FOREIGN CORPORATION

License application and issuance; requisites (Sections 125, 126, 127 and
128)
1. PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. & N.A., Respondents.
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil
Procedure, assailing the October 27, 2005 Decision 1 of the Court of Appeals (CA) in
CA-G.R. CV No. 61316, entitled "Citibank, N.A. and Bank of America, S.T. & N.A. v.
Philippine Deposit Insurance Corporation."
The Facts
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government
instrumentality created by virtue of Republic Act (R.A.) No. 3591, as amended by
R.A. No. 9302.2
Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank
of America, S.T. & N.A. (BA) is a national banking association, both of which are duly
organized and existing under the laws of the United States of America and duly
licensed to do business in the Philippines, with offices in Makati City. 3
In 1977, PDIC conducted an examination of the books of account of Citibank. It
discovered that Citibank, in the course of its banking business, from September 30,
1974 to June 30, 1977, received from its head office and other foreign branches a
total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit
that were interest-bearing with corresponding maturity dates.4 These funds, which
were lodged in the books of Citibank under the account "Their Account-Head
Office/Branches-Foreign Currency," were not reported to PDIC as deposit liabilities
that were subject to assessment for insurance. 5 As such, in a letter dated March 16,
1978, PDIC assessed Citibank for deficiency in the sum of P1,595,081.96.6
Similarly, sometime in 1979, PDIC examined the books of accounts of BA which
revealed that from September 30, 1976 to June 30, 1978, BA received from its head
office and its other foreign branches a total of P629,311,869.10 in dollars, covered
by Certificates of Dollar Time Deposit that were interest-bearing with corresponding
maturity dates and lodged in their books under the account "Due to Head
Office/Branches."7 Because BA also excluded these from its deposit liabilities, PDIC
wrote to BA on October 9, 1979, seeking the remittance of P109,264.83 representing
deficiency premium assessments for dollar deposits. 8
Believing that litigation would inevitably arise from this dispute, Citibank and BA
each filed a petition for declaratory relief before the Court of First Instance (now the
Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979,
respectively.9 In their petitions, Citibank and BA sought a declaratory judgment
stating that the money placements they received from their head office and other
foreign branches were not deposits and did not give rise to insurable deposit
liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a
consequence, the deficiency assessments made by PDIC were improper and
erroneous.10 The cases were then consolidated.11
On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated
its Decision12 in favor of Citibank and BA, ruling that the subject money placements

were not deposits and did not give rise to insurable deposit liabilities, and that the
deficiency assessments issued by PDIC were improper and erroneous. Therefore,
Citibank and BA were not liable to pay the same. The RTC reasoned out that the
money placements subject of the petitions were not assessable for insurance
purposes under the PDIC Charter because said placements were deposits made
outside of the Philippines and, under Section 3.05(b) of the PDIC Rules and
Regulations,13 such deposits are excluded from the computation of deposit liabilities.
Section 3(f) of the PDIC Charter likewise excludes from the definition of the term
"deposit" any obligation of a bank payable at the office of the bank located outside
the Philippines. The RTC further stated that there was no depositor-depository
relationship between the respondents and their head office or other branches. As a
result, such deposits were not included as third-party deposits that must be insured.
Rather, they were considered inter-branch deposits which were excluded from the
assessment base, in accordance with the practice of the United States Federal
Deposit Insurance Corporation (FDIC) after which PDIC was patterned.
Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its
October 27, 2005 Decision. In so ruling, the CA found that the money placements
were received as part of the banks internal dealings by Citibank and BA as agents of
their respective head offices. This showed that the head office and the Philippine
branch were considered as the same entity. Thus, no bank deposit could have arisen
from the transactions between the Philippine branch and the head office because
there did not exist two separate contracting parties to act as depositor and
depositary.14 Secondly, the CA called attention to the purpose for the creation of
PDIC which was to protect the deposits of depositors in the Philippines and not the
deposits of the same bank through its head office or foreign branches. 15 Thirdly,
because there was no law or jurisprudence on the treatment of inter-branch deposits
between the Philippine branch of a foreign bank and its head office and other
branches for purposes of insurance, the CA was guided by the procedure observed
by the FDIC which considered inter-branch deposits as non-assessable. 16 Finally, the
CA cited Section 3(f) of R.A. No. 3591, which specifically excludes obligations
payable at the office of the bank located outside the Philippines from the definition
of a deposit or an insured deposit. Since the subject money placements were made
in the respective head offices of Citibank and BA located outside the Philippines,
then such placements could not be subject to assessment under the PDIC Charter. 17
Hence, this petition.
The Issues
PDIC raises the issue of whether or not the subject dollar deposits are assessable for
insurance purposes under the PDIC Charter with the following assigned errors:
A.
The appellate court erred in ruling that the subject dollar deposits are
money placements, thus, they are not subject to the provisions of Republic
Act No. 6426 otherwise known as the "Foreign Currency Deposit Act of the
Philippines."
B.

The appellate court erred in ruling that the subject dollar deposits are not
covered by the PDIC insurance.18

legally independent unit, and simply obtain a license to do business in the

Philippines.24

Respondents similarly identify only one issue in this case:

In the case of Citibank and BA, it is apparent that they both did not incorporate a
separate domestic corporation to represent its business interests in the Philippines.
Their Philippine branches are, as the name implies, merely branches, without a
separate legal personality from their parent company, Citibank and BA. Thus, being
one and the same entity, the funds placed by the respondents in their respective
branches in the Philippines should not be treated as deposits made by third parties
subject to deposit insurance under the PDIC Charter.

Whether or not the money placements subject matter of these petitions

are assessable for insurance purposes under the PDIC Act. 19
The sole question to be resolved in this case is whether the funds placed in the
Philippine branch by the head office and foreign branches of Citibank and BA are
insurable deposits under the PDIC Charter and, as such, are subject to assessment
for insurance premiums.
The Courts Ruling
The Court rules in the negative.
A branch has no separate legal personality;
Purpose of the PDIC
PDIC argues that the head offices of Citibank and BA and their individual foreign
branches are separate and independent entities. It insists that under American
jurisprudence, a banks head office and its branches have a principal-agent
relationship only if they operate in the same jurisdiction. In the case of foreign
branches, however, no such relationship exists because the head office and said
foreign branches are deemed to be two distinct entities. 20Under Philippine law,
specifically, Section 3(b) of R.A. No. 3591, which defines the terms "bank" and
"banking institutions," PDIC contends that the law treats a branch of a foreign bank
as a separate and independent banking unit.21
The respondents, on the other hand, initially point out that the factual findings of the
RTC and the CA, with regard to the nature of the money placements, the capacity in
which the same were received by the respondents and the exclusion of inter-branch
deposits from assessment, can no longer be disturbed and should be accorded great
weight by this Court.22 They also argue that the money placements are not deposits.
They postulate that for a deposit to exist, there must be at least two parties a
depositor and a depository each with a legal personality distinct from the other.
Because the respondents respective head offices and their branches form only a
single legal entity, there is no creditor-debtor relationship and the funds placed in
the Philippine branch belong to one and the same bank. A bank cannot have a
deposit with itself.23
This Court is of the opinion that the key to the resolution of this controversy is the
relationship of the Philippine branches of Citibank and BA to their respective head
offices and their other foreign branches.
The Court begins by examining the manner by which a foreign corporation can
establish its presence in the Philippines. It may choose to incorporate its own
subsidiary as a domestic corporation, in which case such subsidiary would have its
own separate and independent legal personality to conduct business in the country.
In the alternative, it may create a branch in the Philippines, which would not be a

For lack of judicial precedents on this issue, the Court seeks guidance from American
jurisprudence.1wphi1 In the leading case of Sokoloff v. The National City Bank of
New York,25 where the Supreme Court of New York held:
Where a bank maintains branches, each branch becomes a separate
business entity with separate books of account. A depositor in one branch
cannot issue checks or drafts upon another branch or demand payment from such
other branch, and in many other respects the branches are considered separate
corporate entities and as distinct from one another as any other
bank.Nevertheless, when considered with relation to the parent bank they
are not independent agencies; they are, what their name imports, merely
branches, and are subject to the supervision and control of the parent
bank, and are instrumentalities whereby the parent bank carries on its business,
and are established for its own particular purposes, and their business conduct and
policies are controlled by the parent bank and their property and assets belong to
the parent bank, although nominally held in the names of the particular
branches. Ultimate liability for a debt of a branch would rest upon the
parent bank. [Emphases supplied]
This ruling was later reiterated in the more recent case of United States v. BCCI
Holdings Luxembourg26 where the United States Court of Appeals, District of
Columbia Circuit, emphasized that "while individual bank branches may be treated
as independent of one another, each branch, unless separately incorporated, must
be viewed as a part of the parent bank rather than as an independent entity."
In addition, Philippine banking laws also support the conclusion that the head office
of a foreign bank and its branches are considered as one legal entity. Section 75 of
R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An
Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign
bank to guarantee the prompt payment of all the liabilities of its Philippine branch,
to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. In order to provide effective protection of the
interests of the depositors and other creditors of Philippine branches of a foreign
bank, the head office of such branches shall fully guarantee the prompt payment of
all liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors of a branch in the
Philippines of foreign bank shall have preferential rights to the assets of such branch
in accordance with the existing laws.

Republic Act No. 7721:

Sec. 5. Head Office Guarantee. The head office of foreign bank branches shall
guarantee prompt payment of all liabilities of its Philippine branches.
Moreover, PDIC must be reminded of the purpose for its creation, as espoused in
Section 1 of R.A. No. 3591 (The PDIC Charter) which provides:
Section 1. There is hereby created a Philippine Deposit Insurance Corporation
hereinafter referred to as the "Corporation" which shall insure, as herein provided,
the deposits of all banks which are entitled to the benefits of insurance under this
Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the
depositing public by way of providing permanent and continuing insurance coverage
on all insured deposits.
R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the
establishment of the PDIC:
Section 1. Statement of State Policy and Objectives. - It is hereby declared to be the
policy of the State to strengthen the mandatory deposit insurance coverage system
to generate, preserve, maintain faith and confidence in the country's banking
system, and protect it from illegal schemes and machinations.
Towards this end, the government must extend all means and mechanisms
necessary for the Philippine Deposit Insurance Corporation to effectively fulfill its
vital task of promoting and safeguarding the interests of the depositing public by
way of providing permanent and continuing insurance coverage on all insured
deposits, and in helping develop a sound and stable banking system at all times.
The purpose of the PDIC is to protect the depositing public in the event of a bank
closure. It has already been sufficiently established by US jurisprudence and
Philippine statutes that the head office shall answer for the liabilities of its branch.
Now, suppose the Philippine branch of Citibank suddenly closes for some reason.
Citibank N.A. would then be required to answer for the deposit liabilities of Citibank
Philippines. If the Court were to adopt the posture of PDIC that the head office and
the branch are two separate entities and that the funds placed by the head office
and its foreign branches with the Philippine branch are considered deposits within
the meaning of the PDIC Charter, it would result to the incongruous situation where
Citibank, as the head office, would be placed in the ridiculous position of having to
reimburse itself, as depositor, for the losses it may incur occasioned by the closure
of Citibank Philippines. Surely our law makers could not have envisioned such a
preposterous circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is nothing in the definition of a
"bank" and a "banking institution" in Section 3(b) of the PDIC Charter 27 which
explicitly states that the head office of a foreign bank and its other branches are
separate and distinct from their Philippine branches.
There is no need to complicate the matter when it can be solved by simple logic
bolstered by law and jurisprudence. Based on the foregoing, it is clear that the head

office of a bank and its branches are considered as one under the eyes of the law.
While branches are treated as separate business units for commercial and financial
reporting purposes, in the end, the head office remains responsible and answerable
for the liabilities of its branches which are under its supervision and control. As such,
it is unreasonable for PDIC to require the respondents, Citibank and BA, to insure the
money placements made by their home office and other branches. Deposit
insurance is superfluous and entirely unnecessary when, as in this case, the
institution holding the funds and the one which made the placements are one and
the same legal entity.
Funds not a deposit under the definition
of the PDIC Charter;
Excluded from assessment
PDIC avers that the funds are dollar deposits and not money placements. Citing R.A.
No. 6848, it defines money placement as a deposit which is received with authority
to invest. Because there is no evidence to indicate that the respondents were
authorized to invest the subject dollar deposits, it argues that the same cannot be
considered money placements.28 PDIC then goes on to assert that the funds received
by Citibank and BA are deposits, as contemplated by Section 3(f) of R.A. No. 3591,
for the following reasons: (1) the dollar deposits were received by Citibank and BA in
the course of their banking operations from their respective head office and foreign
branches and were recorded in their books as "Account-Head Office/Branches-Time
Deposits" pursuant to Central Bank Circular No. 343 which implements R.A. No.
6426; (2) the dollar deposits were credited as dollar time accounts and were covered
by Certificates of Dollar Time Deposit which were interest-bearing and payable upon
maturity, and (3) the respondents maintain 100% foreign currency cover for their
deposit liability arising from the dollar time deposits as required by Section 4 of R.A.
No. 6426.29
To refute PDICs allegations, the respondents explain the inter-branch transactions
which necessitate the creation of the accounts or placements subject of this case.
When the Philippine branch needs to procure foreign currencies, it will coordinate
with a branch in another country which handles foreign currency purchases. Both
branches have existing accounts with their head office and when a money
placement is made in relation to the acquisition of foreign currency from the
international market, the amount is credited to the account of the Philippine branch
with its head office while the same is debited from the account of the branch which
facilitated the purchase. This is further documented by the issuance of a certificate
of time deposit with a stated interest rate and maturity date. The interest rate
represents the cost of obtaining the funds while the maturity date represents the
date on which the placement must be returned. On the maturity date, the amount
previously credited to the account of the Philippine branch is debited, together with
the cost for obtaining the funds, and credited to the account of the other branch.
The respondents insist that the interest rate and maturity date are simply the basis
for the debit and credit entries made by the head office in the accounts of its
branches to reflect the inter-branch accommodation.30 As regards the maintenance
of currency cover over the subject money placements, the respondents point out
that they maintain foreign currency cover in excess of what is required by law as a
matter of prudent banking practice.31
PDIC attempts to define money placement in order to impugn the respondents
claim that the funds received from their head office and other branches are money
placements and not deposits, as defined under the PDIC Charter. In the process, it
loses sight of the important issue in this case, which is the determination of whether

the funds in question are subject to assessment for deposit insurance as required by
the PDIC Charter. In its struggle to find an adequate definition of "money
placement," PDIC desperately cites R.A. No. 6848, The Charter of the Al-Amanah
Islamic Investment Bank of the Philippines. Reliance on the said law is unfounded
because nowhere in the law is the term "money placement" defined. Additionally,
R.A. No. 6848 refers to the establishment of an Islamic bank subject to the rulings of
Islamic Sharia to assist in the development of the Autonomous Region of Muslim
Mindanao (ARMM),32 making it utterly irrelevant to the case at bench. Since Citibank
and BA are neither Islamic banks nor are they located anywhere near the ARMM,
then it should be painfully obvious that R.A. No. 6848 cannot aid us in deciding this
case.
Furthermore, PDIC heavily relies on the fact that the respondents documented the
money placements with certificates of time deposit to simply conclude that the
funds involved are deposits, as contemplated by the PDIC Charter, and are
consequently subject to assessment for deposit insurance. It is this kind of reasoning
that creates non-existent obscurities in the law and obstructs the prompt resolution
of what is essentially a straightforward issue, thereby causing this case to drag on
for more than three decades.1wphi1
Noticeably, PDIC does not dispute the veracity of the internal transactions of the
respondents which gave rise to the issuance of the certificates of time deposit for
the funds the subject of the present dispute. Neither does it question the findings of
the RTC and the CA that the money placements were made, and were payable,
outside of the Philippines, thus, making them fall under the exclusions to deposit
liabilities. PDIC also fails to impugn the truth of the testimony of John David Shaffer,
then a Fiscal Agent and Head of the Assessment Section of the FDIC, that interbranch deposits were excluded from the assessment base. Therefore, the
determination of facts of the lower courts shall be accepted at face value by this
Court, following the well-established principle that factual findings of the trial court,
when adopted and confirmed by the CA, are binding and conclusive on this Court,
and will generally not be reviewed on appeal.33
As explained by the respondents, the transfer of funds, which resulted from the
inter-branch transactions, took place in the books of account of the respective
branches in their head office located in the United States. Hence, because it is
payable outside of the Philippines, it is not considered a deposit pursuant to Section
3(f) of the PDIC Charter:
Sec. 3(f) The term "deposit" means the unpaid balance of money or its equivalent
received by a bank in the usual course of business and for which it has given or is
obliged to give credit to a commercial, checking, savings, time or thrift account or
which is evidenced by its certificate of deposit, and trust funds held by such bank
whether retained or deposited in any department of said bank or deposit in another
bank, together with such other obligations of a bank as the Board of Directors shall
find and shall prescribe by regulations to be deposit liabilities of the Bank;Provided,
that any obligation of a bank which is payable at the office of the bank
located outside of the Philippines shall not be a deposit for any of the
purposes of this Act or included as part of the total deposits or of the
insured deposits; Provided further, that any insured bank which is incorporated
under the laws of the Philippines may elect to include for insurance its deposit
obligation payable only at such branch. [Emphasis supplied]
The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the
FDIC, after which PDIC was modelled, is also persuasive. Inter-branch deposits refer

to funds of one branch deposited in another branch and both branches are part of
the same parent company and it is the practice of the FDIC to exclude such interbranch deposits from a banks total deposit liabilities subject to assessment. 34
All things considered, the Court finds that the funds in question are not deposits
within the definition of the PDIC Charter and are, thus, excluded from assessment.
WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court of
Appeals in CA-G.R. CV No. 61316 is AFFIRMED.

2. Avon Insurance PLC v. Court of Appeals

Just how far can our courts assert jurisdiction over the persons of foreign entities
being charged with contractual liabilities by residents of the Philippines?
Appealing from the Court of Appeals' October 11, 1990 Decision 1 in CA-G.R. No.
22005, petitioners claim that the trial court's jurisdiction does not extend to them,
since they are foreign reinsurance companies that are not doing business in the
Philippines. Having entered into reinsurance contracts abroad, petitioners are
beyond the jurisdictional ambit of our courts and cannot be served summons
through extraterritorial service, as under Section 17, Rule 14 of the Rules of Court,
nor through the Insurance Commissioner, under Section 14. Private respondent
Yupangco Cotton Mills contend on the other hand that petitioners are within our
courts' cognitive powers, having submitted voluntarily to their jurisdiction by filing
motions to dismiss 2 the private respondent's suit below.
The antecedent facts, as found by the appellate court, are as follows:
Respondent Yupangco Cotton Mills filed a complaint against several foreign
reinsurance companies (among which are petitioners) to collect their
alleged percentage liability under contract treaties between the foreign
insurance companies and the international insurance broker C.J. Boatright,
acting as agent for respondent Worldwide Surety and Insurance Company.
Inasmuch as petitioners are not engaged in business in the Philippines with
no offices, places of business or agents in the Philippines, the reinsurance
treaties having been entered abroad, service of summons upon motion of
respondent Yupangco, was made upon petitioners through the Office of the
Insurance Commissioner. Petitioners, by counsel on special appearance,
seasonably filed motions to dismiss disputing the jurisdiction of respondent
Court and the extra-territorial service of summons. Respondent Yupangco
filed its opposition to the motions to dismiss, petitioners filed their reply,
and respondent Yupangco filed its rejoinder. In an Order dated April 30,
1990, respondent Court denied the motions to dismiss and directed
petitioners to file their answer. On May 29, 1990, petitioners filed their
notice of appeal. In an order dated June 4, 1990, respondent court denied
due course to the appeal. 3
To this day, trial on the merits of the collection suit has not proceeded as in the
present petition, petitioners continue vigorously to dispute the trial court's
assumption of jurisdiction over them.
It will be remembered that in the plaintiff's complaint, 4 it was contended that on July
6, 1979 and on October 1, 1980. Yupangco Cotton Mills engaged to secure with
Worldwide Security and Insurance Co. Inc., several of its properties for the periods
July 6, 1979 to July 6, 1980 as under Policy No. 20719 for a coverage of
P100,000,000.00 and from October 1, 1980 to October 1, 1981, under Policy No.
25896, also for P100,000,000.00. Both contracts were covered by reinsurance
treaties between Worldwide Surety and Insurance and several foreign reinsurance
companies, including the petitioners. The reinsurance arrangements had been made
through international broker C.J. Boatwright and Co. Ltd., acting as agent of
Worldwide Surety and Insurance.
As fate would have it, on December 16, 1979 and May 2, 1981, within the respective
effectivity periods of Policies 20719 and 25896, the properties therein insured were
razed by fire, thereby giving rise to the obligation of the insurer to indemnify the

Yupangco Cotton Mills. Partial payments were made by Worldwide Surety and
Insurance and some of the reinsurance companies.
On May 2, 1983, Worldwide Surety and Insurance, in a Deed of Assignment,
acknowledged a remaining balance of P19,444,447.75 still due Yupangco Cotton
Mills, and assigned to the latter all reinsurance proceeds still collectible from all the
foreign reinsurance companies. Thus, in its interest as assignee and original insured,
Yupangco Cotton Mills instituted this collection suit against the petitioners.
Service of summons upon the petitioners was made by notification to the Insurance
Commissioner, pursuant to Section 14, Rule 14 of the Rules of
Court. 5
In a Petition for Certiorari filed with the Court of Appeals, petitioners submitted that
respondent Court has no jurisdiction over them, being all foreign corporations not
doing business in the Philippines with no office, place of business or agents in the
Philippines. The remedy of Certiorari was resorted to by the petitioners on the
premise that if petitioners had filed an answer to the complaint as ordered by the
respondent court, they would risk, abandoning the issue of jurisdiction. Moreover,
extra-territorial service of summons on petitioners is null and void because the
complaint for collection is not one affecting plaintiffs status and not relating to
property within the Philippines.
The Court of Appeals found the petition devoid of merit, stating that:
1. Petitioners were properly served with summons and whatever defect, if any, in the
service of summons were cured by their voluntary appearance in court, via motion
to dismiss.
2. Even assuming that petitioners have not yet voluntarily appeared as codefendants in the case below even after having filed the motions to dismiss
adverted to, still the situation does not deserve dismissal of the complaint as far as
they are concerned, since as held by this Court in Lingner Fisher GMBH vs. IAC, 125
SCRA 523;
A case should not be dismissed simply because an original summons was
wrongfully served. It should be difficult to conceive for example, that when
a defendant personally appears before a court complaining that he had not
been validly summoned, that the case filed against him should be
dismissed. An alias summons can be actually served on said defendant.
3. Being reinsurers of respondent Worldwide Surety and Insurance of the risk which
the latter assumed when it issued the fire insurance policies in dispute in favor of
respondent Yupangco, petitioners cannot now validly argue that they do not do
business in this country. At the very least, petitioners must be deemed to have
engaged in business in the Philippines no matter how isolated or singular such
business might be, even on the assumption that among the local domestic insurance
corporations of this country, it is only in favor of Worldwide Surety and Insurance
that they have ever reinsured any risk arising from any reinsurance within the
territory.

4. The issue of whether or not petitioners are doing business in the country is a
matter best referred to a trial on the merits of the case, and so should be addressed
there.
Maintaining its submission that they are beyond the jurisdiction of Philippine Courts,
petitioners are now before us, stating:
Petitioners, being foreign corporations, as found by the trial court, not doing
business in the Philippines with no office, place of business or agents in the
Philippines, are not subject to the jurisdiction of Philippine courts.
The complaint for sum of money being a personal action not affecting
status or relating to property, extraterritorial service of summons on
petitioners all not doing business in the Philippines is null and void.
The appearance of counsel for petitioners being explicitly "by special
appearance without waiving objections to the jurisdiction over their persons
or the subject matter" and the motions to dismiss having excluded nonjurisdictional grounds, there is no voluntary submission to the jurisdiction of
the trial court. 6

Article 44 of the Omnibus Investments Code of 1987 defines the phrase to

include:
soliciting orders, purchases, service contracts, opening
offices, whether called "liaison" offices 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 (180) days or more; participating in the
management, supervision or control of any domestic
business firm, entity or corporation in the Philippines, and
any other act or acts that imply a continuity or
commercial dealings or arrangements and contemplate to
that extent the performance of acts or works, or the
exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization.
The term ordinarily implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise
of the functions normally incident to and in progressive prosecution of the purpose
and object of its organization. 9

For its part, private respondent Yupangco counter-submits:

1. Foreign corporations, such as petitioners, not doing business in the
Philippines, can be sued in Philippine Courts, not withstanding petitioners'
claim to the contrary.
2. While the complaint before the Honorable Trial Court is for a sum of
money, not affecting status or relating to property, petitioners (then
defendants) can submit themselves voluntarily to the jurisdiction of
Philippine Courts, even if there is no extrajudicial (sic) service of summons
upon them.
3. The voluntary appearance of the petitioners (then defendants) before the
Honorable Trial Court amounted, in effect, to voluntary submission to its
jurisdiction over their persons. 7
In the decisions of the courts below, there is much left to speculation and conjecture
as to whether or not the petitioners were determined to be "doing business in the
Philippines" or not.
To qualify the petitioners' business of reinsurance within the Philippine forum, resort
must be made to the established principles in determining what is meant by "doing
business in the Philippines." In Communication Materials and Design,
Inc. et. al. vs. Court of Appeals, 8 it was observed that.
There is no exact rule or governing principle as to what constitutes doing or
engaging in or transacting business. Indeed, such case must be judged in
the light of its peculiar circumstances, upon its peculiar facts and upon the
language of the statute applicable. The true test, however, seems to be
whether the foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized.

A single act or transaction made in the Philippines, however, could qualify a foreign
corporation to be doing business in the Philippines, if such singular act is not merely
incidental or casual, but indicates the foreign corporation's intention to do business
in the Philippines. 10
There is no sufficient basis in the records which would merit the institution of this
collection suit in the Philippines. More specifically, there is nothing to substantiate
the private respondent's submission that the petitioners had engaged in business
activities in this country. This is not an instance where the erroneous service of
summons upon the defendant can be cured by the issuance and service of alias
summons, as in the absence of showing that petitioners had been doing business in
the country, they cannot be summoned to answer for the charges leveled against
them.
The Court is cognizant of the doctrine in Signetics Corp. vs. Court of Appeals 11 that
for the purpose of acquiring jurisdiction by way of summons on a defendant foreign
corporation, there is no need to prove first the fact that defendant is doing business
in the Philippines. The plaintiff only has to allege in the complaint that the defendant
has an agent in the Philippines for summons to be validly served thereto, even
without prior evidence advancing such factual allegation.
As it is, private respondent has made no allegation or demonstration of the
existence of petitioners' domestic agent, but avers simply that they are doing
business not only abroad but in the Philippines as well. It does not appear at all that
the petitioners had performed any act which would give the general public the
impression that it had been engaging, or intends to engage in its ordinary and usual
business undertakings in the country. The reinsurance treaties between the
petitioners and Worldwide Surety and Insurance were made through an international
insurance broker, and not through any entity or means remotely connected with the
Philippines. Moreover, there is authority to the effect that a reinsurance company is
not doing business in a certain state merely because the property or lives which are

insured by the original insurer company are located in that state. 12 The reason for
this is that a contract of reinsurance is generally a separate and distinct
arrangement from the original contract of insurance, whose contracted risk is
insured in the reinsurance agreement. 13 Hence, the original insured has generally no
interest in the contract of reinsurance.14

resident agent, the trial court had effectively acquired jurisdiction. In that case, the
court made no prescription as the absolute suability of foreign corporations not
doing business in the country, but merely discounts the absolute exemption of such
foreign corporations from liabilities particularly arising from acts done against a
person or persons in the Philippines.

A foreign corporation, is one which owes its existence to the laws of another
state, 15 and generally, has no legal existence within the state in which it is foreign.
In Marshall Wells Co. vs. Elser, 16 it was held that corporations have no legal status
beyond the bounds of the sovereignty by which they are created. Nevertheless, it is
widely accepted that foreign corporations are, by reason of state comity, allowed to
transact business in other states and to sue in the courts of such fora. In the
Philippines foreign corporations are allowed such privileges, subject to certain
restrictions, arising from the state's sovereign right of regulation.

As we have found, there is no showing that petitioners had performed any act in the
country that would place it within the sphere of the court's jurisdiction. A general
allegation standing alone, that a party is doing business in the Philippines does not
make it so. A conclusion of fact or law cannot be derived from the unsubstantiated
assertions of parties, notwithstanding the demands of convenience or dispatch in
legal actions, otherwise, the Court would be guilty of sorcery; extracting substance
out of nothingness. In addition, the assertion that a resident of the Philippines will be
inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and
unavailing to sustain the continuance of a local action, for jurisdiction is not
dependent upon the convenience or inconvenience of a party. 21

Before a foreign corporation can transact business in the country, it must first obtain
a license to transact business here 17 and secure the proper authorizations under
existing law.
If a foreign corporation engages in business activities without the necessary
requirements, it opens itself to court actions against it, but it shall not be allowed to
maintain or intervene in an action, suit or proceeding for its own account in any
court or tribunal or agency in the Philippines. 18
The purpose of the law in requiring that foreign corporations doing business in the
country be licensed to do so, is to subject the foreign corporations doing business in
the Philippines to the jurisdiction of the courts, 19 otherwise, a foreign corporation
illegally doing business here because of its refusal or neglect to obtain the required
license and authority to do business may successfully though unfairly plead such
neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of
the local courts.
The same danger does not exist among foreign corporations that are indubitably not
doing business in the Philippines. Indeed, if a foreign corporation does not do
business here, there would be no reason for it to be subject to the State's regulation.
As we observed, in so far as the State is concerned, such foreign corporation has no
legal existence. Therefore, to subject such corporation to the courts' jurisdiction
would violate the essence of sovereignty.
In the alternative, private respondent submits that foreign corporations not doing
business in the Philippines are not exempt from suits leveled against them in courts,
citing the case of Facilities Management Corporation vs. Leonardo Dela
Osa, et. al. 20 where we ruled "that indeed, if a foreign corporation, not engaged in
business in the Philippines, is not barred from seeking redress from Courts in the
Philippines, a fortiori, that same corporation cannot claim exemption from being
sued in Philippine Courts for acts done against a person or persons in the
Philippines."
We are not persuaded by the position taken by the private respondent. In Facilities
Management case, the principal issue presented was whether the petitioner had
been doing business in the Philippines, so that service of summons upon its agent as
under Section 14, Rule 14 of the Rules of Court can be made in order that the Court
of First Instance could assume jurisdiction over it. The Court ruled that the petitioner
was doing business in the Philippines, and that by serving summons upon its

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

If the defendant, besides setting up in a motion to dismiss his objection to the

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

3. Expert Travel & Tours, Inc v. Court of Appeals

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals
(CA) in CA-G.R. SP No. 61000 dismissing the petition
for certiorari and mandamus filed by Expertravel and Tours, Inc. (ETI).
The Antecedents
Korean Airlines (KAL) is a corporation established and registered in the Republic of
South Korea and licensed to do business in the Philippines. Its general manager in
the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario
Aguinaldo and his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint 2 against ETI
with the Regional Trial Court (RTC) of Manila, for the collection of the principal
amount of P260,150.00, plus attorneys fees and exemplary damages. The
verification and certification against forum shopping was signed by Atty. Aguinaldo,
who indicated therein that he was the resident agent and legal counsel of KAL and
had caused the preparation of the complaint.
ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was
not authorized to execute the verification and certificate of non-forum shopping as
required by Section 5, Rule 7 of the Rules of Court. KAL opposed the motion,
contending that Atty. Aguinaldo was its resident agent and was registered as such
with the Securities and Exchange Commission (SEC) as required by the Corporation
Code of the Philippines. It was further alleged that Atty. Aguinaldo was also the
corporate secretary of KAL. Appended to the said opposition was the identification
card of Atty. Aguinaldo, showing that he was the lawyer of KAL.
During the hearing of January 28, 2000, Atty. Aguinaldo claimed that he had been
authorized to file the complaint through a resolution of the KAL Board of Directors
approved during a special meeting held on June 25, 1999. Upon his motion, KAL was
given a period of 10 days within which to submit a copy of the said resolution. The
trial court granted the motion. Atty. Aguinaldo subsequently filed other similar
motions, which the trial court granted.
Finally, KAL submitted on March 6, 2000 an Affidavit3 of even date, executed by its
general manager Suk Kyoo Kim, alleging that the board of directors conducted a
special teleconference on June 25, 1999, which he and Atty. Aguinaldo attended. It
was also averred that in that same teleconference, the board of directors approved a
resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum
shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the
corporation had no written copy of the aforesaid resolution.
On April 12, 2000, the trial court issued an Order4 denying the motion to dismiss,
giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL
Board of Directors indeed conducted a teleconference on June 25, 1999, during
which it approved a resolution as quoted in the submitted affidavit.
ETI filed a motion for the reconsideration of the Order, contending that it was
inappropriate for the court to take judicial notice of the said teleconference without
any prior hearing. The trial court denied the motion in its Order 5dated August 8,
2000.

ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC.
In its comment on the petition, KAL appended a certificate signed by Atty. Aguinaldo
dated January 10, 2000, worded as follows:
SECRETARYS/RESIDENT AGENTS CERTIFICATE
KNOW ALL MEN BY THESE PRESENTS:
I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected and appointed
Corporate Secretary and Resident Agent of KOREAN AIRLINES, a foreign
corporation duly organized and existing under and by virtue of the laws of
the Republic of Korea and also duly registered and authorized to do
business in the Philippines, with office address at Ground Floor, LPL Plaza
Building, 124 Alfaro St., Salcedo Village, Makati City, HEREBY CERTIFY that
during a special meeting of the Board of Directors of the Corporation held
on June 25, 1999 at which a quorum was present, the said Board
unanimously passed, voted upon and approved the following resolution
which is now in full force and effect, to wit:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo
& Associates or any of its lawyers are hereby appointed and
authorized to take with whatever legal action necessary to effect
the collection of the unpaid account of Expert Travel & Tours. They
are hereby specifically authorized to prosecute, litigate, defend,
sign and execute any document or paper necessary to the filing
and prosecution of said claim in Court, attend the Pre-Trial
Proceedings and enter into a compromise agreement relative to
the above-mentioned claim.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 10 th day of
January, 1999, in the City of Manila, Philippines.
SUBSCRIBED AND SWORN to before me this 10th day of January, 1999, Atty. Mario A.
Aguinaldo exhibiting to me his Community Tax Certificate No. 14914545, issued on
January 7, 2000 at Manila, Philippines.

Doc. No. 119;

Page No. 25;
Book No. XXIV
Series of 2000.

(Sgd.)
ATTY. HENRY D. ADASA
Notary Public
Until December 31, 2000
PTR #889583/MLA 1/3/20006

On December 18, 2001, the CA rendered judgment dismissing the petition, ruling
that the verification and certificate of non-forum shopping executed by Atty.
Aguinaldo was sufficient compliance with the Rules of Court. According to the
appellate court, Atty. Aguinaldo had been duly authorized by the board resolution
approved on June 25, 1999, and was the resident agent of KAL. As such, the RTC
could not be faulted for taking judicial notice of the said teleconference of the KAL
Board of Directors.

ETI filed a motion for reconsideration of the said decision, which the CA denied.
Thus, ETI, now the petitioner, comes to the Court by way of petition for review
on certiorari and raises the following issue:
DID PUBLIC RESPONDENT COURT OF APPEALS DEPART FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT
RENDERED ITS QUESTIONED DECISION AND WHEN IT ISSUED ITS
QUESTIONED RESOLUTION, ANNEXES A AND B OF THE INSTANT PETITION? 7
The petitioner asserts that compliance with Section 5, Rule 7, of the Rules of Court
can be determined only from the contents of the complaint and not by documents or
pleadings outside thereof. Hence, the trial court committed grave abuse of discretion
amounting to excess of jurisdiction, and the CA erred in considering the affidavit of
the respondents general manager, as well as the Secretarys/Resident Agents
Certification and the resolution of the board of directors contained therein, as proof
of compliance with the requirements of Section 5, Rule 7 of the Rules of Court. The
petitioner also maintains that the RTC cannot take judicial notice of the said
teleconference without prior hearing, nor any motion therefor. The petitioner
reiterates its submission that the teleconference and the resolution adverted to by
the respondent was a mere fabrication.
The respondent, for its part, avers that the issue of whether modern technology is
used in the field of business is a factual issue; hence, cannot be raised in a petition
for review on certiorari under Rule 45 of the Rules of Court. On the merits of the
petition, it insists that Atty. Aguinaldo, as the resident agent and corporate
secretary, is authorized to sign and execute the certificate of non-forum shopping
required by Section 5, Rule 7 of the Rules of Court, on top of the board resolution
approved during the teleconference of June 25, 1999. The respondent insists that
"technological advances in this time and age are as commonplace as daybreak."
Hence, the courts may take judicial notice that the Philippine Long Distance
Telephone Company, Inc. had provided a record of corporate conferences and
meetings through FiberNet using fiber-optic transmission technology, and that such
technology facilitates voice and image transmission with ease; this makes constant
communication between a foreign-based office and its Philippine-based branches
faster and easier, allowing for cost-cutting in terms of travel concerns. It points out
that even the E-Commerce Law has recognized this modern technology. The
respondent posits that the courts are aware of this development in technology;
hence, may take judicial notice thereof without need of hearings. Even if such
hearing is required, the requirement is nevertheless satisfied if a party is allowed to
file pleadings by way of comment or opposition thereto.
In its reply, the petitioner pointed out that there are no rulings on the matter of
teleconferencing as a means of conducting meetings of board of directors for
purposes of passing a resolution; until and after teleconferencing is recognized as a
legitimate means of gathering a quorum of board of directors, such cannot be taken
judicial notice of by the court. It asserts that safeguards must first be set up to
prevent any mischief on the public or to protect the general public from any possible
fraud. It further proposes possible amendments to the Corporation Code to give
recognition to such manner of board meetings to transact business for the
corporation, or other related corporate matters; until then, the petitioner asserts,
teleconferencing cannot be the subject of judicial notice.
The petitioner further avers that the supposed holding of a special meeting on June
25, 1999 through teleconferencing where Atty. Aguinaldo was supposedly given such
an authority is a farce, considering that there was no mention of where it was held,

whether in this country or elsewhere. It insists that the Corporation Code requires
board resolutions of corporations to be submitted to the SEC. Even assuming that
there was such a teleconference, it would be against the provisions of the
Corporation Code not to have any record thereof.
The petitioner insists that the teleconference and resolution adverted to by the
respondent in its pleadings were mere fabrications foisted by the respondent and its
counsel on the RTC, the CA and this Court.
The petition is meritorious.
Section 5, Rule 7 of the Rules of Court provides:
SEC. 5. Certification against forum shopping. The plaintiff or principal
party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced
any action or filed any claim involving the same issues in any court, tribunal
or quasi-judicial agency and, to the best of his knowledge, no such other
action or claim is pending therein; (b) if there is such other pending action
or claim, a complete statement of the present status thereof; and (c) if he
should thereafter learn that the same or similar action or claim has been
filed or is pending, he shall report that fact within five (5) days therefrom to
the court wherein his aforesaid complaint or initiatory pleading has been
filed.
Failure to comply with the foregoing requirements shall not be curable by
mere amendment of the complaint or other initiatory pleading but shall be
cause for the dismissal of the case without prejudice, unless otherwise
provided, upon motion and after hearing. The submission of a false
certification or non-compliance with any of the undertakings therein shall
constitute indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the acts of the party
or his counsel clearly constitute willful and deliberate forum shopping, the
same shall be ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as a cause for administrative sanctions.
It is settled that the requirement to file a certificate of non-forum shopping is
mandatory8 and that the failure to comply with this requirement cannot be excused.
The certification is a peculiar and personal responsibility of the party, an assurance
given to the court or other tribunal that there are no other pending cases involving
basically the same parties, issues and causes of action. Hence, the certification must
be accomplished by the party himself because he has actual knowledge of whether
or not he has initiated similar actions or proceedings in different courts or tribunals.
Even his counsel may be unaware of such facts.9 Hence, the requisite certification
executed by the plaintiffs counsel will not suffice.10
In a case where the plaintiff is a private corporation, the certification may be signed,
for and on behalf of the said corporation, by a specifically authorized person,
including its retained counsel, who has personal knowledge of the facts required to
be established by the documents. The reason was explained by the Court in National
Steel Corporation v. Court of Appeals,11 as follows:

Unlike natural persons, corporations may perform physical actions only

through properly delegated individuals; namely, its officers and/or agents.

2. I have read the complaint and that all the allegations contained therein
are true and correct based on the records on files;

3. I hereby further certify that I have not commenced any other action or
proceeding involving the same issues in the Supreme Court, the Court of
Appeals, or different divisions thereof, or any other tribunal or agency. If I
subsequently learned that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or different
divisions thereof, or any tribunal or agency, I will notify the court, tribunal
or agency within five (5) days from such notice/knowledge.

The corporation, such as the petitioner, has no powers except those

expressly conferred on it by the Corporation Code and those that are
implied by or are incidental to its existence. In turn, a corporation exercises
said powers through its board of directors and/or its duly-authorized officers
and agents. Physical acts, like the signing of documents, can be performed
only by natural persons duly-authorized for the purpose by corporate bylaws or by specific act of the board of directors. "All acts within the powers
of a corporation may be performed by agents of its selection; and except so
far as limitations or restrictions which may be imposed by special charter,
by-law, or statutory provisions, the same general principles of law which
govern the relation of agency for a natural person govern the officer or
agent of a corporation, of whatever status or rank, in respect to his power
to act for the corporation; and agents once appointed, or members acting
in their stead, are subject to the same rules, liabilities and incapacities as
are agents of individuals and private persons."

For who else knows of the circumstances required in the Certificate but
its own retained counsel. Its regular officers, like its board chairman and
president, may not even know the details required therein.
Indeed, the certificate of non-forum shopping may be incorporated in the complaint
or appended thereto as an integral part of the complaint. The rule is that compliance
with the rule after the filing of the complaint, or the dismissal of a complaint based
on its non-compliance with the rule, is impermissible. However, in exceptional
circumstances, the court may allow subsequent compliance with the rule. 12 If the
authority of a partys counsel to execute a certificate of non-forum shopping is
disputed by the adverse party, the former is required to show proof of such authority
or representation.
In this case, the petitioner, as the defendant in the RTC, assailed the authority of
Atty. Aguinaldo to execute the requisite verification and certificate of non-forum
shopping as the resident agent and counsel of the respondent. It was, thus,
incumbent upon the respondent, as the plaintiff, to allege and establish that Atty.
Aguinaldo had such authority to execute the requisite verification and certification
for and in its behalf. The respondent, however, failed to do so.
The verification and certificate of non-forum shopping which was incorporated in the
complaint and signed by Atty. Aguinaldo reads:
I, Mario A. Aguinaldo of legal age, Filipino, with office address at Suite 210
Gedisco Centre, 1564 A. Mabini cor. P. Gil Sts., Ermita, Manila, after having
sworn to in accordance with law hereby deposes and say: THAT 1. I am the Resident Agent and Legal Counsel of the plaintiff in the above
entitled case and have caused the preparation of the above complaint;

(Sgd.)
MARIO A. AGUINALDO
Affiant
CITY OF MANILA

SUBSCRIBED AND SWORN TO before me this 30th day of August, 1999, affiant
exhibiting to me his Community Tax Certificate No. 00671047 issued on January 7,
1999 at Manila, Philippines.

Doc. No. 1005;

Page No. 198;
Book No. XXI
Series of 1999.

(Sgd.)

ATTY. HENRY D. ADASA

Notary Public
Until December 31, 20
PTR No. 320501 Mla. 1

As gleaned from the aforequoted certification, there was no allegation that Atty.
Aguinaldo had been authorized to execute the certificate of non-forum shopping by
the respondents Board of Directors; moreover, no such board resolution was
appended thereto or incorporated therein.
While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this
does not mean that he is authorized to execute the requisite certification against
forum shopping. Under Section 127, in relation to Section 128 of the Corporation
Code, the authority of the resident agent of a foreign corporation with license to do
business in the Philippines is to receive, for and in behalf of the foreign corporation,
services and other legal processes in all actions and other legal proceedings against
such corporation, thus:
SEC. 127. Who may be a resident agent. A resident agent may either be
an individual residing in the Philippines or a domestic corporation lawfully
transacting business in the Philippines: Provided, That in the case of an

individual, he must be of good moral character and of sound financial

standing.
SEC. 128. Resident agent; service of process. The Securities and
Exchange Commission shall require as a condition precedent to the
issuance of the license to transact business in the Philippines by any foreign
corporation that such corporation file with the Securities and Exchange
Commission a written power of attorney designating some persons who
must be a resident of the Philippines, on whom any summons and other
legal processes may be served in all actions or other legal proceedings
against such corporation, and consenting that service upon such resident
agent shall be admitted and held as valid as if served upon the dulyauthorized officers of the foreign corporation as its home office.14
Under the law, Atty. Aguinaldo was not specifically authorized to execute a
certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of
Court. This is because while a resident agent may be aware of actions filed against
his principal (a foreign corporation doing business in the Philippines), such resident
may not be aware of actions initiated by its principal, whether in the Philippines
against a domestic corporation or private individual, or in the country where such
corporation was organized and registered, against a Philippine registered
corporation or a Filipino citizen.
The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not
specifically authorized to execute the said certification. It attempted to show its
compliance with the rule subsequent to the filing of its complaint by submitting, on
March 6, 2000, a resolution purporting to have been approved by its Board of
Directors during a teleconference held on June 25, 1999, allegedly with Atty.
Aguinaldo and Suk Kyoo Kim in attendance. However, such attempt of the
respondent casts veritable doubt not only on its claim that such a teleconference
was held, but also on the approval by the Board of Directors of the resolution
authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping.
In its April 12, 2000 Order, the RTC took judicial notice that because of the onset of
modern technology, persons in one location may confer with other persons in other
places, and, based on the said premise, concluded that Suk Kyoo Kim and Atty.
Aguinaldo had a teleconference with the respondents Board of Directors in South
Korea on June 25, 1999. The CA, likewise, gave credence to the respondents claim
that such a teleconference took place, as contained in the affidavit of Suk Kyoo Kim,
as well as Atty. Aguinaldos certification.
Generally speaking, matters of judicial notice have three material requisites: (1) the
matter must be one of common and general knowledge; (2) it must be well and
authoritatively settled and not doubtful or uncertain; and (3) it must be known to be
within the limits of the jurisdiction of the court. The principal guide in determining
what facts may be assumed to be judicially known is that of notoriety. Hence, it can
be said that judicial notice is limited to facts evidenced by public records and facts of
general notoriety.[15] Moreover, a judicially noticed fact must be one not subject to a
reasonable dispute in that it is either: (1) generally known within the territorial
jurisdiction of the trial court; or (2) capable of accurate and ready determination by
resorting to sources whose accuracy cannot reasonably be questionable. 16
Things of "common knowledge," of which courts take judicial matters coming to the
knowledge of men generally in the course of the ordinary experiences of life, or they

may be matters which are generally accepted by mankind as true and are capable of
ready and unquestioned demonstration. Thus, facts which are universally known,
and which may be found in encyclopedias, dictionaries or other publications, are
judicially noticed, provided, they are of such universal notoriety and so generally
understood that they may be regarded as forming part of the common knowledge of
every person. As the common knowledge of man ranges far and wide, a wide variety
of particular facts have been judicially noticed as being matters of common
knowledge. But a court cannot take judicial notice of any fact which, in part, is
dependent on the existence or non-existence of a fact of which the court has no
constructive knowledge.17
In this age of modern technology, the courts may take judicial notice that business
transactions may be made by individuals through teleconferencing. Teleconferencing
is interactive group communication (three or more people in two or more locations)
through an electronic medium. In general terms, teleconferencing can bring people
together under one roof even though they are separated by hundreds of miles. 18 This
type of group communication may be used in a number of ways, and have three
basic types: (1) video conferencing - television-like communication augmented with
sound; (2) computer conferencing - printed communication through keyboard
terminals, and (3) audio-conferencing-verbal communication via the telephone with
optional capacity for telewriting or telecopying. 19
A teleconference represents a unique alternative to face-to-face (FTF) meetings. It
was first introduced in the 1960s with American Telephone and Telegraphs
Picturephone. At that time, however, no demand existed for the new technology.
Travel costs were reasonable and consumers were unwilling to pay the monthly
service charge for using the picturephone, which was regarded as more of a novelty
than as an actual means for everyday communication.20In time, people found it
advantageous to hold teleconferencing in the course of business and corporate
governance, because of the money saved, among other advantages include:
1. People (including outside guest speakers) who wouldnt normally attend
a distant FTF meeting can participate.
2. Follow-up to earlier meetings can be done with relative ease and little
expense.
3. Socializing is minimal compared to an FTF meeting; therefore, meetings
are shorter and more oriented to the primary purpose of the meeting.
4. Some routine meetings are more effective since one can audioconference from any location equipped with a telephone.
5. Communication between the home office and field staffs is maximized.
6. Severe climate and/or unreliable transportation may necessitate
teleconferencing.
7. Participants are generally better prepared than for FTF meetings.
8. It is particularly satisfactory for simple problem-solving, information
exchange, and procedural tasks.

9. Group members participate more equally in well-moderated

teleconferences than an FTF meeting.21
On the other hand, other private corporations opt not to hold teleconferences
because of the following disadvantages:
1. Technical failures with equipment, including connections that arent
made.
2. Unsatisfactory for complex interpersonal communication, such as
negotiation or bargaining.
3. Impersonal, less easy to create an atmosphere of group rapport.
4. Lack of participant familiarity with the equipment, the medium itself, and
meeting skills.
5. Acoustical problems within the teleconferencing rooms.
6. Difficulty in determining participant speaking order; frequently one
person monopolizes the meeting.
7. Greater participant preparation time needed.
8. Informal, one-to-one, social interaction not possible. 22
Indeed, teleconferencing can only facilitate the linking of people; it does not alter
the complexity of group communication. Although it may be easier to
communicate via teleconferencing, it may also be easier to miscommunicate.
Teleconferencing cannot satisfy the individual needs of every type of meeting. 23
In the Philippines, teleconferencing and videoconferencing of members of board of
directors of private corporations is a reality, in light of Republic Act No. 8792. The
Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied with related to such
conferences.24Thus, the Court agrees with the RTC that persons in the Philippines
may have a teleconference with a group of persons in South Korea relating to
business transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a
teleconference along with the respondents Board of Directors, the Court is not
convinced that one was conducted; even if there had been one, the Court is not
inclined to believe that a board resolution was duly passed specifically authorizing
Atty. Aguinaldo to file the complaint and execute the required certification against
forum shopping.
The records show that the petitioner filed a motion to dismiss the complaint on the
ground that the respondent failed to comply with Section 5, Rule 7 of the Rules of
Court. The respondent opposed the motion on December 1, 1999, on its contention
that Atty. Aguinaldo, its resident agent, was duly authorized to sue in its behalf. The
respondent, however, failed to establish its claim that Atty. Aguinaldo was its

resident agent in the Philippines. Even the identification card 25 of Atty. Aguinaldo
which the respondent appended to its pleading merely showed that he is the
company lawyer of the respondents Manila Regional Office.
The respondent, through Atty. Aguinaldo, announced the holding of the
teleconference only during the hearing of January 28, 2000; Atty. Aguinaldo then
prayed for ten days, or until February 8, 2000, within which to submit the board
resolution purportedly authorizing him to file the complaint and execute the required
certification against forum shopping. The court granted the motion. 26 The
respondent, however, failed to comply, and instead prayed for 15 more days to
submit the said resolution, contending that it was with its main office in Korea. The
court granted the motion per its Order27 dated February 11, 2000. The respondent
again prayed for an extension within which to submit the said resolution, until March
6, 2000.28 It was on the said date that the respondent submitted an affidavit of its
general manager Suk Kyoo Kim, stating, inter alia, that he and Atty. Aguinaldo
attended the said teleconference on June 25, 1999, where the Board of Directors
supposedly approved the following resolution:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo &
Associates or any of its lawyers are hereby appointed and authorized to
take with whatever legal action necessary to effect the collection of the
unpaid account of Expert Travel & Tours. They are hereby specifically
authorized to prosecute, litigate, defend, sign and execute any document or
paper necessary to the filing and prosecution of said claim in Court, attend
the Pre-trial Proceedings and enter into a compromise agreement relative
to the above-mentioned claim.29
But then, in the same affidavit, Suk Kyoo Kim declared that the respondent "do[es]
not keep a written copy of the aforesaid Resolution" because no records of board
resolutions approved during teleconferences were kept. This belied the respondents
earlier allegation in its February 10, 2000 motion for extension of time to submit the
questioned resolution that it was in the custody of its main office in Korea. The
respondent gave the trial court the impression that it needed time to secure a copy
of the resolution kept in Korea, only to allege later (via the affidavit of Suk Kyoo Kim)
that it had no such written copy. Moreover, Suk Kyoo Kim stated in his affidavit that
the resolution was embodied in the Secretarys/Resident Agents Certificate signed
by Atty. Aguinaldo. However, no such resolution was appended to the said
certificate.
The respondents allegation that its board of directors conducted a teleconference
on June 25, 1999 and approved the said resolution (with Atty. Aguinaldo in
attendance) is incredible, given the additional fact that no such allegation was made
in the complaint. If the resolution had indeed been approved on June 25, 1999, long
before the complaint was filed, the respondent should have incorporated it in its
complaint, or at least appended a copy thereof. The respondent failed to do so. It
was only on January 28, 2000 that the respondent claimed, for the first time, that
there was such a meeting of the Board of Directors held on June 25, 1999; it even
represented to the Court that a copy of its resolution was with its main office in
Korea, only to allege later that no written copy existed. It was only on March 6, 2000
that the respondent alleged, for the first time, that the meeting of the Board of
Directors where the resolution was approved was held via teleconference.
Worse still, it appears that as early as January 10, 1999, Atty. Aguinaldo had signed a
Secretarys/Resident Agents Certificate alleging that the board of directors held a
teleconference on June 25, 1999. No such certificate was appended to the

complaint, which was filed on September 6, 1999. More importantly, the respondent
did not explain why the said certificate was signed by Atty. Aguinaldo as early as
January 9, 1999, and yet was notarized one year later (on January 10, 2000); it also
did not explain its failure to append the said certificate to the complaint, as well as
to its Compliance dated March 6, 2000. It was only on January 26, 2001 when the
respondent filed its comment in the CA that it submitted the Secretarys/Resident
Agents Certificate30 dated January 10, 2000.
The Court is, thus, more inclined to believe that the alleged teleconference on June
25, 1999 never took place, and that the resolution allegedly approved by the
respondents Board of Directors during the said teleconference was a mere
concoction purposefully foisted on the RTC, the CA and this Court, to avert the
dismissal of its complaint against the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the
Court of Appeals in CA-G.R. SP No. 61000 is REVERSED and SET ASIDE. The Regional
Trial Court of Manila is hereby ORDERED to dismiss, without prejudice, the complaint
of the respondent.
SO ORDERED.

MEANING OF DOING BUSINESS IN THE PHILIPPINESS (SEC 3(d), R.A. NO.

7042)
1. METHOLATUM CO. v. MANGALIMAN
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 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.
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 PhilippineAmerican Drug Co., Inc., and that even if the Mentholatum Co., Inc., has no
legal standing in this jurisdiction, the complaint filed should be decided on
its merits since the Philippine-American Drug Co., Inc., has sufficient
interest and standing to maintain the complaint.
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 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 Philippine-American 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 PhilippineAmerican 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. 122124.) 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 Philippine-American 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.

2. COLUMBIA PICTURES, INC. v. COURT OF APPEALS

Before us is a petition for review on certiorari of the decision of the Court of
Appeals 1 promulgated on July 22, 1992 and its resolution 2 of May 10, 1993 denying
petitioners' motion for reconsideration, both of which sustained the order 3 of the
Regional Trial Court, Branch 133, Makati, Metro Manila, dated November 22, 1988 for
the quashal of Search Warrant No. 87-053 earlier issued per its own order 4 on
September 5, 1988 for violation of Section 56 of Presidential Decree No. 49, as
amended, otherwise known as the "Decree on the Protection of Intellectual
Property."
The material facts found by respondent appellate court are as follows:
Complainants thru counsel lodged a formal complaint with the National
Bureau of Investigation for violation of PD No. 49, as amended, and sought
its assistance in their anti-film piracy drive. Agents of the NBI and private
researchers made discreet surveillance on various video establishments in
Metro Manila including Sunshine Home Video Inc. (Sunshine for brevity),
owned and operated by Danilo A. Pelindario with address at No. 6 Mayfair
Center, Magallanes, Makati, Metro Manila.
On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a
search warrant with the court a quo against Sunshine seeking the seizure,
among others, of pirated video tapes of copyrighted films all of which were
enumerated in a list attached to the application; and, television sets, video
cassettes and/or laser disc recordings equipment and other machines and
paraphernalia used or intended to be used in the unlawful exhibition,
showing, reproduction, sale, lease or disposition of videograms tapes in the
premises above described. In the hearing of the application, NBI Senior
Agent Lauro C. Reyes, upon questions by the court a quo, reiterated in
substance his averments in his affidavit. His testimony was corroborated by
another witness, Mr. Rene C. Baltazar. Atty. Rico V. Domingo's deposition
was also taken. On the basis of the affidavits and depositions of NBI Senior
Agent Lauro C. Reyes, Rene C. Baltazar and Atty. Rico V. Domingo, Search
Warrant No. 87-053 for violation of Section 56 of PD No. 49, as amended,
was issued by the court a quo.
The search warrant was served at about 1:45 p.m. on December 14, 1987
to Sunshine and/or their representatives. In the course of the search of the
premises indicated in the search warrant, the NBI Agents found and seized
various video tapes of duly copyrighted motion pictures/films owned or
exclusively distributed by private complainants, and machines, equipment,
television sets, paraphernalia, materials, accessories all of which were
included in the receipt for properties accomplished by the raiding team.
Copy of the receipt was furnished and/or tendered to Mr. Danilo A.
Pelindario, registered owner-proprietor of Sunshine Home Video.
On December 16, 1987, a "Return of Search Warrant" was filed with the
Court.
A "Motion To Lift the Order of Search Warrant" was filed but was later
denied for lack of merit (p. 280, Records).

A Motion for reconsideration of the Order of denial was filed. The court a
quo granted the said motion for reconsideration and justified it in this
manner:
It is undisputed that the master tapes of the copyrighted
films from which the pirated films were allegedly copies
(sic), were never presented in the proceedings for the
issuance of the search warrants in question. The orders of
the Court granting the search warrants and denying the
urgent motion to lift order of search warrants were,
therefore, issued in error. Consequently, they must be set
aside. (p. 13, Appellant's Brief) 5
Petitioners thereafter appealed the order of the trial court granting private
respondents' motion for reconsideration, thus lifting the search warrant which it had
theretofore issued, to the Court of Appeals. As stated at the outset, said appeal was
dismissed and the motion for reconsideration thereof was denied. Hence, this
petition was brought to this Court particularly challenging the validity of respondent
court's retroactive application of the ruling in 20th Century Fox Film Corporation
vs. Court of Appeals, et al., 6 in dismissing petitioners' appeal and upholding the
quashal of the search warrant by the trial court.
I
Inceptively, we shall settle the procedural considerations on the matter of and the
challenge to petitioners' legal standing in our courts, they being foreign corporations
not licensed to do business in the Philippines.
Private respondents aver that being foreign corporations, petitioners should have
such license to be able to maintain an action in Philippine courts. In so challenging
petitioners' personality to sue, private respondents point to the fact that petitioners
are the copyright owners or owners of exclusive rights of distribution in the
Philippines of copyrighted motion pictures or films, and also to the appointment of
Atty. Rico V. Domingo as their attorney-in-fact, as being constitutive of "doing
business in the Philippines" under Section 1 (f)(1) and (2), Rule 1 of the Rules of the
Board of Investments. As foreign corporations doing business in the Philippines,
Section 133 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines,
denies them the right to maintain a suit in Philippine courts in the absence of a
license to do business. Consequently, they have no right to ask for the issuance of a
search warrant. 7
In refutation, petitioners flatly deny that they are doing business in the
Philippines, 8 and contend that private respondents have not adduced evidence to
prove that petitioners are doing such business here, as would require them to be
licensed by the Securities and Exchange Commission, other than averments in the
quoted portions of petitioners' "Opposition to Urgent Motion to Lift Order of Search
Warrant" dated April 28, 1988 and Atty. Rico V. Domingo's affidavit of December 14,
1987. Moreover, an exclusive right to distribute a product or the ownership of such
exclusive right does not conclusively prove the act of doing business nor establish
the presumption of doing business. 9
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 obtainment of a license prescribed by Section 125 of the Corporation Code is
not a condition precedent to the maintenance of any kind of action in Philippine
courts by a foreign corporation. However, under the aforequoted provision, no
foreign corporation shall be permitted to transact business in the Philippines, as this
phrase is understood under the Corporation Code, unless it shall have the license
required by law, and until it complies with the law intransacting business here, it
shall not be permitted to maintain any suit in local courts.10 As thus interpreted, any
foreign corporation not doing business in the Philippines may maintain an action in
our courts upon any cause of action, provided that the subject matter and the
defendant are within the jurisdiction of the court. It is not the absence of the
prescribed license but "doing business" in the Philippines without such license which
debars the foreign corporation from access to our courts. In other words, although a
foreign corporation is without license to transact business in the Philippines, it does
not follow that it has no capacity to bring an action. Such license is not necessary if
it is not engaged in business in the Philippines. 11
Statutory provisions in many jurisdictions are determinative of what constitutes
"doing business" or "transacting business" within that forum, in which case said
provisions are controlling there. In others where no such definition or qualification is
laid down regarding acts or transactions failing within its purview, the question rests
primarily on facts and intent. It is thus held that all the combined acts of a foreign
corporation in the State must be considered, and every circumstance is material
which indicates a purpose on the part of the corporation to engage in some part of
its regular business in the State. 12
No general rule or governing principles can be laid down as to what constitutes
"doing" or "engaging in" or "transacting" business. Each case must be judged in the
light of its own peculiar environmental circumstances. 13 The true tests, however,
seem 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. 14

This traditional case law definition has evolved into a statutory definition, having
been adopted with some qualifications in various pieces of legislation in our
jurisdiction.
For instance, Republic Act No. 5455 17 provides:
Sec. 1. Definitions and scope of this Act. (1) . . . ; 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 of the functions
normally incident to, and in progressive prosecution of, commercial gain or
of the purpose and object of the business organization.
Presidential Decree No. 1789, 18 in Article 65 thereof, defines "doing business" to
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.
The implementing rules and regulations of said presidential decree conclude the
enumeration of acts constituting "doing business" with a catch-all definition, thus:
Sec. 1(g). "Doing Business" shall be any act or combination of acts
enumerated in Article 65 of the Code. In particular "doing business"
includes:
xxx xxx xxx

As a general proposition upon which many authorities agree in principle, subject to

such modifications as may be necessary in view of the particular issue or of the
terms of the statute involved, it is recognized that a foreign corporation is "doing,"
"transacting," "engaging in," or "carrying on" business in the State when, and
ordinarily only when, it has entered the State by its agents and is there engaged in
carrying on and transacting through them some substantial part of its ordinary or
customary business, usually continuous in the sense that it may be distinguished
from merely casual, sporadic, or occasional transactions and isolated acts. 15
The Corporation Code does not itself define or categorize what acts constitute doing
or transacting business in the Philippines. Jurisprudence has, however, 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 or in progressive prosecution of the
purpose and subject of its organization. 16

(10) Any other act or acts which 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
object of the business organization.
Finally, Republic Act No. 7042 19 embodies such concept in this wise:
Sec. 3. Definitions. As used in this Act:
xxx xxx xxx

(d) the phrase "doing business shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or branches;
appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods
totalling one hundred eight(y) (180) days or more; participating in the
management, supervision or control of any domestic business, firm, entity
or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase "doing business" shall not
be deemed to include mere investment as a shareholder by a foreign entity
in domestic corporations duly registered to do business, and/or the exercise
of rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which transacts business in its
own name and for its own account.
Based on Article 133 of the Corporation Code and gauged by such statutory
standards, petitioners are not barred from maintaining the present action. There is
no showing that, under our statutory or case law, petitioners are doing, transacting,
engaging in or carrying on business in the Philippines as would require obtention of a
license before they can seek redress from our courts. No evidence has been offered
to show that petitioners have performed any of the enumerated acts or any other
specific act indicative of an intention to conduct or transact business in the
Philippines.
Accordingly, the certification issued by the Securities and Exchange
Commission 20 stating that its records do not show the registration of petitioner film
companies either as corporations or partnerships or that they have been licensed to
transact business in the Philippines, while undeniably true, is of no consequence to
petitioners' right to bring action in the Philippines. Verily, no record of such
registration by petitioners can be expected to be found for, as aforestated, said
foreign film corporations do not transact or do business in the Philippines and,
therefore, do not need to be licensed in order to take recourse to our courts.
Although Section 1(g) of the Implementing Rules and Regulations of the Omnibus
Investments Code lists, among others
(1) Soliciting orders, purchases (sales) or service contracts. Concrete and
specific solicitations by a foreign firm, or by an agent of such foreign firm,
not acting independently of the foreign firm amounting to negotiations or
fixing of the terms and conditions of sales or service contracts, regardless
of where 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. The arrangements agreed upon as to manner,
time and terms of delivery of the goods or the transfer of title thereto is
immaterial. A foreign firm which does business through the middlemen
acting in their own names, such as indentors, commercial brokers or
commission merchants, shall not be deemed doing business in the
Philippines. But such indentors, commercial brokers or commission
merchants shall be the ones deemed to be doing business in the
Philippines.

(2) Appointing a representative or distributor who is domiciled 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 a principal. Thus, where a foreign firm
is represented in the Philippines by a person or local company which does
not act in its name but in the name of the foreign firm, the latter is doing
business in the Philippines.
as acts constitutive of "doing business," the fact that petitioners are admittedly
copyright owners or owners of exclusive distribution rights in the Philippines of
motion pictures or films does not convert such ownership into an indicium of doing
business which would require them to obtain a license before they can sue upon a
cause of action in local courts.
Neither is the appointment of Atty. Rico V. Domingo as attorney-in-fact of petitioners,
with express authority pursuant to a special power of attorney, inter alia
To lay criminal complaints with the appropriate authorities and to provide
evidence in support of both civil and criminal proceedings against any
person or persons involved in the criminal infringement of copyright or
concerning the unauthorized importation, duplication, exhibition or
distribution of any cinematographic work(s) films or video cassettes of
which . . . is the owner of copyright or the owner of exclusive rights of
distribution in the Philippines pursuant to any agreement(s) between . . .
and the respective owners of copyright in such cinematographic work(s), to
initiate and prosecute on behalf of . . . criminal or civil actions in the
Philippines against any person or persons unlawfully distributing, exhibiting,
selling or offering for sale any films or video cassettes of which . . . is the
owner of copyright or the owner of exclusive rights of distribution in the
Philippines pursuant to any agreement(s) between . . . and the respective
owners of copyright in such works. 21
tantamount to doing business in the Philippines. We fail to see how exercising one's
legal and property rights and taking steps for the vigilant protection of said rights,
particularly the appointment of an attorney-in-fact, can be deemed by and of
themselves to be doing business here.
As a general rule, a foreign corporation will not be regarded as doing business in the
State simply because it enters into contracts with residents of the State, where such
contracts are consummated outside the State. 22In fact, a view is taken that a foreign
corporation is not doing business in the State merely because sales of its product
are made there or other business furthering its interests is transacted there by an
alleged agent, whether a corporation or a natural person, where such activities are
not under the direction and control of the foreign corporation but are engaged in by
the alleged agent as an independent business. 23
It is generally held that sales made to customers in the State by an independent
dealer who has purchased and obtained title from the corporation to the products
sold are not a doing of business by the corporation. 24Likewise, a foreign corporation
which sells its products to persons styled "distributing agents" in the State, for
distribution by them, is not doing business in the State so as to render it subject to
service of process therein, where the contract with these purchasers is that they
shall buy exclusively from the foreign corporation such goods as it manufactures and
shall sell them at trade prices established by it. 25

It has moreover been held that the act of a foreign corporation in engaging an
attorney to represent it in a Federal court sitting in a particular State is not doing
business within the scope of the minimum contact test. 26 With much more reason
should this doctrine apply to the mere retainer of Atty. Domingo for legal protection
against contingent acts of intellectual piracy.
In accordance with the rule that "doing business" imports only acts in furtherance of
the purposes for which a foreign corporation was organized, it is held that the mere
institution and prosecution or defense of a suit, particularly if the transaction which
is the basis of the suit took place out of the State, do not amount to the doing of
business in the State. The institution of a suit or the removal thereof is neither the
making of a contract nor the doing of business within a constitutional provision
placing foreign corporations licensed to do business in the State under the same
regulations, limitations and liabilities with respect to such acts as domestic
corporations. Merely engaging in litigation has been considered as not a sufficient
minimum contact to warrant the exercise of jurisdiction over a foreign
corporation. 27
As a consideration aside, we have perforce to comment on private respondents'
basis for arguing that petitioners are barred from maintaining suit in the Philippines.
For allegedly being foreign corporations doing business in the Philippines without a
license, private respondents repeatedly maintain in all their pleadings that
petitioners have thereby no legal personality to bring an action before Philippine
Courts. 28
Among the grounds for a motion to dismiss under the Rules of Court
are lack of legal capacity to sue 29 and that the complaint states no cause of
action. 30 Lack of legal capacity to sue means that the plaintiff is not in the exercise
of his civil rights, or does not have the necessary qualification to appear in the case,
or does not have the character or representation he claims. 31 On the other hand, a
case is dismissible for lack of personality to sue upon proof that the plaintiff is not
the real party in interest, hence grounded on failure to state a cause of action. 32 The
term "lack of capacity to sue" should not be confused with the term "lack of
personality to sue." While the former refers to a plaintiff's general disability to sue,
such as on account of minority, insanity, incompetence, lack of juridical personality
or any other general disqualifications of a party, the latter refers to the fact that the
plaintiff is not the real party in interest. Correspondingly, the first can be a ground
for a motion to dismiss based on the ground of lack of legal capacity to
sue; 33 whereas the second can be used as a ground for a motion to dismiss based
on the fact that the complaint, on the face thereof, evidently states no cause of
action. 34
Applying the above discussion to the instant petition, the ground available for
barring recourse to our courts by an unlicensed foreign corporation doing or
transacting business in the Philippines should properly be "lack of capacity to sue,"
not "lack of personality to sue." Certainly, a corporation whose legal rights have
been violated is undeniably such, if not the only, real party in interest to bring suit
thereon although, for failure to comply with the licensing requirement, it is not
capacitated to maintain any suit before our courts.
Lastly, on this point, we reiterate this Court's rejection of the common procedural
tactics of erring local companies which, when sued by unlicensed foreign
corporations not engaged in business in the Philippines, invoke the latter's supposed
lack of capacity to sue. The doctrine of lack of capacity to sue based on failure to
first acquire a local license is based on considerations of public policy. It was never

intended to favor nor insulate from suit unscrupulous establishments or nationals in

case of breach of valid obligations or violation of legal rights of unsuspecting foreign
firms or entities simply because they are not licensed to do business in the
country. 35
II
We now proceed to the main issue of the retroactive application to the present
controversy of the ruling in20th Century Fox Film Corporation vs. Court of Appeals,
et al., promulgated on August 19, 1988, 36 that for the determination of probable
cause to support the issuance of a search warrant in copyright infringement cases
involving videograms, the production of the master tape for comparison with the
allegedly pirate copies is necessary.
Petitioners assert that the issuance of a search warrant is addressed to the
discretion of the court subject to the determination of probable cause in accordance
with the procedure prescribed therefore under Sections 3 and 4 of Rule 126. As of
the time of the application for the search warrant in question, the controlling
criterion for the finding of probable cause was that enunciated in Burgos vs. Chief of
Staff 37 stating that:
Probable cause for a search warrant is defined as such facts and
circumstances which would lead a reasonably discreet and prudent man to
believe that an offense has been committed and that the objects sought in
connection with the offense are in the place sought to be searched.
According to petitioners, after complying with what the law then required, the lower
court determined that there was probable cause for the issuance of a search
warrant, and which determination in fact led to the issuance and service on
December 14, 1987 of Search Warrant No. 87-053. It is further argued that any
search warrant so issued in accordance with all applicable legal requirements is
valid, for the lower court could not possibly have been expected to apply, as the
basis for a finding of probable cause for the issuance of a search warrant in
copyright infringement cases involving videograms, a pronouncement which was not
existent at the time of such determination, on December 14, 1987, that is, the
doctrine in the 20th Century Fox case that was promulgated only on August 19,
1988, or over eight months later.
Private respondents predictably argue in support of the ruling of the Court of
Appeals sustaining the quashal of the search warrant by the lower court on the
strength of that 20th Century Fox ruling which, they claim, goes into the very
essence of probable cause. At the time of the issuance of the search warrant
involved here, although the 20th Century Fox case had not yet been decided,
Section 2, Article III of the Constitution and Section 3, Rule 126 of the 1985 Rules on
Criminal Procedure embodied the prevailing and governing law on the matter. The
ruling in 20th Century Fox was merely an application of the law on probable cause.
Hence, they posit that there was no law that was retrospectively applied, since the
law had been there all along. To refrain from applying the 20th Century Fox ruling,
which had supervened as a doctrine promulgated at the time of the resolution of
private respondents' motion for reconsideration seeking the quashal of the search
warrant for failure of the trial court to require presentation of the master tapes prior
to the issuance of the search warrant, would have constituted grave abuse of
discretion. 38

Respondent court upheld the retroactive application of the 20th Century Fox ruling
by the trial court in resolving petitioners' motion for reconsideration in favor of the
quashal of the search warrant, on this renovated thesis:
And whether this doctrine should apply retroactively, it must be noted that
in the 20th Century Fox case, the lower court quashed the earlier search
warrant it issued. On certiorari, the Supreme Court affirmed the quashal on
the ground among others that the master tapes or copyrighted films were
not presented for comparison with the purchased evidence of the video
tapes to determine whether the latter is an unauthorized reproduction of
the former.
If the lower court in the Century Fox case did not quash the warrant, it is
Our view that the Supreme Court would have invalidated the warrant just
the same considering the very strict requirement set by the Supreme Court
for the determination of "probable cause" in copyright infringement cases
as enunciated in this 20th Century Fox case. This is so because, as was
stated by the Supreme Court in the said case, the master tapes and the
pirated tapes must be presented for comparison to satisfy the requirement
of "probable cause." So it goes back to the very existence of probable
cause. . . . 39
Mindful as we are of the ramifications of the doctrine of stare decisis and the
rudiments of fair play, it is our considered view that the 20th Century Fox ruling
cannot be retroactively applied to the instant case to justify the quashal of Search
Warrant No. 87-053. Herein petitioners' consistent position that the order of the
lower court of September 5, 1988 denying therein defendants' motion to lift the
order of search warrant was properly issued, there having been satisfactory
compliance with the then prevailing standards under the law for determination of
probable cause, is indeed well taken. The lower court could not possibly have
expected more evidence from petitioners in their application for a search warrant
other than what the law and jurisprudence, then existing and judicially accepted,
required with respect to the finding of probable cause.
Article 4 of the Civil Code provides that "(l)aws shall have no retroactive effect,
unless the contrary is provided. Correlatively, Article 8 of the same Code declares
that "(j)udicial decisions applying the laws or the Constitution shall form part of the
legal system of the Philippines."
Jurisprudence, in our system of government, cannot be considered as an
independent source of law; it cannot create law. 40 While it is true that judicial
decisions which apply or interpret the Constitution or the laws are part of the legal
system of the Philippines, still they are not laws. Judicial decisions, though not laws,
are nonetheless evidence of what the laws mean, and it is for this reason that they
are part of the legal system of the Philippines. 41Judicial decisions of the Supreme
Court assume the same authority as the statute
itself. 42
Interpreting the aforequoted correlated provisions of the Civil Code and in light of
the above disquisition, this Court emphatically declared in Co vs. Court of Appeals,
et al. 43 that the principle of prospectivity applies not only to original or amendatory
statutes and administrative rulings and circulars, but also, and properly so, to
judicial decisions. Our holding in the earlier case of People vs. Jabinal 44 echoes the
rationale for this judicial declaration, viz.:

Decisions of this Court, although in themselves not laws, are nevertheless

evidence of what the laws mean, and this is the reason why under Article 8
of the New Civil Code, "Judicial decisions applying or interpreting the laws
or the Constitution shall form part of the legal system." The interpretation
upon a law by this Court constitutes, in a way, a part of the law as of the
date that the law was originally passed, since this Court's construction
merely establishes the contemporaneous legislative intent that the law thus
construed intends to effectuate. The settled rule supported by numerous
authorities is a restatement of the legal maxim "legis interpretatio legis vim
obtinet" the interpretation placed upon the written law by a competent
court has the force of law. . . . , but when a doctrine of this Court is
overruled and a different view is adopted, the new doctrine should be
applied prospectively, and should not apply to parties who had relied on the
old doctrine and acted on the faith thereof . . . . (Emphasis supplied).
This was forcefully reiterated in Spouses Benzonan vs. Court of Appeals, et
al., 45 where the Court expounded:
. . . . But while our decisions form part of the law of the land, they are also
subject to Article 4 of the Civil Code which provides that "laws shall have no
retroactive effect unless the contrary is provided." This is expressed in the
familiar legal maxim lex prospicit, non respicit, the law looks forward not
backward. The rationale against retroactivity is easy to perceive. The
retroactive application of a law usually divests rights that have already
become vested or impairs the obligations of contract and hence, is
unconstitutional (Francisco v. Certeza, 3 SCRA 565 [1961]). The same
consideration underlies our rulings giving only prospective effect to
decisions enunciating new doctrines. . . . .
The reasoning behind Senarillos vs. Hermosisima 46 that judicial interpretation of a
statute constitutes part of the law as of the date it was originally passed, since the
Court's construction merely establishes the contemporaneous legislative intent that
the interpreted law carried into effect, is all too familiar. Such judicial doctrine does
not amount to the passage of a new law but consists merely of a construction or
interpretation of a pre-existing one, and that is precisely the situation obtaining in
this case.
It is consequently clear that a judicial interpretation becomes a part of the law as of
the date that law was originally passed, subject only to the qualification that when a
doctrine of this Court is overruled and a different view is adopted, and more so when
there is a reversal thereof, the new doctrine should be applied prospectively and
should not apply to parties who relied on the old doctrine and acted in good
faith. 47 To hold otherwise would be to deprive the law of its quality of fairness and
justice then, if there is no recognition of what had transpired prior to such
adjudication. 48
There is merit in petitioners' impassioned and well-founded argumentation:
The case of 20th Century Fox Film Corporation vs. Court of Appeals, et al.,
164 SCRA 655 (August 19, 1988) (hereinafter 20th Century Fox) was
inexistent in December of 1987 when Search Warrant 87-053 was issued by
the lower court. Hence, it boggles the imagination how the lower court
could be expected to apply the formulation of 20th Century Fox in finding
probable cause when the formulation was yet non-existent.

xxx xxx xxx

In short, the lower court was convinced at that time after conducting
searching examination questions of the applicant and his witnesses that
"an offense had been committed and that the objects sought in connection
with the offense (were) in the place sought to be searched" (Burgos v. Chief
of Staff, et al., 133 SCRA 800). It is indisputable, therefore, that at the time
of the application, or on December 14, 1987, the lower court did not
commit any error nor did it fail to comply with any legal requirement for the
valid issuance of search warrant.
. . . (W)e believe that the lower court should be considered as having
followed the requirements of the law in issuing Search Warrant No. 87-053.
The search warrant is therefore valid and binding. It must be noted that
nowhere is it found in the allegations of the Respondents that the lower
court failed to apply the law as then interpreted in 1987. Hence, we find it
absurd that it is (sic) should be seen otherwise, because it is simply
impossible to have required the lower court to apply a formulation which
will only be defined six months later.
Furthermore, it is unjust and unfair to require compliance with legal and/or
doctrinal requirements which are inexistent at the time they were supposed
to have been complied with.
xxx xxx xxx
. . . If the lower court's reversal will be sustained, what encouragement can
be given to courts and litigants to respect the law and rules if they can
expect with reasonable certainty that upon the passage of a new rule, their
conduct can still be open to question? This certainly breeds instability in our
system of dispensing justice. For Petitioners who took special effort to
redress their grievances and to protect their property rights by resorting to
the remedies provided by the law, it is most unfair that fealty to the rules
and procedures then obtaining would bear but fruits of
injustice. 49
Withal, even the proposition that the prospectivity of judicial decisions imports
application thereof not only to future cases but also to cases still ongoing or not yet
final when the decision was promulgated, should not be countenanced in the jural
sphere on account of its inevitably unsettling repercussions. More to the point, it is
felt that the reasonableness of the added requirement in 20th Century Fox calling for
the production of the master tapes of the copyrighted films for determination of
probable cause in copyright infringement cases needs revisiting and clarification.
It will be recalled that the 20th Century Fox case arose from search warrant
proceedings in anticipation of the filing of a case for the unauthorized sale or renting
out of copyrighted films in videotape format in violation of Presidential Decree No.
49. It revolved around the meaning of probable cause within the context of the
constitutional provision against illegal searches and seizures, as applied to copyright
infringement cases involving videotapes.
Therein it was ruled that

The presentation of master tapes of the copyrighted films from which the
pirated films were allegedly copied, was necessary for the validity of search
warrants against those who have in their possession the pirated films. The
petitioner's argument to the effect that the presentation of the master
tapes at the time of application may not be necessary as these would be
merely evidentiary in nature and not determinative of whether or not a
probable cause exists to justify the issuance of the search warrants is not
meritorious. The court cannot presume that duplicate or copied tapes were
necessarily reproduced from master tapes that it owns.
The application for search warrants was directed against video tape outlets
which allegedly were engaged in the unauthorized sale and renting out of
copyrighted films belonging to the petitioner pursuant to P.D. 49.
The essence of a copyright infringement is the similarity or at least
substantial similarity of the purported pirated works to the copyrighted
work. Hence, the applicant must present to the court the copyrighted films
to compare them with the purchased evidence of the video tapes allegedly
pirated to determine whether the latter is an unauthorized reproduction of
the former. This linkage of the copyrighted films to the pirated films must
be established to satisfy the requirements of probable cause. Mere
allegations as to the existence of the copyrighted films cannot serve as
basis for the issuance of a search warrant.
For a closer and more perspicuous appreciation of the factual antecedents of 20th
Century Fox, the pertinent portions of the decision therein are quoted hereunder, to
wit:
In the instant case, the lower court lifted the three questioned search
warrants against the private respondents on the ground that it acted on the
application for the issuance of the said search warrants and granted it on
the misrepresentations of applicant NBI and its witnesses that infringement
of copyright or a piracy of a particular film have been committed. Thus the
lower court stated in its questioned order dated January 2, 1986:
According to the movant, all three witnesses during the
proceedings in the application for the three search
warrants testified of their own personal knowledge. Yet,
Atty. Albino Reyes of the NBI stated that the counsel or
representative of the Twentieth Century Fox Corporation
will testify on the video cassettes that were pirated, so
that he did not have personal knowledge of the alleged
piracy. The witness Bacani also said that the video
cassettes were pirated without stating the manner it was
pirated and that it was Atty. Domingo that has knowledge
of that fact.
On the part of Atty. Domingo, he said that the re-taping of
the allegedly pirated tapes was from master tapes
allegedly belonging to the Twentieth Century Fox,
because, according to him it is of his personal knowledge.
At the hearing of the Motion for Reconsideration, Senior
NBI Agent Atty. Albino Reyes testified that when the

complaint for infringement was brought to the NBI, the

master tapes of the allegedly pirated tapes were shown
to him and he made comparisons of the tapes with those
purchased by their man Bacani. Why the master tapes or
at least the film reels of the allegedly pirated tapes were
not shown to the Court during the application gives some
misgivings as to the truth of that bare statement of the
NBI agent on the witness stand.
Again as the application and search proceedings is a
prelude to the filing of criminal cases under PD 49, the
copyright infringement law, and although what is required
for the issuance thereof is merely the presence of
probable cause, that probable cause must be satisfactory
to the Court, for it is a time-honored precept that
proceedings to put a man to task as an offender under
our laws should be interpreted in strictissimi juris against
the government and liberally in favor of the alleged
offender.
xxx xxx xxx
This doctrine has never been overturned, and as a matter
of fact it had been enshrined in the Bill of Rights in our
1973 Constitution.
So that lacking in persuasive effect, the allegation that
master tapes were viewed by the NBI and were compared
to the purchased and seized video tapes from the
respondents' establishments, it should be dismissed as
not supported by competent evidence and for that matter
the probable cause hovers in that grey debatable twilight
zone between black and white resolvable in favor of
respondents herein.
But the glaring fact is that "Cocoon," the first video tape
mentioned in the search warrant, was not even duly
registered or copyrighted in the Philippines. (Annex C of
Opposition p. 152 record.) So, that lacking in the requisite
presentation to the Court of an alleged master tape for
purposes of comparison with the purchased evidence of
the video tapes allegedly pirated and those seized from
respondents, there was no way to determine whether
there really was piracy, or copying of the film of the
complainant Twentieth Century Fox.
xxx xxx xxx
The lower court, therefore, lifted the three (3) questioned search warrants
in the absence of probable cause that the private respondents violated
P.D. 49. As found out by the court, the NBI agents who acted as witnesses
did not have personal knowledge of the subject matter of their testimony
which was the alleged commission of the offense by the private
respondents. Only the petitioner's counsel who was also a witness during

the application for the issuance of the search warrants stated that he had
personal knowledge that the confiscated tapes owned by the private
respondents were pirated tapes taken from master tapes belonging to the
petitioner. However, the lower court did not give much credence to his
testimony in view of the fact that the master tapes of the allegedly pirated
tapes were not shown to the court during the application (Emphasis ours).
The italicized passages readily expose the reason why the trial court therein required
the presentation of the master tapes of the allegedly pirated films in order to
convince itself of the existence of probable cause under the factual milieu peculiar
to that case. In the case at bar, respondent appellate court itself observed:
We feel that the rationale behind the aforequoted doctrine is that the
pirated copies as well as the master tapes, unlike the other types of
personal properties which may be seized, were available for presentation to
the court at the time of the application for a search warrant to determine
the existence of the linkage of the copyrighted films with the pirated ones.
Thus, there is no reason not the present them (Emphasis supplied ). 50
In fine, the supposed pronunciamento in said case regarding the necessity for the
presentation of the master tapes of the copyrighted films for the validity of search
warrants should at most be understood to merely serve as a guidepost in
determining the existence of probable cause in copyright infringement cases where
there is doubt as to the true nexus between the master tape and the pirated copies.
An objective and careful reading of the decision in said case could lead to no other
conclusion than that said directive was hardly intended to be a sweeping and
inflexible requirement in all or similar copyright infringement cases. Judicial dicta
should always be construed within the factual matrix of their parturition, otherwise a
careless interpretation thereof could unfairly fault the writer with the vice of
overstatement and the reader with the fallacy of undue generalization.
In the case at bar, NBI Senior Agent Lauro C. Reyes who filed the application for
search warrant with the lower court following a formal complaint lodged by
petitioners, judging from his affidavit 51 and his deposition,52 did testify on matters
within his personal knowledge based on said complaint of petitioners as well as his
own investigation and surveillance of the private respondents' video rental shop.
Likewise, Atty. Rico V. Domingo, in his capacity as attorney-in-fact, stated in his
affidavit 53 and further expounded in his deposition 54 that he personally knew of the
fact that private respondents had never been authorized by his clients to reproduce,
lease and possess for the purpose of selling any of the copyrighted films.
Both testimonies of Agent Reyes and Atty. Domingo were corroborated by Rene C.
Baltazar, a private researcher retained by Motion Pictures Association of America,
Inc. (MPAA, Inc.), who was likewise presented as a witness during the search warrant
proceedings. 55 The records clearly reflect that the testimonies of the abovenamed
witnesses were straightforward and stemmed from matters within their personal
knowledge. They displayed none of the ambivalence and uncertainty that the
witnesses in the 20th Century Fox case exhibited. This categorical forthrightness in
their statements, among others, was what initially and correctly convinced the trial
court to make a finding of the existence of probable cause.
There is no originality in the argument of private respondents against the validity of
the search warrant, obviously borrowed from 20th Century Fox, that petitioners'
witnesses NBI Agent Lauro C. Reyes, Atty. Rico V. Domingo and Rene C. Baltazar

did not have personal knowledge of the subject matter of their respective
testimonies and that said witnesses' claim that the video tapes were pirated, without
stating the manner by which these were pirated, is a conclusion of fact without
basis. 56 The difference, it must be pointed out, is that the records in the present
case reveal that (1) there is no allegation of misrepresentation, much less a finding
thereof by the lower court, on the part of petitioners' witnesses; (2) there is no
denial on the part of private respondents that the tapes seized were illegitimate
copies of the copyrighted ones not have they shown that they were given any
authority by petitioners to copy, sell, lease, distribute or circulate, or at least, to
offer for sale, lease, distribution or circulation the said video tapes; and (3) a
discreet but extensive surveillance of the suspected area was undertaken by
petitioners' witnesses sufficient to enable them to execute trustworthy affidavits and
depositions regarding matters discovered in the course thereof and of which they
have personal knowledge.
It is evidently incorrect to suggest, as the ruling in 20th Century Fox may appear to
do, that in copyright infringement cases, the presentation of master tapes of the
copyrighted films is always necessary to meet the requirement of probable cause
and that, in the absence thereof, there can be no finding of probable cause for the
issuance of a search warrant. It is true that such master tapes are object evidence,
with the merit that in this class of evidence the ascertainment of the controverted
fact is made through demonstrations involving the direct use of the senses of the
presiding magistrate. 57 Such auxiliary procedure, however, does not rule out the
use of testimonial or documentary evidence, depositions, admissions or other
classes of evidence tending to prove the factum probandum, 58 especially where the
production in court of object evidence would result in delay, inconvenience or
expenses out of proportion to its evidentiary value. 59
Of course, as a general rule, constitutional and statutory provisions relating to
search warrants prohibit their issuance except on a showing of probable cause,
supported by oath or affirmation. These provisions prevent the issuance of warrants
on loose, vague, or doubtful bases of fact, and emphasize the purpose to protect
against all general searches. 60 Indeed, Article III of our Constitution mandates in
Sec. 2 thereof that no search warrant shall issue except upon probable cause to be
determined personally by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly describing the
place to be searched and the things to be seized; and Sec. 3 thereof provides that
any evidence obtained in violation of the preceding section shall be inadmissible for
any purpose in any proceeding.
These constitutional strictures are implemented by the following provisions of Rule
126 of the Rules of Court:
Sec. 3. Requisites for issuing search warrant. A search warrant shall not
issue but upon probable cause in connection with one specific offense to be
determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the things to be seized.
Sec. 4. Examination of complainant; record. The judge must, before
issuing the warrant, personally examine in the form of searching questions
and answers, in writing and under oath the complainant and any witnesses
he may produce on facts personally known to them and attach to the record
their sworn statements together with any affidavits submitted.

Sec. 5. Issuance and form of search warrant. If the judge is thereupon

satisfied of the existence of facts upon which the application is based, or
that there is probable cause to believe that they exist, he must issue the
warrant, which must be substantially in the form prescribed by these Rules.
The constitutional and statutory provisions of various jurisdictions requiring a
showing of probable cause before a search warrant can be issued are mandatory
and must be complied with, and such a showing has been held to be an unqualified
condition precedent to the issuance of a warrant. A search warrant not based on
probable cause is a nullity, or is void, and the issuance thereof is, in legal
contemplation, arbitrary. 61 It behooves us, then, to review the concept of probable
cause, firstly, from representative holdings in the American jurisdiction from which
we patterned our doctrines on the matter.
Although the term "probable cause" has been said to have a well-defined meaning in
the law, the term is exceedingly difficult to define, in this case, with any degree of
precision; indeed, no definition of it which would justify the issuance of a search
warrant can be formulated which would cover every state of facts which might arise,
and no formula or standard, or hard and fast rule, may be laid down which may be
applied to the facts of every situation. 62 As to what acts constitute probable cause
seem incapable of definition. 63 There is, of necessity, no exact test. 64
At best, the term "probable cause" has been understood to mean a reasonable
ground of suspicion, supported by circumstances sufficiently strong in themselves to
warrant a cautious man in the belief that the person accused is guilty of the offense
with which he is charged; 65 or the existence of such facts and circumstances as
would excite an honest belief in a reasonable mind acting on all the facts and
circumstances within the knowledge of the magistrate that the charge made by the
applicant for the warrant is true. 66
Probable cause does not mean actual and positive cause, nor does it import absolute
certainty. The determination of the existence of probable cause is not concerned
with the question of whether the offense charged has been or is being committed in
fact, or whether the accused is guilty or innocent, but only whether the affiant has
reasonable grounds for his belief. 67 The requirement is less than certainty or proof ,
but more than suspicion or possibility. 68
In Philippine jurisprudence, probable cause has been uniformly defined as such facts
and circumstances which would lead a reasonable, discreet and prudent man to
believe that an offense has been committed, and that the objects sought in
connection with the offense are in the place sought to be searched. 69 It being the
duty of the issuing officer to issue, or refuse to issue, the warrant as soon as
practicable after the application therefor is filed, 70 the facts warranting the
conclusion of probable cause must be assessed at the time of such judicial
determination by necessarily using legal standards then set forth in law and
jurisprudence, and not those that have yet to be crafted thereafter.
As already stated, the definition of probable cause enunciated
in Burgos, Sr. vs. Chief of Staff, et al., supra,vis-a-vis the provisions of Sections 3 and
4 of Rule 126, were the prevailing and controlling legal standards, as they continue
to be, by which a finding of probable cause is tested. Since the propriety of the
issuance of a search warrant is to be determined at the time of the application
therefor, which in turn must not be too remote in time from the occurrence of the
offense alleged to have been committed, the issuing judge, in determining the

existence of probable cause, can and should logically look to the touchstones in the
laws theretofore enacted and the decisions already promulgated at the time, and not
to those which had not yet even been conceived or formulated.
It is worth noting that neither the Constitution nor the Rules of Court attempt to
define probable cause, obviously for the purpose of leaving such matter to the
court's discretion within the particular facts of each case. Although the Constitution
prohibits the issuance of a search warrant in the absence of probable cause, such
constitutional inhibition does not command the legislature to establish a definition or
formula for determining what shall constitute probable cause. 71 Thus, Congress,
despite its broad authority to fashion standards of reasonableness for searches and
seizures, 72 does not venture to make such a definition or standard formulation of
probable cause, nor categorize what facts and circumstances make up the same,
much less limit the determination thereof to and within the circumscription of a
particular class of evidence, all in deference to judicial discretion and probity. 73
Accordingly, to restrict the exercise of discretion by a judge by adding a particular
requirement (the presentation of master tapes, as intimated by 20th Century Fox)
not provided nor implied in the law for a finding of probable cause is beyond the
realm of judicial competence or statesmanship. It serves no purpose but to stultify
and constrict the judicious exercise of a court's prerogatives and to denigrate the
judicial duty of determining the existence of probable cause to a mere ministerial or
mechanical function. There is, to repeat, no law or rule which requires that the
existence of probable cause is or should be determined solely by a specific kind of
evidence. Surely, this could not have been contemplated by the framers of the
Constitution, and we do not believe that the Court intended the statement in 20th
Century Fox regarding master tapes as the dictum for all seasons and reasons in
infringement cases.
Turning now to the case at bar, it can be gleaned from the records that the lower
court followed the prescribed procedure for the issuance of a search warrant: (1) the
examination under oath or affirmation of the complainant and his witnesses, with
them particularly describing the place to be searched and the things to be seized;
(2) an examination personally conducted by the judge in the form of searching
questions and answers, in writing and under oath of the complainant and witnesses
on facts personally known to them; and, (3) the taking of sworn statements,
together with the affidavits submitted, which were duly attached to the records.
Thereafter, the court a quo made the following factual findings leading to the
issuance of the search warrant now subject of this controversy:
In the instant case, the following facts have been established: (1)
copyrighted video tapes bearing titles enumerated in Search Warrant No.
87-053 were being sold, leased, distributed or circulated, or offered for sale,
lease, distribution, or transferred or caused to be transferred by defendants
at their video outlets, without the written consent of the private
complainants or their assignee; (2) recovered or confiscated from
defendants' possession were video tapes containing copyrighted motion
picture films without the authority of the complainant; (3) the video tapes
originated from spurious or unauthorized persons; and (4) said video tapes
were exact reproductions of the films listed in the search warrant whose
copyrights or distribution rights were owned by complainants.

The basis of these facts are the affidavits and depositions of NBI Senior
Agent Lauro C. Reyes, Atty. Rico V. Domingo, and Rene C. Baltazar. Motion
Pictures Association of America, Inc. (MPAA) thru their counsel, Atty. Rico V.
Domingo, filed a complaint with the National Bureau of Investigation
against certain video establishments one of which is defendant, for
violation of PD No. 49 as amended by PD No. 1988. Atty. Lauro C. Reyes led
a team to conduct discreet surveillance operations on said video
establishments. Per information earlier gathered by Atty. Domingo,
defendants were engaged in the illegal sale, rental, distribution, circulation
or public exhibition of copyrighted films of MPAA without its written
authority or its members. Knowing that defendant Sunshine Home Video
and its proprietor, Mr. Danilo Pelindario, were not authorized by MPAA to
reproduce, lease, and possess for the purpose of selling any of its
copyrighted motion pictures, instructed his researcher, Mr. Rene Baltazar to
rent two video cassettes from said defendants on October 21, 1987. Rene
C. Baltazar proceeded to Sunshine Home Video and rented tapes containing
Little Shop of Horror. He was issued rental slip No. 26362 dated October 21,
1987 for P10.00 with a deposit of P100.00. Again, on December 11, 1987,
the returned to Sunshine Home Video and rented Robocop with rental slip
No. 25271 also for P10.00: On the basis of the complaint of MPAA thru
counsel, Atty. Lauro C. Reyes personally went to Sunshine Home Video at
No. 6 Mayfair Center, Magallanes Commercial Center, Makati. His last visit
was on December 7, 1987. There, he found the video outlet renting,
leasing, distributing video cassette tapes whose titles were copyrighted and
without the authority of MPAA.
Given these facts, a probable cause exists. . . . 74
The lower court subsequently executed a volte-face, despite its prior detailed and
substantiated findings, by stating in its order of November 22, 1988 denying
petitioners' motion for reconsideration and quashing the search warrant that
. . . The two (2) cases have a common factual milieu; both involve alleged
pirated copyrighted films of private complainants which were found in the
possession or control of the defendants. Hence, the necessity of the
presentation of the master tapes from which the pirated films were
allegedly copied is necessary in the instant case, to establish the existence
of probable cause. 75
Being based solely on an unjustifiable and improper retroactive application of the
master tape requirement generated by 20th Century Fox upon a factual situation
completely different from that in the case at bar, and without anything more, this
later order clearly defies elemental fair play and is a gross reversible error. In fact,
this observation of the Court in La Chemise Lacoste, S.A. vs. Fernandez, et al., supra,
may just as easily apply to the present case:
A review of the grounds invoked . . . in his motion to quash the search
warrants reveals the fact that they are not appropriate for quashing a
warrant. They are matters of defense which should be ventilated during the
trial on the merits of the case. . . .
As correctly pointed out by petitioners, a blind espousal of the requisite of
presentation of the master tapes in copyright infringement cases, as the prime
determinant of probable cause, is too exacting and impracticable a requirement to

be complied with in a search warrant application which, it must not be overlooked, is

only an ancillary proceeding. Further, on realistic considerations, a strict application
of said requirement militates against the elements of secrecy and speed which
underlie covert investigative and surveillance operations in police enforcement
campaigns against all forms of criminality, considering that the master tapes of a
motion picture required to be presented before the court consists of several reels
contained in circular steel casings which, because of their bulk, will definitely draw
attention, unlike diminutive objects like video tapes which can be easily
concealed. 76 With hundreds of titles being pirated, this onerous and tedious
imposition would be multiplied a hundredfold by judicial fiat, discouraging and
preventing legal recourses in foreign jurisdictions.
Given the present international awareness and furor over violations in large scale of
intellectual property rights, calling for transnational sanctions, it bears calling to
mind the Court's admonition also in La Chemise Lacoste, supra, that
. . . . Judges all over the country are well advised to remember that court
processes should not be used as instruments to, unwittingly or otherwise,
aid counterfeiters and intellectual pirates, tie the hands of the law as it
seeks to protect the Filipino consuming public and frustrate executive and
administrative implementation of solemn commitments pursuant to
international conventions and treaties.
III
The amendment to Section 56 of Presidential Decree No. 49 by Presidential Decree
No. 1987, 77 which should here be publicized judicially, brought about the revision of
its penalty structure and enumerated additional acts considered violative of said
decree on intellectual property, namely, (1) directly or indirectly transferring or
causing to be transferred any sound recording or motion picture or other audiovisual works so recorded with intent to sell, lease, publicly exhibit or cause to be
sold, leased or publicly exhibited, or to use or cause to be used for profit such
articles on which sounds, motion pictures, or other audio-visual works are so
transferred without the written consent of the owner or his assignee; (2) selling,
leasing, distributing, circulating, publicly exhibiting, or offering for sale, lease,
distribution, or possessing for the purpose of sale, lease, distribution, circulation or
public exhibition any of the abovementioned articles, without the written consent of
the owner or his assignee; and, (3) directly or indirectly offering or making available
for a fee, rental, or any other form of compensation any equipment, machinery,
paraphernalia or any material with the knowledge that such equipment, machinery,
paraphernalia or material will be used by another to reproduce, without the consent
of the owner, any phonograph record, disc, wire, tape, film or other article on which
sounds, motion pictures or other audio-visual recordings may be transferred, and
which provide distinct bases for criminal prosecution, being crimes independently
punishable under Presidential Decree No. 49, as amended, aside from the act of
infringing or aiding or abetting such infringement under Section 29.
The trial court's finding that private respondents committed acts in blatant
transgression of Presidential Decree No. 49 all the more bolsters its findings of
probable cause, which determination can be reached even in the absence of master
tapes by the judge in the exercise of sound discretion. The executive concern and
resolve expressed in the foregoing amendments to the decree for the protection of
intellectual property rights should be matched by corresponding judicial vigilance
and activism, instead of the apathy of submitting to technicalities in the face of
ample evidence of guilt.

The essence of intellectual piracy should be essayed in conceptual terms in order to

underscore its gravity by an appropriate understanding thereof. Infringement of a
copyright is a trespass on a private domain owned and occupied by the owner of the
copyright, and, therefore, protected by law, and infringement of copyright, or piracy,
which is a synonymous term in this connection, consists in the doing by any person,
without the consent of the owner of the copyright, of anything the sole right to do
which is conferred by statute on the owner of the copyright. 78
A copy of a piracy is an infringement of the original, and it is no defense that the
pirate, in such cases, did not know what works he was indirectly copying, or did not
know whether or not he was infringing any copyright; he at least knew that what he
was copying was not his, and he copied at his peril. In determining the question of
infringement, the amount of matter copied from the copyrighted work is an
important consideration. To constitute infringement, it is not necessary that the
whole or even a large portion of the work shall have been copied. If so much is taken
that the value of the original is sensibly diminished, or the labors of the original
author are substantially and to an injurious extent appropriated by another, that is
sufficient in point of law to constitute a
piracy. 79 The question of whether there has been an actionable infringement of a
literary, musical, or artistic work in motion pictures, radio or television being one of
fact, 80 it should properly be determined during the trial. That is the stage calling for
conclusive or preponderating evidence, and not the summary proceeding for the
issuance of a search warrant wherein both lower courts erroneously require the
master tapes.
In disregarding private respondent's argument that Search Warrant No. 87-053 is a
general warrant, the lower court observed that "it was worded in a manner that the
enumerated seizable items bear direct relation to the offense of violation of Sec. 56
of PD 49 as amended. It authorized only the seizur(e) of articles used or intended to
be used in the unlawful sale, lease and other unconcerted acts in violation of PD 49
as amended. . . . 81
On this point, Bache and Co., (Phil.), Inc., et al. vs. Ruiz, et al., 82 instructs and
enlightens:
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances will
ordinarily allow (People vs. Rubio, 57 Phil. 384); or when the description
expresses a conclusion of fact not of law by which the warrant officer
may be guided in making the search and seizure (idem., dissent of Abad
Santos, J.,); or when the things described are limited to those which bear
direct relation to the offense for which the warrant is being issued (Sec 2,
Rule 126, Revised Rules of Court). . . . If the articles desired to be seized
have any direct relation to an offense committed, the applicant must
necessarily have some evidence, other than those articles, to prove the
said offense; and the articles subject of search and seizure should come in
handy merely to strengthen such evidence. . . .
On private respondents' averment that the search warrant was made applicable to
more than one specific offense on the ground that there are as many offenses of
infringement as there are rights protected and, therefore, to issue one search
warrant for all the movie titles allegedly pirated violates the rule that a search
warrant must be issued only in connection with one specific offense, the lower court
said:

. . . . As the face of the search warrant itself indicates, it was issued for
violation of Section 56, PD 49 as amended only. The specifications therein
(in Annex A) merely refer to the titles of the copyrighted motion
pictures/films belonging to private complainants which defendants were in
control/possession for sale, lease, distribution or public exhibition in
contravention of Sec. 56, PD 49 as amended. 83
That there were several counts of the offense of copyright infringement and the
search warrant uncovered several contraband items in the form of pirated video
tapes is not to be confused with the number of offenses charged. The search warrant
herein issued does not violate the one-specific-offense rule.
It is pointless for private respondents to insist on compliance with the registration
and deposit requirements under Presidential Decree No. 49 as prerequisites for
invoking the court's protective mantle in copyright infringement cases. As explained
by the court below:
Defendants-movants contend that PD 49 as amended covers only
producers who have complied with the requirements of deposit and notice
(in other words registration) under Sections 49 and 50 thereof. Absent such
registration, as in this case, there was no right created, hence, no
infringement under PD 49 as amended. This is not well-taken.
As correctly pointed out by private complainants-oppositors, the
Department of Justice has resolved this legal question as far back as
December 12, 1978 in its Opinion No. 191 of the then Secretary of Justice
Vicente Abad Santos which stated that Sections 26 and 50 do not apply to
cinematographic works and PD No. 49 "had done away with the registration
and deposit of cinematographic works" and that "even without prior
registration and deposit of a work which may be entitled to protection
under the Decree, the creator can file action for infringement of its rights".
He cannot demand, however, payment of damages arising from
infringement. The same opinion stressed that "the requirements of
registration and deposit are thus retained under the Decree, not as
conditions for the acquisition of copyright and other rights, but as
prerequisites to a suit for damages". The statutory interpretation of the
Executive Branch being correct, is entitled (to) weight and respect.
xxx xxx xxx
Defendants-movants maintain that complainant and his witnesses led the
Court to believe that a crime existed when in fact there was none. This is
wrong. As earlier discussed, PD 49 as amended, does not require
registration and deposit for a creator to be able to file an action for
infringement of his rights. These conditions are merely pre-requisites to an
action for damages. So, as long as the proscribed acts are shown to exist,
an action for infringement may be initiated. 84
Accordingly, the certifications 85 from the Copyright Section of the National Library,
presented as evidence by private respondents to show non-registration of some of
the films of petitioners, assume no evidentiary weight or significance whatsoever.

Furthermore, a closer review of Presidential Decree No. 49 reveals that even with
respect to works which are required under Section 26 thereof to be registered and
with copies to deposited with the National Library, such as books, including
composite and cyclopedic works, manuscripts, directories and gazetteers; and
periodicals, including pamphlets and newspapers; lectures, sermons, addresses,
dissertations prepared for oral delivery; and letters, the failure to comply with said
requirements does not deprive the copyright owner of the right to sue for
infringement. Such non-compliance merely limits the remedies available to him and
subjects him to the corresponding sanction.
The reason for this is expressed in Section 2 of the decree which prefaces its
enumeration of copyrightable works with the explicit statement that "the rights
granted under this Decree shall, from the moment of creation, subsist with respect
to any of the following classes of works." This means that under the present state of
the law, the copyright for a work is acquired by an intellectual creator from the
moment of creation even in the absence of registration and deposit. As has been
authoritatively clarified:
The registration and deposit of two complete copies or reproductions of the
work with the National Library within three weeks after the first public
dissemination or performance of the work, as provided for in Section 26
(P.D. No. 49, as amended), is not for the purpose of securing a copyright of
the work, but rather to avoid the penalty for non-compliance of the deposit
of said two copies and in order to recover damages in an infringement
suit. 86
One distressing observation. This case has been fought on the basis of, and its
resolution long delayed by resort to, technicalities to a virtually abusive extent by
private respondents, without so much as an attempt to adduce any credible
evidence showing that they conduct their business legitimately and fairly. The fact
that private respondents could not show proof of their authority or that there was
consent from the copyright owners for them to sell, lease, distribute or circulate
petitioners' copyrighted films immeasurably bolsters the lower court's initial finding
of probable cause. That private respondents are licensed by the Videogram
Regulatory Board does not insulate them from criminal and civil liability for their
unlawful business practices. What is more deplorable is that the reprehensible acts
of some unscrupulous characters have stigmatized the Philippines with an unsavory
reputation as a hub for intellectual piracy in this part of the globe, formerly in the
records of the General Agreement on Tariffs and Trade and, now, of the World Trade
Organization. Such acts must not be glossed over but should be denounced and
repressed lest the Philippines become an international pariah in the global
intellectual community.
WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals,
and necessarily inclusive of the order of the lower court dated November 22, 1988,
are hereby REVERSED and SET ASIDE. The order of the court a quo of September 5,
1988 upholding the validity of Search Warrant No. 87-053 is hereby REINSTATED,
and said court is DIRECTED to take and expeditiously proceed with such appropriate
proceedings as may be called for in this case. Treble costs are further assessed
against private respondents.
SO ORDERED.

3. CARGILL, INC., vs. INTRA STRATA ASSURANCE CORPORATION

On 23 November 1994, the trial court rendered a decision, the dispositive portion of
which reads:

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 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.

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.
The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack
of merit.
SO ORDERED.11
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 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
We find the petition meritorious.
Doing Business in the Philippines and Capacity to Sue

The principal issue in this case is whether petitioner, an unlicensed foreign

corporation, has legal capacity to sue before Philippine courts. Under Article 123 13 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)

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

This is also the exact definition provided under Article 44 of the Omnibus
Investments Code of 1987.

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

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:

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.

[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

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 from the
Philippine government and allegedly paid for it in full.

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

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

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.

4. STEELCASE, INC. vs. DESIGN INTERNATIONAL SELECTIONS, INC.

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
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 end-user 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 Complaint 8 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.
11

In his Order 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 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 twelve-year period that DISI had been distributing Steelcase
products in the Philippines.
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.
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.
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 rule that an unlicensed foreign corporations doing business in the Philippine do
not have the capacity to sue before the local courts is well-established. Section 133
of the Corporation Code of the Philippines explicitly states:

The issues to be resolved in this case are:

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.

(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.

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 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]
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.

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 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.
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.
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
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 Appeals 22 where it was
written:
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 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
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.

Amended Complaint is hereby ordered REINSTATED and the case is REMANDED to

the RTC for appropriate action.

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.

SO ORDERED.

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 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)
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
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 all-encompassing 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.
WHEREFORE, the March 31, 2005 Decision of the Court of Appeals and its March
23, 2006 Resolution are herebyREVERSED and SET ASIDE. The dismissal order of
the Regional Trial Court dated November 15, 1999 is hereby set aside. Steelcases

5. MERRILL LYNCH FUTURES, INC. vs. HON. COURT OF APPEALS, and the
SPOUSES PEDRO M. LARA and ELISA G. LARA
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
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."
In its complaint ML FUTURES alleged the following:
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.;
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');

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.'"
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:
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 court or administrative
agency of the Philippines;" and

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;

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

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

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, CAG.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.:
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.
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 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., 20in 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.
(14C.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.

6. ANTAM CONSOLIDATED, INC vs. COURT OF APPEALS

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 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.
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 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.
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 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."
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.
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.

7. B. VAN ZUIDEN BROS., LTD. vs. GTVL MANUFACTURING INDUSTRIES, INC.

and refuse, to pay the overdue amount of U.S.$32,088.02 [inclusive of

interest].4

The Case
1

Before the Court is a petition for review of the 18 April 2001 Decision of the Court
of Appeals in CA-G.R. CV No. 66236. The Court of Appeals affirmed the Order 3 of the
Regional Trial Court, Branch 258, Paraaque City (trial court) dismissing the
complaint for sum of money filed by B. Van Zuiden Bros., Ltd. (petitioner) against
GTVL Manufacturing Industries, Inc. (respondent).

Instead of filing an answer, respondent filed a Motion to Dismiss 5 on the ground that
petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing
business in the Philippines without securing the required license. Accordingly,
petitioner cannot sue before Philippine courts.
After an exchange of several pleadings6 between the parties, the trial court issued
an Order on 10 November 1999 dismissing the complaint.

The Facts
On 13 July 1999, petitioner filed a complaint for sum of money against respondent,
docketed as Civil Case No. 99-0249. The pertinent portions of the complaint read:

On appeal, the Court of Appeals sustained the trial courts dismissal of the
complaint.
Hence, this petition.

1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong

Kong. x x x ZUIDEN is not engaged in business in the Philippines, but is
suing before the Philippine Courts, for the reasons hereinafter stated.
xxxx
3. ZUIDEN is engaged in the importation and exportation of several
products, including lace products.
4. On several occasions, GTVL purchased lace products from [ZUIDEN].
5. The procedure for these purchases, as per the instructions of GTVL, was
that ZUIDEN delivers the products purchased by GTVL, to a certain Hong
Kong corporation, known as Kenzar Ltd. (KENZAR), x x x and the products
are then considered as sold, upon receipt by KENZAR of the goods
purchased by GTVL.
KENZAR had the obligation to deliver the products to the Philippines and/or
to follow whatever instructions GTVL had on the matter.
Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in
Hong Kong, the transaction is concluded; and GTVL became obligated to
pay the agreed purchase price.
xxxx
7. However, commencing October 31, 1994 up to the present, GTVL has
failed and refused to pay the agreed purchase price for several deliveries
ordered by it and delivered by ZUIDEN, as above-mentioned.
xxxx
9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or
admissions of liability, GTVL has failed and refused, and continues to fail

The Court of Appeals Ruling

In affirming the dismissal of the complaint, the Court of Appeals relied on Eriks Pte.,
Ltd. v. Court of Appeals.7 In that case, Eriks, an unlicensed foreign corporation,
sought to collect US$41,939.63 from a Filipino businessman for goods which he
purchased and received on several occasions from January to May 1989. The
transfers of goods took place in Singapore, for the Filipinos account, F.O.B.
Singapore, with a 90-day credit term. Since the transactions involved were not
isolated, this Court found Eriks to be doing business in the Philippines. Hence, this
Court upheld the dismissal of the complaint on the ground that Eriks has no capacity
to sue.
The Court of Appeals noted that in Eriks, while the deliveries of the goods were
perfected in Singapore, this Court still found Eriks to be engaged in business in the
Philippines. Thus, the Court of Appeals concluded that the place of delivery of the
goods (or the place where the transaction took place) is not material in determining
whether a foreign corporation is doing business in the Philippines. The Court of
Appeals held that what is material are the proponents to the transaction, as well as
the parties to be benefited and obligated by the transaction.
In this case, the Court of Appeals found that the parties entered into a contract of
sale whereby petitioner sold lace products to respondent in a series of transactions.
While petitioner delivered the goods in Hong Kong to Kenzar, Ltd. (Kenzar), another
Hong Kong company, the party with whom petitioner transacted was actually
respondent, a Philippine corporation, and not Kenzar. The Court of Appeals believed
Kenzar is merely a shipping company. The Court of Appeals concluded that the
delivery of the goods in Hong Kong did not exempt petitioner from being considered
as doing business in the Philippines.
The Issue
The sole issue in this case is whether petitioner, an unlicensed foreign corporation,
has legal capacity to sue before Philippine courts. The resolution of this issue
depends on whether petitioner is doing business in the Philippines.
The Ruling of the Court

The petition is meritorious.

of commercial dealings, the perfection and consummation of these transactions

were done outside the Philippines.8

Section 133 of the Corporation Code provides:

Doing business without 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 law is clear. An unlicensed foreign corporation doing business in the Philippines
cannot sue before Philippine courts. On the other hand, an unlicensed foreign
corporation not doing business in the Philippines can sue before Philippine courts.
In the present controversy, petitioner is a foreign corporation which claims that it is
not doing business in the Philippines. As such, it needs no license to institute a
collection suit against respondent before Philippine courts.
Respondent argues otherwise. Respondent insists that petitioner is doing business in
the Philippines without the required license. Hence, petitioner has no legal capacity
to sue before Philippine courts.
Under Section 3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign Investments
Act of 1991," the phrase "doing business" includes:
x x x 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.
The series of transactions between petitioner and respondent cannot be classified as
"doing business" in the Philippines under Section 3(d) of RA 7042. An essential
condition to be considered as "doing business" in the Philippines is the actual
performance of specific commercial acts within the territory of the Philippines for the
plain reason that the Philippines has no jurisdiction over commercial acts performed
in foreign territories. Here, there is no showing that petitioner performed within the
Philippine territory the specific acts of doing business mentioned in Section 3(d) of
RA 7042. Petitioner did not also open an office here in the Philippines, appoint a
representative or distributor, or manage, supervise or control a local business. While
petitioner and respondent entered into a series of transactions implying a continuity

In its complaint, petitioner alleged that it is engaged in the importation and

exportation of several products, including lace products. Petitioner asserted that on
several occasions, respondent purchased lace products from it. Petitioner also
claimed that respondent instructed it to deliver the purchased goods to Kenzar,
which is a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the
goods, the products were considered sold. Kenzar, in turn, had the obligation to
deliver the lace products to the Philippines. In other words, the sale of lace products
was consummated in Hong Kong.
As earlier stated, the series of transactions between petitioner and respondent
transpired and were consummated in Hong Kong. 9 We also find no single activity
which petitioner performed here in the Philippines pursuant to its purpose and object
as a business organization.10 Moreover, petitioners desire to do business within the
Philippines is not discernible from the allegations of the complaint or from its
attachments. Therefore, there is no basis for ruling that petitioner is doing business
in the Philippines.
In Eriks, respondent therein alleged the existence of a distributorship agreement
between him and the foreign corporation. If duly established, such distributorship
agreement could support respondents claim that petitioner was indeed doing
business in the Philippines. Here, there is no such or similar agreement between
petitioner and respondent.
We disagree with the Court of Appeals ruling that the proponents to the transaction
determine whether a foreign corporation is doing business in the Philippines,
regardless of the place of delivery or place where the transaction took place. To
accede to such theory makes it possible to classify, for instance, a series of
transactions between a Filipino in the United States and an American company
based in the United States as "doing business in the Philippines," even when these
transactions are negotiated and consummated only within the United States.
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 acquire jurisdiction over the
foreign exporter who has not 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 a deleterious effect not only on Philippine exports, but also
on global trade.

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 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.
Considering that petitioner is not doing business in the Philippines, it does not need
a license in order to initiate and maintain a collection suit against respondent for the
unpaid balance of respondents purchases.
WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 18 April
2001 of the Court of Appeals in CA-G.R. CV No. 66236. No costs.
SO ORDERED
8. GEORG GROTJAHN GMBH & CO. vs. HON. LUCIA VIOLAGO ISNANI
Petitioner impugns the dismissal of its Complaint for a sum of money by the
respondent judge for lack of jurisdiction and lack of capacity to sue.
The records show that petitioner is a multinational company organized and existing
under the laws of the Federal Republic of Germany. On July 6, 1983, petitioner filed
an application, dated July 2, 1983, 1 with the Securities and Exchange Commission
(SEC) for the establishment of a regional or area headquarters in the Philippines,
pursuant to Presidential Decree No. 218. The application was approved by the Board
of Investments (BOI) on September 6, 1983. Consequently, on September 20, 1983,
the SEC issued a Certificate of Registration and License to petitioner. 2
Private respondent Romana R. Lanchinebre was a sales representative of petitioner
from 1983 to mid-1992. On March 12, 1992, she secured a loan of twenty-five
thousand pesos (P25,000.00) from petitioner. On March 26 and June 10, 1992, she
made additional cash advances in the sum of ten thousand pesos (P10,000.00). Of
the total amount, twelve thousand one hundred seventy pesos and thirty-seven
centavos (P12,170.37) remained unpaid. Despite demand, private respondent
Romana failed to settle her obligation with petitioner.
On July 22, 1992, private respondent Romana Lanchinebre filed with the Arbitration
Branch of the National Labor Relations Commission (NLRC) in Manila, a Complaint for
illegal suspension, dismissal and non-payment of commissions against petitioner. On
August 18, 1992, petitioner in turn filed against private respondent a Complaint for
damages amounting to one hundred twenty thousand pesos (P120,000.00) also with
the NLRC Arbitration Branch (Manila). 3 The two cases were consolidated.
On September 2, 1992, petitioner filed another Complaint for collection of sum of
money against private respondents spouses Romana and Teofilo Lanchinebre which
was docketed as Civil Case No. 92-2486 and raffled to the sala of respondent judge.
Instead of filing their Answer, private respondents moved to dismiss the Complaint.
This was opposed by petitioner.

On December 21, 1992, respondent judge issued the first impugned Order, granting
the motion to dismiss. She held, viz:
Jurisdiction over the subject matter or nature of the action is
conferred by law and not subject to the whims and caprices of the
parties.
Under Article 217 of the Labor Code of the Philippines, the Labor
Arbiters shall have original and exclusive jurisdiction to hear and
decide, within thirty (30) calendar days after the submission of the
case by the parties for decision, the following cases involving all
workers, whether agricultural or non-agricultural:
(4) claims for actual, moral, exemplary and other forms of
damages arising from an employer-employee relations.
xxx xxx xxx
(6) Except claims for employees compensation, social security,
medicare and maternity benefits, all other claims arising from
employer-employee relations, including those of persons in
domestic or household service, involving an amount exceeding
five thousand pesos (P5,000.00) regardless of whether or not
accompanied with a claim for reinstatement.
In its complaint, the plaintiff (petitioner herein) seeks to recover
alleged cash advances made by defendant (private respondent
herein) Romana Lanchinebre while the latter was in the employ of
the former. Obviously the said cash advances were made pursuant
to the employer-employee relationship between the (petitioner)
and the said (private respondent) and as such, within the original
and exclusive jurisdiction of the National Labor Relations
Commission.
Again, it is not disputed that the Certificate of Registration and
License issued to the (petitioner) by the Securities and Exchange
Commission was merely "for the establishment of a regional or
area headquarters in the Philippines, pursuant to Presidential
Decree No. 218 and its implementing rules and regulations." It
does not include a license to do business in the Philippines. There
is no allegation in the complaint moreover that (petitioner) is suing
under an isolated transaction. It must be considered that under
Section 4, Rule 8 of the Revised Rules of Court, facts showing the
capacity of a party to sue or be sued or the authority of a party to
sue or be sued in a representative capacity or the legal existence
of an organized association of persons that is made a party must
be averred. There is no averment in the complaint regarding
(petitioner's) capacity to sue or be sued.
Finally, (petitioner's) claim being clearly incidental to the
occupation or exercise of (respondent) Romana Lanchinebre's
profession, (respondent) husband should not be joined as party
defendant. 4

On March 8, 1993, the respondent judge issued a minute Order denying petitioner's
Motion for Reconsideration.
Petitioner now raises the following assignments of errors:
I
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE
REGULAR COURTS HAVE NO JURISDICTION OVER DISPUTES
BETWEEN AN EMPLOYER AND AN EMPLOYEE INVOLVING THE
APPLICATION PURELY OF THE GENERAL CIVIL LAW.
II
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PETITIONER
HAS NO CAPACITY TO SUE AND BE SUED IN THE PHILIPPINES
DESPITE THE FACT THAT PETITIONER IS DULY LICENSED BY THE
SECURITIES AND EXCHANGE COMMISSION TO SET UP AND
OPERATE A REGIONAL OR AREA HEADQUARTERS IN THE COUNTRY
AND THAT IT HAS CONTINUOUSLY OPERATED AS SUCH FOR THE
LAST NINE (9) YEARS.
III
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE
ERRONEOUS INCLUSION OF THE HUSBAND IN A COMPLAINT IS A
FATAL DEFECT THAT SHALL RESULT IN THE OUTRIGHT DISMISSAL
OF THE COMPLAINT.
IV
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE
HUSBAND IS NOT REQUIRED BY THE RULES TO BE JOINED AS A
DEFENDANT IN A COMPLAINT AGAINST THE WIFE.
There is merit to the petition.
Firstly, the trial court should not have held itself without jurisdiction over Civil Case
No. 92-2486. It is true that the loan and cash advances sought to be recovered by
petitioner were contracted by private respondent Romana Lanchinebre while she
was still in the employ of petitioner. Nonetheless, it does not follow that Article 217
of the Labor Code covers their relationship.
Not every dispute between an employer and employee involves matters that only
labor arbiters and the NLRC can resolve in the exercise of their adjudicatory or quasijudicial powers. The jurisdiction of labor arbiters and the NLRC under Article 217 of
the Labor Code is limited to disputes arising from an employer-employee relationship
which can only be resolved by reference to the Labor Code, other labor statutes, or
their collective bargaining agreement. In this regard, we held in the earlier case
of Molave Motor Sales, Inc. vs. Laron, 129 SCRA 485 (1984), viz:

Before the enactment of BP Blg. 227 on June 1, 1982, Labor

Arbiters, under paragraph 5 of Article 217 of the Labor Code had
jurisdiction over "all other cases arising from employer-employee
relation, unless expressly excluded by this Code." Even then, the
principal followed by this Court was that, although a controversy is
between an employer and an employee, the Labor Arbiters have
no jurisdiction if the Labor Code is not involved. In Medina vs.
Castro-Bartolome, 116 SCRA 597, 604 in negating jurisdiction of
the Labor Arbiter, although the parties were an employer and two
employees, Mr. Justice Abad Santos stated:
The pivotal question to Our mind is whether or
not the Labor Code has any relevance to the
reliefs sought by plaintiffs. For if the Labor Code
has no relevance, any discussion concerning the
statutes amending it and whether or not they
have retroactive effect is unnecessary.
xxx xxx xxx
And in Singapore Airlines Limited vs. Pao, 122 SCRA 671, 677, the
following was said:
Stated differently, petitioner seeks protection
under the civil laws and claims no benefits under
the Labor Code. The primary relief sought is for
liquidated damages for breach of a contractual
obligation. The other items demanded are not
labor benefits demanded by workers generally
taken cognizance of in labor disputes, such as
payment of wages, overtime compensation or
separation pay. The items claimed are the
natural consequences flowing from breach of an
obligation, intrinsically a civil dispute.
xxx xxx xxx
In San Miguel Corporation vs. NLRC, 161 SCRA 719 (1988), we crystallized the
doctrines set forth in the Medina, Singapore Airlines, and Molave Motors cases, thus:
. . . The important principle that runs through these three (3) cases
is that where the claim to the principal relief sought is to be
resolved not by reference to the Labor Code or other labor
relations statute or a collective bargaining agreement but by the
general civil law, the jurisdiction over the dispute belongs to the
regular courts of justice and not to the Labor Arbiter and the NLRC.
In such situations, resolutions of the dispute requires expertise,
not in labor management relations nor in wage structures and
other terms and conditions of employment, but rather in the
application of the general civil law. Clearly, such claims fall outside
the area of competence or expertise ordinarily ascribed to Labor
Arbiters and the NLRC and the rationale for granting jurisdiction
over such claims to these agencies disappears.

Civil Case No. 92-2486 is a simple collection of a sum of money brought by

petitioner, as creditor, against private respondent Romana Lanchinebre, as debtor.
The fact that they were employer and employee at the time of the transaction does
not negate the civil jurisdiction of the trial court. The case does not involve
adjudication of a labor dispute but recovery of a sum of money based on our civil
laws on obligation and contract.
Secondly, the trial court erred in holding that petitioner does not have capacity to
sue in the Philippines. It is clear that petitioner is a foreign corporation doing
business in the Philippines. Petitioner is covered by the Omnibus Investment Code of
1987. Said law defines "doing business," as follows:
. . . 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 (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. 5
There is no general rule or governing principle 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. 6 In the case at bench, petitioner does not
engage in commercial dealings or activities in the country because it is precluded
from doing so by P.D. No. 218, under which it was established. 7 Nonetheless, it has
been continuously, since 1983, acting as a supervision, communications and
coordination center for its home office's affiliates in Singapore, and in the process
has named its local agent and has employed Philippine nationals like private
respondent Romana Lanchinebre. From this uninterrupted performance by petitioner
of acts pursuant to its primary purposes and functions as a regional/area
headquarters for its home office, it is clear that petitioner is doing business in the
country. Moreover, private respondents are estopped from assailing the personality
of petitioner. So we held in Merrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA
824, 837 (1992):
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 dealth 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, . . .
(Citations omitted.)
Finally, the trial court erred when it dismissed Civil Case No. 92-2486 on what it
found to be the misjoinder of private respondent Teofilo Lanchinebre as party

defendant. It is a basic rule that "(m)isjoinder or parties is not ground for dismissal of
an action." 8 Moreover, the Order of the trial court is based on Section 4(h), Rule 3 of
the Revised Rules of Court, which provides:
A married woman may not . . . be sued alone without joining her
husband, except . . . if the litigation is incidental to the profession,
occupation or business in which she is engaged,
Whether or not the subject loan was incurred by private respondent as an incident to
her profession, occupation or business is a question of fact. In the absence of
relevant evidence, the issue cannot be resolved in a motion to dismiss.
IN VIEW WHEREOF, the instant Petition is GRANTED. The Orders, dated December
21, 1992 and March 8, 1993, in Civil Case No. 92-2486 are REVERSED AND SET
ASIDE. The RTC of Makati, Br. 59, is hereby ordered to hear the reinstated case on its
merits. No costs.
SO ORDERED.

9. ABOITIZ SHIPPING CORPORATION, vs. INSURANCE COMPANY OF NORTH

AMERICA

In the Stripping Report9 dated August 5, 1993, petitioner's checker noted that the
crates were slightly broken or cracked at the bottom.

THE RIGHT of subrogation attaches upon payment by the insurer of the insurance
claims by the assured. As subrogee, the insurer steps into the shoes of the assured
and may exercise only those rights that the assured may have against the
wrongdoer who caused the damage.

On August 11, 1993, the cargo was withdrawn by the representative of the
consignee, Science Teaching Improvement Project (STIP) and delivered to Don Bosco
Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard
Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received
a telephone call from Willig informing him that the cargo sustained water damage.
Perez, upon receiving the call, immediately went to the bonded warehouse and
checked the condition of the container and other cargoes stuffed in the same
container. He found that the container van and other cargoes stuffed there were
completely dry and showed no sign of wetness.10

Before Us is a petition for review on certiorari of the Decision1 of the Court of

Appeals (CA) which reversed the Decision2 of the Regional Trial Court (RTC). The CA
ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus
interest and attorney's fees in favor of respondent Insurance Company of North
America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or
Subsidiary Companies (MSAS) procured a marine insurance policy from respondent
ICNA UK Limited of London. The insurance was for a transshipment of certain
wooden work tools and workbenches purchased for the consignee Science Teaching
Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City,
Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the
terms and conditions printed hereon, does insure for MSAS Cargo
International Limited &/or Associated &/or Subsidiary Companies on behalf
of the title holder: - Loss, if any, payable to the Assured or order. 5
The cargo, packed inside one container van, was shipped "freight prepaid" from
Hamburg, Germany on board M/S Katsuragi. A clean bill of lading 6 was issued by
Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug,
Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S
Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila
International Container Port where the container van was again off-loaded. On July
26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz)
through its duly authorized booking representative, Aboitiz Transport System. The
bill of lading7 issued by Aboitiz contained the notation "grounded outside
warehouse."
The container van was stripped and transferred to another crate/container van
without any notation on the condition of the cargo on the Stuffing/Stripping
Report.8 On August 1, 1993, the container van was loaded on board petitioner's
vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August
2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a
receiving apron of the Cebu International Port. It was then brought to the Cebu
Bonded Warehousing Corporation pending clearance from the Customs authorities.

Perez found that except for the bottom of the crate which was slightly broken, the
crate itself appeared to be completely dry and had no water marks. But he
confirmed that the tools which were stored inside the crate were already corroded.
He further explained that the "grounded outside warehouse" notation in the bill of
lading referred only to the container van bearing the cargo. 11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed
upon opening of the cargo.12 The letter stated that the crate was broken at its
bottom part such that the contents were exposed. The work tools and workbenches
were found to have been completely soaked in water with most of the packing
cartons already disintegrating. The crate was properly sealed off from the inside with
tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the
edges. The letter concluded that apparently, the damage was caused by water
entering through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On
August 21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular
inspection and survey of the damage. CAC reported to ICNA that the goods
sustained water damage, molds, and corrosion which were discovered upon delivery
to consignee.13
On September 21, 1993, the consignee filed a formal claim 14 with Aboitiz in the
amount ofP276,540.00 for the damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that
based on official weather report from the Philippine Atmospheric, Geophysical and
Astronomical Services Administration, it would appear that heavy rains on July 28
and 29, 1993 caused water damage to the shipment. CAC noted that the shipment
was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was

delivered on July 26, 1993. The shipment was placed outside the warehouse as can
be gleaned from the bill of lading issued by Aboitiz which contained the notation
"grounded outside warehouse." It was only on July 31, 1993 when the shipment was
stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount
of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA
formally advised Aboitiz of the claim and subrogation receipt executed in its favor.
Despite follow-ups, however, no reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the
sum ofP280,176.92, plus interest and attorney's fees. 16 ICNA alleged that the
damage sustained by the shipment was exclusively and solely brought about by the
fault and negligence of Aboitiz when the shipment was left grounded outside its
warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal
bases. It countered that the complaint stated no cause of action, plaintiff ICNA had
no personality to institute the suit, the cause of action was barred, and the suit was
premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive
portion of the decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not
entitled to the relief claimed in the complaint for being baseless and
without merit. The complaint is hereby DISMISSED. The defendant's
counterclaims are, likewise, DISMISSED for lack of basis. 18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue
the claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was
issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M
7NA. However, complainant ICNA Phils. did not present any evidence to show that
ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the insurance policy
to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the rights
of the consignee must fail because the subrogation receipt had no probative value
for being hearsay evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance
Company of North America (U.K.) Limited (ICNA UK) with address at Cigna
House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced
which would show that ICNA UK is the same as or the predecessor-ininterest of plaintiff Insurance Company of North America ICNA with office
address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi
Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to
ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo
International Limited &/or Associated &/or Subsidiary Companies. Plaintiff's
witness, Francisco B. Francisco, claims that the signature below the name
MSAS Cargo International is an endorsement of the marine policy in favor of
Science Teaching Improvement Project. Plaintiff's witness, however, failed
to identify whose signature it was and plaintiff did not present on the

witness stand or took (sic) the deposition of the person who made that
signature. Hence, the claim that there was an endorsement of the marine
policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and
interest of Science Teaching Improvement Project as shown by the
Subrogation Form (Exhibit "K") allegedly signed by a representative of
Science Teaching Improvement Project. Such representative, however, was
not presented on the witness stand. Hence, the Subrogation Form is selfserving and has no probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign
corporation duly licensed to do business in the Philippines. Thus, it lacked the
capacity to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it
is a foreign insurance company duly authorized to do business in
the Philippines. This allegation was, however, denied by the defendant. In
fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined by
the court is whether or not the plaintiff has legal capacity to sue and be
sued.Under Philippine law, the condition is that a foreign insurance
company must obtain licenses/authority to do business in the Philippines.
These licenses/authority are obtained from the Securities and Exchange
Commission, the Board of Investments and the Insurance Commission. If it
fails to obtain these licenses/authority, such foreign corporation doing
business in the Philippines cannot sue before Philippine courts.
Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its
cause of action is anchored on the right of subrogation under Article 2207 of the Civil
Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the
dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued
that the formal claim was not filed within the period required under Article 366 of
the Code of Commerce; that ICNA had no right of subrogation because the
subrogation receipt should have been signed by MSAS, the assured in the open
policy, and not Willig, who is merely the representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as
follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED.
The appealed decision of the Regional Trial Court of Makati City in Civil Case
No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby
rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay
the plaintiff-appellant Insurance Company of North America the sum
of P280,176.92 with interest thereon at the legal rate from the date of the
institution of this case until fully paid, and attorney's fees in the sum
of P50,000, plus the costs of suit.21

The CA opined that the right of subrogation accrues simply upon payment by the
insurance company of the insurance claim. As subrogee, ICNA is entitled to
reimbursement from Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint
as legally untenable. Even assuming arguendo that the plaintiff-insurer in
this case is an unlicensed foreign corporation, such circumstance will not
bar it from claiming reimbursement from the defendant carrier by virtue of
subrogation under the contract of insurance and as recognized by
Philippine courts. x x x

(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

IN RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE
SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF
ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is
respondent ICNA the real party-in-interest that possesses the right of subrogation to
claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the
notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can
petitioner be held liable on the claim for damages?
Our Ruling

xxxx
Plaintiff insurer, whether the foreign company or its duly authorized
Agent/Representative in the country, as subrogee of the claim of the
insured under the subject marine policy, is therefore the real party in
interest to bring this suit and recover the full amount of loss of the subject
cargo shipped by it from Manila to the consignee in Cebu City. x x x 22
The CA ruled that the presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. Hence, the trial court
erred in dismissing the complaint and in not finding that based on the evidence on
record and relevant provisions of law, Aboitiz is liable for the loss or damage
sustained by the subject cargo.

We answer the triple questions in the affirmative.

A foreign corporation not licensed to do business in the Philippines is not
absolutely incapacitated from filing a suit in local courts. Only when that
foreign corporation is "transacting" or "doing business" in the country will a license
be necessary before it can institute suits. 24 It may, however, bring suits on isolated
business transactions, which is not prohibited under Philippine law. 25Thus, this Court
has held that a foreign insurance company may sue in Philippine courts upon the
marine insurance policies issued by it abroad to cover international-bound cargoes
shipped by a Philippine carrier, even if it has no license to do business in this
country. It is the act of engaging in business without the prescribed license, and not
the lack of license per se, which bars a foreign corporation from access to our
courts.26

Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
IN RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE
OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE
CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS
NOT MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE
OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A WRONG
CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
IN RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS
PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF
THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
IN RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE
POLICY FROM THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL
LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE
SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID
NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS
MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA
TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE
THE SAME.

In any case, We uphold the CA observation that while it was the ICNA UK Limited
which issued the subject marine policy, the present suit was filed by the said
company's authorized agent in Manila. It was the domestic corporation that brought
the suit and not the foreign company. Its authority is expressly provided for in the
open policy which includes the ICNA office in the Philippines as one of the foreign
company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper
indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of Don
Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods,
to be brought against ICNA UK, the company who issued the insurance, or against
any of its listed agents worldwide.27 MSAS accepted said provision when it signed
and accepted the policy. The acceptance operated as an acceptance of the authority
of the agents. Hence, a formal indorsement of the policy to the agent in the
Philippines was unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the
terms and conditions printed hereon, does insure MSAS Cargo International
Limited &/or Associates &/or Subsidiary Companies in behalf of the title
holder: - Loss, if any, payable to the Assured or Order.

The policy benefits any subsequent assignee, or holder, including the consignee,
who may file claims on behalf of the assured. This is in keeping with Section 57 of
the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever,
during the continuance of the risk, may become the owner of the interest
insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the
rights of the consignee of the damaged shipment. The right of subrogation
springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of
Appeals,28 payment by the insurer to the assured operates as an equitable
assignment of all remedies the assured may have against the third party who
caused the damage. Subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods,
ICNA's entitlement to subrogation equipped it with a cause of action against
petitioner in case of a contractual breach or negligence. 30 This right of subrogation,
however, has its limitations. First, both the insurer and the consignee are bound by
the contractual stipulations under the bill of lading.31 Second, the insurer can be
subrogated only to the rights as the insured may have against the wrongdoer. If by
its own acts after receiving payment from the insurer, the insured releases the
wrongdoer who caused the loss from liability, the insurer loses its claim against the
latter.32
The giving of notice of loss or injury is a condition precedent to the action
for loss or injury or the right to enforce the carrier's liability.
Circumstances peculiar to this case lead Us to conclude that the notice
requirement was complied with. As held in the case of Philippine American
General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement protects
the carrier by affording it an opportunity to make an investigation of the claim while
the matter is still fresh and easily investigated. It is meant to safeguard the carrier
from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four
(24) hours from receipt of the cargo if the damage is not apparent from the outside
of the package. For damages that are visible from the outside of the package, the
claim must be made immediately. The law provides:

Article 366. Within twenty four hours following the receipt of the
merchandise, the claim against the carrier for damages or average which
may be found therein upon opening the packages, may be made, provided
that the indications of the damage or average which give rise to the claim
cannot be ascertained from the outside part of such packages, in which
case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges
have been paid, no claim shall be admitted against the carrier with regard
to the condition in which the goods transported were delivered. (Emphasis
supplied)
The periods above, as well as the manner of giving notice may be modified in the
terms of the bill of lading, which is the contract between the parties. Notably, neither
of the parties in this case presented the terms for giving notices of claim under the
bill of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the
carrier of the damage was dated August 15, 1993, that letter, together with the
notice of claim, was received by petitioner only on September 21, 1993. But
petitioner admits that even before it received the written notice of claim, Mr. Mayo
B. Perez, Claims Head of the company, was informed by telephone sometime in
August 13, 1993. Mr. Perez then immediately went to the warehouse and to the
delivery site to inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage
Corporation,35the notice was allegedly made by the consignee through telephone.
The claim for damages was denied. This Court ruled that such a notice did not
comply with the notice requirement under the law. There was no evidence presented
that the notice was timely given. Neither was there evidence presented that the
notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that
constrain Us to rule differently from the PCIC case, albeit this ruling is being
made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to
the right of recovery from a carrier must be given a reasonable and practical
construction, adapted to the circumstances of the case under adjudication, and their
application is limited to cases falling fairly within their object and purpose. 36
Bernhard Willig, the representative of consignee who received the shipment, relayed
the information that the delivered goods were discovered to have sustained water
damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately,
Perez was able to investigate the claims himself and he confirmed that the goods
were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are
ordinarily to be given a reasonable and practical, rather than a strict
construction.37 We give due consideration to the fact that the final destination of the
damaged cargo was a school institution where authorities are bound by rules and
regulations governing their actions. Understandably, when the goods were delivered,
the necessary clearance had to be made before the package was opened. Upon

opening and discovery of the damaged condition of the goods, a report to this effect
had to pass through the proper channels before it could be finalized and endorsed
by the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period
considering that the goods could not have corroded instantly overnight such that it
could only have sustained the damage during transit. Moreover, petitioner was able
to immediately inspect the damage while the matter was still fresh. In so doing, the
main objective of the prescribed time period was fulfilled. Thus, there was
substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the
real party in interest to institute the claim for damages against petitioner; and pro
hac vice, that a valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The
rule as stated in Article 1735 of the Civil Code is that in cases where the
goods are lost, destroyed or deteriorated, common carriers are presumed
to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence required by law. 38 Extraordinary
diligence is that extreme measure of care and caution which persons of unusual
prudence and circumspection use for securing and preserving their own property
rights.39 This standard is intended to grant favor to the shipper who is at the mercy
of the common carrier once the goods have been entrusted to the latter for
shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree
with the findings of the CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High
School by a representative from Trabajo Arrastre, and the crates opened, it
was discovered that the workbenches and work tools suffered damage due
to "wettage" although by then they were already physically dry. Appellee
carrier having failed to discharge the burden of proving that it exercised
extraordinary diligence in the vigilance over such goods it contracted for
carriage, the presumption of fault or negligence on its part from the time
the goods were unconditionally placed in its possession (July 26, 1993) up
to the time the same were delivered to the consignee (August 11, 1993),
therefore stands. The presumption that the carrier was at fault or that it
acted negligently was not overcome by any countervailing evidence. x x
x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for
carriage on July 26, 1993. On the same day, it was stripped from the container van.
Five days later, on July 31, 1993, it was re-stuffed inside another container van. On
August 1, 1993, it was loaded onto another vessel bound for Cebu. During the period
between July 26 to 31, 1993, the shipment was outside a container van and kept in
storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation
"grounded outside warehouse," suggesting that from July 26 to 31, the goods were
kept outside the warehouse. And since evidence showed that rain fell over Manila
during the same period, We can conclude that this was when the shipment sustained
water damage.

To prove the exercise of extraordinary diligence, petitioner must do more than

merely show the possibility that some other party could be responsible for the
damage. It must prove that it used "all reasonable means to ascertain the nature
and characteristic of the goods tendered for transport and that it exercised due care
in handling them.42 Extraordinary diligence must include safeguarding the shipment
from damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to
the crate for shipment but only to the carrier van, petitioner failed to mention where
exactly the goods were stored during the period in question. It failed to show that
the crate was properly stored indoors during the time when it exercised custody
before shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has
confirmed that it was rainwater that seeped into the cargo based on official
data from the PAGASA that there was, indeed, rainfall in the Port Area of
Manila from July 26 to 31, 1993. The Surveyor specifically noted that the
subject cargo was under the custody of appellee carrier from the time it
was delivered by the shipper on July 26, 1993 until it was stuffed inside
Container No. ACCU-213798-4 on July 31, 1993. No other inevitable
conclusion can be deduced from the foregoing established facts that
damage from "wettage" suffered by the subject cargo was caused by the
negligence of appellee carrier in grounding the shipment outside causing
rainwater to seep into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing
"wettage" to the subject goods by claiming that the notation "GROUNDED
OUTSIDE WHSE." actually refers to the container and not the contents
thereof or the cargoes. And yet it presented no evidence to explain where
did they place or store the subject goods from the time it accepted the
same for shipment on July 26, 1993 up to the time the goods were stripped
or transferred from the container van to another container and loaded into
the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for
Cebu City on August 2, 1993. x x x If the subject cargo was not grounded
outside prior to shipment to Cebu City, appellee provided no explanation as
to where said cargo was stored from July 26, 1993 to July 31, 1993. What
the records showed is that the subject cargo was stripped from the
container van of the shipper and transferred to the container on August 1,
1993 and finally loaded into the appellee's vessel bound for Cebu City on
August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila
port did not indicate any such defect or damage, but when the container
was stripped upon arrival in Cebu City port after being discharged from
appellee's vessel, it was noted that only one (1) slab was slightly broken at
the bottom allegedly hit by a forklift blade (Exhibit "F"). 43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its
failure to satisfactorily prove that it exercised the extraordinary diligence required of
common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.

DOING BUSINESS WITHOUT LICENSE (SECTION 133)

1. AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., vs. INTEGRATED SILICON
TECHNOLOGY PHILIPPINES CORPORATION
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. 3123-2001-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 HPSingapore. HP-Singapore, for its part, was to consign raw materials to Integrated
Silicon; transport 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 HPSingapore 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. 31102001-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. 3123-2001-C BELOW ON THE GROUND
OF LITIS PENDENTIA, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. 31102001-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. 3123-2001-C BELOW ON THE GROUND
OF FORUM SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. 31102001-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

for dispensing with a Motion for Reconsideration, in the case of Vivo v.

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 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.

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.

We find merit in the petition.

We come now to the substantive issues of 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.

Litis pendentia is a Latin term which literally means "a pending suit." It is variously
referred to in some decisions aslis 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.

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

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:

The Court of Appeals ruling that the assailed Order issued by the RTC of Calamba,
Branch 92, was a 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.
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.
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

(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."

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

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.

We now proceed to the issue of forum shopping.

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. 31102001-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

The test for determining whether a party violated the rule against forum-shopping
was laid down in the case of Buan 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. 31102001-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. 31232001-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.

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 transaction 48; (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. InEriks 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 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.

2. HOME INSURANCE COMPANY vs.

EASTERN SHIPPING LINES
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 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
petitioner-appellant'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) 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:
According to many authorities, a constitutional or statutory prohibition against a
foreign corporation doing business in the state, unless such corporation has
complied with conditions prescribed, is effective to make the contracts of such
corporation void, or at least unenforceable, and prevents the maintenance by
the corporation of any action on such contracts. Although the usual construction
is to the contrary, and to the effect that only the remedy for enforcement is
affected thereby, a statute prohibiting a non-complying corporation from suing
in the state courts on any contract has been held by some courts to render the
contract void and unenforceable by the corporation, even after its has complied
with the statute." (36 Am. Jur. 2d 299-300).
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 PLAINTIFF-APPELLANT.
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 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, 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.)
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 non-registration.
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
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 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 been commenced." (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.
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.
SO ORDERED.

3.

TOP-WELD MANUFACTURING, INC. vs. ECED

into the Philippines directly or indirectly any EUTECTIC materials, supplies or

equipment except to and/or through the petitioner.

This is a petition to review the decision of the Court of Appeals now

Intermediate Appellate Court annulling portions of the orders issued by Judge
Gregorio Pineda of the Court of First Instance of Rizal.

Among others, the petitioner invoked the provisions of No. 9. Section 4 of

Republic Act 5455 on alien firms doing business in the Philippines.

Petitioner Top-weld Manufacturing, Inc. (Top-weld) is a Philippine corporation

engaged in the business of manufacturing and selling welding supplies and
equipment.

The corporations filed their answers setting up as affirmative defenses

violations of the contracts allegedly committed by the petitioner consisting of
the following:

In pursuance of its business, the petitioner entered into separate contracts with
two different foreign entities. One contract, entitled a "LICENSE AND TECHNICAL
ASSISTANCE AGREEMENT" and dated January 2, 1972 was entered into with IRTI,
S.A., (IRTI), a corporation organized and existing under the laws of Switzerland
with principal office at Fribourg, Switzerland. By virtue of this agreement, the
petitioner was constituted a licensee of IRTI to manufacture welding products
under certain specifications, with raw materials to be purchased by the former
from suppliers designated by IRTI, for a period of three (3) years or up to
January 1, 1975. This contract was later extended up to December 31, 1975 in a
subsequent agreement.

a)

The other contract was a "DISTRIBUTOR AGREEMENT" dated January 1, 1975

entered into with ECED, S.A., (ECED), a company organized and existing under
the laws of Panama with principal office at Apartado 1903, Panama I, City of
Panama. Under this agreement, the petitioner was designated as ECED's
distributor in the Philippines of certain welding products and equipment. By its
terms, the contract was to remain effective until terminated by either party
upon giving six (6) months or 180 days written notice to the other.
Upon learning that the two foreign entities were negotiating with another group
to replace the petitioner as their licensee and distributor, the latter instituted on
June 16, 1975, Civil Case No. 21409 against IRTI, ECED another corporation
named EUTECTIC Corporation, organized under the laws of the State of New
York, U.S.A., and an individual named Victor C. Gaerlan, a Filipino citizen alleged
to be the representative and employee of these three corporations.
In its complaint, the petitioner sought the issuance of a writ of preliminary
injunction to restrain the corporations from negotiating with third persons or
from actually carrying out the transfer of its distributorship and franchising
rights, It also asked the court to prohibit the defendants from terminating their
contracts with the petitioner, and if said termination had already been
accomplished, from putting into effect and carrying out the terms and the
consequences of said termination until after good faith negotiations on existing
contracts between them had been carried out and completed.
On June 17, 1975, the lower court issued a restraining order against the
corporation pending the hearing on the issuance of a writ of preliminary
injunction.

Failure to pay respondent IRTI the stipulated 3% royalties;

b) The use of other wrong materials in the manufacture of welding products

bearing the Eutectic label;
c)

The use of the wrong core wire in the manufacture of Eutectic 680;

d)

The use of obsolete and antiquated equipment;

e) Rebranding of other manufactured welding products or non-Eutectic

products with the Eutectic label;
f)
The manufacture and sale of inferior and substandard quality products
bearing the Eutectic label resulting in numerous complaints from customers
such as Saulog Transit and Manila Mining Corporation;
g) The falsification of ECED pro-forma invoices in order to procure Eutectic
goods at lower prices;
h) The illegal channeling of sales of Eutectic products through the Que Pe
Hardware Store; and
i)
The sale of welding products bearing brands other than Eutectic, such as
Fujiweld, and even Eutectic products not included in its authority and for which
it has never been supplied by respondent EUTECTIC with the raw materials for
its manufacture nor with finished products thereof.
The respondent corporation further alleged that Section 4 (9) of R.A. No. 5455
cannot possibly apply to the instant case because:
a) With the violations of the contracts by the plaintiff and "other just causes"
earlier mentioned, the defendants IRTI and ECED are fully justified in
terminating them without being obliged to pay any compensation nor to
reimburse plaintiff of investment or other expenses;
b) In fact, the defendants have sent written notices dated July 25, 1975 of the
termination of their respective agreements with plaintiffs; and

On July 25,1975, IRTI and ECED wrote Top-weld separate notices about the
termination of their respective contracts.

c) Since no written certificate was applied for nor obtained by defendant

entities from the Board of Investments, the latter cannot legally require of them
compliance with No. 9, Section 4, R.A. No, 5455.

On September 3,1975, Top-weld filed an amended complaint together with a

supplemental complaint which embodied a new application for a preliminary
mandatory injunction to compel ECED to ship and deliver various items covered
by the distributorship contract, and to prohibit the corporations from importing

On October 9, 1975, the trial court issued an order granting the petitioner's
application for preliminary injunction embodied in the amended complaint and
its application for a writ of mandatory preliminary injunction embodied in the
supplemental complaint,

The corporations filed with the trial court a motion for reconsideration.
On December 18, 1975, the trial court issued another order denying the said
motion for reconsideration with respect to the lifting of the writ of preliminary
injunction but granting the prayer for the lifting of the writ of preliminary
mandatory injunction.
The case was elevated to the Court of Appeals on a petition for certiorari with
preliminary injunction filed by the corporations. In setting aside the questioned
orders, the appelate court held that:
The determinative question defined by the contentions of the parties in this
case is, whether or not TOP-WELD may rightfully invoke the provisions of Sec. 4,
Republic Act No. 5455 to enjoin petitioner corporations from terminating the
subject licensing and distributorship contracts they have with TOP-WELD. The
pertinent portion of the provision reads:
Section 4. Licenses to do business.-No alien, and no firm, association,
partnership, corporation, or any other form of business organization formed,
organized, chartered or existing under any laws other than those of the
Philippines, or which is not a Philippine National, or more than thirty per cent of
the outstanding capital of which is owned or controlled by aliens shall do
business or engage in any economic activity in alien the Philippines, or be
registered, licensed, or permitted by the Securities and Exchange Commission,
or by any other bureau, office, agency, political subdivision, or instrumentality
of the government, to do business, or engage in an economic activity in the
Philippines without first securing a written certificate from the Board of
Investments to the effect ... .
Upon granting said certificate, the Board shall impose the following
requirements on the alien or the firm, association, partnership, corporation, or
other form of business organization that is not organized or existing under the
laws of the Philippines. ... .
(9) Not to terminate any franchise, licensing or other agreement that applicant
may have with a resident of the Philippines, authorizing the latter to assemble,
manufacture or sell within the Philippines the products of the applicant, except
for violation thereof or other just cause and upon payment of compensation and
reimbursement and other expenses incurred by the licensee in developing a
market for the said products; Provided. however, That in case of disagreement,
the amount of compensation or reimbursement shall be determined by the
court where the licensee is domiciled or has its principal office who shall require
the applicant to file a bond in such amount as, in its opinion, is sufficient for this
purpose.
By the licensing and distributorship arrangements had with TOPWELD, there is
no doubt that IRTI and ECED were doing business and engaging in economic
activity in the Philippines (see Sections 1 and 4, R.A. No. 5455), as a prerequisite
to which they should have first secured a written certificate from the Board of
Investments. It is not disputed, however, that IRTI and ECED have not secured
such written certificate in consequence of which there was no occasion for the
Board of Investments to impose the requirements prescribed in the aforequoted
provisions of Sec. 4, R.A. No. 5455, among which is that the grantee of the
certificate shall not terminate any franchise, licensing or other agreement it
may have with a resident of the Philippines for the assembly, manufacture or
sale within the country of the products of said grantee, except for violation
thereof or other just cause and upon payment of compensation and

reimbursement and other expenses incurred by the resident licensee in

developing a market for said products. In this case, while the parties are in
dispute as to the existence of a violation of the contracts involved or of other
just cause, there is no quarrel over the fact that IRTI and ECED have not paid,
and do not intend to pay, such compensation or reimbursement contemplated
in the law, maintaining that TOPWELD is not entitled to the same.
Under the particular situation obtaining in this case, this Court is of the opinion
that petitioner corporations are not bound by the requirement on termination,
and TOPWELD cannot invoke the same against the former. The reason is not
simply because IRTI and ECED, by failing to get the required certificate from the
Board of Investment, were not made subject by the said Board to the
requirement on termination, as maintained by petitioners. To impose such
requirement on petitioners would be to perpetuate, and force them to remain in,
an unlawful business operation. Moreover, it was incumbent upon TOPWELD to
know whether or not IRTI and ECED were properly authorized to engage into the
licensing and distributorship agreements. At the very least TOPWELD has not
come to court with clear hands, and cannot be heard to invoke the equitable
remedy of injunction to perpetuate an illegal situation it voluntarily helped bring
about.
If only for the foregoing considerations, there appears a grave abuse of
discretion on the part of respondent Judge in issuing the orders complained of.
Petitioner, TOP-WELD filed this present petition putting in issue the following
assignments of errors:
I
Respondent Court of Appeals committed a grave error when it held that a
foreign corporation, which is admittedly 'doing business in the Philippines' but
which has failed to secure the required certificate and license to do business in
the Philippines, is not subject to the stricture imposed by Sec. 4 (9) of Republic
Act No. 5455.
II
Respondent Court of Appeals committed a grave error when it held that the
failure of petitioner to know at the outset whether or not respondents were
properly authorized to engage in business in the Philippines stops petitioner to
invoke the protection of Sec. 4 (9) of Republic Act No. 5455.
III
Respondent Court of Appeals committed a grave error when it held that
petitioner cannot invoke the remedy of injunction against respondents.
At the vortex of the controversy is the issue whether or not respondent
corporations can be considered as "doing business" in the Philippines and,
therefore, subject to the provisions of R.A. No. 5455. There is no dispute that
respondents are foreign corporations not licensed to do business in the
Philippines. More important, however, there is no serious objection interposed
by the respondents as to their amenability to the jurisdiction of our courts.
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. (Mentholatum Co. V.

Mangaliman, 72 Phil. 524). Thus, a foreign corporation with a settling agent in

the Philippines which issued 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).

xxx xxx

xxx

10. No Sales in Territory by IRTI

IRTI shall not solicitor or cause or permit its employees, licensees or agents to
solicit or make any sales, directly or indirectly, of WELDING PRODUCTS within or
to the Philippines. IRTI agrees to refer to LICENSEE all product inquiries received
by IRTI for WELDING PRODUCTS destined for Philippines.
xxx xxx

xxx

16. x x x

xxx

xxx

In the Mentholatum Co. v. Mangaliman case earlier cited, this Court held:

Restrictive Covenant

xxx xxx

LICENSEE will not, directly or indirectly, without the written consent of IRTI at
any time during the continuance of this Agreement and for a period of two years
after the date of the termination of this Agreement, engage either directly or
indirectly in the business of selling products similar to said WELDING
PRODUCTS, either as principal, agent, employee or through stock or proprietary
interests in a third part entity.

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 was
organized or whether it has substantially retired from it and turned it over to
another. (Traction Cos. v. Collectors of Int. Revenue [C.C.A. Ohio], 223 F. 984,
987.) The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization. (Griffin v. Implement
Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77, Pauline Oil & Gas Co. v. Mutual Tank
Line Co., 246 P. 851, 852, 118 Okl. 111 Automotive Material Co. v. American
Standard Metal Products Corp., 158 N.E. 698, 703, 327 111. 367.)
Judged by the foregoing standards, we agree with the Court of Appeals in
considering the respondents as "doing business" in the Philippines. When the
respondents entered into the disputed contracts with the petitioner, they were
carrying out the purposes for which they were created, i.e. to manufacture and
market welding products and equipment. The terms and conditions of the
contracts as well as the respondents' conduct indicate that they established
within our country a continuous business, and not merely one of a temporary
character. This fact is even more strengthened by the admission of the
respondents that they are negotiating with another group for the transfer of the
distributorship and franchising rights from the petitioner.
Respondents' acts enabled them to enter into the mainstream of our economic
life in competition with our local business interests. This necessarily brings them
under the provisions of R.A. No. 5455.
The respondents contend that they should be exempted from the requirements
of R.A. 5455 because the petitioner maintained an independent status during
the existence of the disputed contracts.
This may be true if the petitioner is an independent entity which buys and
distributes products not only of the petitioner but also of other manufacturers or
transacts business in its name and for its account and not in the name or for the
account of the foreign principal.
A perusal of the agreements between the petitioner and the respondents shows
that they are highly restrictive in nature. The agreements provide in part the
following terms:

xxx xxx

xxx

RESTRICTI
VE COVENANT
6. DISTRIBUTOR shall not during the continuance of this agreement distribute
products of any other manufacturer or supplier in the Territory assigned to him,
which are similar to the Products.
Upon the termination of this agreement by either party, DISTRIBUTOR agrees
not to engage, directly or indirectly, in the commercialization, distribution
and/or manufacture of products competing with any EUTECTIC + CASTOLIN
products covered by this agreement, or of products likely to affect the sale of
any EUTECTIC + CASTOLIN products, either as principal, agent or employee in
the Territory, this prohibition to extend for a period of two (2) years from the
date of termination, except for the explicit purpose of selling any remaining
Products still in DISTRIBUTOR's possession on the date of termination of this
agreement which sales shall not be below the DISTRIBUTOR's pretermination
selling price for such Products unless such sale is to ECED or its nominee in
which case Clause 19 hereof shall govern.
xxx xxx

xxx

We can conclude that assuming the petitioner maintains an independent status,

in essence it merely extends to the Philippines the business of the foreign
corporations.
On the basis of the foregoing, we uphold the appellate court's finding that "IRTI
AND ECED were doing business and engaging in economic activity in the
Philippines ... as a prerequisite to which they should have first secured a written
certificate from the Board of Investments."

The respondent court, however, erred in holding that "IRTI and ECED have not
secured such written certificate in consequence of which there is no occasion for
the Board of Investments to impose the requirements prescribed in the
aforequoted provisions of Sec. 4, R.A. No. 5455 ... ." To accept this view would
open the way for an interpretation that by doing business in the country without
first securing the required written certificate from the Board of Investments, a
foreign corporation may violate or disregard the safeguards which the law, by
its provisions, seeks to establish.
We agree, however, that there is a more compelling reason behind the finding
that the "corporations are not bound by the requirement on termination, and
TOP-WELD cannot invoke the same against the former."
As between the parties themselves, R.A. No. 5455 does not declare as void or
invalid the contracts entered into without first securing a license or certificate to
do business in the Philippines. Neither does it appear to intend to prevent the
courts from enforcing contracts made in contravention of its licensing
provisions. There is no denying, though, that an "illegal situation," as the
appellate court has put it, was created when the parties voluntarily contracted
without such license.
The parties are charged with knowledge of the existing law at the time they
enter into the contract and at the time it is to become operative. (Twiehaus v.
Rosner, 245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is
presumed to be more knowledgeable about his own state law than his alien or
foreign contemporary. In this case, the record shows that, at least, petitioner
had actual knowledge of the applicability of R.A. No. 5455 at the time the
contract was executed and at all times thereafter. This conclusion is compelled
by the fact that the same statute is now being propounded by the petitioner to
bolster its claim. We, therefore, sustain the appellate court's view that "it was
incumbent upon TOP-WELD to know whether or not IRTI and ECED were properly
authorized to engage in business in the Philippines when they entered into the
licensing and distributorship agreements." The very purpose of the law was
circumvented and evaded when the petitioner entered into said agreements
despite the prohibition of R.A. No. 5455. The parties in this case being equally
guilty of violating R.A, No. 5455, they are in pari delicto, in which case it follows
as a consequence that petitioner is not entitled to the relief prayed for in this
case.
In Bough v. Cantiveros (40 Phil. 210), the principle is laid down in these words:
"The rule of pari delicto is expressed in the maxims "ex dolo malo non eritur
actio" and "in pari delicto potior est conditio defedentis." The law will not aid
either party to an illegal agreement. It leaves the parties where it finds them."
No remedy could be afforded to the parties because of their presumptive
knowledge that the transaction was tainted with illegality. (Soriano v. Ong Hoo,
103 Phil. 829). Equity cannot lend its aid to the enforcement of an alleged right
claimed by virtue of an agreement entered into in contravention of law.
Lastly, we come to the issue of "just cause" for the termination of the contracts
or the alleged violations of the contracts made by petitioner. Though properly
ventilated below, this factual issue was not determined by both the trial court
and the appellate court.
The record shows that respondents, in opposing the injunction suit and alleging
the violations of the contracts, submitted and relied on their affidavits. The
petitioner, however, to refute these charges, submitted a "Reply to Opposition"

which is neither verified nor supported by counter-affidavits. There is no

showing in the records before us whether oral testimony was presented by any
of the parties or whether the affiants were subjected to the test of crossexamination and if any, what was stated during the oral testimony.
The burden of overcoming the responsive effect of the answer is upon the
petitioner. He who alleges a fact has the burden of proving it and a mere
allegation is not evidence. (Legasca v. De Vera, 79 Phil. 376) Hearsay evidence
alone may be insufficient to establish a fact in an injunction suit (Parker v.
Furlong, 62 P. 490) but, when no objection is made thereto, it is, like any other
evidence, to be considered and given the importance it deserves. (Smith v.
Delaware & Atlantic Telegraph & Telephone Co., 51 A 464). Although we should
warn of the undesirability of issuing judgments solely on the basis of the
affidavits submitted, where as here, said affidavits are overwhelming,
uncontroverted by competent evidence and not inherently improbable, we are
constrained to uphold the allegations of the respondents regarding the
multifarious violations of the contracts made by the petitioner. Accordingly, we
rule that there exists a just cause for respondents to move for the termination of
their contracts with the petitioner.
Moreover, the facts on record show that the "License and Technical Assistance
Agreement" between petitioner and respondent IRTI was extended only for a
period of one year or to be precise, from January 1, 1975 to December 31, 1975.
The original injunction suit was brought in the court a quo in June1975, the
purpose being to stop the respondent from terminating the contract. This
purpose was realized when the court granted the injunction. By the time
respondents' appeal was decided by the Court of Appeals, it was already past
the extended period. The dispute between the parties had been rendered moot
and academic. It should be stated that the courts be it the original trial court or
the appellate court have no power to make contracts for the parties. No court
would be justified in extending the life of the contracts, subject of this
controversy, since that would do violence to the basic principle that contracts
must be the voluntary agreements of parties,
Parties can not be coerced to enter into a contract where no agreement is had
between them as to the principal terms and condition of the contract (Republic
v. Philippine Long Distance Telephone Co., 26 SCRA 620).
With the above observations, there is nothing more for this Court to do except
to dismiss the petition.
ACCORDINGLY, the petition is hereby dismissed. The appealed decision of the
Court of Appeals is AFFIRMED,
SO ORDERED.

4. SUBIC BAY METROPOLITAN AUTHORITY

vs. UNIVERSAL INTERNATIONAL GROUP OF TAIWAN
A stipulation authorizing a party to extrajudicially rescind a contract and to recover
possession of the property in case of contractual breach is lawful. But when a valid
objection is raised, a judicial determination of the issue is still necessary before a
takeover may be allowed. In the present case, however, respondents do not deny
that there was such a breach of the Agreement; they merely argue that the
stipulation allowing a rescission and a recovery of possession is void. Hence, the
other party may validly enforce such stipulation.
The Case

"On 25 May 1995, a Lease and Development Agreement was executed by

respondent UIG and petitioner SBMA under which respondent UIG shall lease from
petitioner SBMA the Binictican Golf Course and appurtenant facilities thereto to be
transformed into a world class 18-hole golf course, golf club/resort, commercial
tourism and residential center. The contract in pertinent part contains pretermination clauses, which provide:
Section 22. Default
(a) The following acts and omissions shall constitute default by Tenant (each an
Event of Default):
xxx

Before us is a Petition1 under Rule 45 of the Rules of Court assailing the December 3,
1997 Decision2 of the Court of Appeals (CA) in CA-GR SP No. 45501. The decretal
portion of the CA Decision reads as follows:
"WHEREFORE, premises considered, the Petition is, as it is hereby, DISMISSED for
lack of merit, and certiorariDENIED. The Orders of the respondent court both dated
03 October 1997 hereby STAND."3
The first Order4 of the Regional Trial Court (RTC) of Olongapo City (Branch 73), 5 which
was affirmed by the appellate court, granted herein respondents application for a
writ of preliminary mandatory and prohibitory injunction in this wise: 6
"WHEREFORE, premises considered, the defendants, their agents, officers and
employees, and all persons acting in their behalf are directed to restore peacefully
to the plaintiffs all possession of the golf course, clubhouse, offices and other
appurtenances subject of the Lease and Development Agreement between UIG
Taiwan and the SBMA; and the said defendants, and their agents, officers [and]
employees to refrain [from] obstructing or meddling in the operation and
management thereof or x x x otherwise committing acts inimical to the interest of
plaintiffs in the management or operation of the same, until the parties may be
heard on the merits of the case.
"The Injunction bond is fixed at One Million Pesos (P1,000,000.00) in cash or surety
bond provided by a surety company of reputable solvency."
The second RTC Order, also dated October 3, 1997, disposed of petitioners Motion
to Dismiss as follows:7
"WHEREFORE, and the foregoing p[re]mises considered, Defendants Amended and
Consolidated Motion To Dismiss is hereby DENIED for lack of merit.
"The Motion to Dismiss filed by Richard J. Gordon is [g]ranted insofar as the suit
against him is concerned in his private or personal capacity. He shall, however,
remain as defendant in his official capacity."
The Facts
The undisputed facts are summarized by the Court of Appeals as follows: 8

xxx

xxx

(ii) Tenant or any of its Subsidiaries shall commit a material breach or violation of
any of the conditions, covenants or agreements herein made by Tenant or such
Subsidiary (other than those described in Sections 22.2 [a] [l] and such violation or
failure shall continue for thirty (30) days after notice from the Landlord, or, at
Landlords sole discretion, sixty (60) days if such violations or failure is reasonably
susceptible of cure during such 60 day period and Tenant or such Subsidiary begins
and diligently pursues to completion such cure within thirty (30) days of the initial
notice from Landlord;
xxx

xxx

xxx

(b) If an event of default shall have occurred and be continuing, Landlord may, in its
sole discretion;
(i) Terminate this Lease thirty (30) days after the expiration of any period granted
hereunder to cure any Event of Default and retain all rent and other amounts
previously paid by tenant and its Subsidiaries. Thereafter, Landlord may immediately
reenter, renovate or relet all or part of the Property to others, and cancel all rights
and privileges granted to Tenant and its Subsidiaries without any restriction on
recovery by Landlord for rents, fees and damages owned by Tenant and its
Subsidiaries.
"On 4 February 1997, Petitioner SBMA sent a letter to private respondent UIG calling
its attention to its alleged several contractual violations in view of private
respondent UIGs failure to deliver its various contractual obligations, primarily its
failure to complete the rehabilitation of the Golf Course in time for the APEC Leaders
Summit, and to pay accumulated lease rentals and utilities, and to post the required
performance bond. Respondent UIG, in its letter of 7 February 1997, interposed as
an excuse the alleged default of its main contractor FF Cruz, resulting in their filing
of suit against the latter, and committed itself to comply with its obligations within a
few days. Private respondent UIG, however, failed to comply with its undertakings.
On 7 March 1997, petitioner SBMA sent a letter to private respondent UIG declaring
the latter in default of its contractual obligations to SBMA under Section 22.1 of the
Lease and Development Agreement and required it to show cause why petitioner
SBMA should not pre-terminate the agreement. Private respondents paid the rental
arrearages but the other obligations remained unsatisfied.
"On 8 September 1997, a letter of pre-termination was served by petitioner SBMA
requiring private respondent UIG to vacate the premises. On 12 September 1997,

petitioner served the formal notice of closure of Subic Bay Golf Course and took over
possession of the subject premises. On even date, private respondent filed a
complaint against petitioner SBMA for Injunction and Damages with prayer for a
writ of temporary restraining order and writ of preliminary injunction. On 3 October
1997, respondent court issued the two assailed orders subject of the petition."

"Whether or not the respondent court committed a reversible error in ruling that
petitioners action ofextra-judicially recovering the possession of the subject
premises is supposedly illegal [as it] runs counter to the established law and [the]
applicable decisions of the Supreme Court on the matter.
II.

Ruling of the Court of Appeals

"Whether or not the respondent court committed a reversible error in ruling that:
The Court of Appeals upheld the capacity to sue of Respondent Universal
International Group of Taiwan (UIG) because petitioners, having entered into a Lease
Development Agreement (LDA) with it, were estopped from questioning its standing.
It also held that Respondents UIG International Development Corporation (UIGDC)
and Subic Bay Golf and Country Club, Inc., (SBGCCI) were real parties in interest
because they had made substantial investments in the venture and had been in
possession of the property when Subic Bay Metropolitan Authority (SBMA) rescinded
the LDA.
Likewise, it debunked petitioners submission that Section 21 of RA 7227 9 was "a
blanket proscription against the issuance of any and all injunctive relief[s] against
SBMA." It said that "those actions which are removed from the stated objectives of
the corporate entity x x x cannot be placed beyond the pale of prohibitory writs." 10
While it conceded that the law allowed extrajudicial rescission of a contract, it ruled
that "no rationalization was possible" for the extrajudicial taking of possession. It
reasoned that "no one may take the law into his own hands. To hold otherwise would
be productive of nothing but mischief and chaos."
It also rejected petitioners reliance on Consing v. Jamandre,11 in which the Supreme
Court allowed a contractual stipulation giving the lessor the right to take possession
of the leased property without need of court order. It explained that Consing was a
"judicial aberration, not common but not unknown in the body of our jurisprudence,
which lays down a ruling contrary to the teaching of the greater mass of cases." 12
Furthermore, it held that the issuance of the Writ of Preliminary Injunction did not
dispose of the main issue. Concluding, it observed that "we cannot and should not
send the message to foreigners who do business here that we are a group of
jingoists who cannot look beyond our narrow interests and must look at every
stranger with a wary eye and treat them with uneven hands."
Disagreeing with the above judgment, petitioners elevated the matter to this
Court.13
The Issues
In its Memorandum, Petitioner SBMA submits the following issues for our
consideration:14
I.

(a) The trial court ha[d] jurisdiction over the nature and subject matter of
the case despite the fact that the suit filed by private respondents is
essentially an ejectment case, and
(b) The trial court ha[d] authority to issue the questioned injunctive
relief despite the express prohibition under Section 21 of R.A. 7227
III.
"Whether or not respondent court committed a reversible error in ruling that private
respondents ha[d] the capacity to sue and possess material interest to institute an
action against petitioners.
IV.
"Whether or not the respondent court committed a reversible error by sanctioning
departure by the trial court from the accepted and usual course of judicial
proceedings by failing to make any ruling on the essential elements of injunctive
relief consisting of: (1) a clear and unmistakable right and (2)irreparable damage on
the part of the private respondents.
V.
"Whether or not respondent court committed a reversible error in departing from the
accepted and usual course of judicial proceedings by sanctioning the illegal
procedure of taking possession of the subject premises from petitioner SBMA and
transferring it into the hands of the private respondents, although the rights of the
latter ha[d] not yet been clearly established.
VI.
"Whether or not respondent court committed a reversible error by departing from
the accepted and usual course of judicial proceedings by sustaining the grant of
injunctive relief which effectively prejudged the merits of the main case.
VII.
"Whether or not respondent court committed a reversible error by departing from
the accepted and usual course of judicial proceedings by sustaining the grant of
injunctive relief in favor of the private respondents although the latter [we]re clearly
not entitled thereto as they came before the courts withunclean hands.

VIII.
"Whether or not in the event of a no reversible error judgment on the questioned
decision of the respondent court, this Honorable Division of the Supreme Court
might modify or even reverse the doctrines and principles of law laid down by the
Supreme Court in several leading cases, in violation of Section 4, Article VIII of the
1987 Philippine Constitution.
IX.
"Whether or not in the event of a no reversible error judgment, this Honorable
Division of the Supreme Court might unwittingly cause great loss or irreparable
damage to the government because such a ruling tend[ed] to send a wrong signal
that Philippine Courts [would] reward rather than punish foreign investors who
miserably failed to comply with their contractual commitments to develop vital
government assets."
Distilling the above-quoted assignment of errors, we find two main issues before us:
(a) whether the denial of petitioners Motion to Dismiss was correct, and (b) whether
the issuance of the Writ of Preliminary Mandatory and Prohibitory Injunction was
proper.
Under the first issue, the Court shall resolve (1) whether Respondent UIG has the
capacity to sue, (2) whether Respondents UIGDC and SBGCCI are real parties in
interest, and (3) whether the RTC has jurisdiction over the suit.
Under the second issue, the Court shall determine these questions: (1) whether the
Writ of Injunction against SBMA issued by the trial court contravenes Section 21 of
RA 7227; (2) whether respondents have established their entitlement to the Writ;
and (3) whether SBMAs rescission of the LDA and takeover of the property are
allowed by law.
The Courts Ruling
The Petition is partly meritorious. The CA correctly affirmed the denial of the Motion
to Dismiss, but erred in sustaining the Writ of Preliminary Mandatory and Prohibitory
Injunction.
First Issue:
Denial of the Motion to Dismiss
In its amended Motion to Dismiss filed before the RTC, petitioners contended that
UIG had no capacity to sue, and that UIGDC and SBGCCI had no material interest in
the present case. Both the appellate and the trial courts rejected these contentions.
Reiterating the arguments before us, petitioners add that the RTC had no jurisdiction
over the nature of the case.
(a) Respondents Capacity to Sue

Petitioners contend that UIG does not have the capacity to sue because it is a
foreign non-resident corporation not licensed by the Securities and Exchange
Commission to do business in the Philippines. They contend that the capacity to sue
is conferred by law and not by the parties.
As a general rule, unlicensed foreign non-resident corporations cannot file suits in
the Philippines. Section 133 of the Corporation Code specifically provides:
"Sec. 133. No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the
Philippines, but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws."
A corporation has legal status only within the state or territory in which it was
organized. For this reason, a corporation organized in another country has no
personality to file suits in the Philippines. In order to subject a foreign corporation
doing business in the country to the jurisdiction of our courts, it must acquire a
license from the SEC and appoint an agent for service of process.15 Without such
license, it cannot institute a suit in the Philippines.
It should be stressed, however, that the licensing requirement was "never intended
to favor domestic corporations who enter 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." 16 After contracting with a foreign
corporation, a domestic firm is estopped from denying the formers capacity to sue.
Hence, in Merril Lynch Futures v. CA,17 the Court ruled:
"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 x x x."
This doctrine was initiated as early as 1924 in Asia Banking Corporation v. Standard
Products18 and reiterated inGeorg Grotjahn GMBH v. Isnani19 and Communication
Materials and Design v. CA.20 In Antam Consolidated v. CA,21 the Court also rejected a
similar argument and noted 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."
In this case, SBMA is estopped from questioning the capacity to sue of UIG. In
entering into the LDA with UIG, SBMA effectively recognized its personality and
capacity to institute the suit before the trial court.
(b) Material Interest of
SBGCCI and UIGDC

Section 2, Rule 3 of the 1997 Rules of Court, defines a real party in interest in this
manner:
"Sec. 2. Parties in Interest. - A real party in interest is the party who stands to be
benefited or injured by the judgment of the suit, or the party entitled to the avails of
the suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest." 22
SBMA contends that UIGDC is not a real party in interest because it was not privy to
the LDA between UIG and SBMA. It further alleges that it did not approve the
assignment to UIGDC of UIGs rights thereunder. In like manner, SBGCCI had no
interest in the LDA because it only derived its rights from the Development
Agreement it had entered into with UIGDC.
We are not persuaded. The CA made a factual finding that UIGDC and SBGCCI were
in possession of the property when SBMA took over. Moreover, it also found that they
had already made substantial investments in the project. We find no reason at this
time to justify a different conclusion. In view of these circumstances, we agree with
the CA that UIGDC and SBGCCI stand to be benefitted or injured by the present suit
and should be deemed real parties in interest.23
SBMAs contention -- that it had not approved UIGs assignment of rights to UIGDC -is not necessarily bereft of merit, however. SBMA should raise this issue, not now but
in appropriate proceedings before the trial court.
(c) Jurisdiction Over the Subject Matter
Petitioners also argue that the RTC had no jurisdiction over the case, which was
allegedly an ejectment suit cognizable by municipal trial courts. They add that the
Complaint demanded that respondents be restored to the possession of the subject
leased premises.
We disagree. A close scrutiny of the amended Complaint reveals that it sought to
enjoin petitioners from rescinding the contract and taking over the property. While
possession was a necessary consequence of the suit, it was merely incidental. The
main issue was whether SBMA could rescind the Agreement. Because it was a
dispute that was incapable of pecuniary estimation, it was within the jurisdiction of
the RTC.24
Second Issue:
Issuance of the Writ of Injunction
(a) Present Writ of Injunction Not Barred by RA 7227
Petitioners contend that the RTC was barred from issuing a writ of injunction in this
case, pursuant to Section 21 of RA 7227 which provides as follows:

"Sec. 21. Injunction and Restraining Order. -- The implementation of the projects for
the conversion into alternative productive uses of the military reservations is urgent
and necessary and shall not be restrained or enjoined except by an order issued by
the Supreme Court of the Philippines." 25
We are not persuaded. We agree with the CA that the present provision is not a
blanket prohibition of the issuance of an injunctive relief against any SBMA action.
Section 21 of RA 7227 prohibits only such court orders which restrain the
"implementation of the projects for the conversion into alternative productive uses
of the military reservations."
The Writ issued in this case did not restrain or enjoin the implementation of any of
SBMAs conversion projects. In fact, it allowed UIG to proceed with the
development of the golf course pursuant to the LDA. It merely restrained SBMA from
taking over the golf course. Clearly, the assailed RTC Order did not seek to delay or
hamper the conversion of the former naval base into civilian uses.
Moreover, the assailed Writ of Preliminary Injunction was issued in connection with a
dispute pertaining to thecorrect interpretation of the LDA. To divest the trial court of
that authority is to give SBMA unhampered discretion to disregard its contractual
obligations under the guise of implementing its projects. Indeed, Section 21 of RA
7227 should not bar judicial scrutiny of irregularities allegedly committed by SBMA. 26
(b) Right of Respondents to Injunctive Relief
A writ of mandatory injunction requires the performance of a particular act 27 and is
granted only upon a showing of the following requisites:
"1. The invasion of the right is material and substantial;
2. The right of a complainant is clear and unmistakable.
3. There is an urgent and permanent necessity for the writ to prevent
serious damage."28
Because it commands the performance of an act, a mandatory injunction does not
preserve the status quo29 and is thus more cautiously regarded than a mere
prohibitive injunction. Accordingly, the issuance of the former is justified only in a
clear case, free from doubt and dispute. Necessarily, the applicant has the burden of
showing that it is entitled to the writ.
In this case, the first assailed RTC Order dated October 3, 1997 was effectively a
preliminary mandatory injunction because it "directed [herein petitioners] to restore
peacefully to the [herein respondents] possession of the golf course, clubhouse,
offices and other appurtenances subject of the Lease and Development Agreement
between UIG Taiwan and the SBMA." In addition, it was also a prohibitive injunction
because it restrained petitioners from obstructing or meddling in the operation and
management of the disputed property.
The records, however, do not show that herein respondents were indubitably entitled
to a mandatory writ. Under the LDA, we find no proof of a "clear and unmistakable
right" on their part to continue the operation and the development of the golf

course. Indeed, the RTC based its assailed Order mainly on the ground that SBMAs
takeover was "not legally justifiable." Thus, it ruled in this wise: 30
"From all the foregoing, the Court is of the considered view that the forcible take
over [by] the [petitioners] of the golf course and its appurtenances is not legally
justifiable. Based on the evidence adduced during the hearing, the [respondents]
have established a clear right to continue the operation and management of the golf
course, and x x x continued withholding of the premises by the [petitioners] will
result to irreparable damages to [respondents]."
Furthermore, the CA did not make any categorical ruling that respondents
established a "clear and unmistakable right" to the Writ. Like the RTC, it emphasized
that there was "no rationalization" for SBMAs extrajudicial takeover of the disputed
property. In other words, both the CA and the trial court effectively ruled that
respondents are entitled to the Writ of Mandatory Injunction because SBMAs action
was not in accordance with law.
On this point, we disagree with the trial and the appellate courts. As we will now
show, there is legal basis for petitioners rescission of the contract and takeover of
the property without any court order.
(c) Legality of SBMAs Rescission of the LDA and Takeover of the Property
Because of UIGs failure to comply with several of its contractual undertakings,
SBMA rescinded the LDA and took over the possession, the operation and the
management of the property without any judicial imprimatur. In doing so, it relied on
the provisions of the LDA, which we quoted earlier.
The Court of Appeals held that the extrajudicial rescission of the LDA was lawful, but
that the extrajudicial takeover of the property was not. It relied on Nera v.
Vacante,31 in which the Supreme Court held:
"x x x. A stipulation entitling one party to take possession of the land and building if
the other party violates the contract does not ex proprio vigore confer upon the
former the right to take possession thereof if objected to without judicial intervention
and determination."
It also cited Zulueta v. Mariano,32 which reiterated the above-quoted ruling. That
case was purportedly applicable because it involved a similar contractual stipulation,
which reads as follows:
"12. That upon failure of the BUYER to fulfill any of the conditions herein stipulated,
BUYER automatically and irrevocably authorizes OWNER to recover extra-judicially,
physical possession of the land, building and other improvements which are subject
of this contract, and to take possession also extra-judicially whatever personal
properties may be found within the aforesaid premises from the date of said failure
to answer for whatever unfulfilled monetary obligations BUYER may have with
OWNER; and this contract shall be considered as without force and effect also from
said date; x x x."
Because Zulueta was a subsequent Decision, it supposedly overturned the
"diametrically opposed" earlier ruling inConsing v. Jamandre,33 in which the Supreme

Court upheld a contractual stipulation authorizing the sub-lessor to take possession

of the leased premises in case of contractual breach. As earlier noted, the CA also
ruled thatConsing was a "judicial aberration."
We disagree. At the outset, it should be underscored that these cases are not
"diametrically opposed" to each other. In fact, they coexist. It should be noted also
that the CA erred in holding that Zulueta, being a later case, overturnedConsing. The
CA logic is flawed, because after the promulgation of Zulueta, Consing was
reiterated in 1991 in Viray v. IAC.34
Moreover, Zulueta and Nera recognized the validity and the effectivity of a
contractual provision authorizing the extrajudicial rescission of a contract and the
concomitant recovery of possession. Like Nera, Zulueta merely added the
qualification that the stipulation "has legal effect x x x where the other party does
not oppose it. Where it is objected to, a judicial determination of the issues is still
necessary." Significantly, they did not categorically rule that such stipulation was
void.
In fact, the stipulation is lawful. In Consing, the Court held that "this kind of
contractual stipulation is not illegal, there being nothing in the law proscribing such
kind of agreement."35 Affirming this ruling, the Court in Viray v. IAC36reiterated that
the stipulation "was in the nature of a resolutory condition, for upon the exercise by
the sub-lessor of his right to take possession of the leased property, the contract is
deemed terminated."
UP v. De los Angeles37 is instructive on this point. Pursuant to a stipulation similar to
that in the present case, the University of the Philippines (UP) rescinded its Logging
Agreement with ALUMCO and subsequently appointed another concessionaire to
take over the logging operation. Hence, the issue was "whether [P]etitioner UP can
treat its contract with ALUMCO rescinded, and may disregard the same before any
judicial pronouncement to that effect." Ruling in favor of UP, the Court held that a
party could enforce such stipulation:
"[T]he party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its
own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting party who believes
itself injured must first file suit and wait for a judgment before taking extrajudicial
steps to protect its interest. Otherwise, the party injured by the others breach will
have to passively sit and watch its damages accumulate during the pendency of the
suit until the final judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own damages." (Emphasis
supplied.)
The Court also noted that the rescission was "provisional" and "subject to scrutiny
and review by the proper court." It further noted that "if the other party denies that
rescission is justified, it is free to resort to judicial action in its own behalf, and bring
the matter to court." It observed that the "practical effect of the stipulation [was] to
transfer to the defaulter the initiative of instituting suit, instead of the rescinder."
In the present case, it is clear that the subject stipulation is allowed by law.
Moreover, a party is free to enforce it by rescinding the contract and recovering
possession of the property even without court intervention. Where it is objected to,

however, a judicial determination of the issue is still necessary. 38 Force or bloodshed

cannot be justified in the enforcement of the stipulation. Where the lessees offer
physical resistance, the lessors may apply for a writ of preliminary mandatory
injunction, to which they have a clear and unmistakable right. Indeed, courts are the
final arbiters.
Thus, contrary to the ruling of the CA and the RTC, there is a rationalization and a
legal justification for the stipulation authorizing SBMA to rescind the contract and to
take over the property.
No Valid Objection on the Part of Respondents
As earlier observed, there were several violations39 of the LDA, which were duly
reported by SBMA to UIG. Respondents, however, did not deny or controvert them.
Effectively, therefore, they offered no valid or sufficient objection to SBMAs exercise
of its stipulated right to extrajudicially rescind the LDA and take over the property in
case of material breach.
First, the Amended Complaint merely argued that the takeover was "grounded upon
a void provision of the agreement." 40 It did not controvert the grounds for SBMAs
exercise of its rights under the subject stipulation. Indeed, glaring was respondents
failure to deny the alleged violations of the LDA.
Second, Respondent UIG was given several opportunities by SBMA to explain the
alleged violations. Instead of controverting them, UIG instead indicated its
willingness to comply with all its undertakings. Hence, in its February 4, 1997
letter,41 SBMA called its attention to several instances showing contractual breach. In
response, UIGs counsel did not deny the violations and instead apologized for the
delay.42
Finding the response and the explanation unsatisfactory, SBMA, in a letter dated
March 7, 1997, declared UIG in default and required it to explain why the LDA should
not be terminated. UIG did not submit any written explanation. Instead, its counsel
called the SBMA chief operating officer43 to inform him of its "commitment to
undertake anew the remedial measures regarding the matter." 44
In its letter dated September 8, 1997, SBMA directed UIG to vacate the premises and
to settle its outstanding accounts. Finally, on September 12, 1997, SBMA served UIG
a Notice of Closure.45 It should be underscored that during all these exchanges, UIG
did not controvert its alleged noncompliance with the LDA.
Third, in the hearing for the application for a writ of mandatory injunction,
respondents presented two witnesses: Orlando de la Masa, operations manager of
SBGCCI; and Danilo Alabado, comptroller of UIGDC. De la Masa testified on the
alleged forcible takeover by SBMA, while Alabado testified that respondents had
invested $12 million in the rehabilitation of the golf course. Respondents, however,
did not deny the violations of their undertaking, which were explained by Atty.
Raymond P. Ventura.46
Most significant, neither the CA nor the RTC made any finding that there was no
breach on the part of UIG.1wphi1Likewise, they did not even make any observation
that respondents had controverted SBMAs claim.

Clearly, respondents stand was not a valid or sufficient objection to SBMAs exercise
of its right. Indeed, sustaining their claim would unduly diminish the force of such
lawful stipulation and allow parties to disregard it at will without any valid reason. In
this case, respondents miserably failed to give any semblance of objection to the
merits of SBMAs allegations. Moreover, we find no adequate showing of resistance
to SBMAs implementation of the subject stipulation.
Under the circumstances, SBMA showed that it had a right not only to rescind the
contract, but also to take over the property. On the other hand, respondents have
not shown any "clear and unmistakable right" to restrain SBMA from enforcing the
contractual stipulation. Indeed, they have offered no objection to SBMAs allegations
of contractual breach. Without prejudging their right to offer controverting evidence
during the trial on the merits, the Court holds that they failed to do so in their
application for a writ of preliminary injunction.
Epilogue
The Court of Appeals expressed its apprehension that a ruling against UIG would
send a message to foreign investors that we "are a group of jingoists." We do not
share that view. Jingoism is not an issue here. Far from it. In partially reversing the
CA, this Court is merely performing its mandate to do justice and to apply the law to
the facts of the case. It is merely affirming the message that in this country, the rule
of law prevails; and contracts freely entered into, whether by foreign or by local
investors, must be complied with. Indeed, rule of law and faithfulness in the
performance of contracts are cherished values everywhere.
WHEREFORE, the Petition is partially GRANTED, and the assailed Decision of the
Court of Appeals REVERSEDand SET ASIDE insofar as it affirmed the Writ of
Preliminary Injunction issued by the trial court. The said Writ is hereby LIFTED and
the case REMANDED to the RTC for trial on the merits. In the meantime, respondents
shall, upon finality of this Decision, yield the possession, the operation and the
management of the subject property to SBMA. No costs.
SO ORDERED.

5. ERIKS PTE. LTD. VS. COURT OF APPEALS,

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 CA-G.R. CV No. 41275 which affirmed, for want
of capacity to sue, the trial court's dismissal of the collection suit instituted by
petitioner.

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 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
(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)

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.

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)

The Court's Ruling

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

The petition has no merit.

The Concept of Doing Business
The Corporation Code provides:
Sec. 133. Doing business without a license. No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may
be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized
under Philippine laws.
The aforementioned provision prohibits, not merely absence of the prescribed
license, but it also bars a foreign corporation "doing business" in the Philippines
without such license access to our courts. 8 A foreign corporation without such
license is not ipso facto incapacitated from bringing an action. A license is necessary
only if it is "transacting or doing business in the country.
However, there is no definitive rule on what constitutes "doing," "engaging in," or
"transacting" business. The Corporation Code itself does not define such terms. To fill
the gap, the evolution of its statutory definition has produced a rather allencompassing concept in Republic Act No. 7042 9 in this wise:
Sec. 3. Definitions. As used in this Act:
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

. . . 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 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 four-month period. The appellee (private respondent) made
separate orders at various dates. The transactions did not consist
of separate deliveries for one single order. In the case at bar, the
transactions entered into by the appellant with the appellee are a
series of commercial dealings which would signify an intent on the
part of the appellant (petitioner) to do business in the Philippines
and could not by any stretch of the imagination be considered an
isolated one, thus would fall under the category of'doing business.
Even if We were to view, as contended by the appellant, that the
transactions which occurred between January to August 1989,
constitute a single act or isolated business transaction, this being
the ordinary business of appellant corporation, it can be said to be
illegally doing or transacting business without a license. . . . 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.
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 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
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.