Sie sind auf Seite 1von 60

FOREIGN CORPORATION

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 Corpo Page 10 Cases

$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.
xxx xxx xxx
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.
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.
2. L-38781 June 17,1974 Petition
denied for
lack of merit on June
21,1974.
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

2 Corpo Page 10 Cases

been settled to his entire


satisfaction.
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).
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. SP-01485-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:

3 Corpo Page 10 Cases

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,
entitled Aetna 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

4 Corpo Page 10 Cases

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 vsM 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.
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 rice cargo
from abroad to
the Philippines.
These two

5 Corpo Page 10 Cases

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.
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.
G.R. No. 168266

March 15, 2010

CARGILL, INC., Petitioner,


vs.
INTRA STRATA ASSURANCE
CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 26 May 2005
Decision2 of the Court of Appeals in CA-G.R. CV No.
48447.
The Facts
Petitioner Cargill, Inc. (petitioner) is a corporation
organized and existing under the laws of the State of

Delaware, United States of America. Petitioner and


Northern Mindanao Corporation (NMC) executed a
contract dated 16 August 1989 whereby NMC agreed
to sell to petitioner 20,000 to 24,000 metric tons of
molasses, to be delivered from 1 January to 30 June
1990 at the price of $44 per metric ton. The contract
provides that petitioner would open a Letter of Credit
with the Bank of Philippine Islands. Under the "red
clause" of the Letter of Credit, NMC was permitted to
draw up to $500,000 representing the minimum price
of the contract upon presentation of some
documents.
The contract was amended three times: first, on 11
January 1990, increasing the purchase price of the
molasses to $47.50 per metric ton;3 second, on 18
June 1990, reducing the quantity of the molasses to
10,500 metric tons and increasing the price to $55
per metric ton;4 and third, on 22 August 1990,
providing for the shipment of 5,250 metric tons of
molasses on the last half of December 1990 through
the first half of January 1991, and the balance of
5,250 metric tons on the last half of January 1991
through the first half of February 1991.5 The third
amendment also required NMC to put up a
performance bond equivalent to $451,500, which
represents the value of 10,500 metric tons of
molasses computed at $43 per metric ton. The
performance bond was intended to guarantee NMCs
performance to deliver the molasses during the
prescribed shipment periods according to the terms
of the amended contract.
In compliance with the terms of the third amendment
of the contract, respondent Intra Strata Assurance
Corporation (respondent) issued on 10 October 1990
a performance bond6 in the sum of P11,287,500 to
guarantee NMCs delivery of the 10,500 tons of
molasses, and a surety bond7 in the sum
of P9,978,125 to guarantee the repayment of
downpayment as provided in the contract.
NMC was only able to deliver 219.551 metric tons of
molasses out of the agreed 10,500 metric tons. Thus,
petitioner sent demand letters to respondent
claiming payment under the performance and surety
bonds. When respondent refused to pay, petitioner

6 Corpo Page 10 Cases

filed on 12 April 1991 a complaint8 for sum of money


against NMC and respondent.
Petitioner, NMC, and respondent entered into a
compromise agreement,9 which the trial court
approved in its Decision10 dated 13 December 1991.
The compromise agreement provides that NMC would
pay petitionerP3,000,000 upon signing of the
compromise agreement and would deliver to
petitioner 6,991 metric tons of molasses from 16-31
December 1991. However, NMC still failed to comply
with its obligation under the compromise agreement.
Hence, trial proceeded against respondent.
On 23 November 1994, the trial court rendered a
decision, the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of
plaintiff [Cargill, Inc.], ordering defendant INTRA
STRATA ASSURANCE CORPORATION to solidarily pay
plaintiff the total amount of SIXTEEN MILLION NINE
HUNDRED NINETY-THREE THOUSAND AND TWO
HUNDRED PESOS (P16,993,200.00), Philippine
Currency, with interest at the legal rate from October
10, 1990 until fully paid, plus attorneys fees in the
sum of TWO HUNDRED THOUSAND PESOS
(P200,000.00), Philippine Currency and the costs of
the suit.

of its basic business and not just mere isolated and


incidental transactions.
The Issues
Petitioner raises the following issues:
1. Whether petitioner is doing or transacting
business in the Philippines in contemplation
of the law and established jurisprudence;
2. Whether respondent is estopped from
invoking the defense that petitioner has no
legal capacity to sue in the Philippines;
3. Whether petitioner is seeking a review of
the findings of fact of the Court of Appeals;
and
4. Whether the advance payment of
$500,000 was released to NMC without the
submission of the supporting documents
required in the contract and the "red clause"
Letter of Credit from which said amount was
drawn.12
The Ruling of the Court

The Counterclaim of Intra Strata Assurance


Corporation is hereby dismissed for lack of merit.

We find the petition meritorious.

SO ORDERED.11

Doing Business in the Philippines and Capacity


to Sue

On appeal, the Court of Appeals reversed the trial


courts decision and dismissed the complaint. Hence,
this petition.
The Court of Appeals Ruling
The Court of Appeals held that petitioner does not
have the capacity to file this suit since it is a foreign
corporation doing business in the Philippines without
the requisite license. The Court of Appeals held that
petitioners purchases of molasses were in pursuance

The principal issue in this case is whether petitioner,


an unlicensed foreign corporation, has legal capacity
to sue before Philippine courts. Under Article 12313 of
the Corporation Code, a foreign corporation must
first obtain a license and a certificate from the
appropriate government agency before it can
transact business in the Philippines. Where a foreign
corporation does business in the Philippines without
the proper license, it cannot maintain any action or
proceeding before Philippine courts as provided
under Section 133 of the Corporation Code:

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.
Thus, the threshold question in this case is whether
petitioner was doing business in the Philippines. The
Corporation Code provides no definition for the
phrase "doing business." Nevertheless, Section 1 of
Republic Act No. 5455 (RA 5455),14 provides that:
x x x the phrase "doing business" shall include
soliciting orders, purchases, service contracts,
opening offices, whether called liaison offices or
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 totalling one hundred eighty 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.
(Emphasis supplied)
This is also the exact definition provided under
Article 44 of the Omnibus Investments Code of 1987.
Republic Act No. 7042 (RA 7042), otherwise known as
the Foreign Investments Act of 1991, which repealed
Articles 44-56 of Book II of the Omnibus Investments
Code of 1987, enumerated not only the acts or
activities which constitute "doing business" but also
those activities which are not deemed "doing
business." Section 3(d) of RA 7042 states:

7 Corpo Page 10 Cases

[T]he 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 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.
Since respondent is relying on Section 133 of the
Corporation Code to bar petitioner from maintaining
an action in Philippine courts, respondent bears the
burden of proving that petitioners business activities
in the Philippines were not just casual or occasional,
but so systematic and regular as to manifest
continuity and permanence of activity to constitute
doing business in the Philippines. In this case, we find
that respondent failed to prove that petitioners
activities in the Philippines constitute doing business
as would prevent it from bringing an action.
The determination of whether a foreign corporation is
doing business in the Philippines must be based on
the facts of each case.15 In the case of Antam
Consolidated, Inc. v. CA,16 in which a foreign
corporation filed an action for collection of sum of
money against petitioners therein for damages and
loss sustained for the latters failure to deliver
coconut crude oil, the Court emphasized the
importance of the element of continuity of

commercial activities to constitute doing business in


the Philippines. The Court held:
In the case at bar, the transactions entered into by
the respondent with the petitioners are not a series
of commercial dealings which signify an intent on the
part of the respondent to do business in the
Philippines but constitute an isolated one which does
not fall under the category of "doing business." The
records show that the only reason why the
respondent entered into the second and third
transactions with the petitioners was because it
wanted to recover the loss it sustained from the
failure of the petitioners to deliver the crude coconut
oil under the first transaction and in order to give the
latter a chance to make good on their obligation. x x
x
x x x The three seemingly different transactions were
entered into by the parties only in an effort to fulfill
the basic agreement and in no way indicate an intent
on the part of the respondent to engage in a
continuity of transactions with petitioners which will
categorize it as a foreign corporation doing business
in the Philippines.17
Similarly, in this case, petitioner and NMC amended
their contract three times to give a chance to NMC to
deliver to petitioner the molasses, considering that
NMC already received the minimum price of the
contract. There is no showing that the transactions
between petitioner and NMC signify the intent of
petitioner to establish a continuous business or
extend its operations in the Philippines.
The Implementing Rules and Regulations of RA 7042
provide under Section 1(f), Rule I, that "doing
business" does not include the following acts:
1. 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;
2. Having a nominee director or officer to
represent its interests in such corporation;

3. Appointing a representative or distributor


domiciled in the Philippines which transacts
business in the representative's or
distributor's own name and account;
4. The publication of a general
advertisement through any print or
broadcast media;
5. Maintaining a stock of goods in the
Philippines solely for the purpose of having
the same processed by another entity in the
Philippines;
6. Consignment by a foreign entity of
equipment with a local company to be used
in the processing of products for export;
7. Collecting information in the Philippines;
and
8. Performing services auxiliary to an
existing isolated contract of sale which are
not on a continuing basis, such as installing
in the Philippines machinery it has
manufactured or exported to the Philippines,
servicing the same, training domestic
workers to operate it, and similar incidental
services.
Most of these activities do not bring any direct
receipts or profits to the foreign corporation,
consistent with the ruling of this Court in National
Sugar Trading Corp. v. CA18 that activities within
Philippine jurisdiction that do not create earnings or
profits to the foreign corporation do not constitute
doing business in the Philippines.19 In that case, the
Court held that it would be inequitable for the
National Sugar Trading Corporation, a state-owned
corporation, to evade payment of a legitimate
indebtedness owing to the foreign corporation on the
plea that the latter should have obtained a license
first before perfecting a contract with the Philippine
government. The Court emphasized that the foreign
corporation did not sell sugar and derive income
from the Philippines, but merely purchased sugar

8 Corpo Page 10 Cases

from the Philippine government and allegedly paid


for it in full.
In this case, the contract between petitioner and
NMC involved the purchase of molasses by petitioner
from NMC. It was NMC, the domestic corporation,
which derived income from the transaction and not
petitioner. To constitute "doing business," the activity
undertaken in the Philippines should involve profitmaking.20 Besides, under Section 3(d) of RA 7042,
"soliciting purchases" has been deleted from the
enumeration of acts or activities which constitute
"doing business."
Other factors which support the finding that
petitioner is not doing business in the Philippines are:
(1) petitioner does not have an office in the
Philippines; (2) petitioner imports products from the
Philippines through its non-exclusive local broker,
whose authority to act on behalf of petitioner is
limited to soliciting purchases of products from
suppliers engaged in the sugar trade in the
Philippines; and (3) the local broker is an
independent contractor and not an agent of
petitioner.21
As explained by the Court in B. Van Zuiden Bros., Ltd.
v. GTVL Marketing Industries, Inc.:22
An exporter in one country may export its products
to many foreign importing countries without
performing in the importing countries specific
commercial acts that would constitute doing business
in the importing countries. The mere act of exporting
from ones own country, without doing any specific
commercial act within the territory of the importing
country, cannot be deemed as doing business in the
importing country. The importing country does not
require jurisdiction over the foreign exporter who has
not yet performed any specific commercial act within
the territory of the importing country. Without
jurisdiction over the foreign exporter, the importing
country cannot compel the foreign exporter to secure
a license to do business in the importing country.
Otherwise, Philippine exporters, by the mere act
alone of exporting their products, could be

considered by the importing countries to be doing


business in those countries. This will require
Philippine exporters to secure a business license in
every foreign country where they usually export their
products, even if they do not perform any specific
commercial act within the territory of such importing
countries. Such a legal concept will have deleterious
effect not only on Philippine exports, but also on
global trade.1avvphi1
To be doing or "transacting business in the
Philippines" for purposes of Section 133 of the
Corporation Code, the foreign corporation must
actually transact business in the Philippines, that is,
perform specific business transactions within the
Philippine territory on a continuing basis in its own
name and for its own account. Actual transaction of
business within the Philippine territory is an essential
requisite for the Philippines to to acquire jurisdiction
over a foreign corporation and thus require the
foreign corporation to secure a Philippine business
license. If a foreign corporation does not transact
such kind of business in the Philippines, even if it
exports its products to the Philippines, the Philippines
has no jurisdiction to require such foreign corporation
to secure a Philippine business license.23 (Emphasis
supplied)
In the present case, petitioner is a foreign company
merely importing molasses from a Philipine exporter.
A foreign company that merely imports goods from a
Philippine exporter, without opening an office or
appointing an agent in the Philippines, is not doing
business in the Philippines.
Review of Findings of Fact
The Supreme Court may review the findings of fact of
the Court of Appeals which are in conflict with the
findings of the trial court.24 We find that the Court of
Appeals finding that petitioner was doing business is
not supported by evidence.
Furthermore, a review of the records shows that the
trial court was correct in holding that the advance
payment of $500,000 was released to NMC in
accordance with the conditions provided under the

"red clause" Letter of Credit from which said amount


was drawn. The Head of the International Operations
Department of the Bank of Philippine Islands testified
that the bank would not have paid the beneficiary if
the required documents were not complete. It is a
requisite in a documentary credit transaction that the
documents should conform to the terms and
conditions of the letter of credit; otherwise, the bank
will not pay. The Head of the International Operations
Department of the Bank of Philippine Islands also
testified that they received reimbursement from the
issuing bank for the $500,000 withdrawn by
NMC.25 Thus, respondent had no legitimate reason to
refuse payment under the performance and surety
bonds when NMC failed to perform its part under its
contract with petitioner.
WHEREFORE , we GRANT the petition. We REVERSE
the Decision dated 26 May 2005 of the Court of
Appeals in CA-G.R. CV No. 48447. We REINSTATE the
Decision dated 23 November 1994 of the trial court.
SO ORDERED.
G.R. No. 173463

October 13, 2010

GLOBAL BUSINESS HOLDINGS, INC. (formerly


Global Business Bank, Inc.), Petitioner,
vs.
SURECOMP SOFTWARE, B.V., Respondent.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari
under Rule 45 of the Rules of Court, assailing the
Decision1dated May 5, 2006 and the
Resolution2 dated July 10, 2006 of the Court of
Appeals (CA) in CA-G.R. SP No. 75524.
The facts of the case are as follows:
On March 29, 1999, respondent Surecomp Software,
B.V. (Surecomp), a foreign corporation duly organized
and existing under the laws of the Netherlands,

9 Corpo Page 10 Cases

entered into a software license agreement with Asian


Bank Corporation (ABC), a domestic corporation, for
the use of its IMEX Software System (System) in the
banks computer system for a period of twenty (20)
years.3
In July 2000, ABC merged with petitioner Global
Business Holdings, Inc. (Global),4 with Global as the
surviving corporation. When Global took over the
operations of ABC, it found the System unworkable
for its operations, and informed Surecomp of its
decision to discontinue with the agreement and to
stop further payments thereon. Consequently, for
failure of Global to pay its obligations under the
agreement despite demands, Surecomp filed a
complaint for breach of contract with damages
before the Regional Trial Court (RTC) of Makati. The
case was docketed as Civil Case No. 01-1278. 5
In its complaint, Surecomp alleged that it is a foreign
corporation not doing business in the Philippines and
is suing on an isolated transaction. Pursuant to the
agreement, it installed the System in ABCs
computers for a consideration of US$298,000.00 as
license fee. ABC also undertook to pay Surecomp
professional services, which included on-site support
and development of interfaces, and annual
maintenance fees for five (5) subsequent
anniversaries, and committed to purchase one (1) or
two (2) Remote Access solutions at discounted
prices. In a separate transaction, ABC requested
Surecomp to purchase on its behalf a software called
MF Cobol Runtime with a promise to reimburse its
cost. Notwithstanding the delivery of the product and
the services provided, Global failed to pay and
comply with its obligations under the agreement.
Thus, Surecomp demanded payment of actual
damages amounting to US$319,955.00 and an
additional amount of US$227,610.00 for Globals
unilateral pretermination of the agreement,
exemplary damages, attorneys fees and costs of
suit.6
Instead of filing an answer, Global filed a motion to
dismiss based on two grounds: (1) that Surecomp
had no capacity to sue because it was doing business
in the Philippines without a license; and (2) that the
claim on which the action was founded was

unenforceable under the Intellectual Property Code of


the Philippines.7
On the first ground, Global argued that the contract
entered into was not an isolated transaction since
the contract was for a period of 20 years.
Furthermore, Global stressed that it could not be held
accountable for any breach as the agreement was
entered into between Surecomp and ABC. It had not,
in any manner, taken part in the negotiation and
execution of the agreement but merely took over the
operations of ABC as a result of the merger. On the
second ground, Global averred that the agreement,
being a technology transfer arrangement, failed to
comply with Sections 87 and 88 of the Intellectual
Property Code of the Philippines.8
In the interim, Global filed a motion for leave to serve
written interrogatories to Surecomp in preparation for
the hearing on the motion to dismiss, attaching
thereto its written interrogatories.
After an exchange of pleadings on the motions filed
by Global, on June 18, 2002, the RTC issued an
Order,9 the pertinent portions of which read:
After a thorough and careful deliberation of the
respective arguments advanced by the parties in
support of their positions in these two (2) incidents,
and since it cannot be denied that there is indeed a
contract entered into between the plaintiff
[Surecomp] and the defendant [Global], the latter as
a successor in interest of the merging corporation
Asian Bank, defendant [Global] is estopped from
denying plaintiffs [Surecomps] capacity to sue it for
alleged breach of that contract with damages. Its
argument that it was not the one who actually
contracted with the plaintiff [Surecomp] as it was the
merging Asian Bank which did, is of no moment as it
does not relieve defendant Global Bank of its
contractual obligation under the Agreement on
account of its undertaking under it:
"x x x shall be responsible for all the liabilities and
obligations of ASIANBANK in the same manner as if
the Merged Bank had itself incurred such liabilities or
obligations, and any pending claim, action or

proceeding brought by or against ASIANBANK may be


prosecuted by or against the Merged Bank. The right
of creditors or liens upon the property of ASIANBANK
shall not be impaired by the merger; provided that
the Merged Bank shall have the right to exercise all
defenses, rights, privileges, set-offs and counterclaims of every kind and nature which ASIANBANK
may have, or with the Merged Bank may invoke
under existing laws."
It appearing however that the second ground relied
upon by the defendant [Global], i.e., that the cause
of action of the plaintiff is anchored on an
unenforceable contract under the provision of the
Intellectual Property Code, will require a hearing
before the motion to dismiss can be resolved and
considering the established jurisprudence in this
jurisdiction, that availment of mode of discovery by
any of the parties to a litigation, shall be liberally
construed to the end that the truth of the
controversy on hand, shall be ascertained at a less
expense with the concomitant facility and
expeditiousness, the motion to serve written
interrogatories upon the plaintiff [Surecomp] filed by
the defendant [Global] is GRANTED insofar as the
alleged unenforceability of the subject contract is
concerned. Accordingly, the latter is directed to serve
the written interrogatories upon the plaintiff
[Surecomp], which is required to act on it in
accordance with the pertinent rule on the matter.

Dismiss dated 17 October 2001 is denied on the two


grounds therein alleged. Defendant [Global] is given
five (5) days from receipt of this Order within which
to file its Answer.

order and/or writ of preliminary injunction under Rule


65 of the Rules of Court before the CA, contending
that the RTC abused its discretion and acted in
excess of its jurisdiction.15

The resolution of defendants [Globals] Motion to


Serve Written Interrogatories is held in abeyance
pending the filing of the Answer.

On May 5, 2006, the CA rendered a Decision,16 the


dispositive portion of which reads:

SO ORDERED.13
In partially modifying the first assailed Order, the RTC
ratiocinated, viz.:
This court sees no reason to further belabor the issue
on plaintiffs capacity to sue since there is a prima
facie showing that defendant entered into a contract
with defendant and having done so, willingly, it
cannot now be made to raise the issue of capacity to
sue [Merrill Lynch Futures, Inc. v. CA, 211 SCRA 824].
That defendant was not aware of plaintiffs lack of
capacity to sue or that defendant did not benefit
from the transaction are arguments that are hardly
supported by the evidence already presented for the
resolution of the Motion to Dismiss.

Necessarily, the resolution of the motion to dismiss is


held in abeyance until after a hearing on it is
property conducted, relative to the second ground
aforementioned.

As to the issue of unenforceability of the subject


contract under the Intellectual Property Code, this
court finds justification in modifying the earlier Order
allowing the further presentation of evidence. It
appearing that the subject contract between the
parties is an executed, rather than an executory,
contract the statute of frauds therefore finds no
application here.

SO ORDERED.10

xxxx

Surecomp moved for partial reconsideration, praying


for an outright denial of the motion to dismiss, while
Global filed a motion for reconsideration.11

As to defendants Motion to Serve Written


Interrogatories, this court finds that resort to such a
discovery mechanism while laudable is premature as
defendant has yet to file its Answer. As the case now
stands, the issues are not yet joined and the disputed
facts are not clear.14

On November 27, 2002, the RTC issued an


Order,12 the fallo of which reads:
WHEREFORE, the Order of this Court dated 18 June
2002 is modified. Defendants [Globals] Motion to

10 Corpo Page 10 Cases

Undaunted, Global filed a petition for certiorari with


prayer for the issuance of a temporary restraining

WHEREFORE, premises considered, the instant


petition is DENIED. The assailed Orders dated June
18, 2002 and November 27, 2002 of the Regional
Trial Court of Makati City, Branch 146, in Civil Case
No. 01-1278 are hereby AFFIRMED.
SO ORDERED.17
A motion for reconsideration was filed by Global. On
July 10, 2006, the CA issued a Resolution18 denying
the motion for reconsideration for lack of merit.
Hence, this petition.
Global presents the following issues for resolution:
(1) whether a special civil action for certiorari is the
proper remedy for a denial of a motion to dismiss;
and (2) whether Global is estopped from questioning
Surecomps capacity to sue.19
The petition is bereft of merit.
I
An order denying a motion to dismiss is an
interlocutory order which neither terminates nor
finally disposes of a case as it leaves something to be
done by the court before the case is finally decided
on the merits. As such, the general rule is that the
denial of a motion to dismiss cannot be questioned in
a special civil action for certiorari which is a remedy
designed to correct errors of jurisdiction and not
errors of judgment.20
To justify the grant of the extraordinary remedy of
certiorari, the denial of the motion to dismiss must
have been tainted with grave abuse of discretion. By
"grave abuse of discretion" is meant such capricious

and whimsical exercise of judgment that is


equivalent to lack of jurisdiction. The abuse of
discretion must be grave as where the power is
exercised in an arbitrary or despotic manner by
reason of passion or personal hostility, and must be
so patent and gross as to amount to an evasion of
positive duty or to a virtual refusal to perform the
duty enjoined by or to act all in contemplation of
law.21
In the instant case, Global did not properly
substantiate its claim of arbitrariness on the part of
the trial court judge that issued the assailed orders
denying the motion to dismiss. In a petition for
certiorari, absent such showing of arbitrariness,
capriciousness, or ill motive in the disposition of the
trial judge in the case, we are constrained to uphold
the courts ruling, especially because its decision was
upheld by the CA.
II

acquire a license from the Securities and Exchange


Commission and appoint an agent for service of
process. Without such license, it cannot institute a
suit in the Philippines.241avvphi1
The exception to this rule is the doctrine of estoppel.
Global is estopped from challenging Surecomps
capacity to sue.
A foreign corporation doing business in the
Philippines without license may sue in Philippine
courts a Filipino citizen or a Philippine entity that had
contracted with and benefited from it.25 A party is
estopped from challenging the personality of a
corporation after having acknowledged the same by
entering into a contract with it.26 The principle is
applied to prevent a person contracting with a
foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the
contract. 27

G.R. No. 171995

April 18, 2012

STEELCASE, INC., Petitioner,


vs.
DESIGN INTERNATIONAL SELECTIONS,
INC., Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule
45 assailing the March 31, 2005 Decision1 of the
Court of Appeals (CA) which affirmed the May 29,
2000 Order2 of the Regional Trial Court, Branch 60,
Makati City (RTC), dismissing the complaint for sum
of money in Civil Case No. 99-122 entitled
"Steelcase, Inc. v. Design International Selections,
Inc."
The Facts

The determination of a corporations capacity is a


factual question that requires the elicitation of a
preponderant set of facts.22 As a rule, unlicensed
foreign non-resident corporations doing business in
the Philippines cannot file suits in the
Philippines.23 This is mandated under Section 133 of
the Corporation Code, which reads:
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.
A corporation has a legal status only within the state
or territory in which it was organized. For this reason,
a corporation organized in another country has no
personality to file suits in the Philippines. In order to
subject a foreign corporation doing business in the
country to the jurisdiction of our courts, it must

11 Corpo Page 10 Cases

Due to Globals merger with ABC and because it is


the surviving corporation, it is as if it was the one
which entered into contract with Surecomp. In the
merger of two existing corporations, one of the
corporations survives and continues the business,
while the other is dissolved, and all its rights,
properties, and liabilities are acquired by the
surviving corporation.28 This is particularly true in this
case. Based on the findings of fact of the RTC, as
affirmed by the CA, under the terms of the merger or
consolidation, Global assumed all the liabilities and
obligations of ABC as if it had incurred such liabilities
or obligations itself. In the same way, Global also has
the right to exercise all defenses, rights, privileges,
and counter-claims of every kind and nature which
ABC may have or invoke under the law. These
findings of fact were never contested by Global in
any of its pleadings filed before this Court.
WHEREFORE, in view of the foregoing, the Decision
dated May 5, 2006 and the Resolution dated July 10,
2006 of the Court of Appeals in CA-G.R. SP No. 75524
are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

Petitioner Steelcase, Inc. (Steelcase) is a foreign


corporation existing under the laws of Michigan,
United States of America (U.S.A.), and engaged in
the manufacture of office furniture with dealers
worldwide.3 Respondent Design International
Selections, Inc. (DISI) is a corporation existing under
Philippine Laws and engaged in the furniture
business, including the distribution of furniture. 4
Sometime in 1986 or 1987, Steelcase and DISI orally
entered into a dealership agreement whereby
Steelcase granted DISI the right to market, sell,
distribute, install, and service its products to enduser customers within the Philippines. The business
relationship continued smoothly until it was
terminated sometime in January 1999 after the
agreement was breached with neither party
admitting any fault.5
On January 18, 1999, Steelcase filed a complaint 6 for
sum of money against DISI alleging, among others,
that DISI had an unpaid account of US$600,000.00.
Steelcase prayed that DISI be ordered to pay actual

or compensatory damages, exemplary damages,


attorneys fees, and costs of suit.
In its Answer with Compulsory Counterclaims7 dated
February 4, 1999, DISI sought the following: (1) the
issuance of a temporary restraining order (TRO) and
a writ of preliminary injunction to enjoin Steelcase
from selling its products in the Philippines except
through DISI; (2) the dismissal of the complaint for
lack of merit; and (3) the payment of actual, moral
and exemplary damages together with attorneys
fees and expenses of litigation. DISI alleged that the
complaint failed to state a cause of action and to
contain the required allegations on Steelcases
capacity to sue in the Philippines despite the fact
that it (Steelcase) was doing business in the
Philippines without the required license to do so.
Consequently, it posited that the complaint should be
dismissed because of Steelcases lack of legal
capacity to sue in Philippine courts.
On March 3, 1999, Steelcase filed its Motion to Admit
Amended Complaint8 which was granted by the RTC,
through then Acting Presiding Judge Roberto C.
Diokno, in its Order9 dated April 26, 1999. However,
Steelcase sought to further amend its complaint by
filing a Motion to Admit Second Amended
Complaint10 on March 13, 1999.
In his Order11 dated November 15, 1999, Acting
Presiding Judge Bonifacio Sanz Maceda dismissed the
complaint, granted the TRO prayed for by DISI, set
aside the April 26, 1999 Order of the RTC admitting
the Amended Complaint, and denied Steelcases
Motion to Admit Second Amended Complaint. The
RTC stated that in requiring DISI to meet the Dealer
Performance Expectation and in terminating the
dealership agreement with DISI based on its failure to
improve its performance in the areas of business
planning, organizational structure, operational
effectiveness, and efficiency, Steelcase unwittingly
revealed that it participated in the operations of DISI.
It then concluded that Steelcase was "doing
business" in the Philippines, as contemplated by
Republic Act(R.A.) No. 7042 (The Foreign Investments
Act of 1991), and since it did not have the license to
do business in the country, it was barred from
seeking redress from our courts until it obtained the

12 Corpo Page 10 Cases

requisite license to do so. Its determination was


further bolstered by the appointment by Steelcase of
a representative in the Philippines. Finally, despite a
showing that DISI transacted with the local
customers in its own name and for its own account, it
was of the opinion that any doubt in the factual
environment should be resolved in favor of a
pronouncement that a foreign corporation was doing
business in the Philippines, considering the twelveyear period that DISI had been distributing Steelcase
products in the Philippines.

The Issues
Steelcase filed the present petition relying on the
following grounds:
I
THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR WHEN IT FOUND THAT
STEELCASE HAD BEEN "DOING BUSINESS" IN
THE PHILIPPINES WITHOUT A LICENSE.

Steelcase moved for the reconsideration of the


questioned Order but the motion was denied by the
RTC in its May 29, 2000 Order.12
Aggrieved, Steelcase elevated the case to the CA by
way of appeal, assailing the November 15, 1999 and
May 29, 2000 Orders of the RTC. On March 31, 2005,
the CA rendered its Decision affirming the RTC
orders, ruling that Steelcase was a foreign
corporation doing or transacting business in the
Philippines without a license. The CA stated that the
following acts of Steelcase showed its intention to
pursue and continue the conduct of its business in
the Philippines: (1) sending a letter to Phinma,
informing the latter that the distribution rights for its
products would be established in the near future and
directing other questions about orders for Steelcase
products to Steelcase International; (2) cancelling
orders from DISIs customers, particularly Visteon,
Phils., Inc.(Visteon); (3) continuing to send its
products to the Philippines through Modernform
Group Company Limited(Modernform), as evidenced
by an Ocean Bill of Lading; and (4) going beyond the
mere appointment of DISI as a dealer by making
several impositions on management and operations
of DISI. Thus, the CA ruled that Steelcase was barred
from access to our courts for being a foreign
corporation doing business here without the requisite
license to do so.
Steelcase filed a motion for reconsideration but it
was denied by the CA in its Resolution dated March
23, 2006.13
Hence, this petition.

II
THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN NOT FINDING THAT
RESPONDENT WAS ESTOPPED FROM
CHALLENGING STEELCASES LEGAL CAPACITY
TO SUE, AS AN AFFIRMATIVE DEFENSE IN ITS
ANSWER.
The issues to be resolved in this case are:
(1) Whether or not Steelcase is doing
business in the Philippines without a license;
and
(2) Whether or not DISI is estopped from
challenging the Steelcases legal capacity to
sue.
The Courts Ruling
The Court rules in favor of the petitioner.
Steelcase is an unlicensed foreign corporation NOT
doing business in the Philippines
Anent the first issue, Steelcase argues that Section
3(d) of R.A. No. 7042 or the Foreign Investments Act
of 1991(FIA) expressly states that the phrase "doing
business" excludes the appointment by a foreign
corporation of a local distributor domiciled in the
Philippines which transacts business in its own name
and for its own account. Steelcase claims that it was

not doing business in the Philippines when it entered


into a dealership agreement with DISI where the
latter, acting as the formers appointed local
distributor, transacted business in its own name and
for its own account. Specifically, Steelcase contends
that it was DISI that sold Steelcases furniture directly
to the end-users or customers who, in turn, directly
paid DISI for the furniture they bought. Steelcase
further claims that DISI, as a non-exclusive dealer in
the Philippines, had the right to market, sell,
distribute and service Steelcase products in its own
name and for its own account. Hence, DISI was an
independent distributor of Steelcase products, and
not a mere agent or conduit of Steelcase.
On the other hand, DISI argues that it was appointed
by Steelcase as the latters exclusive distributor of
Steelcase products. DISI likewise asserts that it was
not allowed by Steelcase to transact business in its
own name and for its own account as Steelcase
dictated the manner by which it was to conduct its
business, including the management and solicitation
of orders from customers, thereby assuming control
of its operations. DISI further insists that Steelcase
treated and considered DISI as a mere conduit, as
evidenced by the fact that Steelcase itself directly
sold its products to customers located in the
Philippines who were classified as part of their
"global accounts." DISI cited other established
circumstances which prove that Steelcase was doing
business in the Philippines including the following: (1)
the sale and delivery by Steelcase of furniture to
Regus, a Philippine client, through Modernform, a
Thai corporation allegedly controlled by Steelcase;
(2) the imposition by Steelcase of certain
requirements over the management and operations
of DISI; (3) the representations made by Steven
Husak as Country Manager of Steelcase; (4) the
cancellation by Steelcase of orders placed by
Philippine clients; and (5) the expression by
Steelcase of its desire to maintain its business in the
Philippines. Thus, Steelcase has no legal capacity to
sue in Philippine Courts because it was doing
business in the Philippines without a license to do so.
The Court agrees with the petitioner.

13 Corpo Page 10 Cases

The rule that an unlicensed foreign corporations


doing business in the Philippine do not have the
capacity to sue before the local courts is wellestablished. Section 133 of the Corporation Code of
the Philippines explicitly states:
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 phrase "doing business" is clearly defined in
Section 3(d) of R.A. No. 7042 (Foreign Investments
Act of 1991), to wit:
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 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; (Emphases supplied)

This definition is supplemented by its Implementing


Rules and Regulations, Rule I, Section 1(f) which
elaborates on the meaning of the same phrase:
f. "Doing business" shall include soliciting orders,
service contracts, opening offices, whether liaison
offices or branches; appointing representatives or
distributors, operating under full control of the
foreign corporation, domiciled in the Philippines or
who in any calendar year stay in the country for a
period 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 the functions normally incident to and in
progressive prosecution of commercial gain or of the
purpose and object of the business organization.
The following acts shall not be deemed "doing
business" in the Philippines:
1. 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;
2. Having a nominee director or officer to
represent its interest in such corporation;
3. Appointing a representative or distributor
domiciled in the Philippines which transacts
business in the representative's or
distributor's own name and account;
4. The publication of a general
advertisement through any print or
broadcast media;
5. Maintaining a stock of goods in the
Philippines solely for the purpose of having
the same processed by another entity in the
Philippines;

6. Consignment by a foreign entity of


equipment with a local company to be used
in the processing of products for export;
7. Collecting information in the Philippines;
and
8. Performing services auxiliary to an
existing isolated contract of sale which are
not on a continuing basis, such as installing
in the Philippines machinery it has
manufactured or exported to the Philippines,
servicing the same, training domestic
workers to operate it, and similar incidental
services. (Emphases supplied)
From the preceding citations, the appointment of a
distributor in the Philippines is not sufficient to
constitute "doing business" unless it is under the full
control of the foreign corporation. On the other hand,
if the distributor is an independent entity which buys
and distributes products, other than those of the
foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing
business in the Philippines.14 It should be kept in
mind that the determination of whether a foreign
corporation is doing business in the Philippines must
be judged in light of the attendant circumstances.15
In the case at bench, it is undisputed that DISI was
founded in 1979 and is independently owned and
managed by the spouses Leandro and Josephine
Bantug.16 In addition to Steelcase products, DISI also
distributed products of other companies including
carpet tiles, relocatable walls and theater
settings.17 The dealership agreement between
Steelcase and DISI had been described by the owner
himself as:
xxx basically a buy and sell arrangement whereby
we would inform Steelcase of the volume of the
products needed for a particular project and
Steelcase would, in turn, give special quotations or
discounts after considering the value of the entire
package. In making the bid of the project, we would
then add out profit margin over Steelcases prices.
After the approval of the bid by the client, we would

14 Corpo Page 10 Cases

thereafter place the orders to Steelcase. The latter,


upon our payment, would then ship the goods to the
Philippines, with us shouldering the freight charges
and taxes.18 [Emphasis supplied]

which might lend even a hint of credence to DISIs


assertions. As such, Steelcase cannot be deemed to
have been doing business in the Philippines through
Modernform.

This clearly belies DISIs assertion that it was a mere


conduit through which Steelcase conducted its
business in the country. From the preceding facts, the
only reasonable conclusion that can be reached is
that DISI was an independent contractor, distributing
various products of Steelcase and of other
companies, acting in its own name and for its own
account.

Finally, both the CA and DISI rely heavily on the


Dealer Performance Expectation required by
Steelcase of its distributors to prove that DISI was
not functioning independently from Steelcase
because the same imposed certain conditions
pertaining to business planning, organizational
structure, operational effectiveness and efficiency,
and financial stability. It is actually logical to expect
that Steelcase, being one of the major manufacturers
of office systems furniture, would require its dealers
to meet several conditions for the grant and
continuation of a distributorship agreement. The
imposition of minimum standards concerning sales,
marketing, finance and operations is nothing more
than an exercise of sound business practice to
increase sales and maximize profits for the benefit of
both Steelcase and its distributors. For as long as
these requirements do not impinge on a distributors
independence, then there is nothing wrong with
placing reasonable expectations on them.

The CA, in finding Steelcase to be unlawfully


engaged in business in the Philippines, took into
consideration the delivery by Steelcase of a letter to
Phinma informing the latter that the distribution
rights for its products would be established in the
near future, and also its cancellation of orders placed
by Visteon. The foregoing acts were apparently
misinterpreted by the CA. Instead of supporting the
claim that Steelcase was doing business in the
country, the said acts prove otherwise. It should be
pointed out that no sale was concluded as a result of
these communications. Had Steelcase indeed been
doing business in the Philippines, it would have
readily accepted and serviced the orders from the
abovementioned Philippine companies. Its decision to
voluntarily cease to sell its products in the absence
of a local distributor indicates its refusal to engage in
activities which might be construed as "doing
business."
Another point being raised by DISI is the delivery and
sale of Steelcase products to a Philippine client by
Modernform allegedly an agent of Steelcase. Basic is
the rule in corporation law that a corporation has a
separate and distinct personality from its
stockholders and from other corporations with which
it may be connected.19 Thus, despite the admission
by Steelcase that it owns 25% of Modernform, with
the remaining 75% being owned and controlled by
Thai stockholders,20 it is grossly insufficient to justify
piercing the veil of corporate fiction and declare that
Modernform acted as the alter ego of Steelcase to
enable it to improperly conduct business in the
Philippines. The records are bereft of any evidence

All things considered, it has been sufficiently


demonstrated that DISI was an independent
contractor which sold Steelcase products in its own
name and for its own account. As a result, Steelcase
cannot be considered to be doing business in the
Philippines by its act of appointing a distributor as it
falls under one of the exceptions under R.A. No.
7042.
DISI is estopped from challenging Steelcases legal
capacity to sue
Regarding the second issue, Steelcase argues that
assuming arguendo that it had been "doing business"
in the Philippines without a license, DISI was
nonetheless estopped from challenging Steelcases
capacity to sue in the Philippines. Steelcase claims
that since DISI was aware that it was doing business
in the Philippines without a license and had benefited
from such business, then DISI should be estopped
from raising the defense that Steelcase lacks the

capacity to sue in the Philippines by reason of its


doing business without a license.
On the other hand, DISI argues that the doctrine of
estoppel cannot give Steelcase the license to do
business in the Philippines or permission to file suit in
the Philippines. DISI claims that when Steelcase
entered into a dealership agreement with DISI in
1986, it was not doing business in the Philippines. It
was after such dealership was put in place that it
started to do business without first obtaining the
necessary license. Hence, estoppel cannot work
against it. Moreover, DISI claims that it suffered as a
result of Steelcases "doing business" and that it
never benefited from the dealership and, as such, it
cannot be estopped from raising the issue of lack of
capacity to sue on the part of Steelcase.
The argument of Steelcase is meritorious.
If indeed Steelcase had been doing business in the
Philippines without a license, DISI would nonetheless
be estopped from challenging the formers legal
capacity to sue.
It cannot be denied that DISI entered into a
dealership agreement with Steelcase and profited
from it for 12 years from 1987 until 1999. DISI admits
that it complied with its obligations under the
dealership agreement by exerting more effort and
making substantial investments in the promotion of
Steelcase products. It also claims that it was able to
establish a very good reputation and goodwill for
Steelcase and its products, resulting in the
establishment and development of a strong market
for Steelcase products in the Philippines. Because of
this, DISI was very proud to be awarded the
"Steelcase International Performance Award" for
meeting sales objectives, satisfying customer needs,
managing an effective company and making a
profit.21
Unquestionably, entering into a dealership
agreement with Steelcase charged DISI with the
knowledge that Steelcase was not licensed to engage
in business activities in the Philippines. This Court
has carefully combed the records and found no proof

15 Corpo Page 10 Cases

that, from the inception of the dealership agreement


in 1986 until September 1998, DISI even brought to
Steelcases attention that it was improperly doing
business in the Philippines without a license. It was
only towards the latter part of 1998 that DISI deemed
it necessary to inform Steelcase of the impropriety of
the conduct of its business without the requisite
Philippine license. It should, however, be noted that
DISI only raised the issue of the absence of a license
with Steelcase after it was informed that it owed the
latter US$600,000.00 for the sale and delivery of its
products under their special credit arrangement.
By acknowledging the corporate entity of Steelcase
and entering into a dealership agreement with it and
even benefiting from it, DISI is estopped from
questioning Steelcases existence and capacity to
sue. This is consistent with the Courts ruling in
Communication Materials and Design, Inc. v. Court of
Appeals22 where it was written:

wrong. This is as it should be for as mandated by law,


"every person must in the exercise of his rights and
in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good
faith."
Concededly, corporations act through agents, like
directors and officers. Corporate dealings must be
characterized by utmost good faith and fairness.
Corporations cannot just feign ignorance of the legal
rules as in most cases, they are manned by
sophisticated officers with tried management skills
and legal experts with practiced eye on legal
problems. Each party to a corporate transaction is
expected to act with utmost candor and fairness and,
thereby allow a reasonable proportion between
benefits and expected burdens. This is a norm which
should be observed where one or the other is a
foreign entity venturing in a global market.
xxx

Notwithstanding such finding that ITEC is doing


business in the country, petitioner is nonetheless
estopped from raising this fact to bar ITEC from
instituting this injunction case against it.
A foreign corporation doing business in the
Philippines may sue in Philippine Courts although not
authorized to do business here against a Philippine
citizen or entity who had contracted with and
benefited by said corporation. To put it in another
way, a party is estopped to challenge the personality
of a corporation after having acknowledged the same
by entering into a contract with it. And the doctrine
of estoppel to deny corporate existence applies to a
foreign as well as to domestic corporations. One who
has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its corporate
existence and capacity: The principle will be applied
to prevent a person contracting with a foreign
corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases
where such person has received the benefits of the
contract.
The rule is deeply rooted in the time-honored axiom
of Commodum ex injuria sua non habere debet no
person ought to derive any advantage of his own

By entering into the "Representative Agreement"


with ITEC, petitioner is charged with knowledge that
ITEC was not licensed to engage in business
activities in the country, and is thus estopped from
raising in defense such incapacity of ITEC, having
chosen to ignore or even presumptively take
advantage of the same.23 (Emphases supplied)
The case of Rimbunan Hijau Group of Companies v.
Oriental Wood Processing Corporation24 is likewise
instructive:
Respondents unequivocal admission of the
transaction which gave rise to the complaint
establishes the applicability of estoppel against it.
Rule 129, Section 4 of the Rules on Evidence provides
that a written admission made by a party in the
course of the proceedings in the same case does not
require proof. We held in the case of Elayda v. Court
of Appeals, that an admission made in the pleadings
cannot be controverted by the party making such
admission and are conclusive as to him. Thus, our
consistent pronouncement, as held in cases such as
Merril Lynch Futures v. Court of Appeals, is apropos:

The rule is that a party is estopped to challenge the


personality of a corporation after having
acknowledged the same by entering into a contract
with it. And the doctrine of estoppel to deny
corporate existence applies to foreign as well as to
domestic corporations; "one who has dealt with a
corporation of foreign origin as a corporate entity is
estopped to deny its existence and capacity." The
principle "will be applied to prevent a person
contracting with a foreign corporation from later
taking advantage of its noncompliance with the
statutes, chiefly in cases where such person has
received the benefits of the contract . . ."
All things considered, respondent can no longer
invoke petitioners lack of capacity to sue in this
jurisdiction.1wphi1Considerations of fair play dictate
that after having contracted and benefitted from its
business transaction with Rimbunan, respondent
should be barred from questioning the latters lack of
license to transact business in the Philippines.
In the case of Antam Consolidated, Inc. v. CA, this
Court noted that it is a common ploy of defaulting
local companies which are sued by unlicensed
foreign corporations not engaged in business in the
Philippines to invoke the latters lack of capacity to
sue. This practice of domestic corporations is
particularly reprehensible considering that in
requiring a license, the law never intended to prevent
foreign corporations from performing single or
isolated acts in this country, or to favor domestic
corporations who renege on their obligations to
foreign firms unwary enough to engage in solitary
transactions with them. Rather, the law was intended
to bar foreign corporations from acquiring a domicile
for the purpose of business without first taking the
steps necessary to render them amenable to suits in
the local courts. It was to prevent the foreign
companies from enjoying the good while disregarding
the bad.
As a matter of principle, this Court will not step in to
shield defaulting local companies from the
repercussions of their business dealings. While the
doctrine of lack of capacity to sue based on failure to
first acquire a local license may be resorted to in
meritorious cases, it is not a magic incantation. It

16 Corpo Page 10 Cases

cannot be called upon when no evidence exists to


support its invocation or the facts do not warrant its
application. In this case, that the respondent is
estopped from challenging the petitioners capacity
to sue has been conclusively established, and the
forthcoming trial before the lower court should weigh
instead on the other defenses raised by the
respondent.25 (Emphases supplied)

WHEREFORE, the March 31, 2005 Decision of the


Court of Appeals and its March 23, 2006 Resolution
are hereby REVERSED and SET ASIDE. The
dismissal order of the Regional Trial Court dated
November 15, 1999 is hereby set aside. Steelcases
Amended Complaint is hereby ordered REINSTATED
and the case is REMANDEDto the RTC for
appropriate action.

As shown in the previously cited cases, this Court has


time and again upheld the principle that a foreign
corporation doing business in the Philippines without
a license may still sue before the Philippine courts a
Filipino or a Philippine entity that had derived some
benefit from their contractual arrangement because
the latter is considered to be estopped from
challenging the personality of a corporation after it
had acknowledged the said corporation by entering
into a contract with it.26

SO ORDERED.

In Antam Consolidated, Inc. v. Court of Appeals,27 this


Court had the occasion to draw attention to the
common ploy of invoking the incapacity to sue of an
unlicensed foreign corporation utilized by defaulting
domestic companies which seek to avoid the suit by
the former. The Court cannot allow this to continue
by always ruling in favor of local companies, despite
the injustice to the overseas corporation which is left
with no available remedy.
During this period of financial difficulty, our nation
greatly needs to attract more foreign investments
and encourage trade between the Philippines and
other countries in order to rebuild and strengthen our
economy. While it is essential to uphold the sound
public policy behind the rule that denies unlicensed
foreign corporations doing business in the Philippines
access to our courts, it must never be used to
frustrate the ends of justice by becoming an allencompassing shield to protect unscrupulous
domestic enterprises from foreign entities seeking
redress in our country. To do otherwise could
seriously jeopardize the desirability of the Philippines
as an investment site and would possibly have the
deleterious effect of hindering trade between
Philippine companies and international corporations.

G.R. No. L-34382 July 20, 1983


THE HOME INSURANCE COMPANY, petitioner,
vs.
EASTERN SHIPPING LINES and/or ANGEL JOSE
TRANSPORTATION, INC. and HON. A. MELENCIOHERRERA, Presiding Judge of the Manila Court
of First Instance, Branch XVII, respondents.
G.R. No. L-34383 July 20, 1983
THE HOME INSURANCE COMPANY, petitioner,
vs.
N. V. NEDLLOYD LIJNEN; COLUMBIAN
PHILIPPINES, INC., and/or GUACODS, INC., and
HON. A. MELENCIO-HERRERA, Presiding Judge
of the Manila Court of First Instance, Branch
XVII, respondents.
No. L-34382.
Zapa Law Office for petitioner.
Bito, Misa & Lozada Law Office for respondents.
No. L-34383.
Zapa Law Office for petitioner.
Ross, Salcedo, Del Rosario, Bito & Misa Law office for
respondents.

GUTIERREZ, JR., J.:


Questioned in these consolidated petitions for review
on certiorari are the decisions of the Court of First
Instance of Manila, Branch XVII, dismissing the
complaints in Civil Case No. 71923 and in Civil Case
No. 71694, on the ground that plaintiff therein, now
appellant, had failed to prove its capacity to sue.
There is no dispute over the facts of these cases for
recovery of maritime damages. In L-34382, the facts
are found in the decision of the respondent court
which stated:
On or about January 13, 1967, S.
Kajita & Co., on behalf of Atlas
Consolidated Mining &
Development Corporation, shipped
on board the SS "Eastern Jupiter'
from Osaka, Japan, 2,361 coils of
"Black Hot Rolled Copper Wire
Rods." The said VESSEL is owned
and operated by defendant Eastern
Shipping Lines (CARRIER). The
shipment was covered by Bill of
Lading No. O-MA-9, with arrival
notice to Phelps Dodge Copper
Products Corporation of the
Philippines (CONSIGNEE) at Manila.
The shipment was insured with
plaintiff against all risks in the
amount of P1,580,105.06 under its
Insurance Policy No. AS-73633.
xxx xxx xxx
The coils discharged from the
VESSEL numbered 2,361, of which
53 were in bad order. What the
CONSIGNEE ultimately received at
its warehouse was the same
number of 2,361 coils with 73 coils
loose and partly cut, and 28 coils
entangled, partly cut, and which
had to be considered as scrap.
Upon weighing at CONSIGNEE's
warehouse, the 2,361 coils were

17 Corpo Page 10 Cases

found to weight 263,940.85 kilos as


against its invoiced weight of
264,534.00 kilos or a net
loss/shortage of 593.15 kilos,
according to Exhibit "A", or
1,209,56 lbs., according to the
claims presented by the consignee
against the plaintiff (Exhibit "D-1"),
the CARRIER (Exhibit "J-1"), and the
TRANSPORTATION COMPANY
(Exhibit "K- l").
For the loss/damage suffered by
the cargo, plaintiff paid the
consignee under its insurance
policy the amount of P3,260.44, by
virtue of which plaintiff became
subrogated to the rights and
actions of the CONSIGNEE. Plaintiff
made demands for payment
against the CARRIER and the
TRANSPORTATION COMPANY for
reimbursement of the aforesaid
amount but each refused to pay
the same. ...
The facts of L-34383 are found in the decision of the
lower court as follows:
On or about December 22, 1966,
the Hansa Transport Kontor shipped
from Bremen, Germany, 30
packages of Service Parts of Farm
Equipment and Implements on
board the VESSEL, SS "NEDER RIJN"
owned by the defendant, N. V.
Nedlloyd Lijnen, and represented in
the Philippines by its local agent,
the defendant Columbian
Philippines, Inc. (CARRIER). The
shipment was covered by Bill of
Lading No. 22 for transportation to,
and delivery at, Manila, in favor of
the consignee, international
Harvester Macleod, Inc.
(CONSIGNEE). The shipment was
insured with plaintiff company
under its Cargo Policy No. AS-

73735 "with average terms" for


P98,567.79.
xxx xxx xxx
The packages discharged from the
VESSEL numbered 29, of which
seven packages were found to be
in bad order. What the CONSIGNEE
ultimately received at its
warehouse was the same number
of 29 packages with 9 packages in
bad order. Out of these 9 packages,
1 package was accepted by the
CONSIGNEE in good order due to
the negligible damages sustained.
Upon inspection at the consignee's
warehouse, the contents of 3 out of
the 8 cases were also found to be
complete and intact, leaving 5
cases in bad order. The contents of
these 5 packages showed several
items missing in the total amount
of $131.14; while the contents of
the undelivered 1 package were
valued at $394.66, or a total of
$525.80 or P2,426.98.
For the short-delivery of 1 package
and the missing items in 5 other
packages, plaintiff paid the
CONSIGNEE under its Insurance
Cargo Policy the amount of
P2,426.98, by virtue of which
plaintiff became subrogated to the
rights and actions of the
CONSIGNEE. Demands were made
on defendants CARRIER and
CONSIGNEE for reimbursement
thereof but they failed and refused
to pay the same.
In both cases, the petitioner-appellant made the
following averment regarding its capacity to sue:
The plaintiff is a foreign insurance company duly
authorized to do business in the Philippines through

its agent, Mr. VICTOR H. BELLO, of legal age and with


office address at Oledan Building, Ayala Avenue,
Makati, Rizal.
In L-34382, the respondent-appellee Eastern
Shipping Lines, Inc., filed its answer and alleged that
it:
Denies the allegations of Paragraph I which refer to
plaintiff's capacity to sue for lack of knowledge or
information sufficient to form a belief as to the truth
thereof.
Respondent-appellee, Angel Jose Transportation, Inc.,
in turn filed its answer admitting the allegations of
the complaint, regarding the capacity of plaintiffappellant. The pertinent paragraph of this answer
reads as follows:
Angel Jose Admits the jurisdictional averments in
paragraphs 1, 2, and 3 of the heading Parties.
In L-34383, the respondents-appellees N. V. Nedlloyd
Lijhen, Columbian Philippines, Inc. and Guacods, Inc.,
filed their answers. They denied the petitionerappellant's capacity to sue for lack of knowledge or
information sufficient to form a belief as to the truth
thereof.
As earlier stated, the respondent court dismissed the
complaints in the two cases on the same ground,
that the plaintiff failed to prove its capacity to sue.
The court reasoned as follows:
In the opinion of the Court, if
plaintiff had the capacity to sue,
the Court should hold that a)
defendant Eastern Shipping Lines
should pay plaintiff the sum of
P1,630.22 with interest at the legal
rate from January 5, 1968, the date
of the institution of the Complaint,
until fully paid; b) defendant Angel
Jose Transportation, Inc. should pay
plaintiff the sum of P1,630.22 also
with interest at the legal rate from
January 5, 1968 until fully paid; c)

18 Corpo Page 10 Cases

the counterclaim of defendant


Angel Jose transportation, Inc.
should be ordered dismissed; and
d) each defendant to pay one-half
of the costs.
The Court is of the opinion that
Section 68 of the Corporation Law
reflects a policy designed to
protect the public interest. Hence,
although defendants have not
raised the question of plaintiff's
compliance with that provision of
law, the Court has resolved to take
the matter into account.
A suing foreign corporation, like
plaintiff, has to plead affirmatively
and prove either that the
transaction upon which it bases its
complaint is an isolated one, or
that it is licensed to transact
business in this country, failing
which, it will be deemed that it has
no valid cause of action (Atlantic
Mutual Ins. Co. vs. Cebu
Stevedoring Co., Inc., 17 SCRA
1037). In view of the number of
cases filed by plaintiff before this
Court, of which judicial cognizance
can be taken, and under the ruling
in Far East International Import and
Export Corporation vs. Hankai
Koayo Co., 6 SCRA 725, it has to be
held that plaintiff is doing business
in the Philippines. Consequently, it
must have a license under Section
68 of the Corporation Law before it
can be allowed to sue.
The situation of plaintiff under said
Section 68 has been described as
follows in Civil Case No. 71923 of
this Court, entitled 'Home
Insurance Co. vs. N. V. Nedlloyd
Lijnen, of which judicial cognizance
can also be taken:

Exhibit
"R",presented by
plaintiff is a
certified copy of
a license, dated
July 1, 1967,
issued by the
Office of the
Insurance
Commissioner
authorizing
plaintiff to
transact
insurance
business in this
country. By virtue
of Section 176 of
the Insurance
Law, it has to be
presumed that a
license to
transact business
under Section 68
of the
Corporation Law
had previously
been issued to
plaintiff. No copy
thereof, however,
was submitted
for a reason
unknown. The
date of that
license must not
have been much
anterior to July 1,
1967. The
preponderance of
the evidence
would therefore
call for the
finding that the
insurance
contract involved
in this case,
which was
executed at
Makati, Rizal, on
February 8, 1967,

was contracted
before plaintiff
was licensed to
transact business
in the Philippines.
This Court views
Section 68 of the
Corporation Law
as reflective of a
basic public
policy. Hence, it
is of the opinion
that, in the eyes
of Philippine law,
the insurance
contract involved
in this case must
be held void
under the
provisions of
Article 1409 (1)
of the Civil Code,
and could not be
validated by
subsequent
procurement of
the license. That
view of the Court
finds support in
the following
citation:

a
u
t
h
o
r
i
t
i
e
s
,
a

A
c
c
o
r
d
i
n
g
t
o
m

19 Corpo Page 10 Cases

a
n
y

c
o
n
s
t
i
t
u
t
i
o
n
a
l
o
r
s
t
a
t
u
t
o
r
y

p
r
o
h
i
b
i
t
i
o
n
a
g
a
i
n
s
t
a
f
o
r
e
i
g
n
c
o
r
p
o
r
a
t
i
o
n
d
o
i
n

g
b
u
s
i
n
e
s
s
i
n
t
h
e
s
t
a
t
e
,
u
n
l
e
s
s
s
u
c
h
c
o
r
p
o
r
a
t

20 Corpo Page 10 Cases

i
o
n
h
a
s
c
o
m
p
l
i
e
d
w
i
t
h
c
o
n
d
i
t
i
o
n
s
p
r
e
s
c
r
i
b
e
d
,
i

s
e
f
f
e
c
t
i
v
e
t
o
m
a
k
e
t
h
e
c
o
n
t
r
a
c
t
s
o
f
s
u
c
h
c
o
r

p
o
r
a
t
i
o
n
v
o
i
d
,
o
r
a
t
l
e
a
s
t
u
n
e
n
f
o
r
c
e
a
b
l
e
,
a
n
d

21 Corpo Page 10 Cases

p
r
e
v
e
n
t
s
t
h
e
m
a
i
n
t
e
n
a
n
c
e
b
y
t
h
e
c
o
r
p
o
r
a
t
i
o
n

o
f
a
n
y
a
c
t
i
o
n
o
n
s
u
c
h
c
o
n
t
r
a
c
t
s
.
A
l
t
h
o
u
g
h
t
h
e

u
s
u
a
l
c
o
n
s
t
r
u
c
t
i
o
n
i
s
t
o
t
h
e
c
o
n
t
r
a
r
y
,
a
n
d
t
o

22 Corpo Page 10 Cases

t
h
e
e
f
f
e
c
t
t
h
a
t
o
n
l
y
t
h
e
r
e
m
e
d
y
f
o
r
e
n
f
o
r
c
e
m

e
n
t
i
s
a
f
f
e
c
t
e
d
t
h
e
r
e
b
y
,
a
s
t
a
t
u
t
e
p
r
o
h
i
b
i
t
i
n
g

e
a
n
o
n
c
o
m
p
l
y
i
n
g
c
o
r
p
o
r
a
t
i
o
n
f
r
o
m
s
u
i
n
g
i
n
t
h

s
t
a
t
e
c
o
u
r
t
s
o
n
a
n
y
c
o
n
t
r
a
c
t
h
a
s
b
e
e
n
h
e
l
d

b
y
s
o
m
e
c
o
u
r
t
s
t
o
r
e
n
d
e
r
t
h
e
c
o
n
t
r
a
c
t
v
o
i
d
a

23 Corpo Page 10 Cases

n
d
u
n
e
n
f
o
r
c
e
a
b
l
e
b
y
t
h
e
c
o
r
p
o
r
a
t
i
o
n
,
e
v
e
n
a
f
t
e

24 Corpo Page 10 Cases

r
J
u
r
.

i
t
s

2
d

h
a
s

2
9
9
3
0
0
)
.

c
o
m
p
l
i
e
d
w
i
t
h
t
h
e
s
t
a
t
u
t
e
.
"
(
3
6
A
m
.

xxx xxx xxx


The said Civil Case No. 71923 was
dismissed by this Court. As the
insurance contract involved herein
was executed on January 20, 1967,
the instant case should also be
dismissed.
We resolved to consolidate the two cases when we
gave due course to the petition.
The petitioner raised the following assignments of
errors:
First Assignment of Error
THE HONORABLE TRIAL COURT
ERRED IN CONSIDERING AS AN
ISSUE THE LEGAL EXISTENCE OR
CAPACITY OF PLAINTIFFAPPELLANT.
Second Assignment of Error

THE HONORABLE TRIAL COURT


ERRED IN DISMISSING THE
COMPLAINT ON THE FINDING THAT
PLAINTIFF-APPELLANT HAS NO
CAPACITY TO SUE.
On the basis of factual and equitable considerations,
there is no question that the private respondents
should pay the obligations found by the trial court as
owing to the petitioner. Only the question of validity
of the contracts in relation to lack of capacity to sue
stands in the way of the petitioner being given the
affirmative relief it seeks. Whether or not the
petitioner was engaged in single acts or solitary
transactions and not engaged in business is likewise
not in issue. The petitioner was engaged in business
without a license. The private respondents' obligation
to pay under the terms of the contracts has been
proved.
When the complaints in these two cases were filed,
the petitioner had already secured the necessary
license to conduct its insurance business in the
Philippines. It could already filed suits.
Petitioner was, therefore, telling the truth when it
averred in its complaints that it was a foreign
insurance company duly authorized to do business in
the Philippines through its agent Mr. Victor H. Bello.
However, when the insurance contracts which
formed the basis of these cases were executed, the
petitioner had not yet secured the necessary licenses
and authority. The lower court, therefore, declared
that pursuant to the basic public policy reflected in
the Corporation Law, the insurance contracts
executed before a license was secured must be held
null and void. The court ruled that the contracts
could not be validated by the subsequent
procurement of the license.
The applicable provisions of the old Corporation Law,
Act 1459, as amended are:
Sec. 68. No foreign corporation or
corporations formed, organized, or
existing under any laws other than
those of the Philippine Islands shall

25 Corpo Page 10 Cases

be permitted to transact business


in the Philippine Islands until after
it shall have obtained a license for
that purpose from the chief of
the Mercantile Register of the
Bureau of Commerce and
Industry, (Now Securities and
Exchange Commission. See RA
5455) upon order of the Secretary
of Finance (Now Monetary Board) in
case of banks, savings, and loan
banks, trust corporations, and
banking institutions of all kinds,
and upon order of the Secretary of
Commerce
and Communications (Now
Secretary of Trade. See 5455,
section 4 for other requirements) in
case of all other foreign
corporations. ...
xxx xxx xxx
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 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 shag 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.

As early as 1924, this Court ruled in the leading case


of Marshall Wells Co. v. Henry W. Elser & Co. (46 Phil.
70) that the object of Sections 68 and 69 of the
Corporation Law was to subject the foreign
corporation doing business in the Philippines to the
jurisdiction of our courts. The Marshall Wells Co.
decision referred to a litigation over an isolated act
for the unpaid balance on a bill of goods but the
philosophy behind the law applies to the factual
circumstances of these cases. The Court stated:
xxx xxx xxx
Defendant isolates a portion of one
sentence of section 69 of the
Corporation Law and asks the court
to give it a literal meaning Counsel
would have the law read thus: "No
foreign corporation shall be
permitted to 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 section 68 of
the law." Plaintiff, on the contrary,
desires for the court to consider the
particular point under discussion
with reference to all the law, and
thereafter to give the law a
common sense interpretation.
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 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 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.
(State vs. American Book Co.
[1904], 69 Kan, 1; American De
Forest Wireless Telegraph
Co. vs. Superior Court of City &
Country of San Francisco and
Hebbard [1908], 153 Cal., 533; 5
Thompson on Corporations, 2d ed.,
chap. 184.)
Confronted with the option of
giving to the Corporation Law a
harsh interpretation, which would
disastrously embarrass trade, or of
giving to the law a reasonable
interpretation, which would
markedly help in the development
of trade; confronted with the option
of barring from the courts foreign
litigants with good causes of action
or of assuming jurisdiction of their
cases; confronted with the option
of construing the law to mean that
any corporation in the United
States, which might want to sell to
a person in the Philippines must
send some representative to the
Islands before the sale, and go
through the complicated formulae
provided by the Corporation Law
with regard to the obtaining of the
license, before the sale was made,

26 Corpo Page 10 Cases

in order to avoid being swindled by


Philippine citizens, or of construing
the law to mean that no foreign
corporation doing business in the
Philippines can maintain any suit
until it shall possess the necessary
license;-confronted with these
options, can anyone doubt what
our decision will be? The law simply
means that no foreign corporation
shall be permitted "to transact
business in the Philippine Islands,"
as this phrase is known in
corporation law, unless it shall
have the license required by law,
and, until it complies with the law,
shall not be permitted to maintain
any suit in the local courts. A
contrary holding would bring the
law to the verge of
unconstitutionality, a result which
should be and can be easily
avoided. (Sioux Remedy
Co. vs. Cope and
Cope, supra; Perkins, Philippine
Business Law, p. 264.)

Insofar as transacting business without a license is


concerned, Section 69 of the Corporation Law
imposed a penal sanction-imprisonment for not less
than six months nor more than two years or payment
of a fine not less than P200.00 nor more than
P1,000.00 or both in the discretion of the court.
There is a penalty for transacting business without
registration.
And insofar as litigation is concerned, the foreign
corporation or its assignee may not maintain any suit
for the recovery of any debt, claim, or demand
whatever. The Corporation Law is silent on whether
or not the contract executed by a foreign corporation
with no capacity to sue is null and void ab initio.
We are not unaware of the conflicting schools of
thought both here and abroad which are divided on
whether such contracts are void or merely voidable.
Professor Sulpicio Guevarra in his book Corporation
Law (Philippine Jurisprudence Series, U.P. Law Center,
pp. 233-234) cites an Illinois decision which holds the
contracts void and a Michigan statute and decision
declaring them merely voidable:
xxx xxx xxx

To repeat, the objective of the law was to subject the


foreign corporation to the jurisdiction of our courts.
The Corporation Law must be given a reasonable, not
an unduly harsh, interpretation which does not
hamper the development of trade relations and
which fosters friendly commercial intercourse among
countries.
The objectives enunciated in the 1924 decision are
even more relevant today when we view commercial
relations in terms of a world economy, when the
tendency is to re-examine the political boundaries
separating one nation from another insofar as they
define business requirements or restrict marketing
conditions.
We distinguish between the denial of a right to take
remedial action and the penal sanction for nonregistration.

Where a contract which is entered


into by a foreign corporation
without complying with the local
requirements of doing business is
rendered void either by the express
terms of a statute or by statutory
construction, a subsequent
compliance with the statute by the
corporation will not enable it to
maintain an action on the contract.
(Perkins Mfg. Co. v. Clinton Const.
Co., 295 P. 1 [1930]. See also
Diamond Glue Co. v. U.S. Glue
Co., supra see note 18.) But where
the statute merely prohibits the
maintenance of a suit on such
contract (without expressly
declaring the contract "void"), it
was held that a failure to comply
with the statute rendered the
contract voidable and not void, and

compliance at any time before suit


was sufficient. (Perkins Mfg. Co. v.
Clinton Const. Co., supra.)
Notwithstanding the above
decision, the Illinois statute
provides, among other things that
a foreign corporation that fails to
comply with the conditions of doing
business in that state cannot
maintain a suit or action, etc. The
court said: 'The contract upon
which this suit was brought, having
been entered into in this state
when appellant was not permitted
to transact business in this state, is
in violation of the plain provisions
of the statute, and is therefore null
and void, and no action can be
maintained thereon at any time,
even if the corporation shall, at
some time after the making of the
contract, qualify itself to transact
business in this state by a
compliance with our laws in
reference to foreign corporations
that desire to engage in business
here. (United Lead Co. v. J.M. Ready
Elevator Mfg. Co., 222 Ill. 199, 73
N.N. 567 [1906].)
A Michigan statute provides: "No
foreign corporation subject to the
provisions of this Act, shall
maintain any action in this state
upon any contract made by it in
this state after the taking effect of
this Act, until it shall have fully
complied with the requirement of
this Act, and procured a certificate
to that effect from the Secretary of
State," It was held that the above
statute does not render contracts
of a foreign corporation that fails to
comply with the statute void, but
they may be enforced only after
compliance therewith. (Hastings
Industrial Co. v. Moral, 143 Mich.
679,107 N.E. 706 [1906]; Kuennan

27 Corpo Page 10 Cases

v. U.S. Fidelity & G. Co., Mich. 122;


123 N.W. 799 [1909]; Despres,
Bridges & Noel v. Zierleyn, 163
Mich. 399, 128 N.W. 769 [1910]).
It has also been held that where
the law provided that a corporation
which has not complied with the
statutory requirements "shall not
maintain an action until such
compliance". "At the
commencement of this action the
plaintiff had not filed the certified
copy with the country clerk of
Madera County, but it did file with
the officer several months before
the defendant filed his amended
answer, setting up this defense, as
that at the time this defense was
pleaded by the defendant the
plaintiff had complied with the
statute. The defense pleaded by
the defendant was therefore
unavailable to him to prevent the
plaintiff from thereafter
maintaining the action. Section 299
does not declare that the plaintiff
shall not commence an action in
any county unless it has filed a
certified copy in the office of the
county clerk, but merely declares
that it shall not maintain an action
until it has filled it. To maintain an
action is not the same as to
commence an action, but implies
that the action has already
beencommenced." (See also
Kendrick & Roberts Inc. v. Warren
Bros. Co., 110 Md. 47, 72 A. 461
[1909]).
In another case, the court said:
"The very fact that the prohibition
against maintaining an action in
the courts of the state was inserted
in the statute ought to be
conclusive proof that the
legislature did not intend or

understand that contracts made


without compliance with the law
were void. The statute does not fix
any time within which foreign
corporations shall comply with the
Act. If such contracts were void, no
suits could be prosecuted on them
in any court. ... 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.
It does not, in terms, render invalid
contracts made in this state by
non-complying corporations. 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 ... are enforceable ...
upon compliance with the law."
(Peter & Burghard Stone Co. v.
Carper, 172 N.E. 319 [1930].)
Our jurisprudence leans towards the later view. Apart
from the objectives earlier cited from Marshall Wells
Co. v. Henry W. Elser & Co (supra), it has long been
the rule that a foreign corporation actually doing
business in the Philippines without license to do so
may be sued in our courts. The defendant American
corporation in General Corporation of the Philippines
v. Union Insurance Society of Canton Ltd et al. (87
Phil. 313) entered into insurance contracts without
the necessary license or authority. When summons
was served on the agent, the defendant had not yet
been registered and authorized to do business. The
registration and authority came a little less than two
months later. This Court ruled:

Counsel for appellant contends that


at the time of the service of
summons, the appellant had not
yet been authorized to do business.
But, as already stated, section 14,
Rule 7 of the Rules of Court makes
no distinction as to corporations
with or without authority to do
business in the Philippines. The test
is whether a foreign corporation
was actually doing business here.
Otherwise, a foreign corporation
illegally doing business here
because of its refusal or neglect to
obtain the corresponding 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.
It would indeed be anomalous and
quite prejudicial, even disastrous,
to the citizens in this jurisdiction
who in all good faith and in the
regular course of business accept
and pay for shipments of goods
from America, relying for their
protection on duly executed foreign
marine insurance policies made
payable in Manila and duly
endorsed and delivered to them,
that when they go to court to
enforce said policies, the insurer
who all along has been engaging in
this business of issuing similar
marine policies, serenely pleads
immunity to local jurisdiction
because of its refusal or neglect to
obtain the corresponding license to
do business here thereby
compelling the consignees or
purchasers of the goods insured to
go to America and sue in its courts
for redress.
There is no question that the contracts are
enforceable. The requirement of registration affects
only the remedy.

28 Corpo Page 10 Cases

Significantly, Batas Pambansa Blg. 68, the


Corporation Code of the Philippines has corrected the
ambiguity caused by the wording of Section 69 of the
old Corporation Law.
Section 133 of the present 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, shag be
permitted to maintain or intervene
in any action, suit or proceeding in
any court or administrative agency
in 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 old Section 69 has been reworded in terms of
non-access to courts and administrative agencies in
order to maintain or intervene in any action or
proceeding.
The prohibition against doing business without first
securing a license is now given penal sanction which
is also applicable to other violations of the
Corporation Code under the general provisions of
Section 144 of the Code.
It is, therefore, not necessary to declare the contract
nun and void even as against the erring foreign
corporation. The penal sanction for the violation and
the denial of access to our courts and administrative
bodies are sufficient from the viewpoint of legislative
policy.
Our ruling that the lack of capacity at the time of the
execution of the contracts was cured by the
subsequent registration is also strengthened by the
procedural aspects of these cases.

The petitioner averred in its complaints that it is a


foreign insurance company, that it is authorized to do
business in the Philippines, that its agent is Mr. Victor
H. Bello, and that its office address is the Oledan
Building at Ayala Avenue, Makati. These are all the
averments required by Section 4, Rule 8 of the Rules
of Court. The petitioner sufficiently alleged its
capacity to sue. The private respondents countered
either with an admission of the plaintiff's
jurisdictional averments or with a general denial
based on lack of knowledge or information sufficient
to form a belief as to the truth of the averments.
We find the general denials inadequate to attack the
foreign corporations lack of capacity to sue in the
light of its positive averment that it is authorized to
do so. Section 4, Rule 8 requires that "a party
desiring to raise an issue as to the legal existence of
any party or the capacity of any party to sue or be
sued in a representative capacity shall do so by
specific denial, which shag include such supporting
particulars as are particularly within the pleader's
knowledge. At the very least, the private respondents
should have stated particulars in their answers upon
which a specific denial of the petitioner's capacity to
sue could have been based or which could have
supported its denial for lack of knowledge. And yet,
even if the plaintiff's lack of capacity to sue was not
properly raised as an issue by the answers, the
petitioner introduced documentary evidence that it
had the authority to engage in the insurance
business at the time it filed the complaints.
WHEREFORE, the petitions are hereby granted. The
decisions of the respondent court are reversed and
set aside.
In L-34382, respondent Eastern Shipping Lines is
ordered to pay the petitioner the sum of P1,630.22
with interest at the legal rate from January 5, 1968
until fully paid and respondent Angel Jose
Transportation Inc. is ordered to pay the petitioner
the sum of P1,630.22 also with interest at the legal
rate from January 5, 1968 until fully paid. Each
respondent shall pay one-half of the costs. The
counterclaim of Angel Jose Transportation Inc. is
dismissed.

In L-34383, respondent N. V. Nedlloyd Lijnen, or its


agent Columbian Phil. Inc. is ordered to pay the
petitioner the sum of P2,426.98 with interest at the
legal rate from February 1, 1968 until fully paid, the
sum of P500.00 attorney's fees, and costs, The
complaint against Guacods, Inc. is dismissed.

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 dimunition of
their sales and the loss of goodwill and reputation of
their product in the market.

SO ORDERED.
G.R. No. L-47701

June 27, 1941

THE MENTHOLATUM CO., INC., ET


AL., petitioners,
vs.
ANACLETO MANGALIMAN, ET AL., respondents.
Araneta, Zaragoza, Araneta & Bautista for
petitioners.
Benito Soliven for respondents.
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 petitioners' complaint.
On October 1, 1935, the Mentholatum Co., Inc., and
the Philippine-American 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 Philippine-American
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

29 Corpo Page 10 Cases

After a protracted trial, featured by the dismissal of


the case on March 9, 1936 for failure of plaintiff's
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:
En meritos de todo lo expuesto, este
Juzgado dicta sentencia:
(a) Haciendo que sea perpetuo y
permanente el iterdicto 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;
(b) Ordenando al demandado Anacleto
Mangaliman, que rinda exacta cuenta de
sus ganancias por la venta de su producto
desde el dia 10 de marzo de 1934, hasta la
fecha de esta decision, y que pague a las
demandantes, en concepto de daos y
perjuicios, lo que resulte ser la ganancia de
dicho demandado;
(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.
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:
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.
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.
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 Philippine-American 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 PhilippineAmerican Drug Co., Inc., has sufficient
interest and standing to maintain the
complaint.
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.
Petitioners maintain that the Mentholatum Co., Inc.,
has 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


Philippine-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 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:
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 in the section immediately
preceding. 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 by both
such imprisonment and fine, in the
discretion of the court.
In the present case, no dispute exists as to facts: (1)
that the plaintiff, the Mentholatum Co., Inc., is a
foreign corporation; (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

30 Corpo Page 10 Cases

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 III. 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 pleadings
filed by 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 Sutherland's Code Pleading, Practice
& 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., did it itself. And, 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; Sory
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. vs.
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 that policy. The general
statement made in Western Equipment and Supply
Co. vs. Reyes regarding the character of the right
involved should not be construed in derogation of the
policy-determining authority of the State.
The right of the petitioner conditioned upon
compliance with the requirements 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:
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 vs.
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."
For this reason, I dissent from the majority opinion.
G.R. No. 118843 February 6, 1997
ERIKS PTE. LTD., petitioner,
vs.
COURT OF APPEALS, and DELFIN F. ENRIQUEZ,
JR., respondents.

PANGANIBAN, J.:
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?
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 CAG.R. CV No. 41275 which affirmed, for want of
capacity to sue, the trial court's 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

31 Corpo Page 10 Cases

(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 . . .
(par. 1, Complaint; p. 1, Record)
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
Date Invoice No. AWB No. Amount

17 Jan 89 27065 618-7496-2941 S$
5,010.59
24 Feb 89 27738 618-7553-6672 14,402.13
02 Mar 89 27855 (freight & hand- 1,164.18
ling charges per
Inv. 27738)
03 Mar 89 27876 618-7553-7501 1,394.32
03 Mar 89 27877 618-7553-7501 1,641.57
10 Mar 89 28046 618-7578-3256/ 7,854.60
618-7578-3481
21 Mar 89 28258 618-7578-4634 27.72
14 Apr 89 28901 618-7741-7631 2,756.53
19 Apr 89 29001 Self-collect 458.80
16 Aug 89 31669 (handcarried by 1,862.00
buyer)

S$36,392.44
21 Mar 89 28257 618-7578-4634 415.50
04 Apr 89 28601 618-7741-7605 884.09
14 Apr 89 28900 618-7741-7631 1,269.50
25 Apr 89 29127 618-7741-9720 883.80
02 May 89 29232 (By seafreight) 120.00
05 May 89 29332 618-7796-3255 1,198.40

15 May 89 29497 (Freight & hand- 111.94


ling charges per
Inv. 29127
S$ 4,989.29
31 May 89 29844 618-7796-5646 545.70
S$ 545.70

Total S$ 41,927.43
The transfers of goods were perfected in Singapore,
for private respondent's 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 petitioner's 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 Court's 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 Court's 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

32 Corpo Page 10 Cases

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 allencompassing concept in Republic Act No. 7042 9 in
this wise:
Sec. 3. Definitions. As used in
this Act:

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. (emphasis
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

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,

. . . 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 Dealer's 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 III.
367.)
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 a mean
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

33 Corpo Page 10 Cases

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
. . . 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 fourmonth 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. . . .
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. (emphasis 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 petitioner's 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.

business any access to courts without the fulfillment


by such corporations of the necessary requisites to
be subjected to our government's 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

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
petitioner's 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

34 Corpo Page 10 Cases

By this judgment, we are not foreclosing petitioner's


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. 16Moreover, 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
. . . 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. . . . 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 . . . are enforceable . . .
upon compliance with the law.
(Peter &, Burghard Stone Co. v.
Carper, 172 N.E. 319 [1930].)

While we agree with petitioner that the county 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
petition is hereby DENIED and the assailed Decision
is AFFIRMED.
SO ORDERED.
G.R. No. 138104

April 11, 2002

MR HOLDINGS, LTD., petitioner,


vs.
SHERIFF CARLOS P. BAJAR, SHERIFF
FERDINAND M. JANDUSAY, SOLIDBANK
CORPORATION, AND MARCOPPER MINING
CORPORATION, respondents.
SANDOVAL-GUTIERREZ, J.:
In the present Petition for Review on Certiorari,
petitioner MR Holdings, Ltd. assails
the a) Decision1 dated January 8, 1999 of the Court
of Appeals in CA-G.R. SP No. 49226 finding no grave
abuse of discretion on the part of Judge Leonardo P.
Ansaldo of the Regional Trial Court (RTC), Branch 94,
Boac, Marinduque, in denying petitioners application
for a writ of preliminary
injunction;2 and b) Resolution3 dated March 29, 1999
denying petitioners motion for reconsideration.
The facts of the case are as follows:
Under a "Principal Loan Agreement" 4 and
"Complementary Loan Agreement," 5 both dated
November 4, 1992, Asian Development Bank (ADB),
a multilateral development finance institution,
agreed to extend to Marcopper Mining Corporation
(Marcopper) a loan in the aggregate amount of
US$40,000,000.00 to finance the latters mining

project at Sta. Cruz, Marinduque. The principal loan


of US$ 15,000,000.00 was sourced from ADBs
ordinary capital resources, while the complementary
loan of US$ 25,000,000.00 was funded by the Bank
of Nova Scotia, a participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer
Dome), a foreign corporation which owns 40% of
Marcopper, executed a "Support and Standby Credit
Agreement" whereby the latter agreed to provide
Marcopper with cash flow support for the payment of
its obligations to ADB.
To secure the loan, Marcopper executed in favor of
ADB a "Deed of Real Estate and Chattel
Mortgage"6 dated November 11, 1992, covering
substantially all of its (Marcoppers) properties and
assets in Marinduque. It was registered with the
Register of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan
obligation, Placer Dome, in fulfillment of its
undertaking under the "Support and Standby Credit
Agreement," and presumably to preserve its
international credit standing, agreed to have its
subsidiary corporation, petitioner MR Holding, Ltd.,
assumed Marcoppers obligation to ADB in the
amount of US$ 18,453,450.02. Consequently, in an
"Assignment Agreement"7 dated March 20, 1997,
ADB assigned to petitioner all its rights, interests and
obligations under the principal and complementary
loan agreements, ("Deed of Real Estate and Chattel
Mortgage," and "Support and Standby Credit
Agreement"). On December 8, 1997, Marcopper
likewise executed a "Deed of Assignment" 8 in favor of
petitioner. Under its provisions, Marcopper assigns,
transfers, cedes and conveys to petitioner, its
assigns and/or successors-in-interest all of its
(Marcoppers) properties, mining equipment and
facilities, to wit:
Land and Mining Rights
Building and Other Structures
Other Land Improvements

35 Corpo Page 10 Cases

Machineries & Equipment, and Warehouse


Inventory
Mine/Mobile Equipment
Transportation Equipment and Furniture &
Fixtures
Meanwhile, it appeared that on May 7, 1997,
Solidbank Corporation (Solidbank) obtained a Partial
Judgment9against Marcopper from the RTC, Branch
26, Manila, in Civil Case No. 96-80083 entitled
"Solidbank Corporation vs. Marcopper Mining
Corporation, John E. Loney, Jose E. Reyes and
Teodulo C. Gabor, Jr.," the decretal portion of which
reads:
"WHEREFORE, PREMISES CONSIDERED,
partial judgment is hereby rendered
ordering defendant Marcopper Mining
Corporation, as follows:
1. To pay plaintiff Solidbank the
sum of Fifty Two Million Nine
Hundred Seventy Thousand Pesos
Seven Hundred Fifty Six and 89/100
only (PHP 52,970,756.89), plus
interest and charges until fully
paid;
2. To pay an amount equivalent to
Ten Percent (10%) of above-stated
amount as attorneys fees; and

sheriff Ferdinand M. Jandusay (also a respondent) of


the RTC, Branch 94, Boac, Marinduque, respondent
Bajar issued two notices setting the public auction
sale of the levied properties on August 27, 1998 at
the Marcopper mine site.12
Having learned of the scheduled auction sale,
petitioner served an "Affidavit of Third-Party
Claim"13 upon respondent sheriffs on August 26,
1998, asserting its ownership over all Marcoppers
mining properties, equipment and facilities by virtue
of the "Deed of Assignment."
Upon the denial of its "Affidavit of ThirdParty Claim"
by the RTC of Manila,14 petitioner commenced with
the RTC of Boac, Marinduque, presided by Judge
Leonardo P. Ansaldo, a complaint for reivindication of
properties, etc., with prayer for preliminary injunction
and temporary restraining order against respondents
Solidbank, Marcopper, and sheriffs Bajar and
Jandusay.15 The case was docketed as Civil Case No.
98-13.
In an Order16 dated October 6, 1998, Judge Ansaldo
denied petitioners application for a writ of
preliminary injunction on the ground
that a) petitioner has no legal capacity to sue, it
being a foreign corporation doing business in the
Philippines without license; b) an injunction will
amount "to staying the execution of a final judgment
by a court of co-equal and concurrent jurisdiction;"
and c) the validity of the "Assignment Agreement"
and the "Deed of Assignment" has been "put into
serious question by the timing of their execution and
registration."

3. To pay the costs of suit.


"SO ORDERED."
Upon Solidbanks motion, the RTC of Manila issued a
writ of execution pending appeal directing Carlos P.
Bajar, respondent sheriff, to require Marcopper "to
pay the sums of money to satisfy the Partial
Judgment."10Thereafter, respondent Bajar issued two
notices of levy on Marcoppers personal and real
properties, and over all its stocks of scrap iron and
unserviceable mining equipment.11 Together with

Unsatisfied, petitioner elevated the matter to the


Court of Appeals on a Petition for Certiorari,
Prohibition and Mandamus, docketed therein as CAG.R. SP No. 49226. On January 8, 1999, the Court of
Appeals rendered a Decision holding that Judge
Ansaldo did not commit grave abuse of discretion in
denying petitioners prayer for a writ of preliminary
injunction, ratiocinating as follows:
"Petitioner contends that it has the legal
capacity to sue and seek redress from

Philippine courts as it is a non-resident


foreign corporation not doing business in
the Philippines and suing on isolated
transactions.
xxx

xxx

"We agree with the finding of the


respondent court that petitioner is not suing
on an isolated transaction as it claims to be,
as it is very obvious from the deed of
assignment and its relationships with
Marcopper and Placer Dome, Inc. that its
unmistakable intention is to continue the
operations of Marcopper and shield its
properties/assets from the reach of
legitimate creditors, even those holding
valid and executory court judgments against
it. There is no other way for petitioner to
recover its huge financial investments which
it poured into Marcoppers rehabilitation and
the local situs where the Deeds of
Assignment were executed, without
petitioner continuing to do business in the
country.
xxx

xxx

"While petitioner may just be


an assignee to the Deeds of
Assignment, it may still fall
within the meaning of "doing
business" in light of the
Supreme Court ruling in the
case of Far East International
Import and Export Corporation
vs. Nankai Kogyo Co., 6 SCRA
725, that:
Where a single act or transaction
however is not merely incidental or
casual but indicates the foreign
corporations intention to do other
business in the Philippines, said single
act or transaction constitutes doing or
engaging in or transacting business in
the Philippines.

36 Corpo Page 10 Cases

"Furthermore, the court went further


by declaring that even a single act may
constitute doing business if it is
intended to be the beginning of a
series of transactions. (Far East
International Import and Export
Corporation vs. Nankai Kogyo
Co. supra).
"On the issue of whether petitioner is the
bona fide owner of all the mining facilities
and equipment of Marcopper, petitioner
relies heavily on the Assignment Agreement
allegedly executed on March 20, 1997
wherein all the rights and interest of Asian
Development Bank (ADB) in a purported
Loan Agreement were ceded and transferred
in favor of the petitioner as assignee, in
addition to a subsequent Deed of
Assignment dated December 28, 1997
conveying absolutely all the properties,
mining equipment and facilities of
Marcopper in favor of petitioner.
"The Deeds of Assignment executed in favor
of petitioner cannot be binding on the
judgment creditor, private respondent
Solidbank, under the general legal principle
that contracts can only bind the parties who
had entered into it, and it cannot favor or
prejudice a third person (Quano vs. Court of
Appeals, 211 SCRA 40). Moreover, by
express stipulation, the said deeds shall be
governed, interpreted and construed in
accordance with laws of New
York.1wphi1.nt
"The Deeds of Assignment executed by
Marcopper, through its President, Atty.
Teodulo C. Gabor, Jr., were clearly made
in bad faith and in fraud of creditors,
particularly private respondent
Solidbank. The first Assignment
Agreement purportedly executed on
March 20, 1997 was entered into after
Solidbank had filed on September 19,
1996 a case against Marcopper for
collection of sum of money before

Branch 26 of the Regional Trial Court


docketed as Civil Case No. 96-80083.
The second Deed of Assignment
purportedly executed on December 28,
1997 was entered into by President
Gabor after Solidbank had filed its
Motion for Partial Summary Judgment,
after the rendition by Branch 26 of the
Regional Trial Court of Manila of a
Partial Summary Judgment and after
the said trial court had issued a writ of
execution, and which judgment was
later affirmed by the Court of Appeals.
While the assignments (which were not
registered with the Registry of Property as
required by Article 1625 of the new Civil
Code) may be valid between the parties
thereof, it produces no effect as against
third parties. The purported execution of the
Deeds of Assignment in favor of petitioner
was in violation of Article 1387 of the New
Civil Code x x x." (Emphasis Supplied)
Hence, the present Petition for Review
on Certiorari by MR Holdings, Ltd. moored on the
following grounds:
"A. THE HONORABLE COURT OF
APPEALS COMMITS A REVERSIBLE
ERROR IN COMPLETELY DISREGARDING
AS A MATERIAL FACT OF THE CASE THE
EXISTENCE OF THE PRIOR, REGISTERED
1992 DEED OF REAL ESTATE AND
CHATTEL MORTGAGE CREATING A LIEN
OVER THE LEVIED PROPERTIES,
SUBJECT OF THE ASSIGNMENT
AGREEMENT DATED MARCH 20, 1997,
THUS, MATERIALLY CONTRIBUTING TO
THE SAID COURTS MISPERCEPTION
AND MISAPPRECIATION OF THE MERITS
OF PETITIONERS CASE.
B. THE HONORABLE COURT OF APPEALS
COMMITS A REVERSIBLE ERROR IN
MAKING A FACTUAL FINDING THAT THE
SAID ASSIGNMENT AGREEMENT IS NOT
REGISTERED, THE SAME BEING
CONTRARY TO THE FACTS ON RECORD,

THUS, MATERIALLY CONTRIBUTING TO


THE SAID COURTS MISPERCEPTION
AND MISAPPRECIATION OF THE MERITS
OF PETITIONERS CASE.
C. THE HONORABLE COURT OF APPEALS
COMMITS A REVERSIBLE ERROR IN
MAKING A FACTUAL FINDING ON THE
EXISTENCE OF AN ATTACHMENT ON THE
PROPERTIES SUBJECT OF INSTANT
CASE, THE SAME BEING CONTRARY TO
THE FACTS ON RECORD, THUS,
MATERIALLY CONTRIBUTING TO THE
SAID COURTS MISPERCEPTION AND
MISAPPRECIATION OF THE MERITS OF
PETITIONERS CASE.
D. THE HONORABLE COURT OF
APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT THE SAID
ASSIGNMENT AGREEMENT AND THE
DEED OF ASSIGNMENT ARE NOT
BINDING ON RESPONDENT SOLIDBANK
WHO IS NOT A PARTY THERETO, THE
SAME BEING CONTRARY TO LAW AND
ESTABLISHED JURISPRUDENCE ON
PRIOR REGISTERED MORTGAGE LIENS
AND ON PREFERENCE OF CREDITS.
E. THE HONORABLE COURT OF APPEALS
COMMITS A REVERSIBLE ERROR IN
FINDING THAT THE AFOREMENTIONED
ASSIGNMENT AGREEMENT AND DEED
OF ASSIGNMENT ARE SHAM,
SIMULATED, OF DUBIOUS CHARACTER,
AND WERE MADE IN BAD FAITH AND IN
FRAUD OF CREDITORS, PARTICULARLY
RESPONDENT SOLIDBANK, THE SAME
BEING IN COMPLETE DISREGARD OF,
VIZ: (1) THE LAW AND ESTABLISHED
JURISPRUDENCE ON PRIOR,
REGISTERED MORTGAGE LIENS AND ON
PREFERENCE OF CREDITS, BY REASON
OF WHICH THERE EXISTS NO CAUSAL
CONNECTION BETWEEN THE SAID
CONTRACTS AND THE PROCEEDINGS IN
CIVIL CASE NO. 96-80083; (2) THAT THE
ASIAN DEVELOPMENT BANK WILL NOT

37 Corpo Page 10 Cases

OR COULD NOT HAVE AGREED TO A


SHAM; SIMULATED, DUBIOUS AND
FRAUDULENT TRANSACTION; AND (3)
THAT RESPONDENT SOLIDBANKS
BIGGEST STOCKHOLDER, THE BANK OF
NOVA SCOTIA, WAS A MAJOR
BENEFICIARY OF THE ASSIGNMENT
AGREEMENT IN QUESTION.
F. THE HONORABLE COURT OF APPEALS
COMMITS A REVERSIBLE ERROR IN
HOLDING THAT PETITIONER IS
WITHOUT LEGAL CAPACITY TO SUE AND
SEEK REDRESS FROM PHILIPPINE
COURTS, IT BEING THE CASE THAT
SECTION 133 OF THE CORPORATION
CODE IS WITHOUT APPLICATION TO
PETITIONER, AND IT BEING THE CASE
THAT THE SAID COURT MERELY RELIED
ON SURMISES AND CONJECTURES IN
OPINING THAT PETITIONER INTENDS TO
DO BUSINESS IN THE PHILIPPINES.
G. THE HONORABLE COURT OF
APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT RESPONDENT
MARCOPPER, PLACER DOME, INC., AND
PETITIONER ARE ONE AND THE SAME
ENTITY, THE SAME BEING WITHOUT
FACTUAL OR LEGAL BASIS.
H. THE HONORABLE COURT OF
APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING PETITIONER GUILTY
OF FORUM SHOPPING, IT BEING CLEAR
THAT NEITHER LITIS
PENDENTIANOR RES JUDICATA MAY BAR
THE INSTANT REIVINDICATORY ACTION,
AND IT BEING CLEAR THAT AS THIRDPARTY CLAIMANT, THE LAW AFFORDS
PETITIONER THE RIGHT TO FILE SUCH
REIVINDICATORY ACTION.
I. THE HONORABLE COURT OF APPEALS
COMMITS A REVERSIBLE ERROR IN
RENDERING A DECISION WHICH IN
EFFECT SERVES AS JUDGMENT ON THE
MERITS OF THE CASE.

J. THE SHERIFFS LEVY AND SALE, THE


SHERIFFS CERTIFICATE OF SALE DATED
OCTOBER 12, 1998, THE RTC-MANILA
ORDER DATED FEBRUARY 12, 1999,
AND THE RTC-BOAC ORDER DATED
NOVEMBER 25, 1998 ARE NULL AND
VOID.
K. THE HONORABLE COURT OF APPEALS
COMMITS A REVERSIBLE ERROR IN
AFFIRMING THE DENIAL BY THE RTCBOAC OF PETITIONERS APPLICATION
FOR PRELIMINARY INJUNCTION, THE
SAME BEING IN TOTAL DISREGARD OF
PETITIONERS RIGHT AS ASSIGNEE OF A
PRIOR, REGISTERED MORTGAGE LIEN,
AND IN DISREGARD OF THE LAW AND
JURISPRUDENCE ON PREFERENCE OF
CREDIT."
In its petition, petitioner alleges that it is not "doing
business" in the Philippines and characterizes its
participation in the assignment contracts (whereby
Marcoppers assets where transferred to it) as mere
isolated acts that cannot foreclose its right to sue in
local courts. Petitioner likewise maintains that the
two assignment contracts, although executed during
the pendency of Civil Case No. 96-80083 in the RTC
of Manila, are not fraudulent conveyances as they
were supported by valuable considerations.
Moreover, they were executed in connection with
prior transactions that took place as early as 1992
which involved ADB, a reputable financial institution.
Petitioner further claims that when it paid
Marcoppers obligation to ADB, it stepped into the
latters shoes and acquired its (ADBS) rights, titles,
and interests under the "Deed of Real Estate and
Chattel Mortgage." Lastly, petitioner asserts its
existence as a corporation, separate and distinct
from Placer Dome and Marcopper.
In its comment, Solidbank avers that: a) petitioner is
"doing business" in the Philippines and this is
evidenced by the "huge investment" it poured into
the assignment contracts; b) granting that petitioner
is not doing business in the Philippines, the nature of
its transaction reveals an "intention to do business"
or "to begin a series of transaction" in the

country; c) petitioner, Marcopper and Placer Dome


are one and the same entity, petitioner being then a
wholly-owned subsidiary of Placer Dome, which, in
turn, owns 40% of Marcopper; d) the timing under
which the assignments contracts were executed
shows that petitioners purpose was to defeat any
judgment favorable to it (Solidbank);
and e) petitioner violated the rule on forum shopping
since the object of Civil Case No. 98-13 (at RTC, Boac,
Marinduque) is similar to the other cases filed by
Marcopper in order to forestall the sale of the levied
properties.
Marcopper, in a separate comment, states that it is
merely a nominal party to the present case and that
its principal concerns are being ventilated in another
case.

independent of any business transaction;20 and c) if a


foreign corporation does business in the Philippines
with the required license, it can sue before
Philippine courts on any transaction. Apparently, it is
not the absence of the prescribed license but the
"doing (of) business" in the Philippines without such
license which debars the foreign corporation from
access to our courts.21
The task at hand requires us to weigh the facts vis-vis the established principles. The question whether
or not a foreign corporation is doing business is
dependent principally upon the facts and
circumstances of each particular case, considered in
the light of the purposes and language of the
pertinent statute or statutes involved and of the
general principles governing the jurisdictional
authority of the state over such corporations.22

The petition is impressed with merit.


Crucial to the outcome of this case is our resolution
of the following issues: 1) Does petitioner have the
legal capacity to sue? 2) Was the Deed of
Assignment between Marcopper and petitioner
executed in fraud of creditors? 3) Are petitioner MR
Holdings, Ltd., Placer Dome, and Marcopper one and
the same entity? and 4) Is petitioner guilty of forum
shopping?
We shall resolve the issues in seriatim.
I
The Court of Appeals ruled that petitioner has no
legal capacity to sue in the Philippine courts because
it is a foreign corporation doing business here
without license. A review of this ruling does not pose
much complexity as the principles governing a
foreign corporations right to sue in local courts have
long been settled by our Corporation Law.17 These
principles may be condensed in three statements, to
wit: a) if a foreign corporationdoes business in the
Philippines without a license, it cannot sue before
the Philippine courts;18 b) if a foreign corporation
is not doing business in the Philippines, it needs
no license to sue before Philippine courts on an
isolated transaction19 or on a cause of action entirely

38 Corpo Page 10 Cases

Batas Pambansa Blg. 68, otherwise known as "The


Corporation Code of the Philippines," is silent as to
what constitutes doing" or "transacting" business in
the Philippines. Fortunately, jurisprudence has
supplied the deficiency and has held that 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
for which the corporation was
organized."23In Mentholatum Co. Inc., vs.
Mangaliman,24 this Court laid down the test to
determine whether a foreign company is "doing
business," thus:
" 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. vs.
Collectors of Int. Revenue[C.C.A., Ohio], 223
F. 984,987.) x x x."
The traditional case law definition has
metamorphosed into a statutory definition, having
been adopted with some qualifications in various

pieces of legislation in our jurisdiction. For instance,


Republic Act No. 7042, otherwise known as the
"Foreign Investment Act of 1991," defines "doing
business" as follows:
"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." (Emphasis supplied)25
Likewise, Section 1 of Republic Act No.
5455,26 provides that:
"SECTION. 1. Definition and scope of this
Act. - (1) x x x the phrase doing business
shall include soliciting orders, purchases,
service contracts, opening offices, whether
called liaison offices or 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 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."
There are other statutes27 defining the term "doing
business" in the same tenor as those above-quoted,
and as may be observed, one common denominator
among them all is the concept of "continuity."
In the case at bar, the Court of Appeals categorized
as "doing business" petitioners participation under
the "Assignment Agreement" and the "Deed of
Assignment." This is simply untenable. The
expression "doing business" should not be given such
a strict and literal construction as to make it apply to
any corporate dealing whatever.28 At this early stage
and with petitioners acts or transactions limited to
the assignment contracts, it cannot be said that it
had performed acts intended to continue the
business for which it was organized. It may not be
amiss to point out that the purpose or business
for which petitioner was organized is not
discernible in the records. No effort was
exerted by the Court of Appeals to establish
the nexus between petitioners business and
the acts supposed to constitute "doing
business." Thus, whether the assignment
contracts were incidental to petitioners
business or were continuation thereof is
beyond determination. We cannot apply the case
cited by the Court of Appeals, Far East Intl Import
and Export Corp. vs. Nankai Kogyo Co., Ltd.,29 which
held that a single act may still constitute "doing
business" if "it is not merely incidental or casual, but
is of such character as distinctly to indicate a

39 Corpo Page 10 Cases

purpose on the part of the foreign corporation to do


other business in the state." In said case, there was
an express admission from an official of the foreign
corporation that he was sent to the Philippines to
look into the operation of mines, thereby revealing
the foreign corporations desire to continue engaging
in business here. But in the case at bar, there is no
evidence of similar desire or intent. Unarguably,
petitioner may, as the Court of Appeals
suggested, decide to operate Marcoppers mining
business, but, of course, at this stage, that is a mere
speculation. Or it may decide to sell the credit
secured by the mining properties to an offshore
investor, in which case the acts will still be isolated
transactions. To see through the present facts an
intention on the part of petitioner to start a
series of business transaction is to rest on
assumptions or probabilities falling short of
actual proof. Courts should never base its
judgments on a state of facts so inadequately
developed that it cannot be determined where
inference ends and conjecture begins.
Indeed, the Court of Appeals holding that petitioner
was determined to be "doing business" in the
Philippines is based mainly on conjectures and
speculation. In concluding that the "unmistakable
intention" of petitioner is to continue Marcoppers
business, the Court of Appeals hangs on the wobbly
premise that "there is no other way for petitioner to
recover its huge financial investments which it
poured into Marcoppers rehabilitation without it
(petitioner) continuing Marcoppers business in the
country."30 This is a mere presumption. Absent overt
acts of petitioner from which we may directly infer its
intention to continue Marcoppers business, we
cannot give our concurrence. Significantly, a view
subscribed upon by many authorities is that the mere
ownership by a foreign corporation of a property in a
certain state, unaccompanied by its active use in
furtherance of the business for which it was
formed, is insufficient in itself to constitute doing
business.31 In Chittim vs. Belle Fourche Bentonite
Products Co.,32 it was held that even if a foreign
corporation purchased and took conveyances
of a mining claim, did some assessment work
thereon, and endeavored to sell it, its acts will
not constitute the doing of business so as to

subject the corporation to the statutory


requirements for the transacting of business.
On the same vein, petitioner, a foreign corporation,
which becomes the assignee of mining properties,
facilities and equipment cannot be automatically
considered as doing business, nor presumed to have
the intention of engaging in mining business.
One important point. Long before petitioner assumed
Marcoppers debt to ADB and became their assignee
under the two assignment contracts, there already
existed a "Support and Standby Credit Agreement"
between ADB and Placer Dome whereby the latter
bound itself to provide cash flow support for
Marcoppers payment of its obligations to ADB.
Plainly, petitioners payment of US$ 18,453,450.12 to
ADB was more of a fulfillment of an obligation under
the "Support and Standby Credit Agreement" rather
than an investment. That petitioner had to step into
the shoes of ADB as Marcoppers creditor was just a
necessary legal consequence of the transactions that
transpired. Also, we must hasten to add that the
"Support and Standby Credit Agreement" was
executed four (4) years prior to Marcoppers
insovency, hence, the alleged "intention of
petitioner to continue Marcoppers business" could
have no basis for at that time, Marcoppers fate
cannot yet be determined.
In the final analysis, we are convinced that petitioner
was engaged only in isolated acts or transactions.
Single or isolated acts, contracts, or transactions of
foreign corporations are not regarded as a doing or
carrying on of business. Typical examples of these
are the making of a single contract, sale, sale with
the taking of a note and mortgage in the state to
secure payment therefor, purchase, or note, or the
mere commission of a tort.33 In these instances, there
is no purpose to do any other business within the
country.
II
Solidbank contends that from the chronology and
timing of events, it is evident that there existed a
pre-set pattern of response on the part of Marcopper
to defeat whatever court ruling that may be rendered
in favor of Solidbank.

We are not convinced.


While it may appear, at initial glance, that the
assignment contracts are in the nature of fraudulent
conveyances, however, a closer look at the events
that transpired prior to the execution of those
contracts gives rise to a different conclusion. The
obvious flaw in the Court of Appeals Decision lies in
its constricted view of the facts obtaining in the case.
In its factual narration, the Court of Appeals definitely
left out some events. We shall see later the
significance of those events.
Article 1387 of the Civil Code of the Philippines
provides:
"Art. 1387. All contracts by virtue of which
the debtor alienates property by gratuitous
title are presumed to have been entered
into in fraud of creditors, when the donor did
not reserve sufficient property to pay all
debts contracted before the donation.
Alienations by onerous title are also
presumed fraudulent when made by
persons against whom some judgment
has been rendered in any instance or
some writ of attachment has been
issued. The decision or attachment
need not refer to the property
alienated, and need not have been
obtained by the party seeking
rescission.
In addition to these presumptions, the
design to defraud creditors may be proved
in any other manner recognized by law and
of evidence.
This article presumes the existence of fraud made by
a debtor. Thus, in the absence of satisfactory
evidence to the contrary, an alienation of a property
will be held fraudulent if it is made after a judgment
has been rendered against the debtor making the
alienation.34 This presumption of fraud is not
conclusive and may be rebutted by satisfactory and
convincing evidence. All that is necessary is to

40 Corpo Page 10 Cases

establish affirmatively that the conveyance is


made in good faith and for a sufficient and
valuable consideration.35
The "Assignment Agreement" and the "Deed of
Assignment" were executed for valuable
considerations. Patent from the "Assignment
Agreement" is the fact that petitioner assumed the
payment of US$ 18,453,450.12 to ADB in satisfaction
of Marcoppers remaining debt as of March 20,
1997.36 Solidbank cannot deny this fact considering
that a substantial portion of the said payment, in the
sum of US$ 13,886,791.06, was remitted in favor of
the Bank of Nova Scotia, its major stockholder.37

The facts of the case so far show that the assignment


contracts were executed in good faith. The execution
of the "Assignment Agreement" on March 20, 1997
and the "Deed of Assignment" on December 8,1997
is not the alphaof this case. While the execution of
these assignment contracts almost coincided with
the rendition on May 7, 1997 of the Partial Judgment
in Civil Case No. 96-80083 by the Manila RTC,
however, there was no intention on the part of
petitioner to defeat Solidbanks claim. It bears
reiterating that as early as November 4, 1992, Placer
Dome had already bound itself under a "Support and
Standby Credit Agreement" to provide Marcopper
with cash flow support for the payment to ADB of its
obligations. When Marcopper ceased operations on
account of disastrous mine tailings spill into the Boac
River and ADB pressed for payment of the loan,
Placer Dome agreed to have its subsidiary, herein
petitioner, paid ADB the amount of US
$18,453,450.12. Thereupon, ADB and Marcopper
executed, respectively, in favor of petitioner an
"Assignment Agreement" and a "Deed of
Assignment." Obviously, the assignment contracts
were connected with transactions that happened
long before the rendition in 1997 of the Partial
Judgment in Civil Case No. 96-80083 by the Manila
RTC. Those contracts cannot be viewed in isolation. If
we may add, it is highly inconceivable that ADB, a
reputable international financial organization, will
connive with Marcopper to feign or simulate a
contract in 1992 just to defraud Solidbank for its
claim four years thereafter. And it is equally
incredible for petitioner to be paying the huge sum of
US $ 18,453,450.12 to ADB only for the purpose of
defrauding Solidbank of the sum of P52,970,756.89.
It is said that the test as to whether or not a
conveyance is fraudulent is -- does it prejudice the
rights of creditors?38 We cannot see how Solidbanks
right was prejudiced by the assignment contracts
considering that substantially all of Marcoppers
properties were already covered by the registered
"Deed of Real Estate and Chattel Mortgage" executed
by Marcopper in favor of ADB as early as November
11, 1992. As such, Solidbank cannot assert a better
right than ADB, the latter being a preferred creditor.
It is basic that mortgaged properties answer
primarily for the mortgaged credit, not for the

judgment credit of the mortgagors unsecured


creditor. Considering that petitioner assumed
Marcoppers debt to ADB, it follows that Solidbanks
right as judgment creditor over the subject properties
must give way to that of the former.1wphi1.nt
III
The record is lacking in circumstances that would
suggest that petitioner corporation, Placer Dome and
Marcopper are one and the same entity. While
admittedly, petitioner is a wholly-owned subsidiary of
Placer Dome, which in turn, which, in turn, was then
a minority stockholder of Marcopper, however, the
mere fact that a corporation owns all of the
stocks of another corporation, taken alone is
not sufficient to justify their being treated as
one entity. If used to perform legitimate functions, a
subsidiarys separate existence shall be respected,
and the liability of the parent corporation as well as
the subsidiary will be confined to those arising in
their respective business.39
The recent case of Philippine National Bank vs.
Ritratto Group Inc.,40 outlines the circumstances
which are useful in the determination of whether a
subsidiary is but a mere instrumentality of the
parent-corporation, to wit:
(a) The parent corporation owns all or most
of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations
have common directors or officers.
(c) The parent corporation finances the
subsidiary.
(d) The parent corporation subscribes to all
the capital stock of the subsidiary or
otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate
capital.

(f) The parent corporation pays the salaries


and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no
business except with the parent corporation
or no assets except those conveyed to or by
the parent corporation.
(h) In the papers of the parent corporation
or in the statements of its officers, the
subsidiary is described as a department or
division of the parent corporation, or its
business or financial responsibility is
referred to as the parent corporations own.
(i) The parent corporation uses the property
of the subsidiary as its own.
(j) The directors or executives of the
subsidiary do not act independently in the
interest of the subsidiary, but take their
orders from the parent corporation.
(k) The formal legal requirements of the
subsidiary are not observed.
In this catena of circumstances, what is only
extant in the records is the matter of stock
ownership. There are no other factors
indicative that petitioner is a mere
instrumentality of Marcopper or Placer Dome.
The mere fact that Placer Dome agreed, under the
terms of the "Support and Standby Credit
Agreement" to provide Marcopper with cash flow
support in paying its obligations to ADB, does not
mean that its personality has merged with that of
Marcopper. This singular undertaking, performed by
Placer Dome with its own stockholders in Canada and
elsewhere, is not a sufficient ground to merge its
corporate personality with Marcopper which has its
own set of shareholders, dominated mostly by
Filipino citizens. The same view applies to petitioners
payment of Marcoppers remaining debt to ADB.
With the foregoing considerations and the absence of
fraud in the transaction of the three foreign

41 Corpo Page 10 Cases

corporations, we find it improper to pierce the veil of


corporate fiction that equitable doctrine developed
to address situations where the corporate personality
of a corporation is abused or used for wrongful
purposes.
IV
On the issue of forum shopping, there could have
been a violation of the rules thereon if petitioner and
Marcopper were indeed one and the same entity. But
since petitioner has a separate personality, it has the
right to pursue its third-party claim by filing the
independent reivindicatory action with the RTC of
Boac, Marinduque, pursuant to Rule 39, Section 16 of
the 1997 Rules of Civil Procedures. This remedy has
been recognized in a long line of cases decided by
this Court.41 In Rodriguez vs. Court of Appeals,42 we
held:
". . . It has long been settled in this
jurisdiction that the claim of ownership of a
third party over properties levied for
execution of a judgment presents no issue
for determination by the court issuing the
writ of execution.
. . .Thus, when a property levied upon by
the sheriff pursuant to a writ of execution is
claimed by third person in a sworn
statement of ownership thereof, as
prescribed by the rules, an entirely
different matter calling for a new
adjudication arises. And dealing as it does
with the all important question of title, it is
reasonable to require the filing of proper
pleadings and the holding of a trial on the
matter in view of the requirements of due
process.
. . . In other words, construing Section 17 of
Rule 39 of the Revised Rules of Court (now
Section 16 of the 1997 Rules of Civil
Procedure), the rights of third-party
claimants over certain properties levied
upon by the sheriff to satisfy the judgment
may not be taken up in the case where such

claims are presented but in a separate and


independent action instituted by the
claimants." (Emphasis supplied)
This "reivindicatory action" has for its object the
recovery of ownership or possession of the property
seized by the sheriff, despite the third party claim, as
well as damages resulting therefrom, and it may be
brought against the sheriff and such other parties as
may be alleged to have connived with him in the
supposedly wrongful execution proceedings, such as
the judgment creditor himself. Such action is an
entirely separate and distinct action from that
in which execution has been issued. Thus, there
being no identity of parties and cause of action
between Civil Case No. 98-13 (RTC, Boac) and those
cases filed by Marcopper, including Civil Case No. 9680083 (RTC, Manila) as to give rise to res
judicata or litis pendentia, Solidbanks allegation of
forum-shopping cannot prosper.43
All considered, we find petitioner to be entitled to the
issuance of a writ of preliminary injunction. Section 3,
Rule 58 of the 1997 Rules of Civil Procedure provides:
"SEC. 3 Grounds for issuance of preliminary
injunction. A preliminary injunction may be
granted when it is established:
(a) That the applicant is entitled to the relief
demanded, and the whole or part of such
relief consists in restraining the commission
or continuance of the act or acts complained
of, or in requiring the performance of an act
or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or
non-performance of the acts or acts
complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, agency or a person
is doing, threatening, or is attempting to do,
or is procuring or suffering to be done, some
act or acts probably in violation of the rights
of the applicant respecting the subject of

42 Corpo Page 10 Cases

the action or proceeding, and tending to


render the judgment ineffectual."
Petitioners right to stop the further execution of the
properties covered by the assignment contracts is
clear under the facts so far established. An execution
can be issued only against a party and not against
one who did not have his day in court.44 The duty of
the sheriff is to levy the property of the judgment
debtor not that of a third person. For, as the saying
goes, one mans goods shall not be sold for another
man's debts.45 To allow the execution of petitioners
properties would surely work injustice to it and
render the judgment on the reivindicatory action,
should it be favorable, ineffectual. In Arabay, Inc., vs.
Salvador,46 this Court held that an injunction is a
proper remedy to prevent a sheriff from selling the
property of one person for the purpose of paying the
debts of another; and that while the general rule is
that no court has authority to interfere by injunction
with the judgments or decrees of another court of
equal or concurrent or coordinate jurisdiction,
however, it is not so when a third-party claimant is
involved. We quote the instructive words of Justice
Querube C. Makalintal in Abiera vs. Court of
Appeals,47 thus:
"The rationale of the decision in the Herald
Publishing Company case48 is peculiarly
applicable to the one before Us, and
removes it from the general doctrine
enunciated in the decisions cited by the
respondents and quoted earlier herein.
1. Under Section 17 of Rule 39 a third
person who claims property levied upon on
execution may vindicate such claim by
action. Obviously a judgment rendered in
his favor, that is, declaring him to be the
owner of the property, would not constitute
interference with the powers or processes of
the court which rendered the judgment to
enforce which the execution was levied. If
that be so and it is so because the
property, being that of a stranger, is
not subject to levy then an
interlocutory order such as injunction,
upon a claim and prima facie showing

of ownership by the claimant, cannot


be considered as such interference
either."
WHEREFORE, the petition is GRANTED. The
assailed Decision dated January 8, 1999 and the
Resolution dated March 29, 1999 of the Court of
Appeals in CA G.R. No. 49226 are set aside. Upon
filing of a bond ofP1,000,000.00, respondent sheriffs
are restrained from further implementing the writ of
execution issued in Civil Case No. 96-80083 by the
RTC, Branch 26, Manila, until further orders from this
Court. The RTC, Branch 94, Boac, Marinduque, is
directed to dispose of Civil Case No. 98-13 with
dispatch.
SO ORDERED.
G.R. No. 131367

August 31, 2000

HUTCHISON PORTS PHILIPPINES


LIMITED, petitioner,
vs.
SUBIC BAY METROPOLITAN AUTHORITY,
INTERNATIONAL CONTAINER TERMINAL
SERVICES INC., ROYAL PORT SERVICES INC. and
the EXECUTIVE SECRETARY, respondents.
DECISION
YNARES-SANTIAGO, J.:
On February 12, 1996, the Subic Bay Metropolitan
Authority (or SBMA) advertised in leading national
daily newspapers and in one international
publication,1 an invitation offering to the private
sector the opportunity to develop and operate a
modern marine container terminal within the Subic
Bay Freeport Zone. Out of seven bidders who
responded to the published invitation, three were
declared by the SBMA as qualified bidders after
passing the pre-qualification evaluation conducted by
the SBMAs Technical Evaluation Committee (or
SBMA-TEC). These are: (1) International Container
Terminal Services, Inc. (or ICTSI); (2) a consortium
consisting of Royal Port Services, Inc. and HPC

Hamburg Port Consulting GMBH (or RPSI); and (3)


Hutchison Ports Philippines Limited (or HPPL),
representing a consortium composed of HPPL, Guoco
Holdings (Phils.), Inc. and Unicol Management
Services, Inc. All three qualified bidders were
required to submit their respective formal bid
package on or before July 1, 1996 by the SBMAs Prequalification, Bids and Awards Committee (or SBMAPBAC).
Thereafter, the services of three (3) international
consultants2 recommended by the World Bank for
their expertise were hired by SBMA to evaluate the
business plans submitted by each of the bidders, and
to ensure that there would be a transparent and
comprehensive review of the submitted bids. The
SBMA also hired the firm of Davis, Langdon and Seah
Philippines, Inc. to assist in the evaluation of the bids
and in the negotiation process after the winning
bidder is chosen. All the consultants, after such
review and evaluation unanimously concluded that
HPPLs Business Plan was "far superior to that of the
two other bidders."3
However, even before the sealed envelopes
containing the bidders proposed royalty fees could
be opened at the appointed time and place, RPSI
formally protested that ICTSI is legally barred from
operating a second port in the Philippines based on
Executive Order No. 212 and Department of
Transportation and Communication (DOTC) Order 95863. RPSI thus requested that the financial bid of
ICTSI should be set aside.4
Nevertheless, the opening of the sealed financial bids
proceeded "under advisement" relative to the protest
signified by RPSI. The financial bids, more particularly
the proposed royalty fee of each bidder, was as
follows:
ICTSI ------------US$57.80 TEU
HPPL ------------US$20.50 TEU
RPSI -------------US$15.08 TEU

43 Corpo Page 10 Cases

The SBMA-PBAC decided to suspend the


announcement of the winning bid, however, and
instead gave ICTSI seven (7) days within which to
respond to the letter-protest lodged by RPSI. The
HPPL joined in RPSIs protest, stating that ICTSI
should be disqualified because it was already
operating the Manila International Container Port (or
MICP), which would give rise to inevitable conflict of
interest between the MICP and the Subic Bay
Container Terminal facility.5
On August 15, 1996, the SBMA-PBAC issued a
resolution rejecting the bid of ICTSI because "said bid
does not comply with the requirements of the tender
documents and the laws of the Philippines." The said
resolution also declared that:
RESOLVED FURTHER, that the winning bid be
awarded to HUTCHISON PORTS PHILIPPINES
LIMITED (HPPL) and that negotiations commence
immediately with HPPL (HUTCHISON) with a view to
concluding an acceptable agreement within 45 days
of this date failing which negotiations with RPSI
(ROYAL) will commence with a view to concluding an
acceptable agreement within 45 days thereafter
failing which there will be declared a failure of
bids.6 (Underscoring supplied)
The following day, ICTSI filed a letter-appeal with
SBMAs Board of Directors requesting the nullification
and reversal of the above-quoted resolution rejecting
ICTSIs bid while awarding the same to HPPL. But
even before the SBMA Board could act on the appeal,
ICTSI filed a similar appeal before the Office of the
President.7 On August 30, 1996, then Chief
Presidential Legal Counsel (CPLC) Renato L. Cayetano
submitted a memorandum to then President Fidel V.
Ramos, containing the following recommendations:
We therefore suggest that the President direct SBMA
Chairman Gordon to consider option number 4 that
is to re-evaluate the financial bids submitted by the
parties, taking into consideration all the following
factors:
1. Reinstate ICTSIs bid;

2. Disregard all arguments relating to


"monopoly";
3. The re-evaluation must be limited to the
parties financial bids.
3.1 Considering that the parties
business have been accepted
(passed), strictly follow the criteria
for bid evaluation provided for in
pars. (c) and (d), Part B (1) of the
Tender Document.
4. In the re-evaluation, the COA should
actively participate to determine which of
the financial bids is more advantageous.
5. In addition, all the parties should be given
ample opportunity to elucidate or clarify the
components/justification for their respective
financial bids in order to ensure fair play and
transparency in the proceedings.
6. The Presidents authority to review the
final award shall remain."8 (Underscoring
supplied)
The recommendation of CPLC Cayetano was
approved by President Ramos, and a copy of
President Ramos handwritten approval was sent to
the SBMA Board of Directors. Accordingly, the SBMA
Board, with the concurrence of representatives of the
Commission on Audit, agreed to focus the
reevaluation of the bids in accordance with the
evaluation criteria and the detailed components
contained in the Tender Document, including all
relevant information gleaned from the bidding
documents, as well as the reports of the three
international experts and the consultancy firm hired
by the SBMA.
On September 19, 1996, the SBMA Board issued a
Resolution, declaring:
NOW, THEREFORE, IT IS HEREBY RESOLVED that the
bid that conforms to the Invitation to Tender, that has

a realistic Business Plan offering the greatest


financial return to SBMA, the best possible offer and
the most advantageous to the government is that of
HPPL and HPPL is accordingly selected as the winning
bidder and ishereby awarded the concession for the
operation and development of the Subic Bay
Container Terminal.9(Underscoring supplied)
In a letter dated September 24, 1996, the SBMA
Board of Directors submitted to the Office of the
President the results of the re-evaluation of the bid
proposals, to wit:
SBMA, through the unanimous vote of all the Board
Members, excluding the Chairman of the Board who
voluntarily inhibited himself from participating in the
re-evaluation, selected the HPPL bid as the winning
bid, being: the conforming bid with a realistic
Business Plan offering the greatest financial return to
the SBMA; the best possible offer in the market, and
the most advantageous to the government in
accordance with the Tender Document.10
Notwithstanding the SBMA Boards recommendations
and action awarding the project to HPPL, then
Executive Secretary Ruben Torres submitted a
memorandum to the Office of the President
recommending that another rebidding be
conducted.11 Consequently, the Office of the
President issued a Memorandum directing the SBMA
Board of Directors to refrain from signing the
Concession Contract with HPPL and to conduct a
rebidding of the project.12
In the meantime, the Resident Ombudsman for the
DOTC filed a complaint against members of the
SBMA-PBAC before the Office of the Ombudsman for
alleged violation of Section 3(e) of Republic Act No.
3019 for awarding the contract to HPPL. On April 16,
1997, the Evaluation and Preliminary Investigation
Bureau of the Office of the Ombudsman issued a
Resolution absolving the members of the SBMA-PBAC
of any liability and dismissing the complaint against
them, ruling thus:
After an assiduous study of the respective
contentions of both parties, we are inclined to hold,

44 Corpo Page 10 Cases

as it is hereby held, that there is no proof on record


pinpointing respondents to have acted in excess of
their discretion when they awarded the bid to HPPL.
Records revealed that respondents, in the exercise of
their discretion in determining the financial packages
offered by the applicants, were guided by the expert
report of Davis, Langdon and Seah (DLS) that fairly
evaluated which of the bidders tender the greatest
financial return to the government. There is no
showing that respondents had abused their
prerogatives. As succinctly set forth in the DLS report
it stated, among others, that, "in assessing the full
financial return to SBMA offered by the bidders, it is
necessary to consider the following critical matters:
1. Royalty fees
2. Volume of TEUs as affected by:
a. Tariff rates;
b. Marketing strategy;
c. Port facilities; and
d. Efficient reliable services.
With the preceding parameters for the evaluation of
bidders business plan, the respondents were fairly
guided by, as they aligned their judgment in
congruence with, the opinion of the panel of experts
and the SBMAs Technical Evaluation Committee to
the effect that HPPLs business is superior while that
of ICTSIs appeared to be unrealistically high which
may eventually hinder the competitiveness of the
SBMA port with the rest of the world. Respondents
averred that the panel of World Bank experts noted
that ICTSIs high tariff rates at U.S. $119.00 per TEU
is already higher by 37% through HPPL, which could
further increase by 20% in the first two (2) years and
by 5% hike thereafter. In short, high tariffs would
discourage potential customers which may be
translated into low cargo volume that will eventually
reduce financial return to SBMA. Respondents
asserted that HPPLs business plan offers the
greatest financial return which could be equated that
over the five years, HPPL offers 1.25 billion pesos

while ICTSI offers P0.859 billion, and RPSI offers P.420


billion. Over the first ten years HPPL gives P2.430
billion, ICTSI tenders P2.197 billion and RPSI has
P1.632 billion.
Viewed from this perspective alongside with the
evidence on record, the undersigned panel does not
find respondents to have exceeded their discretion in
awarding the bid to HPPL. Consequently, it could not
be said that respondents act had placed the
government at a grossly disadvantageous plight that
could have jeopardized the interest of the Republic of
the Philippines.13
On July 7, 1997, the HPPL, feeling aggrieved by the
SBMAs failure and refusal to commence negotiations
and to execute the Concession Agreement despite its
earlier pronouncements that HPPL was the winning
bidder, filed a complaint14 against SBMA before the
Regional Trial Court (RTC) of Olongapo City, Branch
75, for specific performance, mandatory injunction
and damages. In due time, ICTSI, RPSI and the Office
of the President filed separate Answers-inIntervention15 to the complaint opposing the reliefs
sought by complainant HPPL.
Complainant HPPL alleged and argued therein that a
binding and legally enforceable contract had been
established between HPPL and defendant SBMA
under Article 1305 of the Civil Code, considering that
SBMA had repeatedly declared and confirmed that
HPPL was the winning bidder. Having accepted
HPPLs offer to operate and develop the proposed
container terminal, defendant SBMA is duty-bound to
comply with its obligation by commencing
negotiations and drawing up a Concession
Agreement with plaintiff HPPL. HPPL also pointed out
that the bidding procedure followed by the SBMA
faithfully complied with existing laws and rules
established by SBMA itself; thus, when HPPL was
declared the winning bidder it acquired the exclusive
right to negotiate with the SBMA. Consequently,
plaintiff HPPL posited that SBMA should be: (1)
barred from conducting a re-bidding of the proposed
project and/or performing any such acts relating
thereto; and (2) prohibited from negotiating with any
party other than plaintiff HPPL until negotiations
between HPPL and SBMA have been concluded or in

the event that no acceptable agreement could be


arrived at. Plaintiff HPPL also alleged that SBMAs
continued refusal to negotiate the Concession
Contract is a substantial infringement of its
proprietary rights, and caused damage and prejudice
to plaintiff HPPL.

During the pre-trial hearing, one of the issues raised


and submitted for resolution was whether or not the
Office of the President can set aside the award made
by SBMA in favor of plaintiff HPPL and if so, can the
Office of the President direct the SBMA to conduct a
re-bidding of the proposed project.

Hence, HPPL prayed that:

While the case before the trial court was pending


litigation, on August 4, 1997, the SBMA sent notices
to plaintiff HPPL, ICTSI and RPSI requesting them to
declare their interest in participating in a rebidding of
the proposed project.17 On October 20, 1997, plaintiff
HPPL received a copy of the minutes of the pre-bid
conference which stated that the winning bidder
would be announced on December 5, 1997.18 Then
on November 4, 1997, plaintiff HPPL learned that the
SBMA had accepted the bids of ICTSI and RPSI who
were the only bidders who qualified.

(1) Upon the filing of this complaint,


hearings be scheduled to determine the
propriety of plaintiffs mandatory injunction
application which seeks to order defendant
or any of its appropriate officers or
committees to forthwith specify the date as
well as to perform any and all such acts
(e.g. laying the ground rules for discussion)
for the commencement of negotiations with
plaintiff with the view to signing at the
earliest possible time a Concession
Agreement for the development and
operation of the Subic Bay Container
Terminal.
(2) Thereafter, judgment be rendered in
favor of plaintiff and against defendant:
2.1. Making permanent the
preliminary mandatory injunction it
had issued;
2.2. Ordering defendant to
implement the Concession
Agreement it had executed with
plaintiff in respect of the
development and operation of the
proposed Subic Bay Container
Terminal;
2.3. Ordering defendant to pay for
the cost of plaintiffs attorneys
fees in the amount of P500,000.00,
or as otherwise proven during the
trial.
Plaintiff prays for other equitable reliefs.16

45 Corpo Page 10 Cases

into alternative productive uses of the military


reservations are urgent and necessary and shall not
be restrained or enjoined except by an order issued
by the Supreme Court of the Philippines.
During the hearing on October 30, 1997, SBMAs
counsel revealed that there is no law or
administrative rule or regulation which requires that
a bidding be accomplished within a definite time
frame.
Truly, the matter of the deferment of the re-bidding
on November 4, 1997 rests on the sound discretion
of the SBMA. For this Court to issue a cease-anddesist order would be tantamount to an issuance of a
Temporary Restraining Order or a Writ of Preliminary
Injunction. (Prado v. Veridiano II, G.R. No. 98118,
December 6, 1991).

In order to enjoin the rebidding while the case was


still pending, plaintiff HPPL filed a motion for
maintenance of the status quo19 on October 28,
1997. The said motion was denied by the court a
quo in an Order dated November 3, 1997, to wit:

The Court notes that the Office of the President has


not been heard fully on the issues. Moreover, one of
the intervenors is of the view that the issue of
jurisdiction must be resolved first, ahead of all the
other issues.

Plaintiff maintains that by voluntarily participating in


this proceedings, the defendant and the intervenors
"have unqualifiedly agreed to submit the issue of the
propriety, legality and validity of the Office of the
Presidents directive that the SBMA effect a
rebidding" of its concession contract or the operation
of the Subic Bay Container Terminal. As such, the
status quo must be maintained in order not to thwart
the courts ability to resolve the issues presented.
Further, the ethics of the profession require that
counsel should discontinue any act which tends to
render the issues academic.

WHEREFORE, and viewed from the foregoing


considerations, plaintiffs motion is DENIED.

The Opposition is anchored on lack of jurisdiction


since the issuance of a cease-and-desist order would
be tantamount to the issuance of a Temporary
Restraining Order or a Writ of Injunction which this
Court cannot do in light of the provision of Section 21
of R.A. 7227 which states:
Section 21. Injunction and Restraining Order. The
implementation of the projects for the conversion

SO ORDERED.20 (Underscoring supplied)


Hence, this petition filed by petitioner (plaintiff
below) HPPL against respondents SBMA, ICTSI, RPSI
and the Executive Secretary seeking to obtain a
prohibitory injunction. The grounds relied upon by
petitioner HPPL to justify the filing of the instant
petition are summed up as follows:
29. It is respectfully submitted that to allow
or for this Honorable Court to otherwise
refrain from restraining SBMA, during the
pendency of this suit, from committing the
aforementioned act(s) which will certainly
occur on 5 December 1997 such action (or
inaction) will work an injustice upon
petitioner which has validly been announced
as the winning bidder for the operation of
the Subic Bay Container Terminal.

30. To allow or for this Honorable Court to


otherwise refrain from restraining SBMA,
during the pendency of this suit, from
committing the aforementioned threatened
acts would be in violation of petitioners
rights in respect of the action it had filed
before the RTC of Olongapo City in Civil Case
No. 243-O-97, and could render any
judgment which may be reached by said
Court moot and ineffectual. As stated, the
legal issues raised by the parties in that
proceedings are of far reaching importance
to the national pride and prestige, and they
impact on the integrity of government
agencies engaged in international bidding of
privatization projects. Its resolution on the
merits by the trial court below and,
thereafter, any further action to be taken by
the parties before the appellate courts will
certainly benefit respondents and the entire
Filipino people.21
WHEREFORE, petitioner HPPL sought relief praying
that:
a) Upon the filing of this petition, the same
be given due course and a temporary
restraining order and/or writ of preliminary
injunction be issued ex parte, restraining
SBMA or any of its committees, or other
persons acting under its control or direction
or upon its instruction, from declaring any
winner on 5 December 1997 or at any other
date thereafter, in connection with the
rebidding for the privatization of the Subic
Bay Container Terminal and/or for any, some
or all of the respondents to perform any
such act(s) in pursuance thereof, until
further orders from this Honorable Court;
b) After appropriate proceedings, judgment
be rendered in favor of petitioner and
against respondents -(1) Ordering SBMA to desist from
conducting any rebidding or in
declaring the winner of any such
rebidding in respect of the

46 Corpo Page 10 Cases

development and operation of the


Subic Bay Container Terminal until
the judgment which the RTC of
Olongapo City may render in Civil
Case No. 243-O-97 is resolved with
finality;
(2) Declaring null and void any
award which SBMA may announce
or issue on 5 December 1997; and
(3) Ordering respondents to pay for
the cost of suit.
Petitioner prays for other equitable reliefs.22
The instant petition seeks the issuance of an
injunctive writ for the sole purpose of holding in
abeyance the conduct by respondent SBMA of a
rebidding of the proposed SBICT project until the
case for specific performance is resolved by the trial
court. In other words, petitioner HPPL prays that
the status quo be preserved until the issues raised in
the main case are litigated and finally determined.
Petitioner was constrained to invoke this Courts
exclusive jurisdiction and authority by virtue of the
above-quoted Republic Act 7227, Section 21.
On December 3, 1997, this Court granted petitioner
HPPLs application for a temporary restraining order
"enjoining the respondent SBMA or any of its
committees, or other persons acting under its control
or direction or upon its instruction, from declaring
any winner on December 5, 1997 or at any other
date thereafter, in connection with the rebidding for
the privatization of the Subic Bay Container Terminal
and/or for any, some or all of the respondents to
perform any such act or acts in pursuance thereof." 23
There is no doubt that since this controversy arose,
precious time has been lost and a vital infrastructure
project has in essense been "mothballed" to the
detriment of all parties involved, not the least of
which is the Philippine Government, through its
officials and agencies, who serve the interest of the
nation. It is, therefore, imperative that the issues
raised herein and in the court a quo be resolved

without further delay so as not to exacerbate an


already untenable situation.
At the outset, the application for the injunctive writ is
only a provisional remedy, a mere adjunct to the
main suit.24Thus, it is not uncommon that the issues
in the main action are closely intertwined, if not
identical, to the allegations and counter allegations
propounded by the opposing parties in support of
their contrary positions concerning the propriety or
impropriety of the injunctive writ. While it is not our
intention to preempt the trial courts determination
of the issues in the main action for specific
performance, this Court has a bounden duty to
perform; that is, to resolve the matters before this
Court in a manner that gives essence to justice,
equity and good conscience.
While our pronouncements are for the purpose only
of determining whether or not the circumstances
warrant the issuance of the writ of injunction, it is
inevitable that it may have some impact on the main
action pending before the trial court. Nevertheless,
without delving into the merits of the main case, our
findings herein shall be confined to the necessary
issues attendant to the application for an injunctive
writ.
For an injunctive writ to be issued, the following
requisites must be proven:
First. That the petitioner/applicant must
have a clear and unmistakable right.
Second. That there is a material and
substantial invasion of such right.
Third. That there is an urgent and
permanent necessity for the writ to prevent
serious damage.25
To our mind, petitioner HPPL has not sufficiently
shown that it has a clear and unmistakable right to
be declared the winning bidder with finality, such
that the SBMA can be compelled to negotiate a
Concession Contract. Though the SBMA Board of
Directors, by resolution, may have declared HPPL as

the winning bidder, said award cannot be said to be


final and unassailable. The SBMA Board of Directors
and other officers are subject to the control and
supervision of the Office of the President. All projects
undertaken by SBMA require the approval of the
President of the Philippines under Letter of
Instruction No. 620, which places the SBMA under its
ambit as an instrumentality, defined in Section 10
thereof as an "agency of the national government,
not integrated within the department framework,
vested with special functions or jurisdiction by law,
endowed with some if not all corporate
powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This
term includes regulatory agencies, chartered
institutions and government owned and controlled
corporations."26(Underscoring supplied)
As a chartered institution, the SBMA is always under
the direct control of the Office of the President,
particularly when contracts and/or projects
undertaken by the SBMA entail substantial amounts
of money. Specifically, Letter of Instruction No. 620
dated October 27, 1997 mandates that the approval
of the President is required in all contracts of the
national government offices, agencies and
instrumentalities, including government-owned or
controlled corporations involving two million pesos
(P2,000,000.00) and above, awarded through public
bidding or negotiation. The President may, within his
authority, overturn or reverse any award made by
the SBMA Board of Directors for justifiable reasons. It
is well-established that the discretion to accept or
reject any bid, or even recall the award thereof, is of
such wide latitude that the courts will not generally
interfere with the exercise thereof by the executive
department, unless it is apparent that such exercise
of discretion is used to shield unfairness or injustice.
When the President issued the memorandum setting
aside the award previously declared by the SBMA in
favor of HPPL and directing that a rebidding be
conducted, the same was, within the authority of the
President and was a valid exercise of his prerogative.
Consequently, petitioner HPPL acquired no clear and
unmistakable right as the award announced by the
SBMA prior to the Presidents revocation thereof was
not final and binding.

47 Corpo Page 10 Cases

There being no clear and unmistakable right on the


part of petitioner HPPL, the rebidding of the proposed
project can no longer be enjoined as there is no
material and substantial invasion to speak of. Thus,
there is no longer any urgent or permanent necessity
for the writ to prevent any perceived serious
damage. In fine, since the requisites for the issuance
of the writ of injunction are not present in the instant
case, petitioners application must be denied for lack
of merit.27
Finally, we focus on the matter of whether or not
petitioner HPPL has the legal capacity to even seek
redress from this Court.1wphi1 Admittedly,
petitioner HPPL is a foreign corporation, organized
and existing under the laws of the British Virgin
Islands. While the actual bidder was a consortium
composed of petitioner, and two other corporations,
namely, Guoco Holdings (Phils.) Inc. and Unicol
Management Servises, Inc., it is only petitioner HPPL
that has brought the controversy before the Court,
arguing that it is suing only on an isolated
transaction to evade the legal requirement that
foreign corporations must be licensed to do business
in the Philippines to be able to file and prosecute an
action before Philippines courts.
The maelstrom of this issue is whether participating
in the bidding is a mere isolated transaction, or did it
constitute "engaging in" or "transacting" business in
the Philippines such that petitioner HPPL needed a
license to do business in the Philippines before it
could come to court.
There is no general rule or governing principle laid
down as to what constitutes "doing" or "engaging in"
or "transacting" business in the Philippines. Each
case must be judged in the light of its peculiar
circumstances.28Thus, it has often been held that a
single act or transaction may be considered as
"doing business" when a corporation performs acts
for which it was created or exercises some of the
functions for which it was organized. The amount or
volume of the business is of no moment, for even a
singular act cannot be merely incidental or casual if it
indicates the foreign corporations intention to do
business.29

Participating in the bidding process constitutes


"doing business" because it shows the foreign
corporations intention to engage in business here.
The bidding for the concession contract is but an
exercise of the corporations reason for creation or
existence. Thus, it has been held that "a foreign
company invited to bid for IBRD and ADB
international projects in the Philippines will be
considered as doing business in the Philippines for
which a license is required." In this regard, it is the
performance by a foreign corporation of the acts for
which it was created, regardless of volume of
business, that determines whether a foreign
corporation needs a license or not.30
The primary purpose of the license requirement is to
compel a foreign corporation desiring to do business
within the Philippines to submit itself to the
jurisdiction of the courts of the state and to enable
the government to exercise jurisdiction over them for
the regulation of their activities in this country.31 If a
foreign corporation operates a business in the
Philippines without a license, and thus does not
submit itself to Philippine laws, it is only just that said
foreign corporation be not allowed to invoke them in
our courts when the need arises. "While foreign
investors are always welcome in this land to
collaborate with us for our mutual benefit, they must
be prepared as an indispensable condition to respect
and be bound by Philippine law in proper cases, as in
the one at bar."32 The requirement of a license is not
intended to put foreign corporations at a
disadvantage, for the doctrine of lack of capacity to
sue is based on considerations of sound public
policy.33 Accordingly, petitioner HPPL must be held to
be incapacitated to bring this petition for injunction
before this Court for it is a foreign corporation doing
business in the Philippines without the requisite
license.
WHEREFORE, in view of all the foregoing, the
instant petition is hereby DISMISSED for lack of merit.
Further, the temporary restraining order issued on
December 3, 1997 is LIFTED and SET ASIDE. No
costs.
SO ORDERED.

G.R. No. 154618

April 14, 2004

AGILENT TECHNOLOGIES SINGAPORE (PTE)


LTD., petitioner,
vs.
INTEGRATED SILICON TECHNOLOGY
PHILIPPINES CORPORATION, TEOH KIANG
HONG, TEOH KIANG SENG, ANTHONY CHOO,
JOANNE KATE M. DELA CRUZ, JEAN KAY M. DELA
CRUZ and ROLANDO T. NACILLA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the Decision dated
August 12, 2002 of the Court of Appeals in CA-G.R.
SP No. 66574, which dismissed Civil Case No. 31232001-C and annulled and set aside the Order dated
September 4, 2001 issued by the Regional Trial Court
of Calamba, Laguna, Branch 92.
Petitioner Agilent Technologies Singapore (Pte.), Ltd.
("Agilent") is a foreign corporation, which, by its own
admission, is not licensed to do business in the
Philippines.1 Respondent Integrated Silicon
Technology Philippines Corporation ("Integrated
Silicon") is a private domestic corporation, 100%
foreign owned, which is engaged in the business of
manufacturing and assembling electronics
components.2 Respondents Teoh Kiang Hong, Teoh
Kiang Seng and Anthony Choo, Malaysian nationals,
are current members of Integrated Silicons board of
directors, while Joanne Kate M. dela Cruz, Jean Kay M.
dela Cruz, and Rolando T. Nacilla are its former
members.3
The juridical relation among the various parties in
this case can be traced to a 5-year Value Added
Assembly Services Agreement ("VAASA"), entered
into on April 2, 1996 between Integrated Silicon and
the Hewlett-Packard Singapore (Pte.) Ltd., Singapore
Components Operation ("HP-Singapore").4 Under the
terms of the VAASA, Integrated Silicon was to locally
manufacture and assemble fiber optics for export to
HP-Singapore. HP-Singapore, for its part, was to
consign raw materials to Integrated Silicon; transport

48 Corpo Page 10 Cases

machinery to the plant of Integrated Silicon; and pay


Integrated Silicon the purchase price of the finished
products.5 The VAASA had a five-year term,
beginning on April 2, 1996, with a provision for
annual renewal by mutual written consent.6 On
September 19, 1999, with the consent of Integrated
Silicon,7 HP-Singapore assigned all its rights and
obligations in the VAASA to Agilent.8
On May 25, 2001, Integrated Silicon filed a complaint
for "Specific Performance and Damages" against
Agilent and its officers Tan Bian Ee, Lim Chin Hong,
Tey Boon Teck and Francis Khor, docketed as Civil
Case No. 3110-01-C. It alleged that Agilent breached
the parties oral agreement to extend the VAASA.
Integrated Silicon thus prayed that defendant be
ordered to execute a written extension of the VAASA
for a period of five years as earlier assured and
promised; to comply with the extended VAASA; and
to pay actual, moral, exemplary damages and
attorneys fees.9
On June 1, 2001, summons and a copy of the
complaint were served on Atty. Ramon Quisumbing,
who returned these processes on the claim that he
was not the registered agent of Agilent. Later, he
entered a special appearance to assail the courts
jurisdiction over the person of Agilent.
On July 2, 2001, Agilent filed a separate complaint
against Integrated Silicon, Teoh Kang Seng, Teoh
Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz,
Jean Kay M. dela Cruz and Rolando T. Nacilla,10 for
"Specific Performance, Recovery of Possession, and
Sum of Money with Replevin, Preliminary Mandatory
Injunction, and Damages", before the Regional Trial
Court, Calamba, Laguna, Branch 92, docketed as Civil
Case No. 3123-2001-C. Agilent prayed that a writ of
replevin or, in the alternative, a writ of preliminary
mandatory injunction, be issued ordering defendants
to immediately return and deliver to plaintiff its
equipment, machineries and the materials to be used
for fiber-optic components which were left in the
plant of Integrated Silicon. It further prayed that
defendants be ordered to pay actual and exemplary
damages and attorneys fees.11

Respondents filed a Motion to Dismiss in Civil Case


No. 3123-2001-C,12 on the grounds of lack of
Agilents legal capacity to sue;13 litis
pendentia;14 forum shopping;15 and failure to state a
cause of action.16
On September 4, 2001, the trial court denied the
Motion to Dismiss and granted petitioner Agilents
application for a writ of replevin.17
Without filing a motion for reconsideration,
respondents filed a petition for certiorari with the
Court of Appeals.18
In the meantime, upon motion filed by respondents,
Judge Antonio S. Pozas of Branch 92 voluntarily
inhibited himself in Civil Case No. 3123-2001-C. The
case was re-raffled and assigned to Branch 35, the
same branch where Civil Case No. 3110-2001-C is
pending.
On August 12, 2002, the Court of Appeals granted
respondents petition for certiorari, set aside the
assailed Order of the trial court dated September 4,
2001, and ordered the dismissal of Civil Case No.
3123-2001-C.
Hence, the instant petition raising the following
errors:
I.
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN NOT DISMISSING RESPONDENTS PETITION
FOR CERTIORARI FOR RESPONDENTS FAILURE TO
FILE A MOTION FOR RECONSIDERATION BEFORE
RESORTING TO THE REMEDY OF CERTIORARI.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN ANNULLING AND SETTING ASIDE THE TRIAL
COURTS ORDER DATED 4 SEPTEMBER 2001 AND
ORDERING THE DISMISSAL OF CIVIL CASE NO. 31232001-C BELOW ON THE GROUND OF LITIS

PENDENTIA, ON ACCOUNT OF THE PENDENCY OF


CIVIL CASE NO. 3110-2001-C.
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN ANNULLING AND SETTING ASIDE THE TRIAL
COURTS ORDER DATED 4 SEPTEMBER 2001 AND
ORDERING THE DISMISSAL OF CIVIL CASE NO. 31232001-C BELOW ON THE GROUND OF FORUM
SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL
CASE NO. 3110-2001-C.
IV.
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN ORDERING THE DISMISSAL OF CIVIL CASE
NO. 323-2001-C BELOW INSTEAD OF ORDERING IT
CONSOLIDATED WITH CIVIL CASE NO. 3110-2001-C.19
The two primary issues raised in this petition: (1)
whether or not the Court of Appeals committed
reversible error in giving due course to respondents
petition, notwithstanding the failure to file a Motion
for Reconsideration of the September 4, 2001 Order;
and (2) whether or not the Court of Appeals
committed reversible error in dismissing Civil Case
No. 3123-2001-C.
We find merit in the petition.
The Court of Appeals, citing the case of Malayang
Manggagawa sa ESSO v. ESSO Standard Eastern,
Inc.,20 held that the lower court had no jurisdiction
over Civil Case No. 3123-2001-C because of the
pendency of Civil Case No. 3110-2001-C and,
therefore, a motion for reconsideration was not
necessary before resort to a petition for certiorari.
This was error.
Jurisdiction is fixed by law. Batas Pambansa Blg. 129
vests jurisdiction over the subject matter of Civil
Case No. 3123-2001-C in the RTC.21
The Court of Appeals ruling that the assailed Order
issued by the RTC of Calamba, Branch 92, was a

49 Corpo Page 10 Cases

nullity for lack of jurisdiction due to litis


pendentia and forum shopping, has no legal basis.
The pendency of another action does not strip a
court of the jurisdiction granted by law.

Cloribel,27 cited by respondents, the slow progress of


the case would have rendered the issues moot had a
motion for reconsideration been availed of. We find
no such urgent circumstance in the case at bar.

The Court of Appeals further ruled that a Motion for


Reconsideration was not necessary in view of the
urgent necessity in this case. We are not convinced.
In the case of Bache and Co. (Phils.), Inc. v.
Ruiz,22 relied on by the Court of Appeals, it was held
that "time is of the essence in view of the tax
assessments sought to be enforced by respondent
officers of the Bureau of Internal Revenue against
petitioner corporation, on account of which
immediate and more direct action becomes
necessary." Tax assessments in that case were based
on documents seized by virtue of an illegal search,
and the deprivation of the right to due process
tainted the entire proceedings with illegality. Hence,
the urgent necessity of preventing the enforcement
of the tax assessments was patent. Respondents, on
the other hand, cite the case of Geronimo v.
Commission on Elections,23 where the urgent
necessity of resolving a disqualification case for a
position in local government warranted the
expeditious resort to certiorari. In the case at bar,
there is no analogously urgent circumstance which
would necessitate the relaxation of the rule on a
Motion for Reconsideration.

Respondents, therefore, availed of a premature


remedy when they immediately raised the matter to
the Court of Appeals on certiorari; and the appellate
court committed reversible error when it took
cognizance of respondents petition instead of
dismissing the same outright.

Indeed, none of the exceptions for dispensing with a


Motion for Reconsideration is present here. None of
the following cases cited by respondents serves as
adequate basis for their procedural lapse.
In Vigan Electric Light Co., Inc. v. Public Service
Commission,24 the questioned order was null and
void for failure of respondent tribunal to comply with
due process requirements; in Matanguihan v.
Tengco,25 the questioned order was a patent nullity
for failure to acquire jurisdiction over the defendants,
which fact the records plainly disclosed; and
in National Electrification Administration v. Court of
Appeals,26 the questioned orders were void for
vagueness. No such patent nullity is evident in the
Order issued by the trial court in this case. Finally,
while urgency may be a ground for dispensing with a
Motion for Reconsideration, in the case of Vivo v.

We come now to the substantive issues of the


petition.
Litis pendentia is a Latin term which literally means
"a pending suit." It is variously referred to in some
decisions as lis pendens and auter action pendant.
While it is normally connected with the control which
the court has on a property involved in a suit during
the continuance proceedings, it is more interposed as
a ground for the dismissal of a civil action pending in
court.
Litis pendentia as a ground for the dismissal of a civil
action refers to that situation wherein another action
is pending between the same parties for the same
cause of action, such that the second action
becomes unnecessary and vexatious. For litis
pendentia to be invoked, the concurrence of the
following requisites is necessary:
(a) identity of parties or at least such as
represent the same interest in both actions;
(b) identity of rights asserted and reliefs
prayed for, the reliefs being founded on the
same facts; and
(c) the identity in the two cases should be
such that the judgment that may be
rendered in one would, regardless of which
party is successful, amount to res judicata in
the other.28

The Court of Appeals correctly appreciated the


identity of parties in Civil Cases No. 3123-2001-C and
3110-2001-C. Well-settled is the rule that lis
pendens requires only substantial, and not absolute,
identity of parties.29 There is substantial identity of
parties when there is a community of interest
between a party in the first case and a party in the
second case, even if the latter was not impleaded in
the first case.30 The parties in these cases are vying
over the interests of the two opposing corporations;
the individuals are only incidentally impleaded, being
the natural persons purportedly accused of violating
these corporations rights.
Likewise, the fact that the positions of the parties are
reversed, i.e., the plaintiffs in the first case are the
defendants in the second case or vice versa, does
not negate the identity of parties for purposes of
determining whether the case is dismissible on the
ground of litis pendentia.31
The identity of parties notwithstanding, litis
pendentia does not obtain in this case because of the
absence of the second and third requisites. The
rights asserted in each of the cases involved are
separate and distinct; there are two subjects of
controversy presented for adjudication; and two
causes of action are clearly involved. The fact that
respondents instituted a prior action for "Specific
Performance and Damages" is not a ground for
defeating the petitioners action for "Specific
Performance, Recovery of Possession, and Sum of
Money with Replevin, Preliminary Mandatory
Injunction, and Damages."
In Civil Case No. 3110-2001-C filed by respondents,
the issue is whether or not there was a breach of an
oral promise to renew of the VAASA. The issue in Civil
Case No. 3123-2001-C, filed by petitioner, is whether
petitioner has the right to take possession of the
subject properties. Petitioners right of possession is
founded on the ownership of the subject goods,
which ownership is not disputed and is not
contingent on the extension or non-extension of the
VAASA. Hence, the replevin suit can validly be tried
even while the prior suit is being litigated in the
Regional Trial Court.

50 Corpo Page 10 Cases

Possession of the subject properties is not an issue in


Civil Case No. 3110-2001-C. The reliefs sought by
respondent Integrated Silicon therein are as follows:
(1) execution of a written extension or renewal of the
VAASA; (2) compliance with the extended VAASA;
and (3) payment of overdue accounts, damages, and
attorneys fees. The reliefs sought by petitioner
Agilent in Civil Case No. 3123-2001-C, on the other
hand, are as follows: (1) issuance of a Writ of
Replevin or Writ of Preliminary Mandatory Injunction;
(2) recovery of possession of the subject properties;
(3) damages and attorneys fees.
Concededly, some items or pieces of evidence may
be admissible in both actions. It cannot be said,
however, thatexactly the same evidence will support
the decisions in both, since the legally significant and
controlling facts in each case are entirely different.
Although the VAASA figures prominently in both
suits, Civil Case No. 3110-2001-C is premised on a
purported breach of an oral obligation to extend the
VAASA, and damages arising out of Agilents alleged
failure to comply with such purported extension. Civil
Case No. 3123-2001-C, on the other hand, is
premised on a breach of the VAASA itself, and
damages arising to Agilent out of that purported
breach.
It necessarily follows that the third requisite for litis
pendentia is also absent. The following are the
elements of res judicata:
(a) The former judgment must be final;
(b) The court which rendered judgment
must have jurisdiction over the parties and
the subject matter;
(c) It must be a judgment on the merits; and
(d) There must be between the first and
second actions identity of parties, subject
matter, and cause of action.32
In this case, any judgment rendered in one of the
actions will not amount to res judicata in the other
action. There being different causes of action, the

decision in one case will not constitute res judicata


as to the other.
Of course, a decision in one case may, to a certain
extent, affect the other case. This, however, is not
the test to determine the identity of the causes of
action. Whatever difficulties or inconvenience may be
entailed if both causes of action are pursued on
separate remedies, the proper solution is not the
dismissal order of the Court of Appeals. The possible
consolidation of said cases, as well as stipulations
and appropriate modes of discovery, may well be
considered by the court below to subserve not only
procedural expedience but, more important, the ends
of justice.33
We now proceed to the issue of forum shopping.
The test for determining whether a party violated the
rule against forum-shopping was laid down in the
case ofBuan v. Lopez.34 Forum shopping exists where
the elements of litis pendentia are present, or where
a final judgment in one case will amount to res
judicata in the final other. There being no litis
pendentia in this case, a judgment in the said case
will not amount to res judicata in Civil Case No. 31102001-C, and respondents contention on forum
shopping must likewise fail.
We are not unmindful of the afflictive consequences
that may be suffered by both petitioner and
respondents if replevin is granted by the trial court in
Civil Case No. 3123-2001-C. If respondent Integrated
Silicon eventually wins Civil Case No. 3110-2001-C,
and the VAASAs terms are extended, petitioner
corporation will have to comply with its obligations
thereunder, which would include the consignment of
properties similar to those it may recover by way of
replevin in Civil Case No. 3123-2001-C. However,
petitioner will also suffer an injustice if denied the
remedy of replevin, resort to which is not only
allowed but encouraged by law.
Respondents argue that since Agilent is an
unlicensed foreign corporation doing business in the
Philippines, it lacks the legal capacity to file
suit.35 The assailed acts of petitioner Agilent,

purportedly in the nature of "doing business" in the


Philippines, are the following: (1) mere entering into
the VAASA, which is a "service contract";36(2)
appointment of a full-time representative in
Integrated Silicon, to "oversee and supervise the
production" of Agilents products;37 (3) the
appointment by Agilent of six full-time staff
members, who were permanently stationed at
Integrated Silicons facilities in order to inspect the
finished goods for Agilent;38 and (4) Agilents
participation in the management, supervision and
control of Integrated Silicon,39 including instructing
Integrated Silicon to hire more employees to meet
Agilents increasing production needs,40 regularly
performing quality audit, evaluation and supervision
of Integrated Silicons employees,41 regularly
performing inventory audit of raw materials to be
used by Integrated Silicon, which was also required
to provide weekly inventory updates to Agilent,42 and
providing and dictating Integrated Silicon on the daily
production schedule, volume and models of the
products to manufacture and ship for Agilent.43
A foreign corporation without a license is not ipso
facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a
foreign corporation is "transacting" or "doing
business" in the country. 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 prevents an unlicensed
foreign corporation "doing business" in the
Philippines from accessing our courts.

51 Corpo Page 10 Cases

In a number of cases, however, we have held that an


unlicensed foreign corporation doing business in the
Philippines may bring suit in Philippine courts against
a Philippine citizen or entity who had contracted with
and benefited from said corporation.44 Such a suit is
premised on the doctrine of estoppel. A party is
estopped from challenging the personality of a
corporation after having acknowledged the same by
entering into a contract with it. This doctrine of
estoppel to deny corporate existence and capacity
applies to foreign as well as domestic
corporations.45 The application of this principle
prevents a person contracting with a foreign
corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases
where such person has received the benefits of the
contract.46
The principles regarding the right of a foreign
corporation to bring suit in Philippine courts may thus
be condensed in four statements: (1) if a foreign
corporation does business in the Philippines without
a license, it cannot sue before the Philippine
courts;47 (2) if a foreign corporation is not doing
business in the Philippines, it needs no license to sue
before Philippine courts on an isolated transaction or
on a cause of action entirely independent of any
business transaction48; (3) if a foreign corporation
does business in the Philippines without a license, a
Philippine citizen or entity which has contracted with
said corporation may be estopped from challenging
the foreign corporations corporate personality in a
suit brought before Philippine courts;49 and (4) if a
foreign corporation does business in the
Philippines with the required license, it can sue
before Philippine courts on any transaction.
The challenge to Agilents legal capacity to file suit
hinges on whether or not it is doing business in the
Philippines. However, there is no definitive rule on
what constitutes "doing", "engaging in", or
"transacting" business in the Philippines, as this
Court observed in the case of Mentholatum v.
Mangaliman.50 The Corporation Code itself is silent as
to what acts constitute doing or transacting business
in the Philippines.

Jurisprudence has it, however, that 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 or in progressive
prosecution of the purpose and subject of its
organization."51
In Mentholatum,52 this Court discoursed on the two
general tests to determine whether or not a foreign
corporation can be considered as "doing business" in
the Philippines. The first of these is
the substance test, thus:53
The true test [for doing business], however,
seems to be whether the foreign corporation
is continuing the body of the business or
enterprise for which it was organized or
whether it has substantially retired from it
and turned it over to another.
The second test is the continuity test, expressed
thus:54
The term [doing business] 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 the progressive
prosecution of, the purpose and object of its
organization.
Although each case must be judged in light of its
attendant circumstances, jurisprudence has evolved
several guiding principles for the application of these
tests. For instance, considering that it transacted
with its Philippine counterpart for seven years,
engaging in futures contracts, this Court concluded
that the foreign corporation inMerrill Lynch Futures,
Inc. v. Court of Appeals and Spouses Lara,55 was
doing business in the Philippines. InCommissioner of
Internal Revenue v. Japan Airlines ("JAL"),56 the Court
held that JAL was doing business in the Philippines,
i.e., its commercial dealings in the country were
continuous despite the fact that no JAL aircraft
landed in the country as it sold tickets in the

Philippines through a general sales agent, and


opened a promotions office here as well.
In General Corp. of the Phils. v. Union Insurance
Society of Canton and Firemans Fund Insurance,57 a
foreign insurance corporation was held to be doing
business in the Philippines, as it appointed a settling
agent here, and issued 12 marine insurance policies.
We held that these transactions were not isolated or
casual, but manifested the continuity of the foreign
corporations conduct and its intent to establish a
continuous business in the country. In Eriks PTE Ltd.
v. Court of Appeals and Enriquez,58 the foreign
corporation sold its products to a Filipino buyer who
ordered the goods 16 times within an eight-month
period. Accordingly, this Court ruled that the
corporation was doing business in the Philippines, as
there was a clear intention on its part to continue the
body of its business here, despite the relatively short
span of time involved. Communication Materials and
Design, Inc., et al. v. Court of Appeals, ITEC, et
al.59 and Top-Weld Manufacturing v. ECED, IRTI, et
al.60 both involved the License and Technical
Agreement and Distributor Agreement of foreign
corporations with their respective local counterparts
that were the primary bases for the Courts ruling
that the foreign corporations were doing business in
the Philippines.61 In particular, the Court cited
the highly restrictive nature of certain provisions in
the agreements involved, such that, as stated in
Communication Materials, the Philippine entity is
reduced to a mere extension or instrument of the
foreign corporation. For example, in Communication
Materials, the Court deemed the "No Competing
Product" provision of the Representative Agreement
therein restrictive.62
The case law definition has evolved into a statutory
definition, having been adopted with some
qualifications in various pieces of legislation. The
Foreign Investments Act of 1991 (the "FIA"; Republic
Act No. 7042, as amended), defines "doing business"
as follows:
Sec. 3, par. (d). The phrase "doing business"
shall include soliciting orders, service
contracts, opening offices, whether called
"liaison" offices or branches; appointing

52 Corpo Page 10 Cases

representatives or distributors domiciled in


the Philippines or who in any calendar year
stay in the country 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 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 the progressive
prosecution of, commercial gain or of the
purpose and object of the business
organization.
An analysis of the relevant case law, in
conjunction with Section 1 of the
Implementing Rules and Regulations of the
FIA (as amended by Republic Act No. 8179),
would demonstrate that the acts
enumerated in the VAASA do not constitute
"doing business" in the Philippines.
Section 1 of the Implementing Rules and
Regulations of the FIA (as amended by
Republic Act No. 8179) provides that the
following shall not be deemed "doing
business":
(1) 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;
(2) Having a nominee director or
officer to represent its interest in
such corporation;

(3) Appointing a representative or


distributor domiciled in the
Philippines which transacts
business in the representatives or
distributors own name and
account;
(4) The publication of a general
advertisement through any print or
broadcast media;
(5) Maintaining a stock of goods in
the Philippines solely for the
purpose of having the same
processed by another entity in the
Philippines;
(6) Consignment by a foreign entity
of equipment with a local company
to be used in the processing of
products for export;
(7) Collecting information in the
Philippines; and
(8) Performing services auxiliary to
an existing isolated contract of sale
which are not on a continuing
basis, such as installing in the
Philippines machinery it has
manufactured or exported to the
Philippines, servicing the same,
training domestic workers to
operate it, and similar incidental
services.
By and large, to constitute "doing business",
the activity to be undertaken in the
Philippines is one that is for profit-making.63
By the clear terms of the VAASA, Agilents activities
in the Philippines were confined to (1) maintaining a
stock of goods in the Philippines solely for the
purpose of having the same processed by Integrated
Silicon; and (2) consignment of equipment with
Integrated Silicon to be used in the processing of
products for export. As such, we hold that, based on

the evidence presented thus far, Agilent cannot be


deemed to be "doing business" in the Philippines.
Respondents contention that Agilent lacks the legal
capacity to file suit is therefore devoid of merit. As a
foreign corporation not doing business in the
Philippines, it needed no license before it can sue
before our courts.
Finally, as to Agilents purported failure to state a
cause of action against the individual respondents,
we likewise rule in favor of petitioner. A Motion to
Dismiss hypothetically admits all the allegations in
the Complaint, which plainly alleges that these
individual respondents had committed or permitted
the commission of acts prejudicial to Agilent.
Whether or not these individuals had divested
themselves of their interests in Integrated Silicon, or
are no longer members of Integrated Silicons Board
of Directors, is a matter of defense best threshed out
during trial.
WHEREFORE, PREMISES CONSIDERED, the
petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 66574 dated August 12,
2002, which dismissed Civil Case No. 3123-2001-C,
is REVERSED and SET ASIDE. The Order dated
September 4, 2001 issued by the Regional Trial Court
of Calamba, Laguna, Branch 92, in Civil Case No.
3123-2001-C, is REINSTATED. Agilents application
for a Writ of Replevin is GRANTED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-61523 July 31, 1986
ANTAM CONSOLIDATED, INC., TAMBUNTING
TRADING CORPORATION and AURORA
CONSOLIDATED SECURITIES and INVESTMENT
CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, THE HONORABLE
MAXIMIANO C. ASUNCION (Court of First

53 Corpo Page 10 Cases

Instance of Laguna, Branch II [Sta. Cruz]) and


STOKELY VAN CAMP, INC., respondents.
Siguion Reyna, Montecillo & Ongsiako Law Offices for
petitioners.
Bito, Misa & Lozada Law Offices for respondents.

GUTIERREZ, JR., J.:


This petition for certiorari and prohibition seeks to
set aside the order of the Regional Trial Court of
Laguna which denied the petitioners' motion to
dismiss on the ground that the reason relied upon by
them does not appear to be indubitable. Petitioners
also seek to set aside the decision and resolution of
the Intermediate Appellate Court which respectively
upheld the order of the trial court and denied the
petitioners' motion for reconsideration of the same.
On April 9, 1981, respondent Stokely Van Camp. Inc.
(Stokely) filed a complaint against Banahaw Milling
Corporation (Banahaw), Antam Consolidated, Inc.,
Tambunting Trading Corporation (Tambunting),
Aurora Consolidated Securities and Investment
Corporation, and United Coconut Oil Mills, Inc.
(Unicom) for collection of sum of money.
In its complaint, Stokely alleged: (1) that it is a
corporation organized and existing under the laws of
the state of Indiana, U.S.A. and has its principal office
at 941 North Meridian Street, Indianapolis, Indiana,
U.S.A., and one of its subdivisions "Capital City
Product Company" (Capital City) has its office in
Columbus, Ohio, U.S.A.; (2) that Stokely and Capital
City were not engaged in business in the Philippines
prior to the commencement of the suit so that
Stokely is not licensed to do business in this country
and is not required to secure such license; (3) that on
August 21, 1978, Capital City and Coconut Oil
Manufacturing (Phil.) Inc. (Comphil) with the latter
acting through its broker Roths child Brokerage
Company, entered into a contract (No. RBS 3655)
wherein Comphil undertook to sell and deliver and
Capital City agreed to buy 500 long tons of crude

coconut oil to be delivered in October/November


1978 at the c.i.f. price of US$0.30/1b. but Comphil
failed to deliver the coconut oil so that Capital City
covered its coconut oil needs in the open market at a
price substantially in excess of the contract and
sustained a loss of US$103,600; that to settle Capital
City's loss under the contract, the parties entered
into a second contract (No. RBS 3738) on November
3, 1978 wherein Comphil undertook to buy and
Capital City agreed to sell 500 long tons of coconut
crude oil under the same terms and conditions but at
an increased c.i.f. price of US$0.3925/lb.; (4) that the
second contract states that "it is a wash out against
RBS 3655" so that Comphil was supposed to
repurchase the undelivered coconut oil at US$0.3925
from Capital City by paying the latter the sum of
US$103,600.00 which is the same amount of loss
that Capital City sustained under the first contract;
that Comphil again failed to pay said amount, so to
settle Capital City's loss, it entered into a third
contract with Comphil on January 24, 1979 wherein
the latter undertook to sell and deliver and Capital
City agreed to buy the same quantity of crude
coconut oil to be delivered in April/May 1979 at the
c.i.f. price of US$0.3425/lb.; (5) that the latter price
was 9.25 cents/lb. or US$103,600 for 500 long tons
below the then current market price of 43.2 cents/lb.
and by delivering said quantity of coconut oil to
Capital City at the discounted price, Comphil was to
have settled its US$103,600 liability to Capital City;
(6) that Comphil failed to deliver the coconut oil so
Capital City notified the former that it was in default;
(7) that Capital City sustained damages in the
amount of US$175,000; and (8) that after repeated
demands from Comphil to pay the said amount, the
latter still refuses to pay the same.
Respondent Stokely further prayed that a writ of
attachment be issued against any and all the
properties of the petitioners in an amount sufficient
to satisfy any lien of judgment that the respondent
may obtain in its action. In support of this provisional
remedy and of its cause of action against the rest of
the petitioners other than Comphil, the respondent
alleged the following: 1) After demands were made
by respondent on Comphil, the Tambuntings ceased
to be directors and officers of Comphil and were
replaced by their five employees, who were

managers of Tambunting's pawnshops and said


employees caused the name of Comphil to be
changed to "Banahaw Milling Corporation" and
authorized one of the Tambuntings, Antonio P.
Tambunting, Jr., who was at that time neither a
director nor officer of Banahaw to sell its oil mill; 2)
Unicom has taken over the entire operations and
assets of Banahaw because the entire and
outstanding capital stock of the latter was sold to the
former; 3) ALL of the issued and outstanding capital
stock of Comphil are owned by the Tambuntings who
were the directors and officers of Comphil and who
were the ones who benefited from the sale of
Banahaw's assets or shares to Unicorn; 4) ALL of the
petitioners evaded their obligation to respondent by
the devious scheme of using Tambunting employees
to replace the Tambuntings in the management of
Banahaw and disposing of the oil mill of Banahaw or
their entire interests to Unicorn; and 5) Respondent
has reasonable cause to believe and does believe
that the coconut oil milk which is the only substantial
asset of Banahaw is about to be sold or removed so
that unless prevented by the Court there will
probably be no assets of Banahaw to satisfy its claim.
On April 10, 1981, the trial court ordered the
issuance of a writ of attachment in favor of the
respondent upon the latter's deposit of a bond in the
amount of P l,285,000.00.
On June 3, 1981, the respondent filed a motion for
reconsideration to reduce the attachment bond.
Attached to this motion is an affidavit by the
assistant attorney of the respondent's counsel
stating that he has verified with the records of
Comphil and the Securities and Exchange
Commission (SEC) the facts he alleged in the prayer
for the attachment order.
On June 11, 1981, the petitioners filed a motion to
dismiss the complaint on the ground that the
respondent, being a foreign corporation not licensed
to do business in the Philippines, has no personality
to maintain the instant suit.
After the respondent had filed an opposition to the
motion to dismiss and petitioner has opposed the
attachment and the motion to reduce the attachment

54 Corpo Page 10 Cases

bond, the trial court issued an order, dated August


10, 1981, reducing the attachment bond to P
500,000.00 and denying the motion to dismiss by
petitioners on the ground that the reason cited
therein does not appear to be indubitable.
Petitioners filed a petition for certiorari before the
Indianapolis intermediate Appellate Court.

pursuit of the purpose and object for which it was


organized. Petitioners further argue that the test of
whether one is doing business or not is "whether
there is continuity of transactions which are in the
pursuance of the normal business of the corporation"
and that the transactions entered into by respondent
undoubtedly fall within this category.
We reject the petitioners' arguments.

On June 14, 1982, the appellate court dismissed the


petition stating that the respondent judge did not
commit any grave abuse of discretion in deferring
the petitioners' motion to dismiss because the said
judge is not yet satisfied that he has the necessary
facts which would permit him to make a judicious
resolution. The appellate court further ruled that in
another case entitled United Coconut Oil Mills, Inc.
and Banahaw Milling Corporation v. Hon. Maximiano
C. Asuncion and Stokely Van Camp, Inc. where the
facts and issues raised therein are intrinsically the
same as in the case at bar, it has already denied the
petition for certiorari filed by Unicom and Banahaw
for lack of merit and the same was upheld by the
Supreme Court.
Petitioners filed a motion for reconsideration but the
same was denied. Hence, they filed this instant
petition for certiorari and prohibition with prayer for
temporary restraining order, questioning the
propriety of the appellate court's decision in: a)
affirming the deferment of the resolution on
petitioner' motion to dismiss; and b) denying the
motion to set, aside the order of attachment.
With regards to the first question, petitioners
maintain that the appellate court erred in denying
their motion to dismiss since the ground relied upon
by them is clear and indubitable, that is, that the
respondent has no personality to sue. Petitioners
argue that to maintain the suit filed with the trial
court, the respondent should have secured the
requisite license to do business in the Philippines
because, in fact, it is doing business here. Petitioners
anchor their argument that the respondent is a
foreign corporation doing business in the Philippines
on the fact that by the respondent's own allegations,
it has participated in three transactions, either as a
seller or buyer, which are by their nature, in the

In the case of Top-Weld Manufacturing, Inc. v. ECED,


S.A. (138 SCRA 118,127-128), we stated:
There is no general rule or
governing principle laid down as to
what constitutes'doing'or'engaging
in' or 'transacting business in the
Philippines. Each case must be
judged in the Light of its peculiar
circumstance (Mentholatum Co. v.
Mangaliman, 72 Phil.524). Thus, a
foreign corporation with a settling
agent in the Philippines which
issues twelve marine policies
covering different shipments to the
Philippines (General Corporation of
the Philippines v. Union Insurance
Society of Canton, Ltd., 87 Phil.
313) and a foreign corporation
which had been collecting
premiums on outstanding policies
(Manufacturing Life Insurance Co.,
v. Meer, 89 Phil. 351) were
regarded as doing business here.
The acts of these corporations
should be distinguished from a
single or isolated business
transaction or occasional,
incidental and casual transactions
which do not come within the
meaning of the law. Where a single
act or transaction , however, is not
merely incidental or casual but
indicates the foreign corporation's
intention to do other business in
the Philippines, said single act or
transaction constitutes 'doing' or
'engaging in' or 'transacting'

business in the Philippines. (Far


East International Import and
Export Corporation v. Nankai
Kogyo, Co., 6 SCRA 725).
In the Mentholatum Co. v.
Mangaliman case earlier cited, this
Court held:
xxx xxx xxx
...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 warning-organized or
whether it has substantially was
retired from it and turned it over to
another. (Traction Cos. v. Collectors
of Int. Revenue [CCA., 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 workers 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, 327 111. 367.) '
In the case at bar, the transactions entered into by
the respondent with the petitioners are not a series
of commercial dealings which signify an intent on the
part of the respondent to do business in the
Philippines but constitute an isolated one which does
not fall under the category of "doing business." The
records show that the only reason why the
respondent entered into the second and third
transactions with the petitioners was because it
wanted to recover the loss it sustained from the

55 Corpo Page 10 Cases

failure of the petitioners to deliver the crude coconut


oil under the first transaction and in order to give the
latter a chance to make good on their obligation.
Instead of making an outright demand on the
petitioners, the respondent opted to try to push
through with the transaction to recover the amount
of US$103,600.00 it lost. This explains why in the
second transaction, the petitioners were supposed to
buy back the crude coconut oil they should have
delivered to the respondent in an amount which will
earn the latter a profit of US$103,600.00. When this
failed the third transaction was entered into by the
parties whereby the petitioners were supposed to sell
crude coconut oil to the respondent at a discounted
rate, the total amount of such discount being
US$103,600.00. Unfortunately, the petitioners failed
to deliver again, prompting the respondent to file the
suit below.
From these facts alone, it can be deduced that in
reality, there was only one agreement between the
petitioners and the respondent and that was the
delivery by the former of 500 long tons of crude
coconut oil to the latter, who in turn, must pay the
corresponding price for the same. The three
seemingly different transactions were entered into by
the parties only in an effort to fulfill the basic
agreement and in no way indicate an intent on the
part of the respondent to engage in a continuity of
transactions with petitioners which will categorize it
as a foreign corporation doing business in the
Philippines. Thus, the trial court, and the appellate
court did not err in denying the petitioners' motion to
dismiss not only because the ground thereof does
not appear to be indubitable but because the
respondent, being a foreign corporation not doing
business in the Philippines, does not need to obtain a
license to do business in order to have the capacity
to sue. As we have held in Eastboard Navigation Ltd.
v. Juan Ysmael and Co., Inc. (102 Phil. 1, 18):
xxx xxx xxx
(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. v. Henry
W. Elser & Co. 49 Phil. 70; Pacific
Vegetable Oil Corporation v. Angel
0. Singson, G.R. No. L-7917, April
29, 1955; also cited in Facilities
Management Corporation v. De la
Osa, 89 SCRA 131, 138).
We agree with the respondent that it is a common
ploy of defaulting local companies which are sued by
unlicensed foreign companies not engaged in
business in the Philippines to invoke lack of capacity
to sue. The respondent cites decisions from 1907 to
1957 recognizing and rejecting the improper use of
this procedural tactic. (Damfschieffs Rhedered Union
v. Cia Trans-atlantica, 8 Phil. 766 11907]; MarshallWells Co. v. Henry W. Elser & Co., 49 Phil. 70 [1924];
Western Equipment Co. v. Reyes, 51 Phil. 115 [1927];
Central Republic Bank v. Bustamante, 71 Phil. 359
[1941]; Pacific Vegetable Oil Co. v. Singson, 96 Phil.986 [1955]; Eastboard Navigation, Ltd. v. Juan
Ysmael and Co., Inc., 102 Phil. 1 [1957]). The
doctrine of lack of capacity to sue based on failure to
first acquire a local license is based on
considerations of sound public policy. It intended to
favor domestic corporations who enter was never
into solitary transactions with unwary foreign firms
and then repudiate their obligations simply because
the latter are not licensed to do business in this
country. The petitioners in this case are engaged in

the exportation of coconut oil, an export item so vital


in our country's economy. They filed this petition on
the ground that Stokely is an unlicensed foreign
corporation without a bare allegation or showing that
their defenses in the collection case are valid and
meritorious. We cannot fault the two courts below for
acting as they did.
Anent the second issue they raise, the petitioners
contend that the trial court should not have issued
the order of attachment and the appellate court
should not have affirmed the same because the
verification in support of the prayer for attachment is
insufficient. They state that the person who made
such verification does not personally know the facts
relied upon for the issuance of the attachment order.
Petitioners capitalize on the fact that Renato Calma,
the assistant attorney of Bito, Misa, and Lozada,
counsel for respondent, stated in his verification that
"he has read the foregoing complaint and that
according to his information and belief the
allegations therein contained are true and correct."

MERRILL LYNCH FUTURES, INC., petitioner,


vs.
HON. COURT OF APPEALS, and the SPOUSES
PEDRO M. LARA and ELISA G. LARA, respondents.

As to the merit of the attachment order itself, we find


that the allegations in the respondent's complaint
satisfactorily justify the issuance of said order.
WHEREFORE, IN VIEW OF THE FOREGOING, the
petition is DISMISSED for lack of merit. The
Temporary Restraining Order dated February 2, 1983
is hereby DISSOLVED. Costs against the petitioners.
SO ORDERED.
G.R. No. 97816 July 24, 1992

56 Corpo Page 10 Cases

1) that on September 28, 1983 it entered into a


Futures Customer Agreement with the defendant
spouses (Account No. 138-12161), in virtue of which
it agreed to act as the latter's broker for the purchase
and sale of futures contracts in the U.S.;

NARVASA, C.J.:
The capacity of a foreign corporation to maintain an
action in the Philippines against residents thereof, is
the principal question in the appellate proceedings at
bar. The issue arises from the undisputed facts now
to be briefly narrated.
On November 23, 1987, Merrill Lynch Futures, Inc.
(hereafter, simply ML FUTURES) filed a complaint
with the Regional Trial Court at Quezon City against
the Spouses Pedro M. Lara and Elisa G. Lara for the
recovery of a debt and interest thereon, damages,
and attorney's fees. 1 In its complaint ML FUTURES
described itself as

The above contention deserves scant consideration.


We rule that the defect in the original verification
was cured when Renato Calma subsequently
executed an affidavit to the effect that the
allegations he made in support of the prayer for
attachment were verified by him from the records of
Comphil and the Securities and Exchange
Commission. Moreover, petitioner had the
opportunity to oppose the issuance of the writ.

In its complaint ML FUTURES alleged the following:

a) a non-resident foreign
corporation, not doing business in
the Philippines, duly organized and
existing under and by virtue of the
laws of the state of Delaware,
U.S.A.;" as well as
b) a "futures commission
merchant" duly licensed to act as
such in the futures markets and
exchanges in the United States, . .
essentially functioning as a broker .
. (executing) orders to buy and sell
futures contracts received from its
customers on U.S. futures
exchanges.
It also defined a "futures contract" as a "contractual
commitment to buy and sell a standardized quantity
of a particular item at a specified future settlement
date and at a price agreed upon, with the purchase
or sale being executed on a regulated futures
exchange."

2) that pursuant to the contract, orders to buy and


sell futures contracts were transmitted to ML
FUTURES by the Lara Spouses "through the facilities
of Merrill Lynch Philippines, Inc., a Philippine
corporation and a company servicing plaintiffs
customers; 2
3) that from the outset, the Lara Spouses "knew and
were duly advised that Merrill Lynch Philippines, Inc.
was not a broker in futures contracts," and that it
"did not have a license from the Securities and
Exchange Commission to operate as a commodity
trading advisor (i.e., 'an entity which, not being a
broker, furnishes advice on commodity futures to
persons who trade in futures contracts');
4) that in line with the above mentioned agreement
and through said Merrill Lynch Philippines, Inc., the
Lara Spouses actively traded in futures contracts,
including "stock index futures" for four years or
so, i.e., from 1983 to October, 1987, 3 there being
more or less regular accounting and corresponding
remittances of money (or crediting or debiting) made
between the spouses and ML FUTURES;
5) that because of a loss amounting to
US$160,749.69 incurred in respect of three (3)
transactions involving "index futures," and after
setting this off against an amount of US$75,913.42
then owing by ML FUTURES to the Lara Spouses, said
spouses became indebted to ML FUTURES for the
ensuing balance of US$84,836.27, which the latter
asked them to pay;
6) that the Lara Spouses however refused to pay this
balance, "alleging that the transactions were null and
void because Merrill Lynch Philippines, Inc., the
Philippine company servicing accounts of plaintiff, . .

had no license to operate as a 'commodity and/or


financial futures broker.'"

court or administrative agency of the Philippines;"


and

On the foregoing essential facts, ML FUTURES prayed


(1) for a preliminary attachment against defendant
spouses' properties "up to the value of at least
P2,267,139.50," and (2) for judgment, after trial,
sentencing the spouses to pay ML FUTURES:

b) they had never been informed that Merrill Lynch


Philippines, Inc. was not licensed to do business in
this country; and contrary to the allegations of the
complaint, all their transactions had actually been
with MERRILL LYNCH PIERCE FENNER & SMITH, INC.,
and not with ML FUTURES (Merrill Lynch Futures,
Inc.), in proof of which they attached to their motion
to dismiss copies of eight (8) agreements, receipts or
reminders, etc., executed on standard printed forms
of said Merrill Lynch Pierce Fenner & Smith Inc. 4

a) the Philippine peso equivalent of


$84,836.27 at the applicable
exchanged rate on date of
payment, with legal interest from
date of demand until full payment;
b) exemplary damages in the sum
of at least P500,000.00; and
c) attorney's fees and expenses of
litigation as may be proven at the
trial.
Preliminary attachment issued ex parte on December
2, 1987, and the defendant spouses were duly
served with summons.
They then filed a motion to dismiss dated December
18, 1987 on the grounds that:
(1) plaintiff ML FUTURES had "no
legal capacity to sue" and
(2) its "complaint states no cause
of action since . . (it) is not the real
party in interest."
In that motion to dismiss, the defendant spouses
averred that:
a) although not licensed to do so, ML FUTURES had
been doing business in the Philippines "at least for
the last four (4) years," this being clear from the very
allegations of the complaint; consequently, ML
FUTURES is prohibited by law "to maintain or
intervene in any action, suit or proceeding in any

57 Corpo Page 10 Cases

ML FUTURES filed an OPPOSITION to the defendant


spouses' motion to dismiss. In that motion
a) it drew attention to paragraph 4 of its complaint,
admitted by defendants, that the latter "have been
actively trading in futures contracts . . . in U.S.
futures exchanges from 1983 to 1987," and ask, "If
the trading . . . (was) made in U.S., how could
plaintiff be doing business in the Philippines?"
b) it also drew attention to a printed form of "Merrill
Lynch Futures, Inc." filled out and signed by
defendant spouses when they opened an account
with ML Futures, in order to supply information about
themselves, including their bank's name
(1) in which
appear the
following
epigraph:
"Account
introduced by
Merrill Lynch
International,
Inc.," and the
following
statements, to
wit:
This Commodity Trading Advisor
(Merrill Lynch, Pierce, Fenner &
Smith Philippines, Inc.) is prohibited
by the Philippine Securities and

Exchange Commission from


accepting funds in the trading
advisor's name from a client of
Merrill Lynch Futures, Inc. for
trading commodity interests. All
funds in this trading program must
be placed with Merrill Lynch
Futures, Inc.;
and
. . . It is agreed between MERRILL
LYNCH, PIERCE, FENNER & SMITH
INC., and other account carrying
MERRILL LYNCH entities and their
customers that all legal
relationships between them will be
governed by applicable laws in
countries outside the Philippines
where sale and purchase
transactions take place.
c) and it argued that
(1) it is not permitted for defendant
spouses to present "evidence" in
connection with a motion to
dismiss based on failure of the
complaint to state a cause of
action;
(2) even if the documents
appended to the motion to dismiss
be considered as admissible
"evidence," the same would be
immaterial since the documents
refer to a different account
number:138-12136, the
defendants' account number with
ML FUTURES being 138-12161;
(3) it is a lie for the defendant
spouses to assert that they were
never informed that Merrill Lynch
Philippines, Inc. had not been
licensed to do business in the
Philippines; and

(4) defendant spouses should not


be allowed to "invoke the aid of the
court with unclean hands.
The defendant spouses filed a REPLY reaffirming their
lack of awareness that Merrill Lynch Philippines, Inc.
(formerly registered as Merrill Lynch, Pierce, Fenner
& Smith Philippines, Inc.) 5 did not have a license,
claiming that they learned of this only from inquiries
with the Securities and Exchange Commission which
elicited the information that it had denied said
corporation's application to operate as a commodity
futures trading advisor a denial subsequently
affirmed by the Court of Appeals (Merrill Lynch
Philippines, Inc. v. Securities & Exchange
Commission, CA-G.R. No. 10821-SP, Nov. 19, 1987).
The spouses also submitted additional documents
(Annexes J to R) involving transactions with Merrill
Lynch Pierce Fenner & Smith, Inc., dating back to
1980, stressing that all but one of the documents
"refer to Account No. 138-12161 which is the very
account that is involved in the instant complaint."
ML FUTURES filed a Rejoinder alleging it had given
the spouses a disclosure statement by which the
latter were made aware that the transactions they
were agreeing on would take place outside of the
Philippines, and that "all funds in the trading program
must be placed with Merrill Lynch Futures, Inc."
On January 12, 1988, the Trial Court promulgated an
Order sustaining the motion to dismiss, directing the
dismissal of the case and discharging the writ of
preliminary attachment. It later denied ML FUTURES's
motion for reconsideration, by Order dated February
29, 1988. ML FUTURES appealed to the Court of
Appeals. 6
In its own decision promulgated on November 27,
1990, 7 the Court of Appeals affirmed the Trial Court's
judgment. It declared that the Trial Court had seen
"through the charade in the representation of MLPI
and the plaintiff that MLPI is only a trading advisor
and in fact it is a conduit in the plaintiff's business
transactions in the Philippines as a basis for invoking
the provisions of Section 133 of the Corporation
Code," 8 viz.:

58 Corpo Page 10 Cases

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
in 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.
It also declared that the evidence
established that plaintiff had in fact been
"doing business" in this country in legal
contemplation, adverting to Mentholatum
v. Mangaliman, 72 Phil. 524, 528-530, and
Section 1 of Republic Act No. 5455 reading
as follows: 9
Sec. 1. Definition and scope of this
ACT . (1) As used in this Act, the
term "investment" shall mean
equity participation in any
enterprise formed, organized, or
existing under the laws of the
Philippines; and the phrase "doing
business" shall INCLUDE soliciting
orders, purchases, service
contracts, opening offices, whether
called "liaison" offices or
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 totalling one hundred
eighty 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 FUNCTIONS NORMALLY
INCIDENT TO, AND IN
PROGRESSIVE PROSECUTION OF
COMMERCIAL GAIN OR OF THE
PURPOSE AND OBJECT OF THE
BUSINESS ORGANIZATION.
As regards the claim that it was error for the Trial
Court to place reliance on the decision of the Court of
Appeals in CA-G.R. No. 10821-SP sustaining the
finding of the Securities & Exchange Commission that
ML FUTURES was doing business in the Philippines
since that judgment was not yet final and ML
FUTURES was not a party to that proceeding, the
Court of Appeals ruled that there was no need to
belabor the point considering that there was, in any
event, "adequate proof of the activities of MLPI . . .
which manifestly show that the plaintiff (ML
FUTURES) performed a series of business acts,
consummated contracts and undertook transactions
for the period from 1983 to October 1987," "and
because ML FUTURES had done so without license, it
consequently had "no legal personality to bring suit
in Philippine courts."
Its motion for reconsideration having been
denied, 10 ML FUTURES has appealed to this Court
on certiorari. Here, it submits the following issues for
resolution:
(a) Whether or not the annexes
appended by the Laras to their
Motion to Dismiss and Reply filed
with the Regional Trial Court, but
never authenticated or offered,
constitute admissible evidence.
(b) Whether or not in the
proceedings below, ML FUTURES
has been accorded procedural due
process.

(c) Whether or not the annexes,


assuming them to be admissible,
established that ML FUTURES was
doing business in the Philippines
without a license.
As just stated, the Lara Spouse's motion to dismiss
was founded on two (2) grounds: (a) that the plaintiff
has no legal capacity to sue, and (b) that the
complaint states no cause of action (Sec. 1 [d], and
[g], Rule 16, Rules of Court).
As regards the second ground, i.e., that the
complaint states no cause of action, the settled
doctrine of course is that said ground must appear on
the face of the complaint, and its existence may be
determined only by the allegations of the complaint,
consideration of other facts being proscribed, and
any attempt to prove extraneous circumstances not
being allowed. 11 The test of the sufficiency of the
facts alleged in a complaint as constituting a cause
of action is whether or not, admitting the facts
alleged, the court might render a valid judgment
upon the same in accordance with the prayer of the
complaint. 12 Indeed, it is error for a judge to conduct
a preliminary hearing and receive evidence on the
affirmative defense of failure of the complaint to
state a cause of action. 13
The other ground for dismissal relied upon, i.e., that
the plaintiff has no legal capacity to sue may be
understood in two senses: one, that the plaintiff is
prohibited or otherwise incapacitated by law to
institute suit in Philippine Courts, 14 or two, although
not otherwise incapacitated in the sense just stated,
that it is not a real party in interest. 15 Now, the Lara
Spouses contend that ML Futures has no capacity to
sue them because the transactions subject of the
complaint were had by them, not with the plaintiff ML
FUTURES, but with Merrill Lynch Pierce Fenner &
Smith, Inc. Evidence is quite obviously needed in this
situation, for it is not to be expected that said
ground, or any facts from which its existence may be
inferred, will be found in the averments of the
complaint. When such a ground is asserted in a
motion to dismiss, the general rule governing
evidence on motions applies. The rule is embodied in
Section 7, Rule 133 of the Rules of Court.

59 Corpo Page 10 Cases

Sec. 7. Evidence on motion.


When a motion is based on facts
not appearing of record the court
may hear the matter on affidavits
or depositions presented by the
respective parties, but the court
may direct that the matter be
heard wholly or partly on oral
testimony or depositions.
There was, to be sure, no affidavit or deposition
attached to the Lara Spouses' motion to dismiss or
thereafter proffered in proof of the averments of their
motion. The motion itself was not verified. What the
spouses did do was to refer in their motion to
documents which purported to establish that it was
not with ML FUTURES that they had theretofore been
dealing, but another, distinct entity, Merrill Lynch,
Pierce, Fenner & Smith, Inc., copies of which
documents were attached to the motion. It is
significant that ML FUTURES raised no issue relative
to the authenticity of the documents thus annexed to
the Laras' motion. In fact, its arguments subsumed
the genuineness thereof and even adverted to one or
two of them. Its objection was centered on the
propriety of taking account of those documents as
evidence, considering the established principle that
no evidence should be received in the resolution of a
motion to dismiss based on an alleged failure of the
complaint to state a cause of action.
There being otherwise no question respecting the
genuineness of the documents, nor of their relevance
to at least one of the grounds for dismissal i.e., the
prohibition on suits in Philippine Courts by foreign
corporations doing business in the country without
license it would have been a superfluity for the
Court to require prior proof of their authenticity, and
no error may be ascribed to the Trial Court in taking
account of them in the determination of the
motion on the ground, not that the complaint fails to
state a cause of action as regards which evidence
is improper and impermissible but that the
plaintiff has no legal capacity to sue respecting
which proof may and should be presented.
Neither may ML FUTURES argue with any degree of
tenability that it had been denied due process in the

premises. As just pointed out, it was very clear from


the outset that the claim of lack of its capacity to sue
was being made to rest squarely on the documents
annexed thereto, and ML FUTURES had more than
ample opportunity to impugn those documents and
require their authentication, but did not do so. To
sustain its theory that there should have been
identification and authentication, and formal offer, of
those documents in the Trial Court pursuant to the
rules of evidence would be to give unwarranted
importance to technicality and make it prevail over
the substance of the issue.
The first question then, is, as ML FUTURES formulates
it, whether or not the annexes, assuming them to be
admissible, establish that (a) ML FUTURES is
prohibited from suing in Philippine Courts because
doing business in the country without a license, and
that (b) it is not a real party in interest since the Lara
Spouses had not been doing business with it, but
with another corporation, Merrill Lynch, Pierce,
Fenner & Smith, Inc.
The Court is satisfied that the facts on record
adequately establish that ML FUTURES, operating in
the United States, had indeed done business with the
Lara Spouses in the Philippines over several years,
had done so at all times through Merrill Lynch
Philippines, Inc. (MLPI), a corporation organized in
this country, and had executed all these transactions
without ML FUTURES being licensed to so transact
business here, and without MLPI being authorized to
operate as a commodity futures trading advisor.
These are the factual findings of both the Trial Court
and the Court of Appeals. These, too, are the
conclusions of the Securities & Exchange
Commission which denied MLPI's application to
operate as a commodity futures trading advisor, a
denial subsequently affirmed by the Court of
Appeals. Prescinding from the proposition that factual
findings of the Court of Appeals are generally
conclusive this Court has been cited to no
circumstance of substance to warrant reversal of said
Appellate Court's findings or conclusions in this case.
The Court is satisfied, too, that the Laras did transact
business with ML FUTURES through its agent
corporation organized in the Philippines, it being

unnecessary to determine whether this domestic firm


was MLPI (Merrill Lynch Philippines, Inc.) or Merrill
Lynch Pierce Fenner & Smith (MLPI's alleged
predecessor). The fact is that ML FUTURES did deal
with futures contracts in exchanges in the United
States in behalf and for the account of the Lara
Spouses, and that on several occasions the latter
received account documents and money in
connection with those transactions.
Given these facts, if indeed the last transaction
executed by ML FUTURES in the Laras's behalf had
resulted in a loss amounting to US $160,749.69; that
in relation to this loss, ML FUTURES had credited the
Laras with the amount of US$75,913.42 which it
(ML FUTURES) then admittedly owed the spouses
and thereafter sought to collect the balance,
US$84,836.27, but the Laras had refused to pay (for
the reasons already above stated), the crucial
question is whether or not ML FUTURES may sue in
Philippine Courts to establish and enforce its rights
against said spouses, in light of the undeniable fact
that it had transacted business in this country
without being licensed to do so. In other words, if it
be true that during all the time that they were
transacting with ML FUTURES, the Laras were fully
aware of its lack of license to do business in the
Philippines, and in relation to those transactions had
made payments to, and received money from it for
several years, the question is whether or not the Lara
Spouses are now estopped to impugn ML FUTURES'
capacity to sue them in the courts of the forum.
The rule is that a party is estopped to challenge the
personality of a corporation after having
acknowledged the same by entering into a contract
with it. 16 And the "doctrine of estoppel to deny
corporate existence applies to foreign as well as to
domestic corporations;" 17 "one who has dealt with a
corporation of foreign origin as a corporate entity is
estopped to deny its corporate existence and
capacity." 18 The principle "will be applied to prevent
a person contracting with a foreign corporation from

60 Corpo Page 10 Cases

later taking advantage of its noncompliance with the


statutes, chiefly in cases where such person has
received the benefits of the contract (Sherwood v.
Alvis, 83 Ala 115, 3 So 307, limited and distinguished
in Dudley v. Collier, 87 Ala 431, 6 So 304; Spinney v.
Miller, 114 Iowa 210, 86 NW 317), where such person
has acted as agent for the corporation and has
violated his fiduciary obligations as such, and where
the statute does not provide that the contract shall
be void, but merely fixes a special penalty for
violation of the statute. . . ." 19
The doctrine was adopted by this Court as early as
1924 in Asia Banking Corporation v. Standard
Products Co.,20 in which the following pronouncement
was made: 21
The general rule that in the
absence of fraud of person who has
contracted or otherwise dealt with
an association in such a way as to
recognize and in effect admit its
legal existence as a corporate body
is thereby estopped to deny its
corporate existence in any action
leading out of or involving such
contract or dealing, unless its
existence is attacked for causes
which have arisen since making the
contract or other dealing relied on
as an estoppel and this applies to
foreign as well as domestic
corporations. (14 C.J .7; Chinese
Chamber of Commerce vs. Pua Te
Ching, 14 Phil. 222).
There would seem to be no question that the Laras
received benefits generated by their business
relations with ML FUTURES. Those business relations,
according to the Laras themselves, spanned a period
of seven (7) years; and they evidently found those
relations to be of such profitability as warranted their
maintaining them for that not insignificant period of

time; otherwise, it is reasonably certain that they


would have terminated their dealings with ML
FUTURES much, much earlier. In fact, even as
regards their last transaction, in which the Laras
allegedly suffered a loss in the sum of
US$160,749.69, the Laras nonetheless still received
some monetary advantage, for ML FUTURES credited
them with the amount of US$75,913.42 then due to
them, thus reducing their debt to US$84,836.27.
Given these facts, and assuming that the Lara
Spouses were aware from the outset that ML
FUTURES had no license to do business in this
country and MLPI, no authority to act as broker for it,
it would appear quite inequitable for the Laras to
evade payment of an otherwise legitimate
indebtedness due and owing to ML FUTURES upon
the plea that it should not have done business in this
country in the first place, or that its agent in this
country, MLPI, had no license either to operate as a
"commodity and/or financial futures broker."
Considerations of equity dictate that, at the very
least, the issue of whether the Laras are in truth
liable to ML FUTURES and if so in what amount, and
whether they were so far aware of the absence of the
requisite licenses on the part of ML FUTURES and its
Philippine correspondent, MLPI, as to be estopped
from alleging that fact as defense to such liability,
should be ventilated and adjudicated on the merits
by the proper trial court.
WHEREFORE, the decision of the Court of Appeals in
CA-G.R. CV No. 16478 dated November 27, 1990 and
its Resolution of March 7, 1991 are REVERSED and
SET ASIDE, and the Regional Trial Court at Quezon
City, Branch 84, is ORDERED to reinstate Civil Case
No. Q-52360 and forthwith conduct a hearing to
adjudicate the issues set out in the preceding
paragraph on the merits.
SO ORDERED.