G.R. No.

L-47701

June 27, 1941

THE MENTHOLATUM CO., INC., ET AL., petitioners,

vs.
ANACLETO MANGALIMAN, ET AL., respondents.
Araneta, Zaragoza, Araneta & Bautista for petitioners.
Benito Soliven for respondents.
LAUREL, J.:
This is a petition for a writ of certiorari to review the decision of the Court of Appeals dated
June 29, 1940, reversing the judgment of the Court of First Instance of Manila and
dismissing petitioners' complaint.
On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc.
instituted an action in the Court of First Instance of Manila, civil case No. 48855, against
Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for
infringement of trade mark and unfair competition. Plaintiffs prayed for the issuance of an
order restraining Anacleto and Florencio Mangaliman from selling their product
"Mentholiman," and directing them to render an accounting of their sales and profits and to
pay damages. The complaint stated, among other particulars, that the Mentholatum Co., Inc.,
is a Kansas corporation which manufactures Mentholatum," a medicament and salve adapted
for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and
other external ailments of the body; that the Philippine-American Drug co., Inc., is its
exclusive distributing agent in the Philippines authorized by it to look after and protect its
interests; that on June 26, 1919 and on January 21, 1921, the Mentholatum Co., Inc.,
registered with the Bureau of Commerce and Industry the word, "Mentholatum," as trade
mark for its products; that 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:
In the Court of Appeals, where the cause was docketed as CA-G. R. No. 46067, the decision of
the trial court was, on June 29, 1940, reversed, said tribunal holding that the activities of
the Mentholatum Co., Inc., were business transactions in the Philippines, and that, by

section 69 of the Corporation Law, it may not maintain the present suit. Hence, this petition
for certiorari.
In seeking a reversal of the decision appealed from, petitioners assign the following errors:
1. The Court of Appeals erred in declaring that the transactions of the Mentholatum
Co., Inc., in the Philippines constitute "transacting business" in this country as this
term is used in section 69 of the Corporation Law. The aforesaid conclusion of the
Court of Appeals is a conclusion of law and not of fact.
2. The Court of Appeals erred in not holding that whether or not the Mentholatum
Co., Inc., has transacted business in the Philippines is an issue foreign to the case at
bar.
3. The Court of Appeals erred in not considering the fact that the complaint was filed
not only by the Mentholatum Co., Inc., but also by the Philippine-American Drug Co.,
Inc., and that even if the Mentholatum Co., Inc., has no legal standing in this
jurisdiction, the complaint filed should be decided on its merits since the PhilippineAmerican Drug Co., Inc., has sufficient interest and standing to maintain the
complaint.
Categorically stated, this appeal simmers down to an interpretation of section 69 of the
Corporation Law, and incidentally turns upon a substantial consideration of two fundamental
propositions, to wit: (1) whether or not the petitioners could prosecute the instant action
without having secured the license required in section 69 of the Corporation Law; and (2)
whether or not the Philippine-American Drug Co., Inc., could by itself maintain this
proceeding.
Petitioners maintain that the Mentholatum Co., Inc., has not sold personally any of its
products in the Philippines; that the Philippine-American Drug Co., Inc., like fifteen or twenty
other local entities, was merely an importer of the products of the Mentholatum Co., Inc., and
that the sales of the Philippine-American Drug Co., Inc., were its own and not for the account
of the Mentholatum Co., Inc. Upon the other hand, the defendants contend that the
Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippines of
the Mentholatum Co., Inc., in the sale and distribution of its product known as
"Mentholatum"; that, because of this arrangement, the acts of the latter; and that the
Mentholatum Co., Inc., being thus engaged in business in the Philippines, and not having
acquired the license required by section 68 of the Corporation Law, neither it nor the
Philippine-American Drug co., Inc., could prosecute the present action.
Section 69 of Act No. 1459 reads:

SEC. 69. No foreign corporation or corporation formed, organized, or existing under

any laws other than those of the Philippine Islands shall be permitted to transact
business in the Philippine Islands or maintain by itself or assignee any suit for the
recovery of any debt, claim, or demand whatever, unless it shall have the license
prescribed in the section immediately preceding. Any officer, or agent of the
corporation or any person transacting business for any foreign corporation not having
the license prescribed shall be punished by imprisonment for not less than six
months nor more than two years or by a fine of not less than two hundred pesos nor
more than one thousand pesos, or by both such imprisonment and fine, in the
discretion of the court.
In the present case, no dispute exists as to facts: (1) that the plaintiff, the Mentholatum Co.,
Inc., is a foreign corporation; (2) that it is not licensed to do business in the Philippines. The
controversy, in reality, hinges on the question of whether the said corporation is or is not
transacting business in the Philippines.
No general rule or governing principle can be laid down as to what constitutes "doing" or
"engaging in" or "transacting" business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it and turned it over to
another. (Traction 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 Philippine-American Drug Co., Inc., and the pleadings
filed by petitioners. The complaint filed in the Court of First Instance of Manila on October 1,
1935, clearly stated that the Philippine-American Drug Co., Inc., is the exclusive distributing
agent in the Philippine Islands of the Mentholatum Co., Inc., in the sale and distribution of
its product known as the Mentholatum." The object of the pleadings being to draw the lines of
battle between litigants and to indicate fairly the nature of the claims or defenses of both
parties (1 Sutherland's Code Pleading, Practice & Forms, sec. 83; Milliken v. Western Union
Tel. Co., 110 N. Y. 403, 18 N. E. 251; Eckrom v. Swenseld, 46 N. D. 561, 563, 179 N. W. 920),
a party cannot subsequently take a position contradictory to, or inconsistent with, his
pleadings, as the facts therein admitted are to be taken as true for the purpose of the action.
(46 C. J., sec. 121, pp. 122-124.) It follows that whatever transactions the Philippine-

American Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc., did it
itself. And, the Mentholatum Co., Inc., being a foreign corporation doing business in the
Philippines without the license required by section 68 of the Corporation Law, it may not
prosecute this action for violation of trade mark and unfair competition. Neither may the
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.
Avancea, C.J., Diaz, and Horrilleno, JJ., concur.
Separate Opinions
MORAN, J., dissenting:
Section 69 of the Corporation Law provides that, without license no foreign corporation may
maintain by itself or assignee any suit in the Philippine courts for the recovery of any debt,
claim or demand whatever. But this provision, as we have held in Western Equipment &
Supply Company vs. Reyes (51 Phil., 115), does not apply to suits for infringement of trade
marks and unfair competition, the theory being that "the right to the use of the corporate and
trade name of a foreign corporation is a property right, a right in rem, which it may assert
and protect in any of the courts of the world even in countries where it does not personally
transact any business," and that "trade mark does not acknowledge any territorial

boundaries but extends to every mark where the traders' goods have become known and
identified by the use of the mark."
For this reason, I dissent from the majority opinion
G.R. No. L-34382 July 20, 1983
THE HOME INSURANCE COMPANY, petitioner,
vs.
EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A.

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

MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch

TRANSPORTATION COMPANY for reimbursement of the aforesaid amount

XVII, respondents

but each refused to pay the same. ...

GUTIERREZ, JR., J.:

Questioned in these consolidated petitions for review on certiorari are the decisions of the
Court of First Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No.
71923 and in Civil Case No. 71694, on the ground that plaintiff therein, now appellant, had

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

failed to prove its capacity to sue.

defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its

There is no dispute over the facts of these cases for recovery of maritime damages. In L-

shipment was covered by Bill of Lading No. 22 for transportation to, and

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

local agent, the defendant Columbian Philippines, Inc. (CARRIER). The

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.
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.

Policy No. AS-73633.

Upon inspection at the consignee's warehouse, the contents of 3 out of the 8

The coils discharged from the VESSEL numbered 2,361, of which 53 were in

The contents of these 5 packages showed several items missing in the total

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

cases were also found to be complete and intact, leaving 5 cases in bad order.
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 counterclaim of defendant Angel Jose transportation, Inc. should be

the rights and actions of the CONSIGNEE. Demands were made on

ordered dismissed; and d) each defendant to pay one-half of the costs.

defendants CARRIER and CONSIGNEE for reimbursement thereof but they

failed and refused to pay the same.

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

In both cases, the petitioner-appellant made the following averment regarding its capacity to

have not raised the question of plaintiff's compliance with that provision of

sue:

law, the Court has resolved to take the matter into account.

The plaintiff is a foreign insurance company duly authorized to do business in the Philippines

A suing foreign corporation, like plaintiff, has to plead affirmatively and prove

through its agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan

either that the transaction upon which it bases its complaint is an isolated

Building, Ayala Avenue, Makati, Rizal.

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.

In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and

vs. Cebu Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of

alleged that it:

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

Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of

Corporation vs. Hankai Koayo Co., 6 SCRA 725, it has to be held that plaintiff

knowledge or information sufficient to form a belief as to the truth thereof.

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.

Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the
allegations of the complaint, regarding the capacity of plaintiff-appellant. The pertinent

The situation of plaintiff under said Section 68 has been described as follows

paragraph of this answer reads 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:

Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading
Parties.

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

In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and

plaintiff to transact insurance business in this country. By virtue of Section

Guacods, Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for

176 of the Insurance Law, it has to be presumed that a license to transact

lack of knowledge or information sufficient to form a belief as to the truth thereof.

business under Section 68 of the Corporation Law had previously been

issued to plaintiff. No copy thereof, however, was submitted for a reason

As earlier stated, the respondent court dismissed the complaints in the two cases on the

unknown. The date of that license must not have been much anterior to

same ground, that the plaintiff failed to prove its capacity to sue. The court reasoned as

July 1, 1967. The preponderance of the evidence would therefore call for the

follows:

finding that the insurance contract involved in this case, which was
executed at Makati, Rizal, on February 8, 1967, was contracted before
In the opinion of the Court, if plaintiff had the capacity to sue, the Court

plaintiff was licensed to transact business in the Philippines.

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,

This Court views Section 68 of the Corporation Law as

the date of the institution of the Complaint, until fully paid; b) defendant

reflective of a basic public policy. Hence, it is of the opinion

Angel Jose Transportation, Inc. should pay plaintiff the sum of P1,630.22

that, in the eyes of Philippine law, the insurance contract

also with interest at the legal rate from January 5, 1968 until fully paid; c)

involved in this case must be held void under the provisions

of Article 1409 (1) of the Civil Code, and could not be

likewise not in issue. The petitioner was engaged in business without a license. The private

validated by subsequent procurement of the license. That

respondents' obligation to pay under the terms of the contracts has been proved.

view of the Court finds support in the following citation:

When the complaints in these two cases were filed, the petitioner had already secured the
According to many authorities, a constitutional or statutory prohibition against

necessary license to conduct its insurance business in the Philippines. It could already filed

a foreign corporation doing business in the state, unless such corporation has

suits.

complied with conditions prescribed, is effective to make the contracts of such

corporation void, or at least unenforceable, and prevents the maintenance by

Petitioner was, therefore, telling the truth when it averred in its complaints that it was a

the corporation of any action on such contracts. Although the usual

foreign insurance company duly authorized to do business in the Philippines through its

construction is to the contrary, and to the effect that only the remedy for

agent Mr. Victor H. Bello. However, when the insurance contracts which formed the basis of

enforcement is affected thereby, a statute prohibiting a non-complying

these cases were executed, the petitioner had not yet secured the necessary licenses and

corporation from suing in the state courts on any contract has been held by

authority. The lower court, therefore, declared that pursuant to the basic public policy

some courts to render the contract void and unenforceable by the corporation,

reflected in the Corporation Law, the insurance contracts executed before a license was

even after its has complied with the statute." (36 Am. Jur. 2d 299-300).

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 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

The applicable provisions of the old Corporation Law, Act 1459, as amended are:

should also be dismissed.

Sec. 68. No foreign corporation or corporations formed, organized, or existing
We resolved to consolidate the two cases when we gave due course to the petition.

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

The petitioner raised the following assignments of errors:

obtained a license for that purpose from the chief of the Mercantile Register of
the Bureau of Commerce and Industry, (Now Securities and Exchange

First Assignment of Error

Commission. See RA 5455) upon order of the Secretary of Finance (Now

Monetary Board) in case of banks, savings, and loan banks, trust

THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE

corporations, and banking institutions of all kinds, and upon order of the

THE LEGAL EXISTENCE OR CAPACITY OF PLAINTIFF-APPELLANT.

Secretary of Commerce and Communications (Now Secretary of Trade. See

5455, section 4 for other requirements) in case of all other foreign

Second Assignment of Error

corporations. ...

THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT

Sec. 69. No foreign corporation or corporation formed, organized, or existing

ON THE FINDING THAT PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE.

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

On the basis of factual and equitable considerations, there is no question that the private

assignee any suit for the recovery of any debt, claim, or demand whatever,

respondents should pay the obligations found by the trial court as owing to the petitioner.

unless it shall have the license prescribed in the section immediately

Only the question of validity of the contracts in relation to lack of capacity to sue stands in

preceding. Any officer, director, or agent of the corporation or any person

the way of the petitioner being given the affirmative relief it seeks. Whether or not the

transacting business for any foreign corporation not having the license

petitioner was engaged in single acts or solitary transactions and not engaged in business is

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

jurisdiction of their cases; confronted with the option of construing the law to mean that

the discretion of the court.

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

As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser

the complicated formulae provided by the Corporation Law with regard to the obtaining of

& Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to

the license, before the sale was made, in order to avoid being swindled by Philippine

subject the foreign corporation doing business in the Philippines to the jurisdiction of our

citizens, or of construing the law to mean that no foreign corporation doing business in

courts. The Marshall Wells Co. decision referred to a litigation over an isolated act for the

the Philippines can maintain any suit until it shall possess the necessary license;-

unpaid balance on a bill of goods but the philosophy behind the law applies to the factual

confronted with these options, can anyone doubt what our decision will be? The law

circumstances of these cases. The Court stated:

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

Defendant isolates a portion of one sentence of section 69 of the Corporation Law and

license required by law, and, until it complies with the law, shall not be permitted to

asks the court to give it a literal meaning Counsel would have the law read thus: "No

maintain any suit in the local courts. A contrary holding would bring the law to the verge

foreign corporation shall be permitted to maintain by itself or assignee any suit for the

of unconstitutionality, a result which should be and can be easily avoided. (Sioux Remedy

recovery of any debt, claim, or demand whatever, unless it shall have the license

Co. vs. Cope and Cope, supra; Perkins, Philippine Business Law, p. 264.)

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

To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of

thereafter to give the law a common sense interpretation.

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

The object of the statute was to subject the foreign corporation doing business in the

friendly commercial intercourse among countries.

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

The objectives enunciated in the 1924 decision are even more relevant today when we view

domicile for the purpose of business without taking the steps necessary to render it

commercial relations in terms of a world economy, when the tendency is to re-examine the

amenable to suit in the local courts. The implication of the law is that it was never the

political boundaries separating one nation from another insofar as they define business

purpose of the Legislature to exclude a foreign corporation which happens to obtain an

requirements or restrict marketing conditions.

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

We distinguish between the denial of a right to take remedial action and the penal sanction

foreign corporations. The effect of the statute preventing foreign corporations from doing

for non-registration.

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

Insofar as transacting business without a license is concerned, Section 69 of the Corporation

be construed to extend beyond the plain meaning of its terms, considered in connection

Law imposed a penal sanction-imprisonment for not less than six months nor more than two

with its object, and in connection with the spirit of the entire law. (State vs. American

years or payment of a fine not less than P200.00 nor more than P1,000.00 or both in the

Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph Co. vs. Superior

discretion of the court. There is a penalty for transacting business without registration.

Court of City & Country of San Francisco and Hebbard [1908], 153 Cal., 533; 5
Thompson on Corporations, 2d ed., chap. 184.)

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

Confronted with the option of giving to the Corporation Law a harsh interpretation, which

Law is silent on whether or not the contract executed by a foreign corporation with no

would disastrously embarrass trade, or of giving to the law a reasonable interpretation,

capacity to sue is null and void ab initio.

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

We are not unaware of the conflicting schools of thought both here and abroad which are

It has also been held that where the law provided that a corporation which

divided on whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in

has not complied with the statutory requirements "shall not maintain an

his book Corporation Law (Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234)

action until such compliance". "At the commencement of this action the

cites an Illinois decision which holds the contracts void and a Michigan statute and decision

plaintiff had not filed the certified copy with the country clerk of Madera

declaring them merely voidable:

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

Where a contract which is entered into by a foreign corporation without

defense was pleaded by the defendant the plaintiff had complied with the

complying with the local requirements of doing business is rendered void

statute. The defense pleaded by the defendant was therefore unavailable to

either by the express terms of a statute or by statutory construction, a

him to prevent the plaintiff from thereafter maintaining the action. Section

subsequent compliance with the statute by the corporation will not enable it

299 does not declare that the plaintiff shall not commence an action in any

to maintain an action on the contract. (Perkins Mfg. Co. v. Clinton Const.

county unless it has filed a certified copy in the office of the county clerk, but

Co., 295 P. 1 [1930]. See also Diamond Glue Co. v. U.S. Glue Co., supra see

merely declares that it shall not maintain an action until it has filled it. To

note 18.) But where the statute merely prohibits the maintenance of a suit on

maintain an action is not the same as to commence an action, but implies

such contract (without expressly declaring the contract "void"), it was held

that the action has already been commenced." (See also Kendrick & Roberts

that a failure to comply with the statute rendered the contract voidable and

Inc. v. Warren Bros. Co., 110 Md. 47, 72 A. 461 [1909]).

not void, and compliance at any time before suit was sufficient. (Perkins Mfg.
Co. v. Clinton Const. Co., supra.) Notwithstanding the above decision, the

In another case, the court said: "The very fact that the prohibition against

Illinois statute provides, among other things that a foreign corporation that

maintaining an action in the courts of the state was inserted in the statute

fails to comply with the conditions of doing business in that state cannot

ought to be conclusive proof that the legislature did not intend or understand

maintain a suit or action, etc. The court said: 'The contract upon which this

that contracts made without compliance with the law were void. The statute

suit was brought, having been entered into in this state when appellant was

does not fix any time within which foreign corporations shall comply with the

not permitted to transact business in this state, is in violation of the plain

Act. If such contracts were void, no suits could be prosecuted on them in any

provisions of the statute, and is therefore null and void, and no action can be

court. ... The primary purpose of our statute is to compel a foreign

maintained thereon at any time, even if the corporation shall, at some time

corporation desiring to do business within the state to submit itself to the

after the making of the contract, qualify itself to transact business in this

jurisdiction of the courts of this state. The statute was not intended to

state by a compliance with our laws in reference to foreign corporations that

exclude foreign corporations from the state. It does not, in terms, render

desire to engage in business here. (United Lead Co. v. J.M. Ready Elevator

invalid contracts made in this state by non-complying corporations. The

Mfg. Co., 222 Ill. 199, 73 N.N. 567 [1906].)

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

A Michigan statute provides: "No foreign corporation subject to the provisions

penalty, with no express or implied declarations respecting the validity of

of this Act, shall maintain any action in this state upon any contract made by

enforceability of contracts made by qualified foreign corporations, the

it in this state after the taking effect of this Act, until it shall have fully

contracts ... are enforceable ... upon compliance with the law." (Peter &

complied with the requirement of this Act, and procured a certificate to that

Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)

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

Our jurisprudence leans towards the later view. Apart from the objectives earlier cited

void, but they may be enforced only after compliance therewith. (Hastings

from Marshall Wells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign

Industrial Co. v. Moral, 143 Mich. 679,107 N.E. 706 [1906]; Kuennan v. U.S.

corporation actually doing business in the Philippines without license to do so may be sued

Fidelity & G. Co., Mich. 122; 123 N.W. 799 [1909]; Despres, Bridges & Noel v.

in our courts. The defendant American corporation in General Corporation of the Philippines v.

Zierleyn, 163 Mich. 399, 128 N.W. 769 [1910]).

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

administrative tribunals on any valid cause of action recognized under

defendant had not yet been registered and authorized to do business. The registration and

Philippine laws.

authority came a little less than two months later. This Court ruled:
The old Section 69 has been reworded in terms of non-access to courts and administrative
Counsel for appellant contends that at the time of the service of summons,

agencies in order to maintain or intervene in any action or proceeding.

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

The prohibition against doing business without first securing a license is now given penal

corporations with or without authority to do business in the Philippines. The

sanction which is also applicable to other violations of the Corporation Code under the

test is whether a foreign corporation was actually doing business here.

general provisions of Section 144 of the Code.

Otherwise, a foreign corporation illegally doing business here because of its

refusal or neglect to obtain the corresponding license and authority to do

It is, therefore, not necessary to declare the contract nun and void even as against the erring

business may successfully though unfairly plead such neglect or illegal act so

foreign corporation. The penal sanction for the violation and the denial of access to our

as to avoid service and thereby impugn the jurisdiction of the local courts. It

courts and administrative bodies are sufficient from the viewpoint of legislative policy.

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

Our ruling that the lack of capacity at the time of the execution of the contracts was cured by

business accept and pay for shipments of goods from America, relying for

the subsequent registration is also strengthened by the procedural aspects of these cases.

their protection on duly executed foreign marine insurance policies made

payable in Manila and duly endorsed and delivered to them, that when they

The petitioner averred in its complaints that it is a foreign insurance company, that it is

go to court to enforce said policies, the insurer who all along has been

authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello, and that its

engaging in this business of issuing similar marine policies, serenely pleads

office address is the Oledan Building at Ayala Avenue, Makati. These are all the averments

immunity to local jurisdiction because of its refusal or neglect to obtain the

required by Section 4, Rule 8 of the Rules of Court. The petitioner sufficiently alleged its

corresponding license to do business here thereby compelling the consignees

capacity to sue. The private respondents countered either with an admission of the plaintiff's

or purchasers of the goods insured to go to America and sue in its courts for

jurisdictional averments or with a general denial based on lack of knowledge or information

redress.

sufficient to form a belief as to the truth of the averments.

There is no question that the contracts are enforceable. The requirement of registration

We find the general denials inadequate to attack the foreign corporations lack of capacity to

affects only the remedy.

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

Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected

capacity of any party to sue or be sued in a representative capacity shall do so by specific

the ambiguity caused by the wording of Section 69 of the old Corporation Law.

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

Section 133 of the present Corporation Code provides:

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

SEC. 133. Doing business without a license.-No foreign corporation

the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the

transacting business in the Philippines without a license, or its successors or

petitioner introduced documentary evidence that it had the authority to engage in the

assigns, shag be permitted to maintain or intervene in any action, suit or

insurance business at the time it filed the complaints.

proceeding in any court or administrative agency in the Philippines; but such

corporation may be sued or proceeded against before Philippine courts or

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

The Union Insurance Society of Canton, ltd. has been acting as settling agent of and settling

P1,630.22 with interest at the legal rate from January 5, 1968 until fully paid and

insurance claims against the Fireman's Fund Insurance Co. even before the last world war

respondent Angel Jose Transportation Inc. is ordered to pay the petitioner the sum of

and continued as such at least up to November 7, 1946.

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

In civil case No. 511 of the Court of First Instance of manila, the General Corporation of the

Inc. is dismissed.

Philippines and the Mayon Investment Co. as plaintiffs sued the union Insurance Society of
Canton, Ltd. and the Fireman's Fund Insurance Co. for the payment of twelve marine

In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to

insurance policies in the sum of P57,137.60. Said policies were issued by the Fireman's Fund

pay the petitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968

Insurance Co. for the merchandise shipped from the United States to the Philippines in 1945,

until fully paid, the sum of P500.00 attorney's fees, and costs, The complaint against

in the name of Western Canvas Products Company and/or Rovan Trading Company, doing

Guacods, Inc. is dismissed.

business in Seattle, Washington, U.S.A. The original bills of lading and the original insurance
policies covering the merchandise, all endorsed in blank, were sent by the insured to the
Hongkong & Shanghai Banking Corporation in manila with instructions that the said

SO ORDERED.

documents were to be surrendered and title to the merchandise covered by them to be

transferred upon payment in full of the invoice price.
G.R. No. 2684

September 14, 1950

Upon arrival of the merchandise in Manila the consignee or purchaser would appear to have
failed to meet the terms of the sale and following a certain agreement between the shippers

GENERAL CORPORATION OF THE PHILIPPINES and MAYON INVESTMENT

CO., plaintiffs-appellees,
vs.
UNION INSURANCE SOCIETY OF CANTON, LTD. and/or FIREMAN'S FUND INSURANCE
CO., defendants-appellants.
MONTEMAYOR, J.:
General Corporation of the Philippines and the Mayon Investment Co. are domestic
corporations duly organized and existing by virtue of the laws of the Philippines, with
principal offices in the City of Manila. The Union Insurance Society of Canton, Ltd. is a
foreign insurance corporation, duly authorized to do business in the Philippines, with head
office in the City of Hongkong, China, and a branch office in Manila. The Fireman's Fund
Insurance Co. is a foreign insurance corporation duly organized and existing under the laws
of the State of California, U.S.A. It has been duly registered with the Insurance Commissioner
of the Bureau of Commerce as such insurance company since November 7, 1946, and
authorized to do business in the Philippines since that date.

and the herein plaintiffs, the shipping papers, including the twelve marine insurance policies
were surrendered to the herein plaintiffs and the merchandise released to them, the latter
claiming that they had paid to the bank the full invoice price. It was later found that some of
the merchandise were lost and others damaged while in transit and inasmuch as the policies
were made payable to the order of the assured in Manila acting as settling agent of its codefendant Fireman's Fund Insurance Co. It seems that all the claim papers with the
exception of insurance policy No. 70448/6 (Exhibit E-2) for $2,902.36 were forwarded to
defendant Fireman's Fund Insurance Co. at Seattle, Washington, following instructions from
the said company, and the claims there approved by the insurance company. However, the
claims were there adjudicated by the Superior Court of the State of Washington for King
Country against the plaintiffs in the present case and in favor of other claimants. As regards
the claim based on insurance policy No. 70448/6, Exhibit E-2, involved in the present
appeal, inasmuch as it was filed a little late, it was not forwarded to the United States and so
was never passed upon by the Fireman's Fund Insurance Co. at Seattle; neither was it
approved or disapproved by the Union Insurance Society of Canton, Ltd. in Manila.
In the trial court the parties submitted the case upon a partial stipulation of facts and some
evidence, oral and documentary. After hearing, said court found and held that as regards the
eleven marine insurance policies which have been the subject of interpleader in the Superior
Court in the State of Washington for King County and decided by said court against the
herein plaintiffs, said decision constituted res adjudicata binding upon the plaintiffs herein.

The trial court absolved the defendant Union Insurance Society of Canton, Ltd. from the

SEC. 14. Service upon private foreign corporations. If the defendant is a foreign

complaint but condemned the Fireman's Fund Insurance Co. to pay the plaintiffs the sum of

corporation, or a non-resident joint stock company or association, doing business in

$2,000 or its equivalent in Philippine currency, with legal interest from and including

the Philippines, service may be made on its resident agent designated in accordance

September 12, 1946, on the claim based on the marine insurance policy No. 70448/6,

with law for that purpose, or, if there be no such agent, on the government official

Exhibit E-2.

designated by law to that effect, or on any of its officers or agents within the
Philippines.

The plaintiffs General Corporation of the Philippines and Mayon Investment Co. appealed
from that part of the decision referring to the eleven marine insurance policies. Said appealed

Applying then above legal provision, the trial court in its decision held that service of

is now docketed in the Supreme Court as G. R. No. L-2303. The Fireman's Fund Insurance

summons for appellant Fireman's Fund Insurance Co. on its settling agent Union Insurance

Co. appealed form the decision in so far as it was sentenced to pay $2,000 to the plaintiffs.

Society of Canton, Ltd., was legal and gave the court jurisdiction over said appellant, the

Because of the amount involved the appeal was sent to the Court of Appeals. However, being

court ruling that the phrase "or agents within the Philippines" clearly embraced settling

a companion case of G. R. No. L-2303, at the instance of the appellant, the case was finally

agents like the Union Insurance Society of Canton, Ltd.

elevated to the Supreme Court Which gave it due course by its resolution of December 9,
1948, and docketed here as G. R. No. L-2684. This is the case on appeal now under

We agree with the trial court in its ruling on this point. Section 14, Rule 7 of the Rules of

consideration.

Court above quoted in employing the phrase "doing business in the Philippines" makes no
distinction as to whether said business was being done or engaged in legally with the

The appellant contends that the trial court erred in holding that it acquired jurisdiction over

corresponding authority and license of the Government or, perhaps illegally, without the

appellant Fireman's Fund Insurance Co. and in rendering judgment against it in the sum of

benefit of any such authority or license. As long as a foreign private corporation does or

$2,000.

engages in business in this jurisdiction, it should and will be amenable to process and the
jurisdiction of the local courts, this for the protection of the citizens, and service upon any

As regards the issue of jurisdiction, it is well to state that the summons corresponding to

agent of said foreign corporation constitutes personal service upon the corporation and

appellant Fireman's Funds Insurance Co. was served on September 12, 1946, on the Union

accordingly judgment may be rendered against said foreign corporation. (Fisher, Philippine

Insurance Society of Canton, Ltd. then acting as appellant's settling agent in this country. At

Law of Stock Corporation, pp. 451, 456.)

that time, the appellant had not yet been registered and authorized to do business in the
Philippines. Said registration and authority came as already stated, only on November 7,

But, was the Fireman's Funds Insurance Co. in September, 1946, then doing business in the

1946, that is, a little less than two months later.

Philippines, within legal contemplation? It is a rule generally accepted that one single or
isolated business transaction does not constitute "doing business" within the meaning of the

The attorneys for the Union Insurance Society of Canton, Ltd. on September 25, 1946,

law, and that transactions which are occasional, incidental and casual, not of a character to

petitioned the trial court to quash and declare null and void the summons issued thru it on

indicate a purpose to engage in business do not constitute the doing or engaging in business

its co-defendant Fireman's Fund Insurance Co. on the ground that the said company was not

contemplated by law. In order that a foreign corporation may be regarded as doing business

doing business in the Philippines, and that the Union Insurance Society of Canton, Ltd. had

within a State, there must be continuity of conduct and intention to establish a continuous

no authority from its co- defendant to receive summons on its behalf. The trial court in its

business, such as the appointment of a local agent, and not one of a temporary character.

order of October 18, 1946, overruled said petition on the ground that according to the

(Thompson on Corporations, Vol. 8, 3d edition, pp. 844-847 and Fisher's Philippine Law of

complaint, the Fireman's Fund Insurance Co. was doing business in the Philippines and a

Stock Corporation, p. 415.).

mere denial of said allegation was not sufficient to justify the court in quashing the
summons, and that the matter of doing business in the Philippine was a question of fact to be

The Fireman's Fund Insurance Co., to judge by the twelve marine insurance policies issued

determined at the hearing of the case.

as already mentioned, policies covering different shipments, made payable in Manila,

endorsed in blank, and in practice, collectible by the consignees in Manila or such other

Section 14, Rule 7 of the Rules of the Court reads as Follows:

persons or entities who meet the terms by paying the amounts of the invoices, rendering it

not only convenient but necessary for said Fireman's Fund Insurance Co. to appoint and

made, the appellant had not yet been authorized to do business in the Philippines and so it

keep a settling agent in this jurisdiction, was certainly doing business in the Philippines. And

had not yet designated an agent authorized to accept service of summons. But less than two

these were not casual or isolated business transactions. According to the evidence, since

months thereafter, the appellant obtained such license or authority and even according to its

before the war, the Fireman's Fund Insurance Co. would appear to have engaged in this kind

own theory was then amenable to the jurisdiction of the local courts. It employed able

of business and had employed its co-defendant Union Insurance Society of Canton, Ltd. as its

attorneys who filed an answer, including motions on its behalf, and during the hearing held

settling agent, although sometime in 1946, between July and August of that year, appellant

on October 21, 1947, that is to say, about one year after it had been authorized to do

had its own employee from its head office in America, one John L. Stewart, acting as its

business here, it was represented by the same attorneys who not only cross-examined the

settling agent here. And, to conclusively prove continuity of the business and the intention of

witness for the plaintiffs and agreed to or objected on to documentary evidence, but

the appellant not only to establish but to continue such regular business in this jurisdiction,

introduced a witness on its behalf and presented documentary evidence. Under such

on November 7, 1946, less than two months after service of summons, it applied for, obtained

circumstances, it must be clear that the appellant may not successfully plead lack of

a license and was authorized to regularly do business in the Philippines.

jurisdiction over its person. The appellant next urges that the plaintiffs had no interest in the
insurance policy, having received the same merely for collection according to paragraph VII of

Counsel for appellant contends that at the time of the service of summons, the appellant had

the complaint. The truth is that the plaintiffs have such interest sufficient to authorize them

not yet been authorized to do business. But, as already stated, section 14, Rule 7 of the Rules

to sue on and recover upon said policy because they have met all the terms of the shipper,

of the Court makes no distinction as to corporations with or without authority to do business

paid all the amounts demanded by it thru the bank and in turn were given all the shipping

in the Philippines. The test is whether a foreign corporation was actually doing business here.

papers, including the insurance policy, Exhibit E-2. It is to be remembered that this

Otherwise, a foreign corporation illegally doing business here because of its refusal or neglect

insurance policy was endorsed in blank and payable in Manila. One of the conditions of said

to obtain the corresponding license and authority to do business may successfully though

policy is that thru it the appellant insured the shipper (Western Canvas Products Co.) "as well

unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the

as in his or their own name as in that of those to whomsoever the subject matter of this

jurisdiction of the local courts. It would indeed be anomalous and quite prejudicial, even

policy does, may or shall appertain, in the sum of $2,000" (First paragraph of the policy,

disastrous, to the citizens in this jurisdiction who in all good faith and in the regular course

Exhibit E-2). Moreover, as correctly found by the trial court, there was an agreement Exhibit

of business accept and pay for shipments of good from America, relying for their protection on

2 attached to Exhibit F-2 whereby the shipper Western Canvas Product Co. authorized the

duly executed foreign marine insurance policies made payable in Manila and duly endorsed

plaintiffs herein to prosecute this case against appellant.

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

Now, we come to the evidence or proof as to the loss or damage said to have been suffered by

immunity to local jurisdiction because of its refusal or neglect to obtain the corresponding

the plaintiffs. Said plaintiffs claimed that their documentary evidence Exhibit E to E-23

license to do business here thereby compelling the consignees or purchasers of the goods

establish their loss; that said documents are of the same class of documents presented in the

insured to go to America and sue in its courts for redress.

other eleven insurance policies and which were approved by the appellant in America in G. R.
No. L-2303. Counsel for the appellant, however, insists that the plaintiffs' claim was never

Appellant further contends that according to section 68 of the Corporation Law, service of

approved by appellant or its settling agent. In this we agree. The settling agent here declined

summons on a foreign corporation may be made only upon an agent of said corporation

to take action upon the claim filed by the plaintiffs based on the policy Exhibit E-2 and said

residing in the Philippines and authorized by the foreign corporation to accept service. Said

plaintiffs failed or refused to present said claim before the appellant in America. We shall

section refers to a foreign corporation doing business in the Philippines which has complied

therefore have to determine whether the evidence is sufficient to support the claim. The trial

with the law and obtained the corresponding license. It does not refer to a foreign corporation

court without discussing the evidence or referring to the documents merely held that the

actually doing business here but without the corresponding license or authority. In the latter

evidence was sufficient to prove the claim.

case, service of summons is governed by section 14, Rule 7 of the Rules of Court.
Examining the evidence we find that Attorney Nabong for the plaintiffs gave no testimony
We may add that the defense of lack of jurisdiction interposed by appellant seems to be based

about the loss. He merely identified the documents intended to prove said loss. According to

on a mere technicality. True, on September 12, 1946, when service of the summons was

the report (Exhibit E-21) of plaintiffs' surveyor C. B. Nelson & Co., which made the survey in

order to ascertain the nature and extent of the damage alleged to have been sustained on the

In view of the foregoing, the decision appealed from is hereby modified so as to reduce the

shipment of the 21 cases of merchandise which came on the American Mail Lines SS

amount awarded to the plaintiffs and to be paid by the appellant Fireman's Fund Insurance

Wideawake which arrived in Manila, on October 14, 1945, covered by the policy Exhibit E-2,

Co., from $2,000 to $635.50 or its equivalent in Philippine currency, and in all other respects,

eleven cases -- Nos. 8, 10, 11, 12, 15, 16, 17, 18, 19, 20 and 21 still remained undelivered,

the decision is affirmed. No pronouncement as to costs.

and that claim for these cases should be supported by shortlanded certificates issued by the
steamship agent. We failed to find these certificates among the exhibits presented. It seems

Moran, C.J., Ozaeta, Paras, Pablo, Bengzon, Tuason, and Reyes, JJ., concur.

that efforts were made on Manila Terminal Co. (Exhibit E-8), American Mail Line, Ltd.
(Exhibit E-9), and the Luzon Stevedoring Co. (Exhibits E-10 and E-11), but that said
certificates were never issued. In Exhibits E-14, the Manila Terminal Co., writing to the Luzon
Brokerage Co., and speaking of the eleven cases of merchandise said to have been

Transcript of ERIKS PTE. LTD vs. CA, and DELFIN F. ENRIQUEZ, JR.

GR. 118843 Feb.

6, 1997

shortlanded, merely promised to make careful investigation and to issue the corresponding
certificate if its record indicated that the cargoes were not landed from the vessel. And, in
Exhibit E-18, the Everett Steamship Corporation in a letter to one of the plaintiffs (General
Corporation of the Philippines) said that "all merchandise manifested on the bill of lading No.
S-76 was discharged in full and in apparent good order;" that "once cargo leaves the ship's
tackle, responsibility was entirely out of hands," and "in view of the above we regret that we
cannot tender recognition of your claim" (apparently referring to the eleven cases). We
therefore find that the claim for the loss or shortlanding of these eleven cases which
constitute the bulk of the claim has not been proven.
Going back to the report of the surveyor C.B. Nelson & Co. (Exhibit E-21), said report made a
detailed survey of the shortage or damage on cases Nos. 5, 9, 13 and 14. According to Exhibit
E-7 the shortage or damage on these four cases is valued at $635.50 or P1,271. These
exhibits E-7 and E-21 were admitted in court without objection by the appellant. We find the
claim in the amount of $635.50 to have been duly established.
In conclusion we hold that a foreign corporation actually doing business in this jurisdiction,
with or without license or authority to do so, is amenable to process and the jurisdiction of
local courts. If such foreign corporation has a license to do business, then summons to it will
be served on the agent designated by it for purpose, or otherwise in accordance with the
provisions of the Corporation Law. Where such foreign corporation actually doing business
here has not applied for license to do so and has not designated an agent to receive
summons, then service of summons on it will be made pursuant to the provisions of the
Rules of Court, particularly Rule 7, section 14 thereof. We further hold that where a foreign
insurance corporation engages in regular marine insurance policies abroad to cover foreign
shipments to the Philippines, said policies being made payable here, and said insurance
company appoints and keeps an age here to receive and settle claims flowing from said
policies, then said foreign corporation will be regarded as doing business here in
contemplation of law.

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 courts dismissal of the collection suit instituted by petitioner.
The Facts
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the
manufacture and sale of elements used in sealing pumps, valves and pipes for industrial
purposes, valves and control equipment used for industrial fluid control and PVC pipes and
fittings for industrial uses. In its complaint, it alleged that:[2]
(I)t is a corporation duly organized and existing under the laws of the Republic of Singapore
with address at 18 Pasir Panjang Road #09-01, PSA Multi-Storey Complex, Singapore 0511. It
is not licensed to do business in the Philippines and i(s) not so engaged and is suing on an
isolated transaction for which it has capacity to sue x x x. (par. 1, Complaint; p. 1, Record)
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]
respondents account, F.O.B. Singapore, with a 90-day credit term. Subsequently,
demands were made by petitioner upon private respondent to settle his account, but the
latter failed/refused to do so.

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

The Concept of Doing Business

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

The Issue
The main issue in this petition is whether petitioner-corporation may maintain an action
in Philippine courts considering that it has no license to do business in the country. The
resolution of this issue depends on whether petitioners business with private respondent may
be treated as isolated transactions.
Petitioner insists that the series of sales made to private respondent would still
constitute isolated transactions despite the number of invoices covering several separate and
distinct items sold and shipped over a span of four to five months, and that an affirmation of
respondent Courts ruling would result in injustice and unjust enrichment.
Private respondent counters that to declare petitioner as possessing capacity to sue will
render nugatory the provisions of the Corporation Code and constitute a gross violation of
our laws. Thus, he argues, petitioner is undeserving of legal protection.
The Courts Ruling
The petition has no merit.

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

x x x The true test, however, seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int.
Revenue [C.C.A., Ohio], 223 F. 984, 987.]The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization.] (sic) (Griffin v. Implement Dealers
Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & 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 mean a singular and isolated business transaction that
is temporary in character. Granting that there is no distributorship agreement between herein
parties, yet by the mere fact that plaintiff, each time that the defendant posts an order
delivers the items as evidenced by the several invoices and receipts of various dates only
indicates that plaintiff has the intention and desire to repeat the (sic) said transaction in the
future in pursuit of its ordinary business. Furthermore, and if the corporation is doing that
for which it was created, the amount or volume of the business done is immaterial and a
single act of that character may constitute doing business. (See p. 603, Corp. Code, De Leon 1986 Ed.).
Respondent Court affirmed this finding in its assailed Decision with this explanation: [13]
x x x Considering the factual background as laid out above, the transaction cannot be
considered as an isolated one. Note that there were 17 orders and deliveries (only sixteen per
our count) over a four-month period. The appellee (private respondent) made separate orders
at various dates. The transactions did not consist of separate deliveries for one single
order. In the case at bar, the transactions entered into by the appellant with the appellee are
a series of commercial dealings which would signify an intent on the part of the appellant
(petitioner) to do business in the Philippines and could not by any stretch of the imagination
be considered an isolated one, thus would fall under the category of doing business.

Even if We were to view, as contended by the appellant, that the transactions which
occurred between January to August 1989, constitute a single act or isolated business
transaction, this being the ordinary business of appellant corporation, it can be said to be
illegally doing or transacting business without a license. x x x Here it can be clearly gleaned
from the four-month period of transactions between appellant and appellee that it was a
continuing business relationship, which would, without doubt, constitute doing business
without a license. For all intents and purposes, appellant corporation is doing or transacting
business in the Philippines without a license and that, therefore, in accordance with the
specific mandate of Section 144 of the Corporation Code, it has no capacity to sue. (addition
ours)
We find no reason to disagree with both lower courts. More than the sheer number of
transactions entered into, a clear and unmistakable intention on the part of petitioner to
continue the body of its business in the Philippines is more than apparent. As alleged in its
complaint, it is engaged in the manufacture and sale of elements used in sealing pumps,
valves, and pipes for industrial purposes, valves and control equipment used for industrial
fluid control and PVC pipes and fittings for industrial use. Thus, the sale by petitioner of the
items covered by the receipts, which are part and parcel of its main product line, was actually
carried out in the progressive prosecution of commercial gain and the pursuit of the purpose
and object of its business, pure and simple. Further, its grant and extension of 90-day credit
terms to private respondent for every purchase made, unarguably shows an intention to
continue transacting with private respondent, since in the usual course of commercial
transactions, credit is extended only to customers in good standing or to those on whom
there is an intention to maintain long-term relationship. This being so, the existence of a
distributorship agreement between the parties, as alleged but not proven by private
respondent, would, if duly established by competent evidence, be merely corroborative, and
failure to sufficiently prove said allegation will not significantly affect the finding of the courts
below. Nor our own ruling. It is precisely upon the set of facts above-detailed that we concur
with respondent Court that petitioner corporation was doing business in the country.
Equally important is the absence of any fact or circumstance which might tend even
remotely to negate such intention to continue the progressive prosecution of petitioners
business activities in this country. Had private respondent not turned out to be a bad risk, in
all likelihood petitioner would have indefinitely continued its commercial transactions with
him, and not surprisingly, in ever increasing volumes.
Thus, we hold that the series of transactions in question could not have been isolated or
casual transactions. What is determinative of doing business is not really the number or the
quantity of the transactions, but more importantly, the intention of an entity to continue the
body of its business in the country. The number and quantity are merely evidence of such
intention. The phrase isolated transaction has a definite and fixed meaning, i.e. a transaction
or series of transactions set apart from the common business of a foreign enterprise in the
sense that there is no intention to engage in a progressive pursuit of the purpose and object
of the business organization. Whether a foreign corporation is doing business does not

necessarily depend upon the frequency of its transactions, but more upon the nature and
character of the transactions.[14]
Given the facts of this case, we cannot see how petitioners business dealings will fit the
category of isolated transactions considering that its intention to continue and pursue the
corpus of its business in the country had been clearly established. It has not presented any
convincing argument with equally convincing evidence for us to rule otherwise.

While we agree with petitioner that the country needs to develop trade relations and
foster friendly commercial relations with other states, we also need to enforce our laws that
regulate the conduct of foreigners who desire to do business here. Such strangers must follow
our laws and must subject themselves to reasonable regulation by our government.
WHEREFORE, premises considered, the instant petition is hereby DENIED and the
assailed Decision is AFFIRMED.
SO ORDERED.

Incapacitated to Maintain Suit

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

Other Remedy Still Available

By this judgment, we are not foreclosing petitioners right to collect payment. Res
judicata does not set in a case dismissed for lack of capacity to sue, because there has been
no determination on the merits.[16] Moreover, this Court has ruled that subsequent
acquisition of the license will cure the lack of capacity at the time of the execution of the
contract.[17]
The requirement of a license is not meant to put foreign corporations at a
disadvantage. Rather, the doctrine of lack of capacity to sue is based on considerations of
sound public policy.[18] Thus, it has been ruled in Home Insurance that:[19]
x x x The primary purpose of our statute is to compel a foreign corporation desiring to do
business within the state to submit itself to the jurisdiction of the courts of this state. The
statute was not intended to exclude foreign corporations from the state. x x x x The better
reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold
that where, as here, there is a prohibition with a penalty, with no express or implied
declarations respecting the validity of enforceability of contracts made by qualified foreign
corporations, the contracts x x x are enforceable x x x upon compliance with the law.(Peter &
Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)

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

ISSUE:
Whether Petitioner Corporation may maintain an action in Philippine courts considering that
it has no license to do business in the country.
HELD:
Petition has no merit.
The Corporation Provides that:
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 actionsuit 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 resolution of the issue depends on

whether Petitioners business with Private Respondent may be treated as isolated
transactions.
Trial Court held that: the invoices and delivery receipts covering the period of from January
17, 1989 to August 16, 1989 cannot be treated to a mean singular and isolated business
transaction that is temporary in character. It indicates that plaintiff has the intention and
desire to repeat the said transaction in the future in pursuit of its ordinary business.
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.
RATIONALE: Purpose of the law for requiring/obtaining a license to do business here in the
Philippines is to subject the foreign corporation doing business in the Philippines to the

jurisdiction of our courts.

Therefore, Petitioner must be held to be incapacitated to maintain the action a quo against
private respondent.
Facts of the Case:
Petitioner herein is a non resident foreign corporation duly organized under the laws of the
Republic of Singapore.
It engaged in the manufacture and sale of elements sealing pumps, valves and pipes for
industrial purposes.
It is not licensed to do business in the Philippines.
On various dates covering the period January 17 to August 16, 1989, Private Respondent
Delfin Enriquez, Jr. doing business under the name
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 transfers of these goods were perfected in Singapore.

Subsequently, demands were made by Petitionerupon private respondents to settle his

account, but the latter failed/refused to do so.
That prompted the Petitioner-Foreign Corporation upon Private Respondent Enriquez to filed
a collection suit before the RTC of Makati for recovery of S$41,939.63 or its equivalent in the
Philippine currency, plus interest and damages thereon.
Private Respondent responded with a Motion to Dismiss, contending that Petitioner had no
legal capacity to sue.
The Trial Court dismissed the action on the ground

that the Petitioner-Foreign Corporation doing business in thePhilippines without a license.

On appeal to CA, it affirmed the decision of the RTC on the same ground and therefore, the
Petitioner-foreign corporation elevated the case to the Honorable Supreme Court.
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.
According to the Supreme Court , there is no definitive rule on what constitutes doing ,
engaging in, or transacting business, because the corporation code does not define such
terms.
Hence it adopted the concept in R.A. 7042 to wit:
Section 3 of the said law defines the phase doing business and shall include:
1. Soliciting orders;
2. Service Contracts;
3. Opening offices whether called liason offices or branches;
4. Appointing representatives or distributors domiciled in the
Philippines; or
5. Who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more;
6. Participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and
7. 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