necessary for
someone for one who sues otherwise than in his individual
capacity to allege his authority.
xxx xxx xxx
The plaintiff must show, in his pleading, his right and
interest in the subject matter of the suit; and a complaint
which does not show that plaintiff has the requisite interest
to enable him to maintain his action should be dismissed for
insufficiency ... 12
xxx xxx xxx
The appearance of Atty, Armando S. Padilla as counsel for the two claimants
would not suffice. Generally, a "lawyer is presumed to be properly
authorized to represent any cause in which he appears, and no written
power of attorney is required to authorize him to appear in court for his
client." 13 Nevertheless, although the authority of an attorney to appear for
and on behalf of a party may be assumed, it can still be questioned or
challenged by the adverse party concerned.14
The presumption established under the provision of Section 21, Rule 138 of
the Revised Rules of Court is disputable. 15 The requirement for the
production of authority is essential because the client will be bound by his
acquiescence resulting from his knowledge that he was being represented
by said attorney. 16
The Solicitor General, representing the petitioner-appellant, not only
questions the authority of Atty. Armando S. Padilla to represent the private
respondents but also the latter's capacity to sue:

... While it is alleged that the summons and court processes

may be served to herein private respondents' counsel who
filed the unverified petition before the Court of Tax Appeals,
the allegation would be insufficient for the purpose of
binding foreign corporations as in the instant case. To be
sure, the admitted absence of special power of attorney in
favor of their counsel, the relationship with the latter, if at
all, is merely that of a lawyer-client relationship and
definitely not one of a principal agent. Such being the case,
said counsel cannot bind nor compromise the interest of
private respondents as it is possible that the latter may
disown the former's representation to avoid civil or criminal
liability. In this respect, the Court cannot assume
jurisdiction over the person of private respondents,
notwithstanding the filing of the unverified petition in
question.
Apart from the foregoing, Section 4, Rule 8, Revised Rules of
Court mandates that facts showing the capacity of a party
to sue or be sued; or the authority of a party to sue or be
sued in a representative capacity; or the legal existence of
an organized association of person (sic) that is made a party,
must be averred. In like manner, the rule is settled that in
case where the law denies a foreign corporation to maintain
a suit unless it has previously complied with certain
requirements, then such compliance or exemption
therefrom, becomes a necessary averment in the complaint
(Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co., Inc. 17
SCRA 1037; vide; Sec. 4, Rule 8, Revised Rules of Court). In
the case at bar, apart from merely alleging that private
respondents are foreign corporation (sic) and that summons
may be served to their counsel, their petition in the Court of
Tax Appeals is bereft of any other factual allegation to show
their capacity to sue or be sued in a representative capacity
in his jurisdiction. 17
The representation and the extent of the authority of Atty. Padilla have thus
been expressly challenged. But he ignored such challenge which leads us to
the only conclusion that he has no authority to appear for such clients if
they exist, which we even doubt. In cases like this, it is the duty of the

government officials concerned to require competent proof of the

representation and authority of any claimant of any goods coming from
abroad and seized by our customs authorities or otherwise appearing to be
illegally imported. This desired meticulousness, strictness if you may, should
extend to their representatives and counsel. Our government has lost
considerable sums of money due to such dubious claims or claimants.
Apropos the second issue, suffice it to state that we agree with the findings,
already enumerated and discussed at the outset, made by the Collector of
Customs in his decision, dated July 14, 1983, which was affirmed and
amplified by the decision of the Commissioner of Customs, that those
constitute sufficient evidence to support the conclusion that there was an
intention to unlade the seized goods in the Philippines instead of its
supposed destination, Singapore. There is no need of belaboring them
anymore.
WHEREFORE, the petition is GRANTED; the decision of the Court of Tax
Appeals is SET ASIDE, and the decision of the petitioner is hereby
REINSTATED.
No costs.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Regalado, JJ., concur.

G.R. No. 73765 August 26, 1991

HANG
LUNG
BANK,
LTD., petitioner,
vs.
HON. FELINTRIYE G. SAULOG, Presiding Judge, Regional Trial Court,
National Capital Judicial Region, Branch CXLII, Makati, Metro Manila, and
CORDOVA CHIN SAN, respondents.
Belo, Abiera & Associates for petitioner.
Castelo Law Office for private respondent.

No notice of intention to defend having been given by the

1st and 2nd Defendants herein, IT IS THIS DAY ADJUDGED
that:
(1) the 1st Defendant (Ko Ching Chong Trading otherwise
known as the Worlder Enterprises) do pay the Plaintiff the
sum of HK$1,117,968.36 together with interest on the
respective principal sums of HK$196,591.38, HK$200,216.29,
HK$526,557.63, HK$49,350.00 and HK$3,965.50 at the rates
of 1.7% per month (or HK$111.40 per day), 18.5% per
annum (or HK$101.48 per day), 1.85% per month (or
HK$324.71 per day), 1.55% per month (or HK$25.50 per day)
and 1.7% per month (or HK$2.25 per day) respectively from
4th May 1984 up to the date of payment; and

FERNAN, C.J.:p
Challenged in this petition for certiorari which is anchored on grave abuse of
discretion, are two orders of the Regional Trial Court, Branch CXLII of Makati,
Metro Manila dismissing the complaint for collection of a sum of money and
denying the motion for reconsideration of the dismissal order on the ground
that petitioner, a Hongkong-based bank, is barred by the General Banking
Act from maintaining a suit in this jurisdiction.
The records show that on July 18, 1979, petitioner Hang Lung Bank, Ltd.,
which was not doing business in the Philippines, entered into two (2)
continuing guarantee agreements with Cordova Chin San in Hongkong
whereby the latter agreed to pay on demand all sums of money which may
be due the bank from Worlder Enterprises to the extent of the total amount
of two hundred fifty thousand Hongkong dollars (HK $250,000). 1
Worlder Enterprises having defaulted in its payment, petitioner filed in the
Supreme Court of Hongkong a collection suit against Worlder Enterprises
and Chin San. Summonses were allegedly served upon Worlder Enterprises
and Chin San at their addresses in Hongkong but they failed to respond
thereto. Consequently, the Supreme Court of Hongkong issued the following:

(2) the 2nd Defendant (Cordova Chin San) do pay the

Plaintiff the sum of HK$279,325.00 together with interest
on the principal sum of HK$250,000.00 at the rate of 1.7%
per month (or HK$141.67 per day) from 4th May 1984 up to
the date of payment.
AND IT IS ADJUDGED that the 1st and 2nd Defendants do
pay the Plaintiff the sum of HK$970.00 fixed costs.
N.J.
Registrar

BARNETT

Thereafter, petitioner through counsel sent a demand letter to Chin San at

his Philippine address but again, no response was made thereto. Hence, on
October 18, 1984, petitioner instituted in the court below an action seeking
"the enforcement of its just and valid claims against private respondent,
who is a local resident, for a sum of money based on a transaction which
was perfected, executed and consummated abroad." 2
In his answer to the complaint, Chin San raised as affirmative defenses: lack
of cause of action, incapacity to sue and improper venue. 3

JUDGMENT
THE 14th DAY OF JUNE, 1984

Pre-trial of the case was set for June 17, 1985 but it was postponed to July
12, 1985. However, a day before the latter pre-trial date, Chin San filed a

motion to dismiss the case and to set the same for hearing the next day. The
motion to dismiss was based on the grounds that petitioner had no legal
capacity to sue and that venue was improperly laid.
Acting on said motion to dismiss, on December 20, 1985, the lower
court 4 issued the following order:

relied upon by plaintiff, deal with isolated transaction in the

Philippines of foreign corporation. Such transaction though
isolated is the one that conferred jurisdiction to Philippine
courts, but in the instant case, the transaction occurred in
Hongkong.
Case dismissed. The instant complaint not the proper action.

On defendant Chin San Cordova's motion to dismiss, dated

July 10, 1985; plaintiff's opposition, dated July 12, 1985;
defendant's reply, dated July 22, 1985; plaintiff's
supplemental opposition, dated September 13, 1985, and
defendant's rejoinder filed on September 23, 1985, said
motion to dismiss is granted.
Section 14, General Banking Act provides:
"No foreign bank or banking corporation
formed, organized or existing under any
laws other than those of the Republic of the
Philippines, shall be permitted to transact
business in the Philippines, or maintain by
itself any suit for the recovery of any debt,
claims or demands whatsoever until after it
shall have obtained, upon order of the
Monetary Board, a license for that
purpose."
Plaintiff Hang Lung Bank, Ltd. with business and postal
address at the 3rd Floor, United Centre, 95 Queensway,
Hongkong, does not do business in the Philippines. The
continuing guarantee, Annexes "A" and "B" appeared to
have been transacted in Hongkong. Plaintiff's Annex "C"
shows that it had already obtained judgment from the
Supreme Court of Hongkong against defendant involving
the same claim on June 14, 1984.
The cases of Mentholatum Company, Inc. versus
Mangaliman, 72 Phil. 524 and Eastern Seaboard Navigation,
Ltd. versus Juan Ysmael & Company, Inc., 102 Phil. 1-8,

SO ORDERED. 5
Petitioner filed a motion for the reconsideration of said order but it was
denied for lack of merit. 6 Hence, the instant petition for certiorari seeking
the reversal of said orders "so as to allow petitioner to enforce through the
court below its claims against private respondent as recognized by the
Supreme Court of Hongkong." 7
Petitioner asserts that the lower court gravely abused its discretion in: (a)
holding that the complaint was not the proper action for purposes of
collecting the amount guaranteed by Chin San "as recognized and adjudged
by the Supreme Court of Hongkong;" (b) interpreting Section 14 of the
General Banking Act as precluding petitioner from maintaining a suit before
Philippine courts because it is a foreign corporation not licensed to do
business in the Philippines despite the fact that it does not do business here;
and (c) impliedly sustaining private respondent's allegation of improper
venue.
We need not detain ourselves on the issue of improper venue. Suffice it to
state that private respondent waived his right to invoke it when he
forthwith filed his answer to the complaint thereby necessarily implying
submission to the jurisdiction of the court. 8
The resolution of this petition hinges on a determination of whether
petitioner foreign banking corporation has the capacity to file the action
below.
Private respondent correctly contends that since petitioner is a bank, its
capacity to file an action in this jurisdiction is governed by the General
Banking Act (Republic Act No. 337), particularly Section 14 thereof which
provides:

SEC. 14. No foreign bank or banking corporation formed,

organized or existing under any laws other than those of the
Republic of the Philippines shall be permitted to transact
business in the Philippines, or maintain by itself or assignee
any suit for the recovery of any debt, claims, or demand
whatsoever, until after it shall have obtained, upon order of
the Monetary Board, a license for that purpose from the
Securities and Exchange Commissioner. Any officer, director
or agent of any such corporation who transacts business in
the Philippines without the said license shall be punished by
imprisonment for not less than one year nor more than ten
years and by a fine of not less than one thousand pesos nor
more than ten thousand pesos. (45 O.G. No. 4, 1647, 16491650)
In construing this provision, we adhere to the interpretation given by this
Court to the almost identical Section 69 of the old Corporation Law (Act No.
1459) which reads:
SEC. 69. No foreign corporation or corporation formed,
organized, or existing under any laws other than those of
the Philippines shall be permitted to transact business in
the Philippines or maintain by itself or assignee any suit for
the recovery of any debt, claim, or demand whatever,
unless it shall have the license prescribed in the section
immediately preceding. Any officer, director or agent of the
corporation or any person transacting business for any
foreign corporation not having the license prescribed shall
be punished by imprisonment for not less than six months
nor more than two years or by a fine of not less than two
hundred pesos nor more than one thousand pesos, or by
both such imprisonment and fine, in the discretion of the
Court.
In a long line of cases, this Court has interpreted this last quoted provision
as not altogether prohibiting a foreign corporation not licensed to do
business in the Philippines from suing or maintaining an action in Philippine
courts. 9What it seeks to prevent is a foreign corporation doing business in
the Philippines without a license from gaining access to Philippine courts. As
elucidated in Marshall-Wells Co. vs. Elser & Co., 46 Phil. 70:

The object of the statute was to subject the foreign

corporation doing business in the Philippines to the
jurisdiction of its courts. The object of the statute was not
to prevent it from performing single acts but to prevent it
from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to
suit in the local courts. The implication of the law is that it
was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated
order for business from the Philippines from securing
redress from Philippine courts, and thus, in effect, to permit
persons to avoid their contract made with such foreign
corporation. The effect of the statute preventing foreign
corporations from doing business and from bringing actions
in the local courts, except on compliance with elaborate
requirements, must not be unduly extended or improperly
applied. It should not be construed to extend beyond the
plain meaning of its terms, considered in connection with its
object, and in connection with the spirit of the entire law.
The fairly recent case of Universal Shipping Lines vs. Intermediate Appellate
Court, 10 although dealing with the amended version of Section 69 of the old
Corporation Law, Section 133 of the Corporation Code (Batas Pambansa Blg.
68), but which is nonetheless apropos, states the rule succinctly: "it is not
the lack of the prescribed license (to do business in the Philippines) but
doing business without license, which bars a foreign corporation from
access to our courts."
Thus, we have ruled that a foreign corporation not licensed to do business
in the Philippines may file a suit in this country due to the collision of two
vessels at the harbor of Manila 11 and for the loss of goods bound for
Hongkong but erroneously discharged in Manila. 12
Indeed, the phraseologies of Section 14 of the General Banking Act and its
almost identical counterpart Section 69 of the old Corporation Law are
misleading in that they seem to require a foreign corporation, including a
foreign bank or banking corporation, not licensed to do business and not
doing business in the Philippines to secure a license from the Securities and
Exchange Commission before it can bring or maintain an action in Philippine

courts. To avert such misimpression, Section 133 of the Corporation Code is

now more plainly worded thus:
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.
Under this provision, we have ruled that a foreign corporation may sue in
this jurisdiction for infringement of trademark and unfair competition
although it is not doing business in the Philippines 13 because the Philippines
was a party to the Convention of the Union of Paris for the Protection of
IndustrialProperty. 14
We even went further to say that a foreign corporation not licensed to do
business in the Philippines may not be denied the right to file an action in
our courts for an isolated transaction in this country. 15
Since petitioner foreign banking corporation was not doing business in the
Philippines, it may not be denied the privilege of pursuing its claims against
private respondent for a contract which was entered into and consummated
outside the Philippines. Otherwise we will be hampering the growth and
development of business relations between Filipino citizens and foreign
nationals. Worse, we will be allowing the law to serve as a protective shield
for unscrupulous Filipino citizens who have business relationships abroad.
In its pleadings before the court, petitioner appears to be in a quandary as
to whether the suit below is one for enforcement or recognition of the
Hongkong judgment. Its complaint states:
COMES NOW Plaintiff, by undersigned counsel, and to this
Honorable Court, most respectfully alleges that:
1. Plaintiff is a corporation duly organized and existing
under and by virtue of the laws of Hongkong with business
and postal address at the 3rd Floor, United Centre, 95
Queensway, Hongkong, not doing business in the
Philippines, but is suing for this isolated transaction, but for

purposes of this complaint may be served with summons

and legal processes of this Honorable Court, at the 6th Floor,
Cibeles Building, 6780 Ayala Avenue, Makati, Metro Manila,
while defendant Cordova Chin San, may be served with
summons and other legal processes of this Honorable Court
at the Municipality of Moncada, Province of Tarlac,
Philippines;
2. On July 18, 1979 and July 25, 1980, the defendant
executed Continuing Guarantees, in consideration of
plaintiff's from time to time making advances, or coming to
liability or discounting bills or otherwise giving credit or
granting banking facilities from time to time to, or on
account of the Wolder Enterprises (sic), photocopies of the
Contract of Continuing Guarantees are hereto attached as
Annexes "A" and "B", respectively, and made parts hereof;
3. In June 1984, a complaint was filed by plaintiff against the
Wolder Enterprises (sic) and defendant Cordova Chin San, in
The Supreme Court of Hongkong, under Case No. 3176, and
pursuant to which complaint, a judgment dated 14th day of
July, 1984 was rendered by The Supreme Court of
Hongkong ordering to (sic) defendant Cordova Chin San to
pay the plaintiff the sum of HK$279,325.00 together with
interest on the principal sum of HK$250,000.00 at the rate
of HK$1.7% per month or (HK$141.67) per day from 4th
May, 1984 up to the date the said amount is paid in full, and
to pay the sum of HK$970.00 as fixed cost, a photocopy of
the Judgment rendered by The Supreme Court of Hongkong
is hereto attached as Annex "C" and made an integral part
hereof.
4. Plaintiff has made demands upon the defendant in this
case to pay the aforesaid amount the last of which is by
letter dated July 16, 1984 sent by undersigned counsel, a
photocopy of the letter of demand is hereto attached as
Annex "D" and the Registry Return Card hereto attached as
Annex "E", respectively, and made parts hereof. However,
this notwithstanding, defendant failed and refused and still
continue to fail and refuse to make any payment to plaintiff

on the aforesaid amount of HK$279,325.00 plus interest on

the principal sum of HK$250,000.00 at the rate of
(HK$141.67) per day from May 4, 1984 up to the date of
payment;
5. In order to protect and safeguard the rights and interests
of herein plaintiff, it has engaged the services of
undersigned counsel, to file the suit at bar, and for whose
services it has agreed to pay an amount equivalent to 25%
of the total amount due and owing, as of and by way of
attorney's fees plus costs of suit.
WHEREFORE, premises considered, it is most respectfully
prayed of this Honorable Court that judgment be rendered
ordering the defendant:

However, a foreign judgment may not be enforced if it is not recognized in

the jurisdiction where affirmative relief is being sought. Hence, in the
interest of justice, the complaint should be considered as a petition for the
recognition of the Hongkong judgment under Section 50 (b), Rule 39 of the
Rules of Court in order that the defendant, private respondent herein, may
present evidence of lack of jurisdiction, notice, collusion, fraud or clear
mistake of fact and law, if applicable.
WHEREFORE, the questioned orders of the lower court are hereby set aside.
Civil Case No. 8762 is reinstated and the lower court is directed to proceed
with dispatch in the disposition of said case. This decision is immediately
executory. No costs.
SO ORDERED.
Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

a) To pay plaintiff the sum of HK$279,325.00 together with

interest on the principal sum of HK$260,000.00 at the rate
of HK$1.7% (sic) per month (or HK$141.67 per day) from
May 4, 1984 until the aforesaid amount is paid in full;
b) To pay an amount equivalent to 25% of the total amount
due and demandable as of and by way of attorney's fees;
and
c) To pay costs of suit, and
Plaintiff prays for such other and further reliefs, to which it
may by law and equity, be entitled. 16
The complaint therefore appears to be one of the enforcement of the
Hongkong judgment because it prays for the grant of the affirmative relief
given by said foreign judgment. 17 Although petitioner asserts that it is
merely seeking the recognition of its claims based on the contract sued
upon and not the enforcement of the Hongkong judgment 18 it should be
noted that in the prayer of the complaint, petitioner simply copied the
Hongkong judgment with respect to private respondent's liability.

Feliciano, J., is on leave.

FIRST
[G.R.

DIVISION
No.

47701.

June

27,

1941.]

THE MENTHOLATUM CO., INC., ET AL., Petitioners, v. ANACLETO

MANGALIMAN,
ET
AL.,Respondents.
Araneta,

Zaragoza,

Araneta

&

Bautista,

the pleadings being to draw the lines of battle between litigants and to
indicate fairly the nature of the claims or defenses of both parties (1
Sutherlands Code Pleading, Practice & Forms, sec. 83; Milliken v. Swenseld,
46 N. D., 561, 563; 179 N. W., 920), a party cannot subsequently take a
position contradictory to, or inconsistent with, his pleadings, as the facts
therein admitted are to be taken as true for the purpose of the action.

for Petitioners.
DECISION

Benito

Soliven

for Respondents.

SYLLABUS
1. FOREIGN CORPORATIONS; MEANING OF "DOING" OR "ENGAGING IN" OR
"TRANSACTING" BUSINESS. No general rule or governing principles can
be laid down as to what constitutes "doing" or "engaging in" or
"transacting" business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The rule 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 retire from it and turned it over to another. (Traction Cos. v.
Collectors of Int. Revenue [C. C. S. Ohio], 223 F., 984, 987.) The term implies
a continuity of commercial dealings and arrangements, and contemplates to
that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the
purpose
and
object
of
its
organization.
2. ID.; ID.; LICENSE REQUIRED BY SECTION 68 OF CORPORATION LAW; RIGHT
TO SUE AND BE SUED. The Mentholatum Co., Inc. being a foreign
corporation doing business in the Philippines without the license required
by section 68 of the Corporation Law, it may not prosecute this action for
violation of trade mark and unfair competition. Neither may the PhilippineAmerican Drug Co., Inc. maintain the action here for the reason that the
distinguishing features of the agent being his representative character and
derivative authority (Merchem on Agency, sec. 1; Story on Agency, sec. 3;
Sternaman v. Metropolitan Life Ins. Co., 170 N. Y., 21), it cannot now, to the
advantage of its principal, claim an independent standing in court.
3. PLEADING AND PRACTICE; OBJECT OF PLEADINGS; POSITION
CONTRADICTORY TO, OR INCONSISTENT WITH, PLEADINGS. The object of

LAUREL, J.:

This is a petition for a writ of certiorari to review the decision of the Court of
Appeals dated June 29, 1940, reversing the judgment of the Court of First
Instance of Manila and dismissing the petitioners complaint.
On October 1, 1935, the Mentholatum Co., Inc., and the PhilippineAmerican Drug, Co., Inc. instituted an action in the Court of First Instance of
Manila, civil case No. 48855, against Anacleto Mangaliman, Florencio
Mangaliman and the Director of the Bureau of Commerce for infringement
of trade mark and unfair competition. Plaintiffs prayed for the issuance of
an order restraining Anacleto and Florencio Mangaliman from selling their
product "Mentholiman," and directing them to render an accounting of
their sales and profits and to pay damages. The complaint stated, among
other particulars, that the Mentholatum Co., Inc., is a Kansas corporation
which manufactures "Mentholatum," a medicament and salve adapted for
the treatment of colds, nasal irritations, chapped skin, insect bites, rectal
irritation and other external ailments of the body; that the PhilippineAmerican Drug Co., Inc., is its exclusive distributing agent in the Philippines
authorized by it to look after and protect its interests; that on June 26, 1919
and on January 21, 1921, the Mentholatum Co., Inc., registered with the
Bureau of Commerce and Industry the word, "Mentholatum", as trade mark
for its products; that the Mangaliman brothers prepared a medicament and
salve named "Mentholiman" which they sold to the public packed in a
container of the same size, color and shape as "Mentholatum" ; and that, as
a consequence of these acts of the defendants, plaintiffs suffered damages
from the diminution of their sales and the loss of goodwill and reputation of
their
product
in
the
market.

After a protracted trial, featured by the dismissal of the case on March 9,

1936 for failure of plaintiffs counsel to attend, and its subsequent
reinstatement on April 4, 1936, the Court of First Instance of Manila, on
October 29, 1937, rendered judgment in favor of the complainants, the
dispositive part of its decision reading thus:jgc:chanrobles.com.ph

"1. The Court of Appeals erred in declaring that the transactions of the
Mentholatum Co., Inc., in the Philippines constitute transacting business in
this country as this term is used in section 69 of the Corporation Law. The
aforesaid conclusion of the Court of Appeals is a conclusion of law and not
of
fact.

dicta

"2. The Court of Appeals erred in not holding that whether or not the
Mentholatum Co., Inc., has transacted business in the Philippines is an issue
foreign
to
the
case
at
bar.

"(a) Haciendo que sea perpetuo y permanente el interdicto prohibitorio

preliminar expedido contra Anacleto Mangaliman, sus agentes y empleados,
prohibiendoles vender su producto en la forma en que se vendia al incoarse
la demanda de autos, o de alguna otra manera competir injustamente
contra el producto de las demandantes, y de usar la marca industrial
"MENTHOLIMAN"
en
sus
productos;

"3. The Court of Appeals erred in not considering the fact that the complaint
was filed not only by the Mentholatum Co., Inc., but also by the PhilippineAmerican Drug Co., Inc., and that even if the Mentholatum Co., Inc., has no
legal standing in this jurisdiction, the complaint filed should be decided on
its merits since the Philippine-American Drug Co., Inc., has sufficient interest
and standing to maintain the complaint."cralaw virtua1aw library

"(b) Ordenando al demandado Anacleto Mangaliman, que rinda exacta

cuenta de sus ganancias por la venta de su producto desde el dia 1.o de
marzo de 1934, hasta le fecha de esta decision, y que pague a las
demandantes, en concepto de daos y perjuicios, lo que resulta ser la
ganancia
de
dicho
demandado;

Categorically stated, this appeal simmers down to an interpretation of

section 69 of the Corporation Law, and incidentally turns upon a substantial
consideration of two fundamental propositions, to wit: (1) Whether or not
the petitioners could prosecute the instant action without having secured
the license required in section 69 of the Corporation Law; and (2) whether
or not the Philippine-American Drug Co., Inc., could by itself maintain this
proceeding.

"En meritos de todo lo

sentencia:jgc:chanrobles.com.ph

expuesto,

este

Juzgado

"(c) Condenando a dicho demandado, Anacleto Mangaliman, a pagar un

multa de cincuenta pesos (P50) por desacato al Juzgado, y las costas del
juicio;
y
"(d) Sobreseyendo la contra-reclamacion del demandado, Anacleto
Mangaliman, contra las demandantes."cralaw virtua1aw library
In the Court of Appeals, where the cause was docketed as CA-G.R. No.
46067, the decision of the trial court was, on June 29, 1940, reversed, said
tribunal holding that the activities of the Mentholatum Co., Inc., were
business transactions in the Philippines, and that by section 69 of the
Corporation Law, it may not maintain the present suit. Hence, this petition
for certiorari.
In seeking a reversal of the decision appealed from, petitioners assign the
following
errors:jgc:chanrobles.com.ph

Petitioners maintain that the Mentholatum Co., Inc., gas not sold personally
any of its products in the Philippines; that the Philippine-American Drug Co.,
Inc., like fifteen or twenty other local entities, was merely an importer of
the products of the Mentholatum Co., Inc., and that the sales of the
Philippines-American Drug Co., Inc., were its own and not for the account of
the Mentholatum Co., Inc. Upon the other hand, the defendants contend
that the Philippine- American Drug Co., Inc., is the exclusive distributing
agent in the Philippines of the Mentholatum Co., Inc., in the sale and
distribution of its product known as "Mentholatum" ; that, because of this
arrangement, the acts of the former become the acts of the latter; and that
the Mentholatum Co., Inc., being thus engaged in business in the Philippines,
and not having acquired the license required by section 68 of the
Corporation Law, neither it nor the Philippine-American Drug Co., Inc., could
prosecute
the
present
action.

Section

69

of

Act

No.

1459

reads:jgc:chanrobles.com.ph

"SEC. 69. No foreign corporation or corporation formed, organized, or

existing under any laws other than those of the Philippine Islands shall be
permitted to transact business in the Philippine Islands or maintain by itself
or assignee any suit for the recovery of any debt, claim or demand whatever,
unless it shall have the license prescribed shall be punished by
imprisonment for not less than six months nor more than two years or by a
fine of not less than two thousand pesos, or by both such imprisonment and
fine, in the discretion of the court."cralaw virtua1aw library
In the present case, no dispute exists as to facts: (1) that the plaintiff, the
Mentholatum Co., Inc., is a foreign corporation: and (2) that it is not
licensed to do business in the Philippines. The controversy, in reality, hinges
on the question of whether the said corporation is or is not transacting
business
in
the
Philippines.
No general rule or governing principle can be laid down as to what
constitutes "doing" or "engaging in" or "transacting" business. Indeed, each
case must be judged in the light of its peculiar environmental circumstances.
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. (Traction Cos. v. Collectors of Int. Revenue [C. C. A. Ohio],
223 F. 984, 987.) The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization. ]
(Griffin v. Implement Dealers Mut. Fire Ins. Co., 241 N. W. 75, 77; Pauline
Oil & Gas Co. v. Mutual Tank Line Co., 246 p. 851, 852, 118 Okl. 111;
Automotive Material Co. v. American Standard Metal Products Corp., 158 N.
E.
698,
703,
327,
Ill.
367.)
In its decision of June 29, 1940, the Court of Appeals concluded that" it is
undeniable that the Mentholatum Co., through its agent, the PhilippineAmerican Drug Co., Inc., has been doing business in the Philippines by
selling its products here since the year 1929, at least." This is assailed by
petitioners as a pure conclusion of law. This finding is predicated upon the
testimony of Mr. Roy Springer of the Philippine-American Drug Co., Inc., and
the pleasings filed by the petitioners. The complaint filed in the Court of

First Instance of Manila on October 1, 1935, clearly stated that the

Philippine-American Drug Co., Inc., is the exclusive distributing agent in the
Philippine Islands of the Mentholatum Co., Inc., in the sale and distribution
of its product known as the Mentholatum." The object of the pleadings
being to draw the lines of battle between litigants and to indicate fairly the
nature of the claims or defenses of both parties (1 Sutherlands Code
Pleading, Practice and Forms, sec. 83; Milliken v. Western Union Tel. Co.,
110 N. Y. 403, 18 N. E. 251; Eckrom v. Swenseld, 46 N. D. 561, 563, 179 N. W.
920), A party cannot subsequently take a position contradictory to, or
inconsistent with, his pleadings , as the facts therein admitted are to be
taken as true for the purpose of the action. (46 C. J., sec. 121, pp. 122-124.)
It follows that whatever transactions the Philippine-American Drug Co., Inc.,
had executed in view of the law, the Mentholatum Co., Inc., being a foreign
corporation doing business in the Philippines without the license required
by section 68 of the Corporation Law, it may not prosecute this action for
violation of trade mark and unfair competition. Neither may the PhilippineAmerican Drug Co., Inc., maintain the action here for the reason that the
distinguishing features of the agent being his representative character and
derivative authority (Mechem on Agency, sec. 1; Story on Agency, sec. 3;
Sternaman v. Metropolitan Life Ins. Co., 170 N. Y. 21), it cannot now, to the
advantage of its principal, claim an independent standing in court.
The appellees below, petitioners here, invoke the case of Western
Equipment and Supply Co. v. Reyes (51 Phil., 115). The Court of Appeals,
however, properly distinguished that case from the one at bar in that in the
former "the decision expressly says that the Western Equipment and Supply
Co. was not engaged in business in the Philippines, and significantly added
that if the plaintiff had been doing business in the Philippine Islands without
first obtaining a license, another and a very different question would be
presented." It is almost unnecessary to remark in this connection that the
recognition of the legal status of a foreign corporation is a matter affecting
the policy of the forum, and the distinction drawn in our Corporation Law is
an expression of the policy. The general statement made in Western
Equipment and Supply Co. v. Reyes regarding the character of the right
involved should not be construed in the derogation of the policydetermining
authority
of
the
State.
The right of the petitioner conditioned upon compliance with the
requirement of section 69 of the Corporation Law to protect its rights, is
hereby
reserved.

The writ prayed for should be, as it hereby is, denied, with costs against the
petitioners.
So

ordered.

Avancea, C.J., Diaz and Horrilleno, JJ., concur.

Separate Opinions

MORAN, J.,

dissenting:chanrob1es

virtual

1aw

library

Section 69 of the Corporation Law provides that, without license no foreign

corporation may maintain by itself or assignee any suit in the Philippine
courts for the recovery of any debt, claim or demand whatever. But this
provision, as we have held in Western Equipment & Supply Company v.
Reyes (51 Phil., 115), does not apply to suits for infringement of trade marks
and unfair competition, the theory being that "the right to the use of the
corporate and trade name of a foreign corporation is a property right, a
right in rem, which it may assert and protect in any of the courts of the
world even in countries where it does not personally transact any business,"
and that "trade mark does not acknowledge any territorial boundaries but
extends to every mark where the traders goods have become known and
identified by the use of the mark."cralaw virtua1aw library
For this reason, I dissent from the majority opinion.

EN BANC
G.R. No. L-18961 August 31, 1966
ATLANTIC MUTUAL INSURANCE COMPANY and CONTINENTAL INSURANCE
COMPANY, plaintiffs and appellants, vs. CEBU STEVEDORING CO.,
INC., defendant and appellee.
William H. Quasha and Associates for plaintiffs and appellants.
Deen Law Offices for defendant and appellee.
MAKALINTAL, J.:chanrobles virtual law library
This is an appeal from three orders of the Court of First Instance of Cebu,
the last one dismissing appellants' complaint. These appellants - Atlantic
Mutual Insurance Company and Continental Insurance Company - are both
foreign corporations existing under the laws of the United States. They sued
the Cebu Stevedoring Co., Inc., a domestic corporation, for recovery of a
sum of money on the following allegations: that defendant, a common
carrier, undertook to carry a shipment of copra for deliver to Procter &
Gamble Company, at Cebu City; that upon discharge, a portion of the copra
was found damaged; that since the copra had been previously insured with
plaintiffs they paid the shipper and/or consignee, upon proper claim and
assessment of the damage, the sum of P15,980.30; and that as subrogee to
the shipper's and/or consignee's rights, plaintiffs demanded, without
success, settlement from defendant by reason of its failure to comply with
its obligation, as carrier, to deliver the copra in good
order.chanroblesvirtualawlibrarychanrobles virtual law library
Defendant moved to dismiss on two grounds: (a) that plaintiffs had "no legal
personality to appear before Philippine courts and with no capacity to sue;"
and (b) that the complaint did not state a cause of action. Both grounds
were based upon failure of the complaint to allege compliance with section
69 of the Corporation Law, which states:
SEC. 69. No foreign corporation or corporation formed, organized, or
existing under any laws other than those of the Philippines shall be
permitted to transact business in the Philippines or maintain by itself or
assigned any suit for the recovery of any debt, claim, or demand whatever,

unless it shall have the license prescribed in the section immediately

preceeding. Any officer, director or agent of the corporation or any person
transacting business for any foreign corporation not having the license
prescribed shall be punished by imprisonment for not less than six months
nor more than two years or by a fine of not less than two hundred pesos nor
more than one thousand pesos, or by both such imprisonment and fine, in
the discretion of the Court.
Section 68 of the Corporation Law is almost identical with the first part of
Section 69 which requires a license before a foreign corporation may be
permitted to transact business in the Philippines, but adds that such license
may be obtained from the Director of Commerce upon order of the
Secretary of Commerce and Industry.chanroblesvirtualawlibrarychanrobles
virtual law library
Plaintiffs opposed the motion to dismiss; and the trial court, in an order
dated June 27, 1960, found the complaint deficient in that it failed to state
the plaintiffs were duly licensed to transact business in the Philippines, but
gave them an opportunity to amend said complaint within a period of ten
days. Plaintiffs moved to reconsider and, after the motion was denied, filed
a manifestation to the effect that they could not comply with the order to
amend but would wait for the dismissal of the complaint so as to be able to
elevate the matter to this Court on appeal. On September 6, 1960, the order
of dismissal was issued.chanroblesvirtualawlibrarychanrobles virtual law
library
The trial court would have plaintiffs amend the complaint by including
therein an allegation that as foreign corporations they were duly licensed to
engage in business in the Philippines. The implication of the court's ruling is
that without such license a foreign corporation may not sue in our courts in
view of section 69 of the Corporation Law. Appellants contend that this is an
erroneous interpretation of the statute; that a license is necessary before a
foreign corporation may transact, that is, engage in, business in the
Philippines, and if so engaged before, it may maintain a suit in our courts;
but that if a foreign corporation is not doing business here it is not barred
from seeking redress in our courts in proper cases, as when it sues on an
isolated transaction, even if it has not obtained a license pursuant to Section
69.chanroblesvirtualawlibrarychanrobles virtual law library

Appellants' contention is correct as far as it goes. It finds support in the

decision written by Mr. Justice Malcolm in Marshall-Wells Co. vs. Elser & Co.,
46 Phil. 71 (September 8, 1924), where this Court said after analyzing
Section 69 of the Corporation Law: "The Law simply means that no foreign
corporation shall be permitted to transact business in the Philippines, ...
unless it shall have the license required by law, and, until it complies with
this law, shall not be permitted to maintain any suit in the local
courts."chanrobles virtual law library
"The object of the statute," this Court explained in that case, "was to object
of the statute was not to prevent the foreign corporation from performing
single acts, but to prevent it from acquiring a domicile for the purpose of
business without taking the steps necessary to render it amenable to suit in
the local courts. The implication of the law is that it was never the purpose
of the Legislature to exclude a foreign corporation which happens to obtain
an isolated order for business from the Philippines, from securing redress in
the Philippine Courts, and thus, in effect, to permit persons to avoid their
contracts made with such foreign corporations. The effect of the statute
preventing foreign corporations from doing business and from bringing
actions in the local courts, except in compliance with elaborate
requirements, must not be unduly extended or improperly applied. It should
not be construed to extend beyond the plain meaning of its terms,
considered in connection with its object, and in connection with the spirit of
the entire law."chanrobles virtual law library
But merely to say that a foreign corporation not doing business in the
Philippines does not need a license in order to sue in our courts does not
completely resolve the issue in the present case. The proposition, as stated,
refers to the right to sue; the question here refers to pleading and
procedure. It should be noted that insofar as the allegations in the
complaint have a bearing on appellants' capacity to sue, all that is averred is
that they are both foreign corporations existing under the laws of the
United States. This averment conjures two alternative possibilities: either
they are engaged in business in the Philippines or they are not so engaged.
If the first, they must have been duly licensed in order to maintain this suit;
if the second, if the transaction sued upon is singular and isolated, no such
license is required. In either case, the qualifying circumstance is an essential
part of the element of plaintiffs' capacity to sue and must be affirmatively
pleaded.chanroblesvirtualawlibrarychanrobles virtual law library

To be sure, under the Rules of Court (Section 11, Rule 15) in force prior to
the promulgation of the Revised Rules on January 1, 1964, it was not
necessary to aver the capacity of a party to sue except to the extent
required to show jurisdiction of the court. In our opinion, however, such
rule does not apply in all situations and under all circumstances. The theory
behind a similar rule in the United States is "that capacity ... of a party for
purpose of suit is not in dispute in the great bulk of cases, and that pleading
and proof can be simplified by a rule that an averment of such matter is not
necessary, except to show jurisdiction."1 But where as in the present case,
the law denies to a foreign corporation the right to maintain suit unless it
has previously complied with a certain requirement, then such compliance,
or the fact that the suing corporation is exempt therefrom, becomes a
necessary averment in the complaint. These are matters peculiarly within
the knowledge of appellants alone, and it would be unfair to impose upon
appellee the burden of asserting and proving the contrary. It is enough that
foreign corporations are allowed by law to seek redress in our courts under
certain conditions: the interpretation of the law should not go so far as to
include, in effect, an inference that those conditions have been met from
the
mere
fact
that
the
party
suing
is
a
foreign
corporation.chanroblesvirtualawlibrarychanrobles virtual law library
It was indeed in the light of these and other consideration that this Court
has seen fit to amend the former rule by requiring in the Revised Rules
(Section 4, Rule 8) that "facts showing the capacity of a party to sue or be
sued or the authority of a party to sue or be sued in a representative
capacity or the legal existence of an organized association of persons that is
made a party, must be averred."chanrobles virtual law library
The orders appealed from are affirmed, with costs against plaintiffsappellants.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Bengzon, J.P., Zaldivar,
Sanchez
and
Castro,
JJ.,
concur.
Regala, J., took no part.

G.R. No. L-38649 March 26, 1979

FACILITIES MANAGEMENT CORPORATION, J. S. DREYER, and J. V.
CATUIRA, petitioners,
vs.
LEONARDO DE LA ROSA AND THE HONORABLE COURT OF INDUSTRIAL
RELATIONS, respondents.
Sycip, Salazar, Feliciano & Associates for petitioners.
Benjamin M. Mendoza for respondent Court.

MAKASIAR, J:
Petition for review on certiorari of the decision of the Court of Industrial
Relations, dated February 14, 1972, ordering petitioners herein to pay
private respondent Leonardo de la Osa his overtime compensation, as wen
as his swing shift and graveyard shift premiums at the rate of fifty (50%) per
cent of his basic sa (Annex E, p. 31, rollo).
The aforesaid decision was based on a report submitted by the Hearing
Examiner, CIR (Dagupan City Branch), the pertinent portions of which are
quoted hereinbelow:::
In a petition filed on July 1, 1967, Leonardo dela Osa sought
his reinstatement. with full backwages, as well as the
recovery of his overtime compensation, swing shift and
graveyard shift differentials. Petitioner alleged that he was
employed by respondents as follows: (1) painter with an
hourly rate of $1.25 from March, 1964 to November, 1964,
inclusive; (2) houseboy with an hourly rate of $1.26 from
December, 1964 to November, 1965, inclusive; (3)
houseboy with an hourly rate of $1.33 from December,
1965 to August, 1966, inclusive; and (4) cashier with an
hourly rate of $1.40 from August, 1966 to March 27, 1967,
inclusive. He further averred that from December, 1965 to
August, 1966, inclusive, he rendered overtime services daily

and that this entire period was divided into swing and
graveyard shifts to which he was assigned, but he was not
paid both overtime and night shift premiums despite his
repeated demands from respondents.
Respondents filed on August 7, 1967 their letter- answer
without substantially denying the material allegations of the
basic petition but interposed the following special defenses,
namely: That respondents Facilities Management
Corporation and J. S. Dreyer are domiciled in Wake Island
which is beyond the territorial jurisdiction of the Philippine
Government; that respondent J. V. Catuira, though an
employee of respondent corporation presently stationed in
Manila, is without power and authority of legal
representation; and that the employment contract between
petitioner and respondent corporation carries -the approval
of the Department of Labor of the Philippines.
Subsequently on May 3, 1968. respondents filed a motion
to dismiss the subject petition on the ground that this Court
has no Jurisdiction over the instant case, and on May 24,
1968, petitioner interposed an opposition thereto. Said
motion was denied by this Court in its Order issued on July
12, 1968 sustaining jurisdiction in accordance with the
prevailing doctrine of the Supreme Court in similar cases.
xxx xxx xxx
But before we consider and discuss the foregoing issues, let
us first ascertain if this Court could acquire jurisdiction over
the case at bar, it having been contended by respondents
that they are domiciled in Wake Island which is beyond the
territorial jurisdiction of the Philippine Government. To this
incidental question, it may be stated that while it is true the
site of work is Identified as Wake Island, it is equally true
the place of hire is established in Manila (See Section B,
Filipino Employment Contract, Exhibit '1'). Moreover, what
is important is the fact that the contract of employment
between the parties litigant was shown to have been
originally executed and subsequently renewed in Manila, as

asserted by petitioner and not denied by respondents.

Hence, any dispute arising therefrom should necessarily be
determined in the place or venue where it was contracted.

2. L-38781 June
lack
of
21,1974.

xxx xxx xxx

3. L-39111-12 Sept. 2,1974 Case dismissed on Feb.

6,
1976,
pursuant
to
voluntary
manifesta
tion
of
private
respon
dent
Inocente
R.
Riel
that
his
claims
had
all
been
settled
to
his
entire
satisfaction.

From the evidence on hand, it has been proven beyond

doubt that petitioner canvas assigned to and performed
work in respondent company at slight time which consisted
of two different schedules, namely, swing shift and
graveyard shifts, particularly during his tenure as houseboy
for the second period and as cashier. Petitioner's testimony
to this effect was not contradicted, much less rebutted, by
respondents, as revealed by the records. Since petitioner
actually rendered night time services as required by
respondents, and considering the physical, moral and
sociological effects arising from the performance of such
nocturnal duties, we think and honestly believe that
petitioner should be compensated at least fifty percent
(50%) more than his basic wage rate. This night shift
premium pay would indeed be at par with the overtime
compensation stipulated at one and one-half (1 ) times of
the straight time rate.

17,1974
merit

Petition denied for

on
June

Incidentally, in connection with G.R. No. L-39111-12 (No. 3 above), WE

found strong evidence that petitioner therein, which is also the petitioner in
the case at bar, "twisted the arm" of private respondent, when the latter in
his Manifestation dated July 3, 1975, stated:
3. ... Furthermore, since petitioner FMC is a foreign
corporation domiciled in California, U.S.A. and has never
been engaged in business in the Philippines, nor does it
have an agent or an office in this country, there exists no
valid reason for me to participate in the continuation
and/or prosecution of this case (p. 194, rollo).

xxx xxx xxx (pp. 31-36, rollo).

Apropos before this Court were filed three (3) other cases involving the
same petitioner, all of which had been finally dispoded of, as follows:
G.R. No Date of Filing Disposition
1. L-37117 July 30, 1973 Petition denied for
lack
of
merit
on
Sept.
13,
1973.
Motion
for
Reconsideration
denied
lack
of
merit, Nov. 20,1973.

as if jurisdiction depends on the will of the parties to a case. At any rate,

considering that petitioner paid the claims of private respondent, the case
had become moot and academic. Besides, the fact of such payment
amounts to an acknowledgment on the part of petitioner of the jurisdiction
of the court over it.
WE have also noted that the principal question involved in each of the
above-numbered three (3) cases is more or less Identical, to wit: Is the mere
act by a non-resident foreign corporation of recruiting Filipino workers for
its own use abroad, in law doing business in the Philippines?
In the case at bar, which was filed with this Court on June 3, 1974,
petitioners presented, inter alia, the following issue: ... can the CIR validly

affirm a judgment against persons domiciled outside and not doing business
in the Philippines, and over whom it did not acquire jurisdiction')
While it is true that the issues presented in the decided cases are worded
differently from the principal issue raised in the case at bar, the fact remains
that they all boil down to one and the same issue, which was aptly
formulated and ably resolved by Mr. Justice Ramon C. Fernandez, then with
the Court of Appeals and now a member of this Court, in CA-G.R. No. SP01485-R, later elevated to this Court on appeal by certiorari in Case G.R. No.
L-37117 this case, the majority opinion of the Court of Appeals, which was
penned by Justice Fernandez and which WE hereby adopt, runs as follows:
The principal issue presented in this special civil action is
whether petitioner has been 'doing business in the
Philippines' so that the service of summons upon its agent
in the Philippines vested the Court of First Instance of
Manila with jurisdiction.
From the facts of record, the petitioner may be considered
as doing busuness un the Philippines within the the scope of
Section 14, Rule 14 of the Rules of the Court which provide:
SEC 14. Service upon private foreign
corporations. If the defendant is a foreign
corporation or a non-resident joint stock
company or association: doing business in
the Philippines, service may be made on its
resident agent designated in accordance
with law for that purpose or, if there be no
such agent, on the government official
designated by law to that effect, or on any
of its officers or agents within the
Philippines.
Indeed, the petitioner, in compliance with Act 2486 as
implemented by Department of Labor Order No. IV dated
May 20, 1968 had to appoint Jaime V. Catuira, 1322 A.
Mabini, Ermita, Manila as agent for FMC with authority to
execute Employment Contracts and receive, in behalf of
that corporation, legal services from and be bound by

processes of the Philippine Courts of Justice, for as long as

he remains an employee of FMC (Annex 'I', rollo, p. 56). It is
a fact that when the summons for the petitioner was served
on Jaime V. Catuira he was still in the employ of the FMC.
In his motion to dismiss Annex B', p. 19, Rollo), petitioner
admits that Mr. Catuira represented it in this country 'for
the purpose of making arrangements for the approval by
the Department of Labor of the employment of Filipinos
who are recruited by the Company as its own employees for
assignment abroad.' In effect, Mr. Catuira was a on officer
representing petitioner in the Philippines.
Under the rules and regulations promulgated by the Board
of Investments which took effect Feb. 3, 1969,
implementing Rep. Act No. 5455, which took effect Sept. 30,
1968, the phrase 'doing business' has been exemption with
illustrations, among them being as follows:
xxx xxx xxx
(f) the performance within the Philippines
of any act or combination of acts
enumerated in section l(l) of the Act shall
constitute 'doing business' therein. in
particular, 'doing business includes:
(1) Soliciting orders, purchases (sales) or
service contracts. Concrete and specific
solicitations by a foreign firm, not acting
independently of the foreign firm
amounting to negotiation or fixing of the
terms and conditions of sales or service
contracts, regardless of whether the
contracts are actually reduced to writing,
shall constitute doing business even if the
enterprise has no office or fixed place of
business in the Philippines. xxx

(2) Appointing a representative or

distributor who is dociled in the Philippines,
unless said representative or distributor has
an independent status, i.e., it transacts
business in its name and for its own account,
and not in the name or for the account of
the principal.
xxx xxx xxx
(4) Opening offices, whether called
'liaison'offices, agencies or branches, unless
proved otherwise.
xxx xxx xxx
(10) Any other act or acts that imply a
continuity of commercial dealings or
arrangements, and contemplate to that
extent the performance of acts or works, or
the exercise of some of the functions
normally incident to, or in the progressive
prosecution of, commercial gain or of the
purpose and objective of the business
organization (54 O.G. 53).
Recently decided by this Court again thru Mr. Justice Ramon C. Fernandez
which is similar to the case at bar, is G.R. No. L-26809, entitled Aetna
Casualty & Curety Company, plaintiff- appellant versus Pacific Star Line, the
Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company,
Inc., defendants-appellees." The case is an appeal from the decision of the
Court of First Instance of Manila, Branch XVI, in its Civil Case No. 53074,
entitledAetna Casualty & Surety Company vs. Pacific Star Lines, The
Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company,
Inc." dismissing the complaint on the ground that the plaintiff has no legal
capacity to bring the suit.
It appears that on February 11, 1963, Smith Bell & Co. (Philippines), Inc. and
Aetna Casualty & Surety Co., Inc., as subrogee instituted Civil Case No.

53074 in the Court of First Instance of Manila against Pacific Star Line, The
Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc.
to recover the amount of US$2,300.00 representing the value of stolen and
damaged cargo plus litigation expenses and exemplary damages in the
amounts of P1,000.00 and P2,000.00, respectively, with legal interest
thereon from the filing of the suit and costs.
After all the defendants had filed their answer, the defendants Manila Port
Service and Manila Railroad Company, Inc. amended their answer to allege
that the plaintiff, Aetna Casualty & Surety Company, is a foreign corporation
not duly licensed to do business in the Philippines and, therefore, without
capacity to sue and be sued.
After the parties submitted a partial stipulation of facts and additional
documentary evidence, the case was submitted for decision of the trial
court, which dismissed the complaint on the ground that the plaintiff
insurance company is subject to the requirements of Sections 68 and 69 of
Act 1459, as amended, and for its failure to comply therewith, it has no legal
capacity to bring suit in this jurisdiction. Plaintiff appealed to this Court.
The main issue involved in the appeal is whether or not the plaintiff
appellant has been doing business in the Philippines, considering the fact
that it has no license to transact business in the Philippines as a foreign
corporation. WE ruled:
The object of Sections 68 and 69 of the Corporation Law
was not to prevent the foreign corporation from performing
single acts, but to prevent it from acquiring a domicile for
the purpose of business without taking the steps necessary
to render it amenable to suit in the local courts. It was
never the purpose of the Legislature to exclude a foreign
corporation which happens to obtain an isolated order for
business from the Philippines, from securing redress in the
Philippine courts (Marshall Co. vs. Elser & Co., 46 Phil 70,75).
In Mentholatum Co., Inc., et al vs- M Court rules thatNo general rule or governing principle can
be laid down as to what constitutes 'doing'

or 'engaging in' or 'transacting' business.

Indeed, each case must be judged in the
light of its peculiar environmental
circumstances. 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. (Traction Cos. v. Collectors
of Int Revenue [C.C.A Ohio], 223 F. 984,
987). The term implies a continuity of
commercial dealings and arrangements,
and contemplates, to that extent, the
performance of acts or works or the
exercise of some of the functions normally
incident to, and in progressive prosecution
of, the purpose and object of its
organization (Griffin v. Implement Dealers'
Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline
Oil & Gas Co. v. Mutual Tank Line Co., 246 P.
851, 852, 118 Okl. III; Automotive Material
Co. vs. American Standard Metal Products
Corp., 158 N.E. 698, 703, 327 III. 367)'. 72
Phil. 524, 528-529.

rice cargo from abroad to the Philippines.

These two isolated transactions do not
constitute engaging in business in the
Philippines within the purview of Sections
68 and 69 of the Corporation Law so as to
bar plaintiff from seeking redress in our
courts. (Marshall Wens Co. vs. Henry W.
Elser & Co. 49 Phil., 70; Pacific Vegetable Oil
Corporation vs. Angel O. Singson, G.R. No.
L-7917, April 29, 1955)'. 102 Phil., pp. 1, 18.
Based on the rulings laid down in the foregoing cases, it
cannot be said that the Aetna Casualty & Surety Company is
transacting business of insurance in the Philippines for
which it must have a license. The Contract of insurance was
entered into in New York, U.S.A., and payment was made to
the consignee in its New York branch. It appears from the
list of cases issued by the Clerk of Court of the Court of First
Instance of Manila that all the actions, except two (2) cases
filed by Smith, Beer & Co., Inc. against the Aetna Casualty &
Surety Company, are claims against the shipper and the
arrastre operators just like the case at bar.
Consequently, since the appellant Aetna Casualty & Surety
Company is not engaged in the business of insurance in the
Philippines but is merely collecting a claim assigned to it by
the consignee, it is not barred from filing the instant case
although it has not secured a license to transact insurance
business in the Philippines.

And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael &

Co., Inc., this Court held:
(d) While plaintiff is a foreign corporation
without license to transact business in the
Philippines, it does not follow that it has no
capacity to bring the present action. Such
license is not necessary because it is not
engaged in business in the Philippines. In
fact, the transaction herein involved is the
first business undertaken by plaintiff in the
Philippines, although on a previous occasion
plaintiff's vessel was chartered by the
National Rice and Corn Corporation to carry

Indeed, if a foreign corporation, not engaged in business in the Philippines,

is not banned from seeking redress from courts in the Philippines, a fortiori,
that same corporation cannot claim exemption from being sued in
Philippine courts for acts done against a person or persons in the Philippines.
WHEREFORE, THE PETITION IS HEREBY DENIED WITH COSTS AGAINST THE
PETITIONERS.
SO ORDERED.

Teehankee (Chairman), Fernandez, Guerrero, De Castro, and Melencio

Herrera, JJ., concur.

G.R. No. 105141 August 31, 1993

SIGNETICS
CORPORATION, petitioner,
vs.
COURT OF APPEALS and FRUEHAUF ELECTRONICS PHILS. INC., respondents.

On the basis of the allegation that Signetics is a "subsidiary of US PHILIPS

CORPORATION, and may be served summons at Philips Electrical Lamps, Inc.,
Las Pias, Metro Manila and/or c/o Technology Electronics Assembly &
Management (TEAM) Pacific Corporation, Electronics Avenue, FTI Complex,
Taguig, Metro Manila," service of summons was made on Signetics through
TEAM Pacific Corporation.

Sycip, Salazar, Hernandez & Gatmaitan Law Office for petitioner.

Romulo P. Atiencia for private respondent.

RESOLUTION

By special appearance, Signetics filed on 14 May 1990 a motion to dismiss

the complaint on the ground of lack of jurisdiction over its person. Invoking
Section 14, Rule 14, of the Rules of Court and the rule laid down in Pacific
Micronisian Line, Inc., v. Del Rosario and Pelington 1 to the effect that the
fact of doing business in the Philippines should first be established in order
that summons could be validly made and jurisdiction acquired by the court
over a foreign corporation, Signetics moved to dismiss the complaint.
The trial court 2 denied the motion to dismiss in an Order, which reads:

VITUG, J.:
The crucial issue in this petition for review on certiorari is whether or not
the lower court, given the factual allegations in the complaint, had correctly
assumed jurisdiction over the petitioner, a foreign corporation, on its claim
in a motion to dismiss, that it had since ceased to do business in the
Philippines.
The petitioner, Signetics Corporation (Signetics), was organized under the
laws of the United States of America. Through Signetics Filipinas
Corporation (SigFil), a wholly-owned subsidiary, Signetics entered into lease
contract over a piece of land with Fruehauf Electronics Phils., Inc. (Freuhauf).
In a complaint initiated on 15 March 1990, Freuhauf sued Signetics for
damages, accounting or return of certain machinery, equipment and
accessories, as well as the transfer of title and surrender of possession of
the buildings, installations and improvements on the leased land, before the
Regional Trial Court of Pasig, Metro Manila (Civil Case No. 59264). Claiming
that Signetics caused SigFil to insert in the lease contract the words
"machineries, equipment and accessories," the defendants were able to
withdraw these assets from the cost-free transfer provision of the contract.

In the case of Wang Laboratories, Inc. v. Mendoza, 156

SCRA 44, the High Court explained what constitutes "doing
business" as follows:
Indeed it has been held that "where a single
act or transaction of a foreign corporation is
not merely incidental or causal but is of
such character as distinctly to indicate a
purpose to do other business in the State,
such constitutes doing business within the
meaning of statutes prescribing the
conditions under which a foreign
corporation may be served with summons
(Far East Int'l. Import and Export Corp. v.
Nankai Kogyo Co. Ltd., 6 SCRA 725 [1962]).
Assuming, arguendo, that defendant is a foreign
corporation not doing business in the Philippines, it has
been categorically stated in the aforecited case that
although a foreign corporation is not doing business in the
Philippines, it may be used for acts done against persons in
the Philippines.

For lack of sufficient merits therefore, defendant's Motion

to Dismiss is hereby DENIED. 3
Signetics filed a motion for reconsideration but this, too, was denied by the
court in its Order of 11 March 1991, reiterating that the rule expressed
in Wang Laboratories, Inc. v. Mendoza 4 was the applicable and prevailing
"jurisprudence on the matter."
Signetics elevated the issue to the Court of Appeals, via a petition
for certiorari and prohibition, with application for preliminary injunction
(CA-G.R. SP No. 24758). On 20 February 1992, the Court of Appeals
rendered its decision, 5dismissing the petition and affirming the orders of
the lower court. A motion for the reconsideration of the appellate court's
decision, having been denied, the instant petition for review
on certiorari was filed with this Court, still on the "basic question" of
whether or not "a foreign corporation can be sued in the Philippines and
validly summoned by a Philippine court without prior 'proof' that it was
doing business here at the time of the suit." 6
Critically dissecting the complaint, the petitioner stress that the averments
in the complaint "are at best mere allegations and do not
constitute "proof of 'doing business';" 7 that the allegations, in any case, do
not demonstrate "doing business"; and that the phrase "becoming
interested in doing business" is "not actual doing of business here." The
petitioner argues that what was effectively only alleged in the complaint as
an activity of doing business was "the mere equity investment" of petitioner
in SigFil, which the petitioner insists, had theretofore been transferred to
TEAM holdings, Ltd.
The petitioner relies, in good part, on the Pacific Micronisian rule. The
pronouncements in Wang Laboratories and inFacilities Management
Corporation, 8 the petitioner adds, are mere obiter dicta since the foreign
corporations involved in both cases were found to have, in fact, been doing
business in the Philippines and were thus unquestionably amenable to local
court processes.
We rule for the affirmance of the appealed decision.

Petitioner's contention that there should be "proof" of the foreign

corporation's doing business in this country before it may be summoned is
based on the following portions of the decision in Pacific Micronisian:
The pertinent rule to be considered is section 14, Rule 7 of
the Rules of Court, which refers to service upon private
foreign corporations. This section provides:
Sec. 14. Service upon private foreign
corporations. If the defendant is a
foreign corporation, or a non-resident joint
stock company or association, doing
business in the Philippines, service may be
made on its resident agent designated in
accordance with law for that purpose, or, if
there be no such agent, on the government
official designated by law to that effect, or
on any of its officers or agents within the
Philippines.
The above section provides for three modes of effecting
services upon a private corporation, namely: (1) by serving
upon the agent designated in accordance with law to accept
service by summons; (2) if there be no special agent, by
serving on the government official designated by law to that
effect; and (3) by serving on any officer or agent within the
Philippines. But, it should be noted, in order that services
may be effected in the manner above stated, said section
also requires that the foreign corporation be one which
is doing business in the Philippines. This is a sine qua
non requirement. This fact must first be established in order
that summons can be made and jurisdiction acquired. This is
not only clear in the rule but is reflected in a recent decision
of this Court. We there said that "as long as a foreign
private corporation does or engages in business in this
jurisdiction, it should and will be amenable to process and
the jurisdiction of the local courts." (General Corporation of
the Philippines, et al. vs. Union Insurance Society of Canton,
Ltd., et al. 49 Off. Gaz., 73, September 14, 1950). 9

The petitioner opines that the phrase, "(the) fact (of doing business in the
Philippines) must first be established in order that summons be made and
jurisdiction acquired," used in the above pronouncement, would indicate
that a mere allegation to that effect in the complaint is not enough there
must instead be proof of doing business. 10 In any case, the petitioner,
points out, the allegations themselves did not sufficiently show the fact of
its doing business in the Philippines.
It should be recalled that jurisdiction and venue of actions are, as they
should be, initially determined by the allegations of the
complaint. 11 Jurisdiction cannot be made to depend on independent pleas
set up in a mere motion to dismiss, otherwise jurisdiction would become
dependent almost entirely upon the defendant. 12 The fact of doing business
must then, in the first place, be established by appropriate allegations in the
complaint. This is what the Court should be seen to have meant in
the Pacific Micronisian case. The complaint, it is true, may have been
vaguely structured but, taken correlatively, not disjunctively as the
petitioner would rather suggest, it is not really so weak as to be fatally
deficient in the above requirement. Witness the following allegations of the
complaint:
3. In the year 1978, the defendant became interested in
engaging in business in the Philippines . . .;
4. To serve as its local business conduit, the defendant
organized a wholly owned domestic subsidiary corporation
known as SIGNETICS FILIPINAS CORPORATION (SIGFIL, for
brevity), which was supposed to be its actual operating
entity in the Philippines;
xxx xxx xxx
18. In February 1983, the defendant ceased all its business
operations in the leased premise. . . .;
xxx xxx xxx
23. (a) In November 21, 1986, the defendant transferred all
shares of stock of SIGFIL in favor of TEAM HOLDING LIMITED,

a foreign corporation organized under the laws of British

Virgin Islands;
xxx xxx xxx;
23. (d) Subsequently, on January 12, 1987, the new owners
unmasked itself when it dropped SIGFIL's name, and
changed its corporate name to TECHNOLOGY ELECTRONICS
ASSEMBLY AND MANAGEMENT (T.E.A.M.) PACIFIC
CORPORATION, otherwise known as TEAM PACIFIC
CORPORATION. The similarity between "TEAM HOLDINGS
LIMITED" and "TEAM PACIFIC CORPORATION" is all too
apparent; and
24. As seen in the next-preceding paragraph, the defendant
made a devious use of the fiction of separate corporate
identity to shield chicanery and to perpetuate fraud. 13
The petitioner's reliance on Hyopsung Maritime Co., Ltd., v. Court. of
Appeals 14 is misplaced. While the Court therein cited the Pacific
Micronisian ruling and dismissed the complaint against the petitioner for
lack of jurisdiction, the Hyopsungcase is under a completely different factual
milieu. As summarized by the Court, the complaint therein was
. . . for the recovery of damages based on a breach of
contract which appears to have been entirely entered into,
executed, and consummated in Korea. Indisputably, the
shipment was loaded on board the foreign vessel MV "Don
Aurelio" at Pohang, Korea, by a Korean firm with offices at
Seoul, Korea; the corresponding bill of lading was issued in
Seoul, Korea and the freight was prepaid also at Seoul; the
above vessel with its cargo never ever docked at Manila or
at any other port of entry in the Philippines; lastly, the
petitioner did not appoint any ship agent in the Philippines.
Simply put, the petitioner is beyond the reach of our
courts. 15
On the other hand, the complaint, in this instance, has alleged, among other
things, that Signetics had become interested in engaging in business in the

Philippines; that it had actually organized SigFil, as its local business conduit
or actual operating entity in the Philippines; that, through Sigfil, it had
entered into the lease contract involving properties in the Philippines a
situation that could have allowed Frehauf to avail itself of the provisions of
Section 17, Rule 14, on extraterritorial service of summons since the relief
sought consists in excluding the defendant from any interest in property
within the Philippines); and that while Signetics may have had transferred all
its shareholdings (before the complaint was filed) in favor of TEAM Holdings,
Ltd., another foreign corporation, SIGFIL's corporate name, however, was
forthwith changed to TEAM Pacific corporation, which Freuhauf claims is a
"devious" attempt to "shield chicanery and to perpetuate fraud" (see
paragraphs 23 and 24, Complaint). On this score, what might in a way also
be revealing is that after Freuhauf had moved to sell the attached property
subject matter of the litigation, the petitioner filed the following pleading,
intriguingly captioned, "Manifestation"; viz:
Defendant, by counsel, respectfully states:
1. Plaintiff filed a Motion to Sell Attached Properties and
scheduled it for hearing on August 24, 1990, justifying the
sale on the allegations that certain properties belonging to
the defendant are perishable in nature and liable to
material depreciation in value.
2. In pleadings filed by the defendant, the Court was
requested to determine whether there is a valid attachment
on this alleged properties. This determination is necessary
because defendant has pointed out that personal
jurisdiction could not be justified on the basis of the socalled attachment because it was legally ineffective. Two
reasons were given to the Court. First, the property has not
been taken into actual custody of the sheriff as required by
Rule 57, Section 7 (c). Second, the property has not been
shown to be owned by the defendant.
3. Since jurisdiction over the defendant is premised on the
attachment, the Honorable Court should therefore act on
the motion to sell by determining (i) whether plaintiff has
shown that the property proposed to be sold belongs to the
defendant (ii) whether it was effectively attached and (iii)

whether its sale is justified (because it is perishable or

deteriorating in value).
Respectfully submitted. 16
The petitioner contends that the motion to sell was filed by Freuhauf
"ostensibly to ask permission to sell properties (sic.), but really to hurt
petitioner in the first fight" (meaning the dismissal incident) because
Freuhauf used the motion to sell "incident" as forum to prove ex-parte its
argument on jurisdiction." 17 Far from continuing the "fight" on the issue of
jurisdiction, the aforequoted manifestation reflects nothing less than a
surprising interest in the property which petitioner claims are not its own.
Having said that, Freuhauf, in effect, has invoked the doctrine of piercing
the veil of corporate fiction, and it cannot thus be held to have improperly
caused the service of summons on TEAM Pacific pursuant to Section 14, of
Rule 14. As explained by the Court in Pacific Micronisian, summons may be
served upon an agent of the defendant who may not necessarily be its
"resident agent designated in accordance with law." The term "agent", in
the context it is used in Section 14, refers to its general meaning, i.e., one
who acts on behalf of a principal. 18 The allegations in the complaint, taken
together, have thus been able to amply convey that not only is TEAM Pacific
the business conduit of the petitioner in the Philippines but that, also, by
the charge of fraud, is none other than the petitioner itself.
In any event, it may well be that the Court should restate the rule, and it is
that a foreign corporation, although not engaged in business in the
Philippines, may still look up to our courts for relief; reciprocally, such
corporation may likewise be "sued in Philippine courts for acts done against
a person or persons in the Philippines" (Facilities Management Corporation
v. De la Osa), 19 provided that, in the latter case, it would not be impossible
for court processes to reach the foreign corporation, a matter that can later
be consequential in the proper execution of judgment. Verily, a State may
not exercise jurisdiction in the absence of some good basis (and not
offensive to traditional notions of fair play and substantial justice) for
effectively exercising it, whether the proceedings are in rem, quasi in
rem or in personam. 20
This is not to say, however, that the petitioner's right to question the
jurisdiction of the court over its person is now to be deemed a foreclosed

matter. If it is true, as Signetics claims, that its only involvement in the

Philippines was through a passive investment in Sigfil, 21 which it even later
disposed of, and that TEAM Pacific is not its agent, then it cannot really be
said to be doing business in the Philippines. It is a defense, however, that
requires the contravention of the allegations of the complaint, as well as a
full ventillation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue
posed by the petitioner as to whether a foreign corporation which has done
business in the country, but which has ceased to do business at the time of
the filing of a complaint, can still be made to answer for a cause of action
which accrued while it was doing business, is another matter that would yet
have to await the reception and admission of evidence. Since these points
have seasonably been raised by the petitioner, there should be no real
cause for what may understandably be its apprehension, i.e., that by its
participation during the trial on the merits, it may, absent an invocation of
separate or independent reliefs of its own, be considered to have
voluntarily submitted itself to the court's jurisdiction.
All told Signetics cannot, at least in this early stage, assail, on the one hand,
the veracity and correctness of the allegations in the complaint and proceed,
on the other hand, to prove its own, in order to hasten a peremptory escape.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED.
The lower court shall proceed with dispatch in resolving Civil Case No.
59264. Costs against the petitioner.
SO ORDERED.
Bidin, Romero and Melo, JJ., concur.
Feliciano, J., took no part.