Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. Nos. 79926-27 October 17, 1991

STATE INVESTMENT HOUSE, INC. and STATE FINANCING CENTER, INC., petitioners,
vs.
CITIBANK, N.A., BANK OF AMERICA, NT & SA, HONGKONG & SHANGHAI BANKING
CORPORATION, and the COURT OF APPEALS, respondents.

Roco, Bunag, Kapunan & Migallos for petitioners.

Agcaoili & Associates for Citibank, N.A, and Bank of America NT & SA.

Belo, Abiera & Associates for Hongkong & Shanghai Banking Corp.

NARVASA, J.:

The chief question in the appeal at bar is whether or not foreign banks licensed to do business
in the Philippines, may be considered "residents of the Philippine Islands" within the meaning of
Section 20 of the Insolvency Law (Act No. 1956, as amended, eff. May 20, 1909) reading in part
as follows: 1

An adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippine Islands, whose credits or
demands accrued in the Philippine Islands, and the amount of which credits or demands are in the aggregate not less than one thousand
pesos: Provided, that none of said creditors has become a creditor by assignment, however made, within thirty days prior to the filing of
said petition. Such petition must be filed in the Court of First Instance of the province or city in which the debtor resides or has his principal
place of business, and must be verified by at least three (3) of the petitioners. . . .

The foreign banks involved in the controversy are Bank of America NT and SA, Citibank N.A. and Hongkong and Shanghai Banking Corporation. On
December 11, 1981, they jointly filed with the Court of First Instance of Rizal a petition for involuntary insolvency of Consolidated Mines, Inc. (CMI),
which they amended four days later. 2
The case was docketed as Sp. Proc. No. 9263 and assigned to Branch
28 of the Court.

The petition for involuntary insolvency alleged:

1) that CMI had obtained loans from the three petitioning banks, and that as of
November/December, 1981, its outstanding obligations were as follows:

a) In favor of Bank of America (BA) P15,297,367.67

(as of December 10, 1981) US$ 4,175,831.88

(b) In favor of Citibank US$ 4,920,548.85

(as of December 10, 1981)

c) In favor of Hongkong & Shanghai Bank US$ 5,389,434.12

1
 (as of November 30, 1981); P6,233,969.24

2) that in November, 1981, State Investment House, Inc. (SIHI) and State Financing Center, Inc.
(SFCI) had separately instituted actions for collection of sums of money and damages in the
Court of First Instance of Rizal against CMI, docketed respectively as Civil Cases Numbered
43588 and 43677; and that on application of said plaintiffs, writs of preliminary attachment had
been issued which were executed on "the royalty/profit sharing payments due CMI from
Benguet Consolidated Mining, Inc;" and

3) that CMI had "committed specific acts of insolvency as provided in Section 20 of the
Insolvency Law, to wit:

xxx xxx xxx

5. that he (CMI) has suffered his (CMI's) property to remain under attachment or legal
process for three days for the purpose of hindering or delaying or defrauding his (CMI's)
creditors;

xxx xxx xxx

11. that being a merchant or tradesman he (CMI) has generally defaulted in the payment
of his (CMI's) current obligations for a period of thirty days; . . .

The petition was opposed by State Investment House, Inc. (SIHI) and State Financing Center,
Inc. (SFCI). 3 It claimed that:

1) the three petitioner banks had come to court with unclean hands in that they filed the petition
for insolvency — alleging the CMI was defrauding its creditors, and they wished all creditors to
share in its assets — although a few days earlier, they had "received for the account of CMI
substantial payments aggregating P10,800,000.00;"

2) the Court had no jurisdiction because the alleged acts of insolvency were false: the writs of
attachment against CMI had remained in force because there were "just, valid and lawful
grounds for the(ir) issuance," and CMI was not a "merchant or tradesman" nor had it "generally
defaulted in the payment of (its) obligations for a period of thirty days . . . ;"

3) the Court had no jurisdiction to take cognizance of the petition for insolvency because
petitioners are not resident creditors of CMI in contemplation of the Insolvency Law; and

4) the Court has no power to set aside the attachment issued in favor of intervenors-oppositors
SIHI and SFCI.

CMI filed its Answer to the petition for insolvency, asserting in the main that it was not
insolvent, 4 and later filed a "Motion to Dismiss Based on Affirmative Defense of Petitioner's
Lack of Capacity to Sue," echoing the theory of SIHI and SFCI that the petitioner banks are not
"Philippine residents." 5 Resolution on the motion was "deferred until after hearing of the case
on the merits" it appearing to the Court that the grounds therefor did not appear to be
indubitable. 6

SIHI and SFCI filed their own Answer-in-Intervention, 7

and served on the three petitioner banks requests for
admission of certain facts in accordance with Rule 26 of the Rules of Court, 8 receiving a
response only from Hongkong & Shanghai Bank. 9

SIHI and SFCI then filed a Motion for Summary Judgment dated May 23, 1983 "on the ground
that, based on the pleadings and admissions on record, the trial court had no jurisdiction to
adjudicate CMI insolvent since the petitioners (respondent foreign banks) are not "resident
creditors" of CMI as required under the Insolvency Law." 10 Oppositions to the motion were
filed, 11 to which a reply was submitted. 12

The Regional Trial Court 13

found merit in the motion for summary judgment. By Order dated October 10,
1983, it rendered "summary judgment dismissing the . . . petition for lack of jurisdiction over the

2
subject matter, with costs against petitioners." 14 It ruled that on the basis of the "facts on record,
as shown in the pleadings, motions and admissions of the parties, an insolvency court could
"not acquire jurisdiction to adjudicate the debtor as insolvent if the creditors petitioning for
adjudication of insolvency are not "residents" of the Philippines" — citing a decision of the
California Supreme Court which it declared "squarely applicable especially considering that one
of the sources of our Insolvency Law is the Insolvency Act of California of 1895 . . . " And it
declared that since petitioners had been merely licensed to do business in the Philippines, they
could not be deemed residents thereof.

The three foreign banks sought to take an appeal from the Order of October 10, 1983. They
filed a notice of appeal and a record on appeal. 15 SIHI and SFCI moved to dismiss their appeal
claiming it was attempted out of time. The Trial Court denied the motion.

SIHI and SFCI filed with this Court a petition for certiorari and prohibition (G.R. NO. 66449),
impugning that denial. The Court dismissed the petition and instead required the three banks to
file a petition for review in accordance with Rule 45 of the Rules of Court. 16 This the banks did
(their petition was docketed as G.R. No. 66804). However, by Resolution dated May 16, 1984,
the court referred the petition for review to the Intermediate Appellate Court, where it was
docketed as AC SP-03674. 17

In the meantime, the Trial Court approved on May 3, 1985 the banks' record on appeal and transmitted it to this Court, where it was recorded as UDK-
6866. As might have been expected, this Court required the banks to file a petition for review under Rule 45, but they asked to be excused from doing
so since they had already filed such a petition, which had been referred to the Intermediate Appellate Court and was there pending as AC-G.R. No. SP
03674, supra. This Court then also referred UDK-6866 to the Intermediate Appellate Court where it was docketed as AC-G.R. No. CV 07830.

Both referred cases, AC-G.R. No. SP 03674 and AC-G.R. No. CV 07830, were consolidated by Resolution of the Court of Appeals dated April 9, 1986,
and Decision thereon was promulgated on July 14, 1987 by the Fifteenth Division of said Court. 18

The Appellate Court reversed the Trial Court's Order of October 10, 1983 and remanded the case to it for further proceedings. It ruled:

1) that the purpose of the Insolvency Law was "to convert the assets of the bankrupt in cash for distribution among creditors, and then to relieve the
honest debtor from the weight of oppressive indebtedness and permit him to start life anew, free from the obligations and responsibilities consequent
upon business misfortunes;" 19
and that it was "crystal clear" that the law was "designed not only for the
benefit of the creditors but more importantly for the benefit of the debtor himself," the object
being "to provide not only for the suspension of payments and the protection of creditors but
also the discharge of insolvent honest debtors to enable them to have a fresh start;"

2) that the Trial Court had placed "a very strained and restrictive interpretation of the term
"resident," as to exclude foreign banks which have been operating in this country since the early
part of the century," and "the better approach . . . would have been to harmonize the provisions .
. . (of the Insolvency Law) with similar provisions of other succeeding laws, like the Corporation
Code of the Philippines, the General Banking Act, the Offshore Banking Law and the National
Internal Revenue Code in connection with or related to their doing business in the Philippines;"

3) that in light of said statutes, the three banks "are in truth and in fact considered as "residents"
of the Philippines for purposes of doing business in the Philippines and even for taxation
matters;"

4) that the banks had "complied with all the laws, rules and regulations (for doing business in
the country) and have been doing business in the Philippines for many years now;" that the
authority granted to them by the Securities and Exchange Commission upon orders of the
Monetary Board "covers not only transacting banking business . . . but likewise maintaining suits
"for recovery of any debt, claims or demand whatsoever," and that their petition for involuntary

3
insolvency was "nothing more than a suit aimed at recovering a debt granted by them to
Consolidated Mines, Inc., or at least a portion thereof;"

4) that to deprive the foreign banks of their right to proceed against their debtors through
insolvency proceedings would "contravene the basic standards of equity and fair play, . . . would
discourage their operations in economic development projects that create not only jobs for our
people but also opportunities for advancement as a nation;" and

5) that the terms "residence" and "domicile" do not mean the same thing, and that as regards a
corporation, it is generally deemed an "inhabitant" of the state under whose law it is
incorporated, and has a "residence" wherever it conducts its ordinary business, and may have
its legal "domicile" in one place and "residence" in another.

SIHI and SFCI moved for reconsideration and then, when rebuffed, took an appeal to this Court.
Here, they argue that the Appellate Court's judgment should be reversed because it failed to
declare that —

1) the failure of the three foreign banks to allege under oath in their petition for involuntary
insolvency that they are Philippine residents, wishing only to "be considered Philippine
residents," is fatal to their cause;

2) also fatal to their cause is their failure to prove, much less allege, that under the domiciliary
laws of the foreign banks, a Philippine corporation is allowed the reciprocal right to petition for a
debtor's involuntary insolvency;

3) in fact and in law, the three banks are not Philippine residents because:

a) corporations have domicile and residence only in the state of their incorporation or in
the place designated by law, although for limited and exclusive purposes, other states
may consider them as residents;

b) juridical persons may not have residence separate from their domicile;

4) actually, the non-resident status of the banks within the context of the Insolvency Law is
confirmed by other laws;

5) the license granted to the banks to do business in the Philippines does not make them
residents;

6) no substantive law explicitly grants foreign banks the power to petition for the adjudication of
the Philippine corporation as a bankrupt;

7) the Monetary Board can not appoint a conservator or receiver for a foreign bank or orders its
liquidation having only the power to revoke its license, subject to such proceedings as the
Solicitor General may thereafter deem proper to protect its creditors;

8) the foreign banks are not denied the right to collect their credits against Philippine debtors,
only the right to "petition for the harsh remedy of involuntary insolvency" not being conceded to
them;

9) said banks have come to court with unclean hands, their filing of the petition for involuntary
insolvency being an attempt to defeat validly acquired rights of domestic corporations.

The concept of a foreign corporation under Section 123 of the Corporation Code is of "one
formed, organized or existing under laws other than those of the Philippines and . . . (which)
laws allow Filipino citizens and corporations to do business . . . ." There is no question that the
three banks are foreign corporations in this sence, with principal offices situated outside of the
Philippines. There is no question either that said banks have been licensed to do business in
this country and have in fact been doing business here for many years, through branch offices
or agencies, including "foreign currency deposit units;" in fact, one of them, Hongkong &
Shanghai Bank has been doing business in the Philippines since as early as 1875.

4
The issue is whether these Philippine branches or units may be considered "residents of the
Philippine Islands" as that term is used in Section 20 of the Insolvency Law, supra, 20 or
residents of the state under the laws of which they were respectively incorporated. The answer
cannot be found in the Insolvency Law itself, which contains no definition of the term, resident,
or any clear indication of its meaning. There are however other statutes, albeit of subsequent
enactment and effectivity, from which enlightening notions of the term may be derived.

The National Internal Revenue Code declares that the term "'resident foreign corporation'
applies to a foreign corporation engaged in trade or business within the Philippines," as
distinguished from a " "non-resident foreign corporation" . . . (which is one) not engaged in trade
or business within the Philippines." 21

The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries, affiliation, extension offices or any other units of
corporation or juridical person organized under the laws of any foreign country operating in the Philippines shall be considered residents of the
Philippines." 22

The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of foreign banks . . . (which are) called Philippine
branches," in the same category as "commercial banks, savings associations, mortgage banks, development banks, rural banks, stock savings and
loan associations" (which have been formed and organized under Philippine laws), making no distinction between the former and the later in so far, as
the terms "banking institutions" and "bank" are used in the Act, 23
declaring on the contrary that in "all matters not
specifically covered by special provisions applicable only to foreign banks, or their branches and
agencies in the Philippines, said foreign banks or their branches and agencies lawfully doing
business in the Philippines "shall be bound by all laws, rules, and regulations applicable to
domestic banking corporations of the same class, except such laws, rules and regulations as
provided for the creation, formation, organization, or dissolution of corporations or as fix the
relation, liabilities, responsibilities, or duties of members, stockholders or officers or
corporations." 24

This Court itself has already had occasion to hold 25

that a foreign corporation licitly doing business in the
Philippines, which is a defendant in a civil suit, may not be considered a non-resident within the
scope of the legal provision authorizing attachment against a defendant not residing in the
Philippine Islands;" 26 in other words, a preliminary attachment may not be applied for and
granted solely on the asserted fact that the defendant is a foreign corporation authorized to do
business in the Philippines — and is consequently and necessarily, "a party who resides out of
the Philippines." Parenthetically, if it may not be considered as a party not residing in the
Philippines, or as a party who resides out of the country, then, logically, it must be considered a
party who does reside in the Philippines, who is a resident of the country. Be this as it may, this
Court pointed out that:

. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations,

duly licensed to do business here, to the status of domestic corporations. (Cf. Section
73, Act No. 1459, and Marshall Wells Co. vs. Henry W. Elser & Co., 46 Phil. 70, 76; Yu;
Cong Eng vs. Trinidad, 47 Phil. 385, 411) We think it would be entirely out of line with
this policy should we make a discrimination against a foreign corporation, like the
petitioner, and subject its property to the harsh writ of seizure by attachment when it has
complied not only with every requirement of law made specially of foreign corporations,
but in addition with every requirement of law made of domestic corporations. . . . .

Obviously, the assimilation of foreign corporations authorized to do business in the Philippines

"to the status of domestic corporations," subsumes their being found and operating as
corporations, hence, residing, in the country.

The same principle is recognized in American law: that the "residence of a corporation, if it can
be said to have a residence, is necessarily where it exercises corporate functions . . . ;" that it is
.considered as dwelling "in the place where its business is done . . . ," as being "located where
its franchises are exercised . . . ," and as being "present where it is engaged in the prosecution
of the corporate enterprise;" that a "foreign corporation licensed to do business in a state is a
resident of any country where it maintains an office or agent for transaction of its usual and
customary business for venue purposes;" and that the "necessary element in its signification is
locality of existence." 27 Courts have held that "a domestic corporation is regarded as having a
residence within the state at any place where it is engaged in the particulars of the corporate

5
enterprise, and not only at its chief place or home office;" 28 that "a corporation may be
domiciled in one state and resident in another; its legal domicil in the state of its creation
presents no impediment to its residence in a real and practical sense in the state of its business
activities." 29

The foregoing propositions are in accord with the dictionary concept of residence as applied to juridical persons, a term which appears to comprehend
permanent as well as temporary residence.

The Court cannot thus accept the petitioners' theory that corporations may not have a residence (i.e., the place where they operate and transact
business) separate from their domicile (i.e., the state of their formation or organization), and that they may be considered by other states as residents
only for limited and exclusive purposes. Of course, as petitioners correctly aver, it is not really the grant of a license to a foreign corporation to do
business in this country that makes it a resident; the license merely gives legitimacy to its doing business here. What effectively makes such a foreign
corporation a resident corporation in the Philippines is its actually being in the Philippines and licitly doing business here, "locality of existence" being,
to repeat, the "necessary element in . . . (the) signification" of the term, resident corporation.

Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an explicit and categorical
statement that they are "residents of the Philippine Islands," is fatal to their cause. In truth, in light of the concept of resident foreign corporations just
expounded, when they alleged in that petition that they are foreign banking corporations, licensed to do business in the Philippines, and actually doing
business in this Country through branch offices or agencies, they were in effect stating that they are resident foreign corporations in the Philippines.

There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the power to petition for the adjudication of a Philippine
corporation as a bankrupt. This is inconsequential, for neither is there any legal provision expressly giving domestic banks the same power, although
their capacity to petition for insolvency can scarcely be disputed and is not in truth disputed by petitioners. The law plainly grants to a juridical person,
whether it be a bank or not or it be a foreign or domestic corporation, as to natural persons as well, such a power to petition for the adjudication of
bankruptcy of any person, natural or juridical, provided that it is a resident corporation and joins at least two other residents in presenting the petition to
the Bankruptcy Court.

The petitioners next argue that "Philippine law is emphatic that only foreign corporations whose own laws give Philippine nationals reciprocal rights
may do business in the Philippines." As basis for the argument they invoke Section 123 of the Corporation Code which, however, does not formulate
the proposition in the same way. Section 123 does not say, as petitioners assert, that it is required that the laws under which foreign corporations are
formed "give Philippine nationals, reciprocal rights." What it does say is that the laws of the country or state under which a foreign corporation is
"formed, organized or existing . . . allow Filipino citizens and corporations to do business in its own country or state," which is not quite the same thing.
Now, it seems to the Court that there can be no serious debate about the fact that the laws of the countries under which the three (3) respondent banks
were formed or organized (Hongkong and the United States) do "allow Filipino citizens and corporations to do business" in their own territory and
jurisdiction. It also seems to the Court quite apparent that the Insolvency Law contains no requirement that the laws of the state under which a foreign
corporation has been formed or organized should grant reciprocal rights to Philippine citizens to apply for involuntary insolvency of a resident or citizen
thereof. The petitioners' point is thus not well taken and need not be belabored.

That the Monetary Board can not appoint a conservator or receiver for a foreign bank or order its liquidation having only the power to revoke its license,
subject to such proceedings as the Solicitor General may thereafter deem proper to protect its creditors, which is another point that petitioners seek to
make, is of no moment. It has no logical connection to the matter of whether or not the foreign bank may properly ask for a judicial declaration of the
involuntary insolvency of a domestic corporation, which is the issue at hand. The fact is, in any event, that the law is not lacking in sanctions against
foreign banks or powerless to protect the latter's creditors.

The petitioners contend, too, that the respondent banks have come to court with unclean hands, their filing of the petition for involuntary insolvency
being an attempt to defeat validly acquired rights of domestic corporations. The Court wishes to simply point out that the effects of the institution of
bankruptcy proceedings on all the creditors of the alleged bankrupt are clearly spelled out by the law, and will be observed by the Insolvency Court
regardless of whatever motives — apart from the desire to share in the assets of the insolvent in satisfying its credits — that the party instituting the
proceedings might have.

Still another argument put forth by the petitioners is that the three banks' failure to incorporate their branches in the Philippines into new banks in
accordance with said Section 68 of the General Banking Act connotes an intention on their part to continue as residents of their respective states of
incorporation and not to be regarded as residents of the Philippines. The argument is based on an incomplete and inaccurate quotation of the cited
Section. What Section 68 required of a "foreign bank presently having branches and agencies in the Philippines, . . . within one year from the
effectivity" of the General Banking Act, was to comply with any of three (3) options, not merely with one sole requirement. These three (3) options are
the following:

1) (that singled out and quoted by the petitioners, i.e.:) "incorporate its branch or branches into a new bank in accordance with Philippine
laws . . . ; or

6
 2) "assign capital permanently to the local branch with the concurrent maintenance of a 'net due to' head office account which shall include
all net amounts due to other branches outside the Philippines in an amount which when added to the assigned capital shall at all times be
not less than the minimum amount of capital accounts required for domestic commercial banks under section twenty-two of this Act;" or

3) "maintain a "net due to" head office account which shall include all net amounts due to other branches outside the Philippines, in an
amount which shall not be less than the minimum amount of capital accounts required for domestic commercial banks under section
twenty-two of this Act."

The less said about this argument then, the better.

The petitioners allege that three days before respondent banks filed their petition for involuntary insolvency against CMI, they received from the latter
substantial payments on account in the aggregate amount of P6,010,800.00, with the result that they were "preferred in the distribution of CMI's assets
thereby defrauding other creditors of CMI." Non sequitur. It is in any case a circumstance that the Bankruptcy Court may well take into consideration in
determining the manner and proportion by which the assets of the insolvent company shall be distributed among its creditors; but it should not be
considered a ground for giving the petition for insolvency short shrift. Moreover, the payment adverted to does not appear to be all that large. The total
liabilities of CMI to the three respondent banks as of December, 1981 was P21,531,336.91, and US$14,485,814.85. Converted into Philippine currency
at the rate of P7.899 to the dollar, the average rate of exchange during December, 1981, 30
the dollar account would be
P114,423,451.50. Thus, the aggregate liabilities of CMI to the banks, expressed in Philippine
currency, was P135,954,788.41 as of December, 1981, and therefore the payment to them of
P6,010,800.00 constituted only some 4.42% of the total indebtedness.

WHEREFORE, the petition is DENIED and the challenged Decision of the Court of Appeals is
AFFIRMED in toto, with costs against the petitioners.

SO ORDERED.

Griño-Aquino and Medialdea, JJ., concur.

Cruz, J., took no part.

7
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 22015 September 1, 1924

MARSHALL-WELLS COMPANY, plaintiff-appellant,

vs.
HENRY W. ELSER & CO., INC., defendant-appellee.

Hartigan and Welch for appellant.

J. F. Boomer for appellee.

MALCOLM, J.:

Marshall-Wells Company, an Oregon corporation, sued Henry W. Elser & Co., Inc., a domestic
corporation, in the Court of First Instance of Manila, for the unpaid balance of a bill of goods
amounting to P2,660.74, sold by plaintiff to defendant and for which plaintiff holds accepted drafts.
Defendant demurred to the complaint on the statutory ground that the plaintiff has not legal capacity
to sue. In the demurrer, counsel stated that "The said complaint does not show that the plaintiff has
complied with the laws of the Philippine Islands in that which is required of foreign corporations
desiring to do business in the Philippine Islands, neither does it show that it was authorized to do
business in the Philippine Islands." The demurrer was sustained by the trial judge. Inasmuch as the
plaintiff could not allege compliance with the statute, the order was allowed to become final and an
appeal was perfected.

To begin with the law as a fit setting for the issue. The Corporation Law (Act No. 1459) contains six
sections relating particularly to foreign corporations. Section 68, as amended by Act No. 2900,
provides that no foreign corporation "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," upon order either of the Secretary of Finance or the
Secretary of Commerce and Communications. No order for a license shall be issued except upon a
statement under oath of the managing agent of the corporation, showing to the satisfaction of the
proper Secretary that the corporation is solvent and in sound financial condition, and setting forth the
resources and liabilities of the corporation. Said statement shall contain the following: (1) The name
of the corporation; (2) the purpose for which it was organized; (3) the location of its principal or home
office; (4) the capital stock of the corporation and the amount thereof actually subscribed and paid
into the treasury; (5) the net assets of the corporation over and above all debts, liabilities,
obligations, and claims outstanding against it; and (6) the name of an agent residing in the Philippine
Islands authorized by the corporation to accept evidence of summons and process in all legal
proceedings against the corporation and of all notices affecting the corporation. Further evidence of
the solvency and fair dealing of the corporation may be required. Upon filing in the Mercantile
Register of the Bureau of Commerce and Industry the said statement, a certified copy of its charter,
and the order of the Secretary for the issuance of a license, the Chief of the Mercantile Register
"shall issue to the foreign corporation as directed in the order of license to do business in the
Philippine Islands," and for the issuance of the license shall collect a fee fixed in accordance with the
schedule established in section 8 of the Law.

Passing section 69 of the Corporation Law for the moment, section 70, as amended, covers the
cases of foreign corporations "transacting business in the Islands at the time of the passage" of the
Act. Section 71 authorizes the Secretary of Finance or the Secretary of Commerce and
Communications, as the case may be, by and with the approval of the Governor-General, "to revoke
the license to transact business in the Philippine Islands" of any foreign corporation. Section 72
concerns summons and legal process. Section 73 makes a foreign corporation bound by all the
laws, rules, and regulations applicable to domestic corporations of the same class, with certain
exceptions.

Returning now to section 69 of the Corporation Law, its literal terminology is as follows:

No foreign corporation or corporation formed, organized, or existing under any laws other
that 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

8
 demand whatever, unless it shall have the license prescribed in the section immediately
preceding. Any officer, director, or agent of the 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.

Is the obtaining of the license prescribed in section 68, as amended, of the Corporation Law a
condition precedent to the maintaining of any kind of action in the courts of the Philippine Islands by
a foreign corporation? The issue is framed to correspond with defendant's theory of the case on
appeal, although possibly somewhat at variance with its stand in the lower court.

So far as we are informed, this is a question of first impression. The case of Dampfschieffs Rhederei
Union vs. Compañia Trasatlantica ([1907], 8 Phil., 766), relating to the provisions of the Code of
Commerce, only held that a foreign corporation which has not established itself in the Philippines,
nor engaged in business in the Philippines, could, without filing its articles of incorporation in the
mercantile registry, maintain an action against another for damages. The case of Spreckles vs.
Ward ([1909], 12 Phil., 414), while making reference to a point similar to the one before us, was
merely authority for the holding, that the provisions of section 69 of the Corporation Law denying to
unregistered foreign corporations the right to maintain suits for the recovery of any debt, claim, or
demand, do not impose on all plaintiff-litigants the burden of establishing by affirmative proof that
they are not unregistered foreign corporations; that fact will not be presumed without some evidence
tending to establish its existence. But the question is not alone new, but of prime importance, to the
consideration of which we have given mature thought.

Corporations have no legal status beyond the bounds of the sovereignty by which they are created.
A state may restrict the right of a foreign corporation to engage in business within its limits, and to
sue in its courts. But by virtue of state comity, a corporation created by the laws of one state is
usually allowed to transact business in other states and to sue in the courts of the forum.
(Paul vs. Virginia [1869], 8 Wall., 168; Sioux Remedy Co., vs. Cope and Cope [1914], 235 U. S.,
197; Cyclone Mining Co. vs. Baker Light & Power Co., [1908], 165 Fed., 996.)

But here we have present for resolution no question of constitutional law. Article 4 of the United
States Constitution and the Fourteenth Amendment to the Constitution are not invoked. The issue is
not complicated with matters affecting interstate commerce under the American Constitution. Nor are
we concerned with a question of private international law. It all simmers down to an issue of statutory
construction.

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 & County 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

9
to sell to a person in the Philippine 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.)

The noncompliance of a foreign corporation with the statute may be pleaded as an affirmative
defense. Thereafter, it must appear from the evidence, first, that the plaintiff is a foreign corporation,
second, that it is doing business in the Philippines, and third, that it has not obtained the proper
license as provided by the statute. (Standard Stock Food Co. vs. Jasper [1907], 76 Kan., 926;
Spreckles vs. Ward, supra.)

The order appealed from shall be set aside and the record shall be returned to the court of origin for
further proceedings. Without special finding as to costs in this instance, it is so ordered.

Johnson, Street, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.

10
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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:

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 daños 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.

11
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 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.

12
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.

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

13
 FIRST DIVISION

G.R. No. 154618 April 14, 2004

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner,

vs.
INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG HONG,
TEOH KIANG SENG, ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M. DELA
CRUZ and ROLANDO T. NACILLA, respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review assails the Decision dated August 12, 2002 of the Court of Appeals in CA-
G.R. SP No. 66574, which dismissed Civil Case No. 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 Silicon’s board of directors, while Joanne Kate M. dela
Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are its former members.3

The juridical relation among the various parties in this case can be traced to a 5-year Value Added
Assembly Services Agreement ("VAASA"), entered into on April 2, 1996 between Integrated Silicon
and the Hewlett-Packard Singapore (Pte.) Ltd., Singapore Components Operation ("HP-
Singapore").4 Under the terms of the VAASA, Integrated Silicon was to locally manufacture and
assemble fiber optics for export to HP-Singapore. HP-Singapore, for its part, was to consign raw
materials to Integrated Silicon; transport machinery to the plant of Integrated Silicon; and pay
Integrated Silicon the purchase price of the finished products.5 The VAASA had a five-year term,
beginning on April 2, 1996, with a provision for annual renewal by mutual written consent.6 On
September 19, 1999, with the consent of Integrated Silicon,7 HP-Singapore assigned all its rights
and obligations in the VAASA to Agilent.8

On May 25, 2001, Integrated Silicon filed a complaint for "Specific Performance and Damages"
against Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor,
docketed as Civil Case No. 3110-01-C. It alleged that Agilent breached the parties’ oral agreement
to extend the VAASA. Integrated Silicon thus prayed that defendant be ordered to execute a written
extension of the VAASA for a period of five years as earlier assured and promised; to comply with
the extended VAASA; and to pay actual, moral, exemplary damages and attorney’s 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 court’s 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

14
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 attorney’s fees.11

Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C,12 on the grounds of lack of
Agilent’s 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 Agilent’s
application for a writ of replevin.17

Without filing a motion for reconsideration, respondents filed a petition for certiorari with the Court of
Appeals.18

In the meantime, upon motion filed by respondents, Judge Antonio S. Pozas of Branch 92 voluntarily
inhibited himself in Civil Case No. 3123-2001-C. The case was re-raffled and assigned to Branch 35,
the same branch where Civil Case No. 3110-2001-C is pending.

On August 12, 2002, the Court of Appeals granted respondents’ petition for certiorari, set aside the
assailed Order of the trial court dated September 4, 2001, and ordered the dismissal of Civil Case
No. 3123-2001-C.

Hence, the instant petition raising the following errors:

I.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT DISMISSING

RESPONDENTS’ PETITION FOR CERTIORARI FOR RESPONDENTS’ FAILURE TO FILE A
MOTION FOR RECONSIDERATION BEFORE RESORTING TO THE REMEDY OF CERTIORARI.

II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING

ASIDE THE TRIAL COURT’S 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. 3110-2001-C.

III.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING

ASIDE THE TRIAL COURT’S 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. 3110-2001-C.

IV.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING THE DISMISSAL

OF CIVIL CASE NO. 323-2001-C BELOW INSTEAD OF ORDERING IT CONSOLIDATED WITH
CIVIL CASE NO. 3110-2001-C.19

The two primary issues raised in this petition: (1) whether or not the Court of Appeals committed
reversible error in giving due course to respondents’ petition, notwithstanding the failure to file a
Motion for Reconsideration of the September 4, 2001 Order; and (2) whether or not the Court of
Appeals committed reversible error in dismissing Civil Case No. 3123-2001-C.

We find merit in the petition.

The Court of Appeals, citing the case of Malayang Manggagawa sa ESSO v. ESSO Standard
Eastern, Inc.,20 held that the lower court had no jurisdiction over Civil Case No. 3123-2001-C
because of the pendency of Civil Case No. 3110-2001-C and, therefore, a motion for reconsideration
was not necessary before resort to a petition for certiorari. This was error.

15
Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests jurisdiction over the subject matter of
Civil Case No. 3123-2001-C in the RTC.21

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

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 come now to the substantive issues of the petition.

Litis pendentia is a Latin term which literally means "a pending suit." It is variously referred to in
some decisions as lis pendens and auter action pendant. While it is normally connected with the
control which the court has on a property involved in a suit during the continuance proceedings, it is
more interposed as a ground for the dismissal of a civil action pending in court.

Litis pendentia as a ground for the dismissal of a civil action refers to that situation wherein another
action is pending between the same parties for the same cause of action, such that the second
action becomes unnecessary and vexatious. For litis pendentia to be invoked, the concurrence of
the following requisites is necessary:

(a) identity of parties or at least such as represent the same interest in both actions;

(b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same
facts; and

(c) the identity in the two cases should be such that the judgment that may be rendered in
one would, regardless of which party is successful, amount to res judicata in the other.28

The Court of Appeals correctly appreciated the identity of parties in Civil Cases No. 3123-2001-C
and 3110-2001-C. Well-settled is the rule that lis pendens requires only substantial, and not
absolute, identity of parties.29 There is substantial identity of parties when there is a community of
interest between a party in the first case and a party in the second case, even if the latter was not
impleaded in the first case.30 The parties in these cases are vying over the interests of the two

16
opposing corporations; the individuals are only incidentally impleaded, being the natural persons
purportedly accused of violating these corporations’ rights.

Likewise, the fact that the positions of the parties are reversed, i.e., the plaintiffs in the first case are
the defendants in the second case or vice versa, does not negate the identity of parties for purposes
of determining whether the case is dismissible on the ground of litis pendentia.31

The identity of parties notwithstanding, litis pendentia does not obtain in this case because of the
absence of the second and third requisites. The rights asserted in each of the cases involved are
separate and distinct; there are two subjects of controversy presented for adjudication; and two
causes of action are clearly involved. The fact that respondents instituted a prior action for "Specific
Performance and Damages" is not a ground for defeating the petitioners’ action for "Specific
Performance, Recovery of Possession, and Sum of Money with Replevin, Preliminary Mandatory
Injunction, and Damages."

In Civil Case No. 3110-2001-C filed by respondents, the issue is whether or not there was a breach
of an oral promise to renew of the VAASA. The issue in Civil Case No. 3123-2001-C, filed by
petitioner, is whether petitioner has the right to take possession of the subject properties. Petitioner’s
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.

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 attorney’s 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 attorney’s fees.

Concededly, some items or pieces of evidence may be admissible in both actions. It cannot be said,
however, that exactly the same evidence will support the decisions in both, since the legally
significant and controlling facts in each case are entirely different. Although the VAASA figures
prominently in both suits, Civil Case No. 3110-2001-C is premised on a purported breach of an oral
obligation to extend the VAASA, and damages arising out of Agilent’s alleged failure to comply with
such purported extension. Civil Case No. 3123-2001-C, on the other hand, is premised on a breach
of the VAASA itself, and damages arising to Agilent out of that purported breach.

It necessarily follows that the third requisite for litis pendentia is also absent. The following are the
elements of res judicata:

(a) The former judgment must be final;

(b) The court which rendered judgment must have jurisdiction over the parties and the
subject matter;

(c) It must be a judgment on the merits; and

(d) There must be between the first and second actions identity of parties, subject matter,
and cause of action.32

In this case, any judgment rendered in one of the actions will not amount to res judicata in the other
action. There being different causes of action, the decision in one case will not constitute res judicata
as to the other.

Of course, a decision in one case may, to a certain extent, affect the other case. This, however, is
not the test to determine the identity of the causes of action. Whatever difficulties or inconvenience
may be entailed if both causes of action are pursued on separate remedies, the proper solution is
not the dismissal order of the Court of Appeals. The possible consolidation of said cases, as well as
stipulations and appropriate modes of discovery, may well be considered by the court below to
subserve not only procedural expedience but, more important, the ends of justice.33

We now proceed to the issue of forum shopping.

17
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. 3110-2001-C, and respondents’ contention on forum shopping must likewise fail.

We are not unmindful of the afflictive consequences that may be suffered by both petitioner and
respondents if replevin is granted by the trial court in Civil Case No. 3123-2001-C. If respondent
Integrated Silicon eventually wins Civil Case No. 3110-2001-C, and the VAASA’s terms are
extended, petitioner corporation will have to comply with its obligations thereunder, which would
include the consignment of properties similar to those it may recover by way of replevin in Civil Case
No. 3123-2001-C. However, petitioner will also suffer an injustice if denied the remedy of replevin,
resort to which is not only allowed but encouraged by law.

Respondents argue that since Agilent is an unlicensed foreign corporation doing business in the
Philippines, it lacks the legal capacity to file suit.35 The assailed acts of petitioner Agilent, purportedly
in the nature of "doing business" in the Philippines, are the following: (1) mere entering into the
VAASA, which is a "service contract";36 (2) appointment of a full-time representative in Integrated
Silicon, to "oversee and supervise the production" of Agilent’s products;37 (3) the appointment by
Agilent of six full-time staff members, who were permanently stationed at Integrated Silicon’s
facilities in order to inspect the finished goods for Agilent;38 and (4) Agilent’s participation in the
management, supervision and control of Integrated Silicon,39 including instructing Integrated Silicon
to hire more employees to meet Agilent’s increasing production needs,40 regularly performing quality
audit, evaluation and supervision of Integrated Silicon’s 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 transaction48; (3) if a foreign
corporation does business in the Philippines without a license, a Philippine citizen or entity which
has contracted with said corporation may be estopped from challenging the foreign corporation’s
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.

18
The challenge to Agilent’s 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 in Merrill Lynch Futures, Inc. v. Court of Appeals and Spouses
Lara,55 was doing business in the Philippines. In Commissioner 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 Fireman’s 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 corporation’s
conduct and its intent to establish a continuous business in the country. In Eriks PTE Ltd. v. Court of
Appeals and Enriquez,58 the foreign corporation sold its products to a Filipino buyer who ordered the
goods 16 times within an eight-month period. Accordingly, this Court ruled that the corporation was
doing business in the Philippines, as there was a clear intention on its part to continue the body of its
business here, despite the relatively short span of time involved. Communication Materials and
Design, Inc., et al. v. Court of Appeals, ITEC, et al.59 and Top-Weld Manufacturing v. ECED, IRTI, et
al.60 both involved the License and Technical Agreement and Distributor Agreement of foreign
corporations with their respective local counterparts that were the primary bases for the Court’s
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

19
 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 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.

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, Agilent’s 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 Agilent’s 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 Silicon’s
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. Agilent’s
application for a Writ of Replevin is GRANTED.No pronouncement as to costs.

SO ORDERED.

20
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-26809 December 29, 1977

AETNA CASUALTY & SURETY COMPANY, plaintiff-appellant,

vs.
PACIFIC STAR LINE, THE BRADMAN CO. INC., MANILA PORT SERVICE and/or MANILA
RAILROAD COMPANY, INC., defendants-appellees.

Domingo E. de Lara & Associates for appellant.

Salcedo, Del Rosario, Bito & Mesa for appellee Pacific Star Line.

D. F. Macaranas for appellee Manila Port Service, etc.

FERNANDEZ, J.:

This is an appeal from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case
No. 53074 entitled Aetna Casualty & Surety Company vs. Pacific Star Line, The Bradman Co. Inc.,
Manila Port Service and/or Manila Railroad Company, Inc." dismissing the complaint on the ground
that the plaintiff has no legal capacity to bring this suit and making no finding as to the liability of the
defendants. 1

On February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc.,
as subrogee, instituted Civil Case No. 53074 in the Court of First Instance of Manila against Pacific Star
Line, The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the
amount of US $2,300.00 representing the value of the stolen and damaged cargo plus litigation expenses
and exemplary damages in the amounts of P1,000.00 and P2,000.00, respectively, with legal interest
thereon from the filing of the suit and costs.

The complaint stated that during the time material to the action, the defendant Pacific Star Line, as a
common carrier, was operating the vessel SS Ampal on a commercial run between United States
and Philippine Ports including Manila; that the defendant, The Bradman Co. Inc., was the ship agent
in the Philippines for the SS Ampal and/or Pacific Star Line; that the Manila Railroad Co. Inc. and
Manila Port Service were the arrastre operators in the port of Manila and were authorized to delivery
cargoes discharged into their custody on presentation of release papers from the Bureau of Customs
and the steamship carrier and/or its agents; that on December 2, 1961, the SS Ampal took on board
at New York, N.Y., U.S.A., a consignment or cargo including 33 packages of Linen & Cotton Piece
Goods for shipment to Manila for which defendant Pacific Star Line issued Bill of Lading No. 18 in
the name of I. Shalom & Co., Inc., as shipper, consigned to the order of Judy Philippines, Inc.,
Manila; that the SS Ampal arrived in Manila on February 10, 1962 and in due course, discharged her
cargo into the custody of Manila Port Service; that due to the negligence of the defendants, the
shipment sustained damages valued at US $2,300.00 representing pilferage and seawater damage;
that I. Shalom & Co., Inc. immediately filed claim for the undelivered land damaged cargo with
defendant Pacific Star Line in New York, N.Y., but said defendant refused and still refuses to pay the
said claim; that the cargo was insured by I. Shalom & Co., Inc. with plaintiff Aetna Casualty & Surety
Company for loss and/or damage; that upon demand, plaintiff Aetna Casualty & Surety Company
indemnified I. Shalom & Co., Inc. the amount of US $2,300.00; that in addition to this, the plaintiffs
had obligated themselves to pay attorney's fees and they further anticipated incurring litigation
expenses which may be assessed at P1,000.00; that plaintiffs and/or their predecessor-in-interest
sustained losses due to the negligence of Pacific Star Line prior to delivery of the cargo to Manila or,
in the alternative, due to the negligence of Manila Port Service after delivery of the cargo to it by the
SS Ampal; that despite repeated demands, none of the defendants has been willing to accept
liability for the claim of the plaintiffs and/or I. Shalom & Co., Inc.; and that by reason of defendants'
evident bad faith, they should consequently be liable to pay exemplary damages in the amount of
P2,000.00. 2

21
On motion of the defendants Pacific Star Line and The Bradman Co. Inc. and with the conformity of
the plaintiff Aetna Casualty & Surety Company, the plaintiff Smith Bell & Co. (Philippines), Inc. was
dropped and the complaint was dismiss as to said plaintiff. 3

In their answer filed on February 28, 1963, the defendants Manila Port Service and Manila Railroad
Company, Inc. alleged that they have exercised due care and diligence in handling and delivering the
cargoes consigned to Judy Philippines, Inc.; that, in fact, they had delivered the merchandise to the
consignee thereof in the same quantity, order and condition as when the same was actually received from
the carrying vessel; that a portion of the shipment in question was discharged from the carrying vessel in
bad order and condition and consequently, any loss or shortage incurred thereto, is the sole responsibility
of the said carrying vessel and not that of the arrastre operator; that they have delivered to the consignee
thereof the same quantity of merchandise and in the same order or condition as when received from the
carrying vessel; that since no claim of the value of the goods in question was filed by the plaintiff or any of
its representative within 15 days from the discharge of the last package from the carrying vessel, the
claim has become time-barred and/or prescribed pursuant to the management contract under which said
defendants were appointed as arrastre operator at the Port of Manila; that consequently, they are
completely relieved or released from any or all liability therefor and that they do not in any manner act as
agent of the carrying vessel in the discharge of the goods at the piers. 4

The Pacific Star Line and The Bradman Co. Inc. alleged in their answer as special defenses that the
plaintiff's cause of action, if any, against the answering defendants had prescribed under the provisions of
the Carriage of Goods by Sea Act and/or the terms of the covering bill of lading that the entire shipment
covered by the bill of lading issued by answering defendant Pacific Star Line was discharged complete
and in good order condition into the custody of the other defendant, Manila Port Service, which was the
operator of the arrastre service at the Port of Manila; that any damage which may have occurred to the
cargo while it was in the custody of the other defendant, Manila Port Service was caused solely by the
negligence of said arrastre operator and is, therefore, its sole responsibility, the defendant Manila Port
Service is not the vessel agent in the receiving, handling, custody and/or delivery of the cargo purchased:
that the vessel responsibility ceased upon removal of the cargo from the ship's tackle; that defendant
Manila Port Service is not the vessel's or answering defendant's agent in the receiving, handling, custody
and/or delivery of the cargo consignee; that the vessel's responsibility ceased upon removal of the cargo
from the ship's tackles; that the vessel's liability, if any, for one case cannot exceed the sum of P 500.00
under the Carriage of Goods by Sea Act. 5

The defendants Manila Port Service and Manila Railroad Company, Inc. amended their answer to allege
that the plaintiff, Aetna casualty & Surety Company, is a foreign corporation not duly licensed to do
business in the Philippines and, therefore. without capacity to sue and be sued. 6 The parties submitted
on November 23, 1965 the following partial stipulation of facts-.

PARTIAL STIPULATION OF FACTS

COME NOW the parties, through their undersigned counsel, and to this Honorable
Court respectfully submit the following Partial Stipulation of Facts:

A. - On their part, defendants admit:

1. - Paragraphs 2, 3, and 4 of the complaint;

2. - That the S/S Ampal arrived in Manila, on February 10, 1962 and in due course
discharged her cargoes into the custody of the defendant Manila Port Service,
including the subject shipment complete and in good order, except two (2) cases
Nos. 5804 and 16705 which were discharged under B.O. Tally Sheets Nos. 2721 and
2722 and turned over to the custody of the defendant Manila Port Service by the
vessel S/S Ampal. The shipping Documents covering the cargo were indorsed and
sent to Judy's Philippines, Inc. for processing and eventual return thereof to the
owner, and which cleared the documents with the defendants and the Bureau of
Customs;

3 - That the I. Shalom & Co., Inc. filed claim for undelivered and damaged portion of
subject cargo with defendant Pacific Star Line in New York, New York, but said
defendant refused and still refuses to pay the said claim, for the reason stated in said
defendant's letter to Smith, Bell & Co. (Philippines, Inc. dated June 1, 1962, copy of
which letter is hereto attached and marked Annex A;

22
4 - That Judy's Philippines, Inc. through its customs broker filed provisional claims
with defendant The Bradman Co., Inc. and defendant Manila Port Service on
February 13, 1962.

B. - Defendants admit the genuineness and due execution of the following

documents:

1 - Bill of Lading No. 18 dated December 22, 1961, ex S/S Ampal, attached hereto
and marked as Annex B;

2 - Invoice dated December 26, 1961 of I. Shalom & Co., Inc. attached hereto and
marked as Annex B;

3 - Provisional Claim filed with The Bradman Co., Inc. on February 13, 1962,
attached hereto and marked as Annex E;

4 - Provisional Claim filed with the Manila Port Service on February 13, 1962,
attached hereto and marked as Annex E;

5 - Request for Bad Order Examination No. 1073 dated march 6, 1962 covering
Cases Nos. 16705 and 5804, attached hereto and marked as Annex F;

6 - Request for Bad Order Examination No. 1177 dated March 5, 1962 covering
Cases Nos. 14913 and 15043, attached 'hereto and marked as Annex G;

7 - Formal Claim dated April 10,1962 addressed to defendant Pacific Star Line filed
by I. Shalom & co. Inc. attached hereto and marked as Annex H;

8 - Letter dated May 3, 1962 addressed to defendant Manila Port Service by Smith,
Bell & co. (Philippines) Inc., attached hereto and marked as Annex I;

9 - Letter dated August 8, 1962 addressed to the defendant Manila Port Service by
Smith Bell & Co. (Philippines) Inc., attached hereto and marked as Annex J;

10 - Certification of Insurance, authenticated by the Philippine Consul, New York,

U.S.A. attached hereto and marked as Annex K;

11. Subrogation Receipt dated June 1, 1962, attached hereto and marked as Annex
L;

C. - On their part, plaintiff and defendant Pacific Star Line and The Bradman
Company, Inc. admit:

1. - Having knowledge and being bound by the provisions of the Management

Contract entered into by and between the Manila Port Service and the Bureau of
customs on February 29, 1956, covering the operation of the arrastre service in the
Port of Manila, a copy of which is attached hereto and marked as Annex M;

2. - The genuineness and due execution of Gate Pass No. 34582 which, aiming
others, covers Case NO. 14915, attached hereto and marked as Annex N;

3. - The genuineness and due execution of Gate Pass No. 34837, which, among
others, cover Cases No. 16706 and 16707, attached hereto and marked as Annex O;

4. - The genuineness and due execution of a Certification issued by the Office of the
Insurance Commissioner dated December 19, 1964, a photostat copy of which is
attached hereto and marked as Annex P;

5. - The genuineness and due execution of a Certification issued by the Securities

and Exchange Commission dated November 10, 1964, a photostat copy of which is
attached hereto and marked as Annex Q;

23
6. - That the value of the shipment in question was not specified or manifested in the
bill of lading and that the arrastre charges thereon were paid on the basis of weight
and/or measurement and not on the value thereof.

D. On other part, plaintiff and defendant Manila Port Service admit:

1. - That the shipment in question was discharged complete and in good order
condition into the custody of the Manila Port Service except Cases Nos. 5804 and
16705 covered by Tally Sheets Nos. 2721 and 2722;

2. - That as per signed copies of Survey Report and Turnover Receipt both dated
February 26, 1962, all goods contained in Case No. 5804 were received in good
order condition by the consignee who waived all claims thereon and that the contents
of Case No. 16705 were turned over to the defendant Manila Port Service in the
condition shown in said Turnover Receipt;

3. - The genuineness and due execution of the following documents:

(a) Tally Sheet No. 2721 dated November 2, 1962 attached hereto
and marked as Annex R;

(b) Tally Sheet No. 2722, dated November 2, 1962, attached thereto
and marked as Annex S;

mark as Annex T;

(d) Turnover Receipt dated February 26, 1962, attached hereto and
marked as Annex U.

WHEREFORE, it is respectfully prayed that the following Partial Stipulation of Facts

be approved, and the parties be allowed to present evidence on the remaining
controverted issues.

Manila, Philippines, September, 1965.

ROSS, SELPH, SALCEDO, DEL ROSARIO,

BITO AND MISA

By:

(Sgd.) MARIANO LOZADA

( T. ) MARIANO LOZADA

Counsel for the defendants

PACIFIC STAR LINE and

THE BRADMAN COMPANY, INC.

405 FNCB Building Manila

OZAETA, GIBBS & OZAETA

By:

(Sgd.) JESUS S. J. SAYOC

( T. ) JESUS S. J. SAYOC

24
 Counsel for the Plaintiffs

7th Floor, Magsaysay Bldg.

520 T. M. Kalaw Street

Ermita, Manila

D. F. MACARANAS &

A. M. ABRENICA

By:

(Sgd.) ALIPIO M. ABRENICA

( T. ) ALIPIO M. ABRENICA

Counsel for the Defendants

MANILA PORT SERVICE and

MANILA RAILROAD COMPANY, INC.

Terminal Bldg., Port Area Manila. 7

The case was submitted for decision on the basis of the partial stipulation of facts and three (3)
documents submitted in evidence by the defendants consisting of (a) a certification issued by the Office of
the Insurance Commission to the effect that there is no record in said office showing that Aetna Casualty
& Surety Company has been licensed to transact insurance business in the Philippines; (b) a certification
issued by the Securities and Exchange Commission that its records do not show the registration of the
Aetna Casualty & Surety Company either as a corporation or a partnership nor that it has been used to
transact business in the Philippines as a foreign corporation; (c) a certification of the Clerk of Court of the
Court of First Instance of Manila issued on August 5, 1965 to the effect that thirteen (13) civil cases
appear to have been filed by and/or against the Aetna Casualty & Surety Company in said court. 8

The trial court dismissed the complaint because:

There has been a ruling that foreign corporation may file a suit in the Philippines in
isolated cases. But the case of the plaintiff here is not that. The evidence shows that
the plaintiff has been filing actions in the Philippines not just in isolated instances, but
in numerous cases and therefore, has been doing business in this country, contrary
to Philippine laws. 9

The plaintiff Aetna Casualty & Surety Company appealed to this Court assigning the following errors:

THE LOWER COURT ERRED IN RULING THAT APPELLANT INSURANCE

COMPANY IS SUBJECT TO THE REQUIREMENTS OF SECTIONS 68 AND 69 OF
ACT 1459, AS AMENDED, AND FAILING TO COMPLY THEREWITH, HAS NO
LEGAL CAPACITY TO BRING SUIT IN THIS JURISDICTION.

II

THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT. 10

The main issue involved in this appeal is whether or not the appellant, Aetna Casualty & Surety
Company, has been doing business in the Philippines. It is a fact that said appellant has no license to
transact business in the Philippines as a foreign corporation.

25
Section 68 of the Corporation Law provides that "No foreign corporation or corporation formed,
organized, or existing under any laws other than those of the Philippines shall be permitted to
transact business in the Philippines until after it shall have obtained a license for that purpose from
the Securities and Exchange Commissioners . . . ." And according to Section 69 of said Corporation
Law "No foreign corporation or corporation formed, organized, or existing under any laws other than
those of the Philippines shall be permitted to transact business in the Philippines or maintain by itself
or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have
the license prescribed in the section immediately preceding ..."

It is settled that if a foreign corporation is not engaged in business in the Philippines, it may not be
denied the right to file an action in Philippine courts for isolated transactions. 11

The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring a domicile for the purpose of business without
taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of
the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business
from the Philippines, from securing redress in the Philippine courts. 12

In Mentholatum Co., Inc. et al. vs. Mangaliman, et al., this Court ruled that:No general rule or
governing principle can be laid down as to what constitutes 'doing' or 'engaging in' or 'transacting'
business. Indeed, each case must be judged in the light of its peculiar environmental circumstances.
The true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise. for which it was organized or whether it has substantially
retired from it and turned it over to another. (Traction Cos. 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. vs. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. vs, American
Standard Metal Products Corp., 158 N. E. 698, 703, 327 I11. 367.) 13

And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held that:

(d) While plaintiff is a foreign corporation without license to transact business in the
Philippines, it does not follow that it has no 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 the
Philippines, although on a previous occasion plaintiff's vessel was chartered by the
National Rice and Corn Corporation to carry 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
plaintiff from seeking redress in our courts. (Marshall-Wells Co. vs. Henry W. Elser &
Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs. Angle O. Singson, G.R. No. L-
7917, April 29,1955.) 14

Based on the rulings laid down in the foregoing cases, it cannot be said that the Aetna Casualty & Surety
Company is transacting business of insurance in the P ' Philippines for which it must have a license. The
contract of insurance was entered into in New York, U.S.A., and payment was made to the consignee in
its New York branch. It appears from the list of cases issued by the Clerk of Court of the Court of First
Instance of Manila that all the actions, except two (2) cases filed by Smith, Bell & Co., Inc. against the
Aetna Casualty & Surety Company, are claims against the shipper and the arrastre operators just like the
case at bar.

Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in the business
of insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it is
not barred from filing the instant case although it has not secured a license to transact insurance
business in the Philippines.

WHEREFORE, the decision appealed from is hereby set aside and the case is remanded to the trial
court for further proceedings to determine the liability of the defendants-appellees, without
pronouncements as to costs.

SO ORDERED.Teehankee (Chairman), Makasiar, Muñoz Palma and Guerrero, JJ., concur.Martin,

J., took no part.

26
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 79986 September 14, 1990

GRANGER ASSOCIATES, petitioner,

vs.
MICROWAVE SYSTEMS, INC., LORETO F. STEWARD, MENARDO R. JIMENEZ and JOHN
PALMER, respondents.

Castillo, Laman, Tan & Pantaleon for petitioner.

Fernando Ma. Alberto for respondents.

CRUZ, J.:

The Court is once again asked to interpret the phrase "doing business in the Philippines" as applied to an unlicensed foreign corporation that
has filed a complaint against a domestic corporation.

The foreign corporation is Granger Associates, the herein petitioner, which was organized in the
United States and has no license to do business in this country. The domestic corporation is
Microwave Systems, Inc., one of the herein private respondents, which has been sued for recovery
of a sum equivalent to US$900,633.30 allegedly due from it to the petitioner.

The claim arose from a series of agreements concluded between the two parties, principally the
contract dated March 28, 1977, under which Granger licensed MSI to manufacture and sell its
products in the Philippines and extended to the latter certain loans, equipment and parts; the
contract dated May 17, 1979, for the sale by Granger of its Model 7100/7200 Multiplex Equipment to
MSI and the Supplemental and Amendatory Agreement concluded in December 1979.

Payment of these contracts not having been made as agreed upon, Granger filed a complaint
against MSI and the other private respondents on June 29, 1984, in the Regional Trial Court of
Pasay City. This was docketed as Civil Case No. 1982-P. In its answer, MSI alleged the affirmative
defense that the plaintiff had no capacity to sue, being an unlicensed foreign corporation, and moved
to dismiss.

The law invoked by the defendants was Section 133 of the Corporation Code reading as follows:

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; ...

The trial court, after considering the evidence of the parties in light of their respective memoranda,
sustained the defendants and granted the motion to dismiss. 1 On appeal, the order of dismissal was
affirmed by the respondent court 2 prompting the present petition under Rule 45 of the Rules of
Court.

In this petition, Granger seeks the reversal of the respondent court on the ground that MSI has failed
to prove its affirmative allegation that Granger was transacting business in the Philippines. It insists
that it has dealt only with MSI and not the general public and contends that dealing with the public
itself is an indispensable ingredient of transacting business. It also argues that its agreements with
MSI covered only one isolated transaction for which it did not have to secure a license to be able to
file its complaint.

According to Section 1 of Rep. Act No. 5455 —

27
...the phrase "doing business" shall include soliciting orders, purchases, 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 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; any other act or acts
that imply a continuity of commercial dealings or arrangements and contemplates to that extent the
performance of acts or works, or the exercise of some of these functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization.

This Court interpreted the same phrase in the old case of Mentholatum v. Mangaliman 3 as follows:

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 Go. 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, I11. 367.)

We have amplified one that discussion in subsequent cases, among them Top-Weld Manufacturing,
Inc. v. ECED, S.A., 4 where we said:

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 Thus, a foreign corporation with a
settling agent in the Philippines which issued twelve marine policies covering
different shipments to the Philippines and a foreign corporation which had been
collecting premiums on outstanding policies 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.

The petitioner contends that its various transactions with the private respondent were mere facets of
the basic agreement licensing MSI to manufacture and sell Granger's products in the Philippines. All
subsequent agreements were merely auxiliary to that first contract and should not be considered
separate transactions coming 'within the concept of "doing business in the Philippines."

The Supplemental and Amendatory Agreement concluded by Granger and MSI in December 1979
enumerates the various agreements between them thus:

1. Agreement dated March 28, 1977,under which MSI acquired from GRANGER the
right to manufacture, assemble, test, rent and sell, or otherwise deal in certain
electronic communications equipment designed and manufactured by GRANGER;

2. Agreement to Purchase Shares dated March 28, 1977 under which GRANGER
was granted the option to purchase thirty (30%) percent equity of MSI;

3. Amendatory Agreement dated May l2, 1978, adopting certain amendments to the
Agreement dated March 28, 1977 for the purpose of complying with the requirements
imposed by the Board of Investments and the Central Bank of the Philippines;

4. Exclusive Distributorship and Marketing Agreement dated May 16,1978,

appointing MSI to handle sale, distribution and promotion of products of GRANGER
outside of the Republic of the Philippines;

28
 5. Sales Agency Agreement, dated May 16, 1978, under which MSI was appointed
by GRANGER as the latter's exclusive sales representative outside the Philippines to
market GRANGER products;

6. Agreement for Purchase of Shares dated May 17,1978, manifesting the intention
of GRANGER to exercise its option to purchase thirty (30%) percent of the issued
and outstanding shares of stock of MSI equivalent to a total of 9,000 issued shares of
MSI;

7. Model 7l00/7200 Multiplex Agreement dated May l7, 1979, prescribing the terms
and conditions for the sale by GRANGER of Model 7100/7200 Multiplex Equipment
to MSI;

8. Technology Transfer Agreement dated May 17, 1979, transferring to and/or

providing MSI by virtue of the Model 7100/7200 Multiplex Agreement, the necessary
technical services, assistance, manuals, catalogues, sales, literature, etc. for the
operation of the Model 7100/7200 Multiplex Equipment;

9. Deed of Assignment of Receivables dated October 20, 1979, under which MSI
assigned to GRANGER a certain percentage of its receivables from the Philippine
Electronics, Inc. in favor of GRANGER to secure payment and performance of MSI's
obligations to GRANGER under previous agreements.

In the Model 7100/7200 Multiplex Equipment Agreement entered into on May 17, 1979, the following
stipulations appear:

4. GRANGER shall assign in favor of MSI all orders for the Model 7100/7200
Multiplex Equipment, which have not been filled by GRANGER at the date of the
ratification of this Agreement as per paragraph 9 hereof, as described in a list hereto
attached and made a part hereof as Annex "C". All proceeds under said orders shall
be assigned to and received by MSI and MSI shall take over and assume all
obligations which GRANGER may have pursuant to the orders of equipment within a
reasonable time following receipt of the shipment of the Products by MSI but not to
exceed one hundred eighty (180) days from date of said receipt. Any orders
GRANGER may receive following the date on which this Agreement becomes
effective as provided herein will be forwarded to MSI by GRANGER.

xxx xxx xxx

6. As an additional consideration for the purchase of the products, MSI binds itself to
render all equipment support service and maintain reasonable amount of spares
inventory for the equipment in the field previously having been sold by GRANGER or
by RCA Corporation to their customers for a period of ten (10) years from the date
the last sale of GRANGER is recorded. Any amount earned in providing such
equipment support shall be billed and received by MSI. Additionally, MSI binds itself
to assume the warranty obligations and advance the necessary funds to perform
such obligations associated with Model 7l00/7200 Multiplex Equipment already sold
by GRANGER. However, GRANGER shall reimburse MSI the out-of-pocket cost for
the services rendered by MSI in connection with the warranty for the equipment
assumed from GRANGER but only to the extent authorized in advance by
GRANGER.

A study of the enumeration does support the contention that many of the agreements concluded by
the petitioner and the private respondent were intended merely to supplement the basic contract
dated March 28, 1977. However, this is not true of the Multiplex agreement dated May 17, 1979,
which dealt with a different subject matter and had a different consideration to be paid under a
different method from that specified in the first agreement of the parties in 1977. It is also noted that
in the supplemental and Amendatory Agreement, Granger sold to MSI certain materials/parts for 80
radios and granted it the right to exploit the designs of Model 6015, Series of radio equipment (1.5
Ghz.) and the Plug-In Order Wire, and the 6002 Series and Power Amplifiers. The subject matter of
this transaction is also different from those covered by the previous agreements.

Even if it be assumed for the sake of argument that the subject matter of the first contract is of the
same kind as that of the subsequent agreements, that fact alone would not necessarily signify that

29
all such agreements are merely auxiliary to the first. As long as it can be shown that the parties
entered into a series of agreements, as in successive sales of the foreign company's regular
products, that company shall be deemed as doing business in the Philippines.

The quoted stipulations show that Granger had extended its personality in the Philippines and would
receive orders for its products and discharge its warranty obligations through the agency of MSI It
would even appear that Granger intended to transact business in the Philippines through the
instrumentality of MSI not only for the sale and warranty of its products in this country. The 'agent,
was expected to extend also in mainland China and other ASEAN countries, where MSI was to act
as its representative in the development of possible markets for Granger products. Thus it was
provided in the Agreement:

6. OFF-SHORE MANUFACTURING.

GRANGER undertakes to utilize MSI's manufacturing facilities in the Philippines in

preference to any other manufacturer for offshore manufacture, assembly, fabrication
and testing of equipment, sub-assemblies, printed circuit boards and related or allied
activities, subject to MSI's demonstrated technical capability and its capacity to
comply with normal quality and delivery requirement for such components and as
long as such off-shore manufacturing would be to GRANGER's economic advantage.

7. MAINLAND CHINA AND ASEAN

Toward maximizing exploitation of export opportunities for the sale of MSI

manufactured equipment under license from GRANGER, MSI undertakes to do or
perform the following:

a) MSI, independently or in concert with GRANGER shall develop a marketing

strategy towards Mainland China market at its cost or on the basis of shared
expense arrangement with GRANGER, agreed between both parties in advance, and
shall pursue sales opportunities in that market as it deems warranted. This includes
establishing local sales office to manage and monitor direct sales effort as well as
appointments of non-exclusive manufacturer's Sales Representatives or non-
exclusive Distributors as the case may be;

b) MSI, always in close cooperation with GRANGER, shall develop and pursue direct
sales opportunities in the ASEAN market for its own account, always reaching
agreement with GRANGER in advance on a case-to-case basis as to the extent of
reimbursing GRANGER for its direct or indirect expenses that it might be incurring
while acting as an Exclusive Distributor or a Manufacturer's Representative for the
licensed equipment in the ASEAN market.

We also note that in the Supplemented and Amendatory Agreement of December 1979, Granger
saw to it that it was assured of at least one seat in the board of directors of MSI; without prejudice to
the right of Granger to request additional seats as its interest may require". Granger actually
purchased 9,000 shares of MSI, representing 30% of the latter's issued and outstanding shares of
stock. 5 The fact that it was directly involved in the business of MSI was also manifestation stipulation
where Granger "acknowledged and confirmed" the transfer of a block of stocks from one shareholder
to another group of investors. Such approval is not normally given except by a stockholder enjoying
substantial participation in the management of the business of the company. The said stipulations
read as follows.

4. BOARD OF DIRECTORS.

GRANGER shall be entitled to one (1) seat in the Board of Directors, with the option
to fill said seat at its discretion and instance. GRANGER further interposes no
objection to MSI's increasing the number of its Board of Directors without a
corresponding entitlement to an additional seat, without prejudice however to the
right of GRANGER to request additional seat as its interest may require.

xxx xxx xxx

8. CONFIRMATION OF SALE OF SHARES OF STOCK.

30
 The parties hereto take cognizance of the sale of shares of stock in MSI owned by
Vicente C. Sayaon, in his personal capacity and as controlling stockholder of
authorized representative of Cosmopolitan Realty Corporation and Visayas Realty
and Investment Corporation, in favor of a new group of Filipino entrepreneurs
represented in the transaction by Mrs. Remedios Porcuna. The Deed of Sale
covering this transaction is incorporated hereto by reference and made an integral
part of this Agreement.

Pursuant to the provision embodied in the said Deed of Sale, GRANGER hereby
acknowledges and confirms this transaction.

The petitioner cites the regulations of the Board of Investments stating that mere investment in a
local company by a foreign corporation should not be construed as doing business in the
Philippines. 6 It cannot be denied, however, that the investment of Granger in MSI is quite
substantial, enabling it to participate in the actual management and control of MSI In fact, it
appointed a representative in the board of directors to protect its interests, and this director was so
influential that, at his request, the regular board meeting was converted into an annual stockholder's
meeting to take advantage of his presence. 7

At any rate, the administrative regulation, which is intended only to supplement the law, cannot
prevail against the law itself as the Court has interpreted it. It is axiomatic that the delegate, in
exercising the power to promulgate implementing regulations, cannot contradict the law from which
the regulations derive their very existence. The courts, for their part, interpret the administrative
regulations in harmony with the law that authorized them in the first place and avoid as much as
possible any construction that would annul them as an invalid exercise of legislative power.

On the question of whether the foreign corporation must be shown to have dealt with the public in
general to be considered as transacting business in the Philippines, the following observations are
instructive:

On the other hand, if a corporation performs acts for which it was created or
exercises some of the functions for which it was organized, the amount or volume of
the business is immaterial and a single act of that character may constitute doing
business. Thus, an engineering consulting firm that had entered into a single contract
with a Philippine government agency for the purpose of rendering services for a
period of three years as a technical consultant in engineering will be required to
obtain a license to do business. Similarly, a foreign company invited to bid for IBRD
and ADB international projects in the Philippines will be considered as doing
business in the Philippines for which a license is required. In this regard, it is the
performance by a foreign corporation of the acts for which it was created, regardless
of volume of business, that determines whether a foreign corporation needs a license
or not. (Emphasis supplied.) 8

Finally, this case must be distinguished from Antam Consolidated, Inc. v. Court of Appeals, 9 where
this Court declared:

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 transactions 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.

31
 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.

We are convinced from an examination of the terms and conditions of the contracts and agreements
entered into between petitioner and private respondents indicate that they established within our
country a continuous business, and not merely one of a temporary character. Such agreements did
not constitute only one isolated transaction, as the petitioner contends, but a succession of acts
signifying the intent of Granger to extend its operations in the Philippines.

In any event, it is now settled that even one single transaction may be construed as transacting
business in the Philippines under certain circumstances, as we observed in Far East International
Import and Export Corporation v. Nankai Kogyo Co., Ltd., 10 thus:

The rule stated in the preceding section that the doing of a single act does not constitute business
within the meaning of statutes prescribing the conditions to be complied with by foreign corporations
must be qualified to this extent, that a single act may bring the corporation within the purview of the
statute where it is an act of the ordinary business of the corporation. In such a case, the single act or
transaction is not merely incidental or casual, but is of such character as distinctly to indicate a
purpose on the part of the foreign corporation to do other business in the state, and to make the
state a base of operations for the conduct of a part of the corporations' ordinary business. (17
Fletchers Cyc. of Corporations, sec. 8470, pp. 572, 573, and authorities cited therein.)

The petitioner stresses that whoever makes affirmative averments has the obligation to prove such
averments and points out that the private respondent has not established its allegation that the
petitioner is doing business in the Philippines. On the other hand, it is also the rule that the factual
findings of the lower court are binding on this Court in the absence of any of those exceptional
circumstances we have enumerated in many cases that warrant a different conclusion. Having
assailed the finding of the respondent court that the petitioner is doing business in the Philippines,
the petitioner had the burden of showing that such finding fell under the exception rather than the
rule and so should be reviewed and reversed. The petitioner has not done this.

The purpose of the rule requiring foreign corporations to secure a license to do business in the
Philippines is to enable us to exercise jurisdiction over them for the regulation of their activities in this
country, If a foreign corporation operates in the Philippines without submitting to our laws, it is only
just that it not be allowed to invoke them in our courts when it should need them later for its own
protection. While foreign investors are always welcome in this land to collaborate with us for our
mutual benefit, they must be prepared as an indispensable condition to respect and be bound by
Philippine law in proper cases, as in the one at bar.

WHEREFORE the petition is DENIED, with costs against the petitioner. It is ordered.

Narvasa ( Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.

32
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-27897 December 2, 1927

WESTERN EQUIPMENT AND SUPPLY COMPANY, WESTERN ELECTRIC COMPANY, INC., W.

Z. SMITH and FELIX C. REYES, plaintiffs-appellees,
vs.
FIDEL A. REYES, as Director of the Bureau of Commerce and Industry, HENRY HERMAN,
PETER O'BRIEN, MANUEL B. DIAZ, FELIPE MAPOY and ARTEMIO ZAMORA, defendants-
appellants.

J. W. Ferrier for appellants.

DeWitt, Perkins and Bradly for appellees.

STATEMENT

October 23, 1926, in the Court of First Instance of Manila, plaintiffs filed the following complaint
against the defendants:

Now come the plaintiffs in the above entitled case, by the undersigned their attorneys, and to
this Honorable Court respectfully show:

I. That the Western Equipment and Supply Company is a foreign corporation organized
under the laws of the State of Nevada, United States of America; that the Western Electric
Company, Inc., is likewise a foreign corporation organized under the laws of the State of
New York, United States of America; and that the plaintiffs W. Z. Smith and Felix C. Reyes
are both of lawful age and residents of the City of Manila, Philippine Islands.

II. That the defendant Fidel A. Reyes is the duly appointed and qualified Director of the
Bureau of Commerce and Industry and as such Director is charged with the duty of issuing
and denying the issuance of certificates of incorporation to persons filing articles of
incorporation with the Bureau of Commerce and Industry.

III. That the defendants Henry Herman, Peter O' Brien, Manuel B. Diaz, Felipe Mapoy and
Artemio Zamora are all of lawful age and are residents of the City of Manila, Philippines
Islands.

IV. That on or about May 4, 1925, the plaintiff the Western Equipment and Supply Company
applied to the defendant Director of the Bureau of Commerce and Industry for the issuance
of a license to engage in business in the Philippine Islands and, accordingly, on May 20,
1926, a provisional license was by said defendant issued in its favor, which license was
made permanent on August 23, 1926.

V. That from and since the issuance of said provisional license of May 20,. 1926, said
plaintiff Western Equipment and Supply Company has been and still is engaged in importing
and selling in the Philippine Islands the electrical and telephone apparatus and supplies
manufactured by the plaintiff Western Electric Company, Inc., its offices in the City of Manila
being at No. 600 Rizal Avenue, in the charge and management of the plaintiff Felix C.
Reyes, its resident agent in the Philippine Islands.

VI. That the electric and telephone apparatus and supplies manufactured by the plaintiff
Western Electric Company, Inc., have been sold in foreign and interstate commerce and
have become well and thoroughly known to the trade in all countries of the world for the past
fifty years; that at present time the greater part of all telephone equipment used in Manila
and elsewhere in the Philippine Islands was manufactured by the said Western Electric
Company, Inc., and sold by it in commerce between the United States and the Philippine
Islands; that about three fourths of such equipment in use throughout the world are of the
manufacture of said "Western Electric Company, Inc.," and bear its corporate name; and that
these facts are well known to the defendant Henry Herman who for many years up to May

33
 20, 1926, has himself been buying said products from the plaintiff Western Electric
Company, Inc., and selling them in the Philippine Islands.

VII. That the name `Western Electric Company, Inc., has been registered as a trade-mark
under the provisions of the Act of Congress of February 20, 1905, in the office of the
Commissioner of Patents, at Washington, District of Columbia, and said trade-mark remains
in force to this date.

VIII. That on or about . . ., the defendants Henry Herman, Peter O' Brien, Manuel B. Diaz,
Felipe Mapoy and Artemio Zamora filed articles of incorporation with the defendant Director
of the Bureau of Commerce and Industry with the intention of organizing a domestic
corporation to be known as the "Western Electric Company, Inc.," for the purpose principally
of manufacturing, buying, selling and generally dealing in electrical and telephone apparatus
and supplies.

IX. That the purpose of said defendant in attempting to incorporate under the corporate
name of plaintiff Western Electric Company, Inc., is to profit and trade upon the plaintiff's
business and reputation, by misleading and deceiving the public into purchasing the goods
manufactured or sold by them as those of plaintiff Western Electric Company, Inc., in
violation of the provisions of Act No. 666 of the Philippine Commission, particularly section 4
thereof.

X. That on October 20, 1926, plaintiff W. Z. Smith was authorized by the Board of Directors
of the Western Electric Company, Inc., to take all necessary steps for the issuance of a
license to said company to engage in business in the Philippine Islands and to accept
service of summons and process in all legal proceedings against said company, and on
October 21, 1926, said plaintiff W. Z. Smith filed a written application for the issuance of such
license with the defendant Director of Bureau of Commerce and Industry, which application,
however, has not yet been acted upon by said defendant.

XI. That on October 18, 1926, the plaintiff W. Z. Smith formally lodged with the defendant
Director of the Bureau of Commerce and Industry his protest, and opposed said attempted
incorporation, by the defendants Henry Herman, Peter O'Brien, Manuel B. Diaz, Felipe
Mapoy and Artemio Zamora, of the `Western Electric Company, Inc.,' as a domestic
corporation, upon the ground among others, that the corporate name by which said
defendants desire to be known, being identical with that of the plaintiff Western Equipment
and Supply Company, will deceive and mislead the public purchasing electrical and
telephone apparatus and supplies. A copy of said protest is hereunto annexed, and hereby
made a part hereof, marked Exhibit A.

XII. That the defendant Fidel A. Reyes, Director of the Bureau of Commerce and Industry
has announced to these plaintiffs his intention to overrule the protest of plaintiffs, and to
issue to the other defendants a certificate of incorporation constituting said defendants a
body politic and corporate under the name "Western Electric Company, Inc.," unless
restrained by this Honorable Court.

XIII. That the issuance of a certificate of incorporation in favor of said defendants under said
name of "Western Electric Company, Inc.," would, under the circumstances hereinbefore
stated, constitute a gross abuse of the discretionary powers conferred by law upon the
defendant Director of the Bureau of Commerce and Industry.

XIV. That the issuance of said certificate of incorporation would, if carried out, be in violation
of plaintiff's rights and would cause them irreparable injury which could not be compensated
in damages, and from which petitioner would have no appeal or any plain, speedy and
adequate remedy at law, other than that herein prayed for.

They prayed for a temporary injunction, pending the final decision of the court when it should be
made permanent, restraining the issuance of the certificate of incorporation in favor of the
defendants under the name of Western Electric Company, Inc., or the use of that name for any
purpose in the exploitation and sale of electric apparatus and supplies. The preliminary writ was
issued.

For answer the defendant Fidel A. Reyes, as Director of the Bureau of Commerce and Industry,
admits the allegations of paragraphs 1, 2, 3 and 4 of the complaint, and as to paragraphs 5, 6 and 7,

34
he alleges that he has no information upon which to form a belief, and therefore denies them. He
admits the allegations of paragraph 8, and denies paragraph 9. He denies the first part of paragraph
10, but admits that an application for a license to do business was filed by the Western Electric
Company, Inc., as alleged. He admits paragraphs 11 and 12, and denies paragraphs 13 and 14, and
further alleges that the present action is prematurely brought, in that it is an attempt to coerce his
discretion, and that the mere registration of the articles of incorporation of the locally organized
Western Electric Company, Inc., cannot in any way injure the plaintiffs, and prays that the complaint
be dismissed.

For answer the defendants Herman, O' Brien, Diaz, Mapoy and Zamora admit the allegations of
paragraphs 1, 2, 3, 4 and 5 of the complaint, and deny paragraph 7, but allege that on October 15,
1926, the articles of incorporation in question were presented to the Director of the Bureau of
Commerce and Industry for registration. They deny paragraphs 9 and 10, except as to the filing of
the application. They admit the allegations made in paragraph 11, but alleged that W. Z. Smith was
without any right or authority. Admit the allegations of paragraph 12, but deny the allegations of
paragraphs 13 and 14, and allege that the Western Electric Company, Inc., has never transacted
business in the Philippine Islands; that its foreign business has been turned over to the International
Standard Electric Corporation; that the action is prematurely brought; and that the registration of the
articles of incorporation in question cannot in any way injure plaintiffs.

Wherefore, such defendants pray that the preliminary injunction be dissolved, and plaintiffs' cause of
action be dismissed, with costs.

The case was tried and submitted upon the following stipulated facts:

Now come the parties plaintiff and defendants in the above entitled cause, by their respective
undersigned attorneys, and for the purpose of this action, agree that the following facts are
true:

I. That the Western Equipment and Supply Company is a foreign corporation, organized
under the laws of the State of Nevada, United States of America; that the Western Electric
Company, Inc., is likewise a foreign corporation organized under the laws of the State of
New York, United States of America; and that the plaintiff W. Z. Smith and Felix C. Reyes,
are both of lawful age and residents of the City of Manila, Philippine Islands.

II. That the defendant Fidel A. Reyes is the duly appointed and qualified Director of the
Bureau of Commerce and Industry and as such Director is charge with the duty of issuing
and/or denying the issuance of certificates of incorporation to persons filing articles of
incorporation with the Bureau of Commerce and Industry.

III. That the defendants, Henry Herman, Peter O' Brien, Manuel B. Diaz, Felipe Mapoy and
Artemio Zamora are all of lawful age and all residents of the City of Manila, Philippine
Islands.

IV. That on or about May 4, 1925, the plaintiff, the Western Equipment and Supply Company,
through its duly authorized agent, the plaintiff, Felix C. Reyes, applied to the defendant
Director of the Bureau of Commerce and Industry for the issuance of a license to engage in
business in the Philippine Islands and on May 20, 1926, said defendant issued in favor of
said plaintiff a provisional license for that purpose which was permanent on August 23, 1926.

V. That the plaintiff, Western Electric Company, Inc., has ever been licensed to engage in
business in the Philippine Islands, and has never engaged in business therein.

VI. That from and since the issuance of said provisional license of May 20, 1926, to the
plaintiff, Western Equipment and Supply Company, said plaintiff has been and still is
engaged in importing and selling in the Philippine Islands electrical and telephone apparatus
and supplies manufactured by the plaintiff Western Electric Company, Inc. (as well as those
manufactured by other factories), said Western Equipment and Supply Company's offices in
the City of Manila being at No. 600 Rizal Avenue, and at the time of the filing of the complaint
herein was under the charge and management of the plaintiff, Felix C. Reyes, its then
resident agent in the Philippine Islands.

35
VII. That the electrical and telephone apparatus and supplies manufactured by the plaintiff,
Western Electric Company, Inc., have been sold in foreign and interstate commerce for the
past fifty years, and have acquired high trade reputation throughout the world; that at the
present time the greater part of all telephone equipment used in Manila, and elsewhere in the
Philippine Islands, was manufactured by the said plaintiff, Western Electric Company, Inc.,
and sold by it for exportation to the Philippine Islands; that such equipment, manufactured by
the said Western Electric Company, Inc., and bearing its trade-mark "Western Electric" or its
corporate name is generally sold and used throughout the world; that a Philippine
Corporation known as the `Electric Supply Company, Inc.,' has been importing the
manufactures of the plaintiff, Western Electric Company, Inc., into the Philippine Islands for
the purpose of selling the same therein, and that the defendant Henry Herman, is the
President and General Manager of said corporation.

VIII. That the words `Western Electric' have been registered by the plaintiff, Electric
Company, Inc., as a trade-mark under the provisions of the Act of Congress of February 20,
1905, in the office of the Commissioner of the Patents at Washington, District of Columbia,
and said trade-mark remains in force as the property of said plaintiff to this date.

IX. That the plaintiff, Western Electric Company, Inc., is advertising its manufacturers in its
own name by means of advertising its manufactures in its own name by means of
advertisements inserted in periodicals which circulate generally throughout the English and
Spanish speaking portions of the world, and has never abandoned its corporate name or
trade-mark, but, on the contrary, all of its output bears said corporate name and trade-mark,
either directly upon the manufactured article or upon its container, including that sold and
used in the Philippine Islands.

X. That on October 15, 1926, the defendants Henry Herman, Peter O'Brien, Manuel B. Diaz,
Felipe Mapoy and Artemio Zamora signed and filed articles of incorporation with the
defendant, Fidel A. Reyes, as Director of the Bureau of Commerce and Industry, with the
intention of organizing a domestic corporation under the Philippine Corporation Law to be
known as the "Western Electric Company, Inc.," for the purpose, among other things or
manufacturing, buying, selling and dealing generally in electrical and telephone apparatus
and supplies; that said defendants Peter O'Brien, Felipe Mapoy and Artemio Zamora are
employees of the said Electrical Supply Company, of which said defendant, Henry Herman,
is and has been, during the period covered by this stipulation, the president and principal
stockholder; and that they, together with the said defendant Herman, signed said articles of
incorporation for the incorporation of a domestic company to be known and the "Western
Electric Company, Inc.," with full knowledge of the existence of the plaintiff Western Electric
Company, Inc., of its corporate name, of its trade-mark, "Western Electric," and of the fact
that the manufactures of said plaintiff bearing its trade-mark or corporate name are in
general use in the Philippine Islands and in the United States.

XI. That on October 20, 1926, the plaintiff, W. Z. Smith, was authorized by the Board of
Directors of the plaintiff, Western Electric Company, Inc., to take all necessary steps for the
issuance of a license to said company to engage in business in the Philippine Islands, and to
accept service of summons and process in all legal proceedings against said company, and
on October 21, 1926, said plaintiff, W. Z. Smith, filed a written application for the issuance of
such license with the defendant Director of the Bureau of Commerce and Industry, which
application, however, has not yet been acted upon by said defendant.

XII. That on October 18, 1926, the Philippine Telephone and Telegraph Co., by its general
manager, the plaintiff W. Z. Smith. lodged with the defendant Director of the registration of
the proposed corporation by the defendants Henry Herman, Peter O'Brien, Manuel B. Diaz,
Felipe Mapoy and Artemio Zamora, to be known as the Western Electric Company, Inc., as a
domestic corporation under the Philippine Corporation Law. A copy of said protest, marked
Exhibit A, hereunto attached and is hereby made a part of this stipulation.

XIII. That the defendant, Fidel A. Reyes, Director of the Bureau of Commerce and Industry,
announced his intention of overrule said protest and will, unless judicially restrained
therefrom, issue to the other defendants herein a certificate of incorporation, constituting said
defendants a Philippine body politic and corporate under the name of "Western Electric
Company, Inc."

36
 XIV. That the defendant, Henry Herman, acting in behalf of said corporation, Electrical
Supply Company, Inc., has written letters to Messrs. Fisher, DeWitt, Perkins & Brady, acting
as attorneys for plaintiff, Western Electric Company, Inc., copies of which are hereunto
annexed and hereby made a part hereof, marked Exhibits B, C and D.

XV. That the defendants, while admitting the facts set out in paragraph VII and IX regarding
the business done, merchandise sold and advertisements made throughout the world by the
plaintiff Western Electric Company, Inc., insist and maintain that said allegations of fact are
immaterial and irrelevant to the issues in the present case, contending that such issued
should be determined upon the facts as they exist in the Philippine Islands alone.

To which were attached Exhibits A, B, C and D.

The lower court rendered judgment for the plaintiffs as prayed for in their complaint, and made the
temporary injunction permanent, from which the defendants appeal and assign the following errors:

The lower court erred:

(1) When it granted the writ of preliminary injunction (pages 9 and 10, record; 12 to 14, B. of
E.).

(2) When it held that the Western Electric Co., Inc., a foreign corporation, had a right to bring
the present suit in courts of the Philippine Islands, wherein it is unregistered and unlicensed,
as was done in the decision upon the petition for a preliminary injunction (pages 97 to 115
record), and in repeating such holding in the final decision herein (pages 51 and 52, B. of E.),
as well as in basing such holding upon the decision of this Honorable Supreme Court in
Marshall-Wells Co. vs. Henry W. Elser & Co. (46 Phil., 70.)

(3) When it found that the plaintiff, the Western Electric Co., Inc., has any such standing in
the Philippine Islands or before the courts thereof as to authorize it to maintain an action
therein under the present case.

(4) When it found that the other plaintiffs herein have any rights in the present controversy or
any legal standing therein. lawphi1.net

(5) In ordering the issuance of a permanent injunction restraining the defendant Fidel A.
Reyes, as Director of the Bureau of Commerce and Industry, from issuing a certificate of
incorporation in favor of the other defendants under the name of "Western Electric Co., Inc.,"
or any similar name, and restraining the other defendants from using the name "Western
Electric Co., Inc.," or any like name, in the manufacture of sale of electrical and telephone
apparatus and supplies or as a business name or style in the Philippine Islands.

(6) In finding that the purpose of the defendants, other than the defendant Fidel A. Reyes, in
seeking to secure the registration of a local corporation under the name of "Western Electric
Co., Inc.," was "certainly not an innocent one," thereby imputing to said defendants a
fraudulent and wrongful intent.

(7) In failing to dismiss plaintiffs' complaint with costs against the plaintiffs.

(8) In overruling and denying defendants' motion for a new trial.

JOHNS, J.:

The appellants say that the two questions presented are:

Has a foreign corporation, which has never done business in the Philippine Islands, and
which is unlicensed and unregistered therein, any right to maintain an action to restrain
residents and inhabitants of the Philippine Islands from organizing a corporation therein
bearing the same name as such foreign corporation?

37
 Has such foreign corporation a legal right to restrain an officer of the Government of the
Philippine Islands, i. e., the Director of the Bureau of Commerce and Industry from exercising
his discretion, and from registering a corporation so organized by residents and inhabitants
of the Philippine Islands?

As to the first question, the appellees say that it should be revised, so as to read as follows:

Has a foreign corporation which has never done business in the Philippine Islands, and
which is unlicensed and unregistered therein, any right to maintain an action to restrain
residents and inhabitants of the Philippine Islands from organizing a corporation therein
bearing the same name as such foreign corporation, when said residents and inhabitants
have knowledge of the existence of such foreign corporation, having dealt with it, and sold its
manufactures, and when said foreign corporation is widely and favorably known in the
Philippine Islands through the use therein of its products bearing its corporate and trade
name, and when the purpose of the proposed domestic corporation is to deal in precisely the
same goods as those of the foreign corporation?

As to the second, the appellees say that the question as propounded by the appellants is not fully
and fairly stated, in that it overlooks and disregards paragraphs 12 and 13 of the stipulation of facts,
and that the second question should be revised to read as follows:

Has an unregistered corporation which has not transacted business in the Philippine Islands,
but which has acquired a valuable goodwill and high reputation therein, through the sale, by
importers, and the extensive use within the Islands of products bearing either its corporate
name, or trade-mark consisting of its corporate name, a legal right to restrain an officer of the
Commerce and Industry, with knowledge of those facts, from issuing a certificate of
incorporation to residents of the Philippine Islands who attempt to organize a corporation for
the purpose of pirating the corporate name of such foreign corporation, of engaging in the
same business as such foreign corporation, and of defrauding the public into thinking that its
goods are those of such foreign corporation, and of defrauding such foreign corporation and
its local dealers of their legitimate trade?

We agree with the revisions of both questions as made by the appellees, for the reason that they are
more in accord with the stipulated facts. First, it is stipulated that the Western Electric Company,
Inc., "has never engaged in business in the Philippine Islands."

In the case of Marshall-Wells Co. vs. Henry W. Elser & Co. (46 Phil., 70, 76), this court held:

The noncompliance of a foreign corporation with the statute may be pleaded as an

affirmative defense. Thereafter, it must appear from the evidence, first, that the plaintiff is a
foreign corporation, second, that it is doing business in the Philippines, and third, that it has
not obtained the proper license as provided by the statute.

If it had been stipulated that the plaintiff, Western Electric Company, Inc., had been doing business
in the Philippine Islands without first obtaining a license, another and a very different question would
be presented. That company is not here seeking to enforce any legal or contract rights arising from,
or growing out of, any business which it has transacted in the Philippine Islands. The sole purpose of
the action:

"Is to protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate
name or goodwill have, through the natural development of its trade, established themselves." And it
contends that its rights to the use of its corporate and trade name:

Is a property right, a right in rem, which may assert and protect against all the world, in any of the
courts of the world — even in jurisdictions where it does not transact business — just the same as it
may protect its tangible property, real or personal, against trespass, or conversion. Citing sec. 10,
Nims on Unfair Competition and Trade-Marks and cases cited; secs. 21-22, Hopkins on Trade-
Marks, Trade Names and Unfair Competition and cases cited." That point is sustained by the
authorities, and is well stated in Hanover Star Milling Co. vs. Allen and Wheeler Co. (208 Fed., 513),
in which they syllabus says:

38
 Since it is the trade and not the mark that is to be protect, a trade-mark acknowledges no
territorial boundaries of municipalities or states or nations, but extends to every market
where the trader's goods have become known and identified by the use of the mark.

In Walter E. Olsen & Co. vs. Lambert (42 Phil., 633, 640), this court said:

In order that competition in business should be unfair in the sense necessary to justify the
granting of an injunction to restrain such competition it must appear that there has been, or is
likely to be, a diversion of trade from the business of the complainant to that of the
wrongdoer, or methods generally recognized as unfair; . . . In most, if not all, of the cases in
which relief has hitherto been granted against unfair competition the means and methods
adopted by the wrongdoer in order to divert the coveted trade from his rival have been such
as were calculated to deceive and mislead the public into thinking that the goods or business
of the wrongdoer are the goods or business of the rival. Diversion of trade is really the
fundamental thing here, and if diversion of trade be accomplished by any means which
according to accepted legal canons are unfair, the aggrieved party is entitled to relief.

In Shaver vs. Heller & Merz Co. (48 C.C. A., 48; 108 Fed., 821; 65 L. R. A., 878,. 881), it is said:

The contention of counsel for the appellants here is a confusion of the bases of two classes
of suits, — those for infringements of trade-marks, and those for unfair competition in trade. .
. . In the former, title to the trade-marks is indispensable to a good cause of action; in the
latter, no proprietary interest in the words, names, or means by which the fraud is
perpetrated is requisite to maintain a suit to enjoin it. It is sufficient that the complainant is
entitled to the custom — the goodwill — of a business, and that this goodwill is injured, or is
about to be injured, by the palming off of the goods of another as his.

The remaining question as to the jurisdiction of the courts over the defendant Reyes, as Director of
the Bureau of Commerce and Industry, has been adversely decided to his contention in the case
of Asuncion vs. De Yriarte (28 Phil., 67), in which, among other things, it is said:

If, therefore, the defendant erred in determining the question presented when the articles
were offered for registration, then that error will be corrected by this court in this action and
he will be compelled to register the articles as offered. If, however, he did not commit an
error, but decided that question correctly, then, of course, his action will be affirmed to the
extent that we will deny the relief prayed for.

It is very apparent that the purpose and intent of Herman and his associates in seeking to
incorporate under the name of Western Electric Company, Inc., was to unfairly and unjustly compete
in the Philippine Islands with the Western Electric Company, Inc., in articles which are manufactured
by, and bear the name of, that company, all of which is prohibited by Act No. 666, and was made
known to the defendant Reyes by the letter known in the record to the defendant Reyes by the letter
known in the record as Exhibit A.

As appellees say:These defendant, Herman and his associates, are actually asking the Government
of the Philippine Island to permit them to pirate the name of the Western Electric Company, Inc., by
incorporating thereunder, so that they may deceive the people of the Philippine Islands into thinking
that the goods they propose to sell are goods of the manufacture of the real Western Electric
Company. It would be a gross prostitution of the powers of government to utilize those powers in
such a way as to authorize such a fraud upon the people governed. It would be the grossest abuse
of discretion to permit these defendants to usurp the corporate mane of the plaintiff, and to trade
thereupon in these Islands, in fraud of the Philippine public and of the true owners of the name and
the goodwill incidental thereto.

The plaintiff, Western Electric Company, Inc., has been in existence as a corporation for over fifty
years, during which time it has established a reputation all over the world including the Philippine
Islands, for the kind and quality of its manufactured articles, and it is very apparent that the whole
purpose and intent of Herman and his associates in seeking to incorporate another corporation
under the identical name of Western Electric Company, Inc., and for the same identical purpose as
that of the plaintiff, is to trespass upon and profit by its good name and business reputation. The very
fact that Herman and his associates have sought the use of that particular name for that identical
purpose is conclusive evidence of the fraudulent intent with which it is done.The judgment of the
lower court is affirmed, with costs. So ordered.Avanceña, C.J., Johnson, Street, Malcolm, Villamor,
Ostrand and Villa-Real, JJ., concur.

39
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-61523 July 31, 1986

ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and AURORA

CONSOLIDATED SECURITIES and INVESTMENT CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court of First
Instance of Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC., respondents.

Siguion Reyna, Montecillo & Ongsiako Law Offices for petitioners.

Bito, Misa & Lozada Law Offices for respondents.

GUTIERREZ, JR., J.:

This petition for certiorari and prohibition seeks to set aside the order of the Regional Trial Court of
Laguna which denied the petitioners' motion to dismiss on the ground that the reason relied upon by
them does not appear to be indubitable. Petitioners also seek to set aside the decision and
resolution of the Intermediate Appellate Court which respectively upheld the order of the trial court
and denied the petitioners' motion for reconsideration of the same.

On April 9, 1981, respondent Stokely Van Camp. Inc. (Stokely) filed a complaint against Banahaw
Milling Corporation (Banahaw), Antam Consolidated, Inc., Tambunting Trading Corporation
(Tambunting), Aurora Consolidated Securities and Investment Corporation, and United Coconut Oil
Mills, Inc. (Unicom) for collection of sum of money.

In its complaint, Stokely alleged: (1) that it is a corporation organized and existing under the laws of
the state of Indiana, U.S.A. and has its principal office at 941 North Meridian Street, Indianapolis,
Indiana, U.S.A., and one of its subdivisions "Capital City Product Company" (Capital City) has its
office in Columbus, Ohio, U.S.A.; (2) that Stokely and Capital City were not engaged in business in
the Philippines prior to the commencement of the suit so that Stokely is not licensed to do business
in this country and is not required to secure such license; (3) that on August 21, 1978, Capital City
and Coconut Oil Manufacturing (Phil.) Inc. (Comphil) with the latter acting through its broker Roths
child Brokerage Company, entered into a contract (No. RBS 3655) wherein Comphil undertook to
sell and deliver and Capital City agreed to buy 500 long tons of crude coconut oil to be delivered in
October/November 1978 at the c.i.f. price of US$0.30/1b. but Comphil failed to deliver the coconut
oil so that Capital City covered its coconut oil needs in the open market at a price substantially in
excess of the contract and sustained a loss of US$103,600; that to settle Capital City's loss under
the contract, the parties entered into a second contract (No. RBS 3738) on November 3, 1978
wherein Comphil undertook to buy and Capital City agreed to sell 500 long tons of coconut crude oil
under the same terms and conditions but at an increased c.i.f. price of US$0.3925/lb.; (4) that the
second contract states that "it is a wash out against RBS 3655" so that Comphil was supposed to
repurchase the undelivered coconut oil at US$0.3925 from Capital City by paying the latter the sum
of US$103,600.00 which is the same amount of loss that Capital City sustained under the first
contract; that Comphil again failed to pay said amount, so to settle Capital City's loss, it entered into
a third contract with Comphil on January 24, 1979 wherein the latter undertook to sell and deliver
and Capital City agreed to buy the same quantity of crude coconut oil to be delivered in April/May
1979 at the c.i.f. price of US$0.3425/lb.; (5) that the latter price was 9.25 cents/lb. or US$103,600 for
500 long tons below the then current market price of 43.2 cents/lb. and by delivering said quantity of
coconut oil to Capital City at the discounted price, Comphil was to have settled its US$103,600
liability to Capital City; (6) that Comphil failed to deliver the coconut oil so Capital City notified the
former that it was in default; (7) that Capital City sustained damages in the amount of US$175,000;
and (8) that after repeated demands from Comphil to pay the said amount, the latter still refuses to
pay the same.

Respondent Stokely further prayed that a writ of attachment be issued against any and all the
properties of the petitioners in an amount sufficient to satisfy any lien of judgment that the

40
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.

41
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

42
 (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]; Marshall-Wells 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.

Feria (Chairman), Fernan, Cruz and Paras, JJ., concur.

Alampay, * J., took no part.

43
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

G.R. No. L-34383 July 20, 1983

THE HOME INSURANCE COMPANY, petitioner,

vs.
N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and HON.
A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch
XVII, respondents.

No. L-34382.

Zapa Law Office for petitioner.

Bito, Misa & Lozada Law Office for respondents.

No. L-34383.

Zapa Law Office for petitioner.

Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.

GUTIERREZ, JR., J.:

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

There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382, the
facts are found in the decision of the respondent court which stated:

On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated
Mining & Development Corporation, shipped on board the SS "Eastern Jupiter' from
Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The said
VESSEL is owned and operated by defendant Eastern Shipping Lines (CARRIER).
The shipment was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps
Dodge Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. The
shipment was insured with plaintiff against all risks in the amount of P1,580,105.06
under its Insurance Policy No. AS-73633.

xxx xxx xxx

The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad
order. What the CONSIGNEE ultimately received at its warehouse was the same
number of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled,
partly cut, and which had to be considered as scrap. Upon weighing at
CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos as

44
 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 plaintiff-appellant. 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.

45
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

46
 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

47
 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.

48
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

49
 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

50
 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.

Teehankee (Chairman), Plana, Escolin and Relova, JJ., concur.

Melencio-Herrera and Vasquez, JJ., are on leave.

51
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 102223 August 22, 1996

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-TRADE, INC., (formerly

ASPAC-ITEC PHILIPPINES, INC.) and FRANCISCO S. AGUIRRE, petitioners,
vs.
THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC, INC., respondents.

TORRES, JR., J.:p

Business Corporations, according to Lord Coke, "have no souls." They do business peddling goods, wares or even services
across national boundaries in "souless forms" in quest for profits albeit at times, unwelcomed in these strange lands venturing into
uncertain markets and, the risk of dealing with wily competitors.

This is one of the issues in the case at bar.

Contested in this petition for review on Certiorari is the Decision of the Court of Appeals on
June 7, 1991, sustaining the RTC Order dated February 22, 1991, denying the petitioners'
Motion to Dismiss, and directing the issuance of a writ of preliminary injunction, and its
companion Resolution of October 9, 1991, denying the petitioners' Motion for
Reconsideration.

Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity) and
ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations, while
petitioner Francisco S. Aguirre is their President and majority stockholder. Private
Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are
corporations duly organized and existing under the laws of the State of Alabama, United
States of America. There is no dispute that ITEC is a foreign corporation not licensed to do
business in the Philippines.

On August 14, 1987, ITEC entered into a contract with petitioner ASPAC referred to as
"Representative Agreement".1 Pursuant to the contract, ITEC engaged ASPAC as its
"exclusive representative" in the Philippines for the sale of ITEC's products, in consideration
of which, ASPAC was paid a stipulated commission. The agreement was signed by G.A.
Clark and Francisco S. Aguirre, presidents of ITEC and ASPAC respectively, for and in
behalf of their companies.2 The said agreement was initially for a term of twenty-four months.
After the lapse of the agreed period, the agreement was renewed for another twenty-four
months.

Through a "License Agreement"3 entered into by the same parties on November 10, 1988,
ASPAC was able to incorporate and use the name "ITEC" in its own name. Thus , ASPAC
Multi-Trade, Inc. became legally and publicly known as ASPAC-ITEC (Philippines).

By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, to their sole
customer, the Philippine Long Distance Telephone Company, (PLDT, for brevity).

To facilitate their transactions, ASPAC, dealing under its new appellation, and PLDT
executed a document entitled "PLDT-ASPAC/ITEC PROTOCOL"4 which defined the project
details for the supply of ITEC's Interface Equipment in connection with the Fifth Expansion
Program of PLDT.

One year into the second term of the parties' Representative Agreement, ITEC decided to
terminate the same, because petitioner ASPAC allegedly violated its contractual commitment
as stipulated in their agreements.5

52
ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is likewise
petitioner Aguirre, of using knowledge and information of ITEC's products specifications to
develop their own line of equipment and product support, which are similar, if not identical to
ITEC's own, and offering them to ITEC's former customer.

On January 31, 1991, the complaint6 in Civil Case No. 91-294, was filed with the Regional
Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff sought to enjoin, first, preliminarily
and then, after trial, permanently; (1) defendants DIGITAL, CMDI, and Francisco Aguirre and
their agents and business associates, to cease and desist from selling or attempting to sell to
PLDT and to any other party, products which have been copied or manufactured "in like
manner, similar or identical to the products, wares and equipment of plaintiff," and (2)
defendant ASPAC, to cease and desist from using in its corporate name, letter heads,
envelopes, sign boards and business dealings, plaintiff's trademark, internationally known as
ITEC; and the recovery from defendants in solidum, damages of at least P500,000.00,
attorney's fees and litigation expenses.

In due time, defendants filed a motion to dismiss7 the complaint on the following grounds:

(1) That plaintiff has no legal capacity to sue as it is a foreign corporation doing business in
the Philippines without the required BOI authority and SEC license, and (2) that plaintiff is
simply engaged in forum shopping which justifies the application against it of the principle of
"forum non conveniens".

On February 8, 1991, the complaint was amended by virtue of which ITEC

INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC.8

In their Supplemental Motion to Dismiss,9 defendants took note of the amendment of the
complaint and asked the court to consider in toto their motion to dismiss and their
supplemental motion as their answer to the amended complaint.

After conducting hearings on the prayer for preliminary injunction, the court a quo on
February 22, 1991, issued its Order: 10 (1) denying the motion to dismiss for being devoid of
legal merit with a rejection of both grounds relied upon by the defendants in their motion to
dismiss, and (2) directing the issuance of a writ of preliminary injunction on the same day.

From the foregoing order, petitioners elevated the case to the respondent Court of Appeals
on a Petition for Certiorari and Prohibition11 under Rule 65 of the Revised Rules of Court,
assailing and seeking the nullification and the setting aside of the Order and the Writ of
Preliminary Injunction issued by the Regional Trial Court.

The respondent appellate court stated, thus:

We find no reason whether in law or from the facts of record, to disagree with the
(lower court's) ruling. We therefore are unable to find in respondent Judge's issuance
of said writ the grave abuse of discretion ascribed thereto by the petitioners.

In fine, We find that the petition prima facie does not show that Certiorari lies in the
present case and therefore, the petition does not deserve to be given due course.

WHEREFORE, the present petition should be, as it is hereby, denied due course and
accordingly, is hereby dismissed. Costs against the petitioners.

SO ORDERED.12

Petitioners filed a motion for reconsideration13 on June 7, 1991, which was likewise denied by
the respondent court.

WHEREFORE, the present motion for reconsideration should be, as it is hereby,

denied for lack of merit. For the same reason, the motion to have the motion for
reconsideration set for oral argument likewise should be and is hereby denied.

SO ORDERED.14

53
Petitioners are now before us via Petition for Review on Certiorari15 under Rule 45 of the
Revised Rules of Court.

It is the petitioners' submission that private respondents are foreign corporations actually
doing business in the Philippines without the requisite authority and license from the Board of
Investments and the Securities and Exchange Commission, and thus, disqualified from
instituting the present action in our courts. It is their contention that the provisions of the
Representative Agreement, petitioner ASPAC executed with private respondent ITEC, are
similarly "highly restrictive" in nature as those found in the agreements which confronted the
Court in the case of Top-Weld Manufacturing, Inc. vs. ECED S.A. et al.,16 as to reduce
petitioner ASPAC to a mere conduit or extension of private respondents in the Philippines.

In that case, we ruled that respondent foreign corporations are doing business in the
Philippines because 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. The
respondents could be exempted from the requirements of Republic Act 5455 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 reading of the agreements between
the petitioner and the respondents shows that they are highly restrictive in nature, thus
making the petitioner a mere conduit or extension of the respondents.

It is alleged that certain provisions of the "Representative Agreement" executed by the

parties are similar to those found in the License Agreement of the parties in the Top-Weld
case which were considered as "highly restrictive" by this Court. The provisions in point are:

2.0 Terms and Conditions of Sales.

2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to
time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is
net to ITEC and does not include any transportation charges, import charges or taxes
into or within the Territory. All orders from customers are subject to formal
acceptance by ITEC at its Huntsville, Alabama U.S.A. facility.

xxx xxx xxx

3.0 Duties of Representative

3.1. REPRESENTATIVE SHALL:

3.1.1. Not represent or offer for sale within the Territory any product which competes
with an existing ITEC product or any product which ITEC has under active
development.

3.1.2. Actively solicit all potential customers within the Territory in a systematic and
business like manner.

3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid
and the like within the Territory.

3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales
Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales
Goal for additional twelve month periods, if any, shall be sent to the Sales Agent by
ITEC at the beginning of each period. These Sales Goals shall be incorporated into
this Agreement and made a part hereof.

xxx xxx xxx

6.0. Representative as Independent Contractor

54
 xxx xxx xxx

6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit

sales within the Territory on ITEC's behalf but is authorized to bind ITEC only in its
capacity as Representative and no other, and then only to specific customers and on
terms and conditions expressly authorized by ITEC in writing.17

Aside from the abovestated provisions, petitioners point out the following matters of record,
which allegedly bear witness to the respondents' activities within the Philippines in pursuit of
their business dealings:

a. While petitioner ASPAC was the authorized exclusive representative for three (3)
years, it solicited from and closed several sales for and on behalf of private
respondents as to their products only and no other, to PLDT, worth no less than US $
15 Million (p. 20, tsn, Feb. 18, 1991);

b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by
private respondents' sole witness, Mr. Clarence Long, is not in the name of petitioner
ASPAC as such representative, but in the name of private respondent ITEC, INC. (p.
20, tsn, Feb. 18, 1991);

c. The document denominated as "PLDT-ASPAC/ITEC PROTOCOL (Annex C of the

original and amended complaints) which defined the responsibilities of the parties
thereto as to the supply, installation and maintenance of the ITEC equipment sold
under said Contract No. 1 is, as its very title indicates, in the names jointly of the
petitioner ASPAC and private respondents;

d. To evidence receipt of the purchase price of US $ 15 Million, private respondent

ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13,
1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to
Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were
identified by private respondent's sole witness, Mr. Clarence Long (pp. 25-27, tsn,
Feb. 18, 1991).18

Petitioners contend that the above acts or activities belie the supposed independence of
petitioner ASPAC from private respondents. "The unrebutted evidence on record below for
the petitioners likewise reveal the continuous character of doing business in the Philippines
by private respondents based on the standards laid down by this Court in Wang
Laboratories, Inc. vs. Hon. Rafael T . Mendoza, et al.19 and again in TOP-WELD. (supra)" It
thus appears that as the respondent Court of Appeals and the trial court's failure to give
credence on the grounds relied upon in support of their Motion to Dismiss that petitioners
ascribe grave abuse of discretion amounting to an excess of jurisdiction of said courts.

Petitioners likewise argue that since private respondents have no capacity to bring suit here,
the Philippines is not the "most convenient forum" because the trial court is devoid of any
power to enforce its orders issued or decisions rendered in a case that could not have been
commenced to begin with, such that in insisting to assume and exercise jurisdiction over the
case below, the trial court had gravely abused its discretion and even actually exceeded its
jurisdiction.

As against petitioner's insistence that private respondent is "doing business" in the Philippines, the
latter maintains that it is not.

We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules and Regulations
Implementing the Omnibus Investments Code of 1987, the following:

(1) A foreign firm is deemed not engaged in business in the Philippines if it transacts
business through middlemen, acting in their own names, such as indebtors,
commercial bookers commercial merchants.

(2) A foreign corporation is deemed not "doing business" if its representative

domiciled in the Philippines has an independent status in that it transacts business in
its name and for its account. 20

55
Private respondent argues that a scrutiny of its Representative Agreement with the
Petitioners will show that although ASPAC was named as representative of ITEC., ASPAC
actually acted in its own name and for its own account. The following provisions are
particularly mentioned:

3.1.7.1. In the event that REPRESENTATIVE imports directly from ITEC,

REPRESENTATIVE will pay for its own account; all customs duties and import fees
imposed on any ITEC products; all import expediting or handling charges and
expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC.

xxx xxx xxx

4.1. As complete consideration and payment for acting as representative under this
Agreement, REPRESENTATIVE shall receive a sales commission equivalent to
a per centum of the FOB value of all ITEC equipment sold to customers within the
territory as a direct result of REPRESENTATIVE's sales efforts.21

More importantly, private respondent charges ASPAC of admitting its independence from
ITEC by entering and ascribing to provision No. 6 of the Representative Agreement.

6.0 Representative as Independent Contractor

6.1. When performing any of its duties under this Agreement, REPRESENTATIVE
shall act as an independent contractor and not as an employee, worker, laborer,
partner, joint venturer of ITEC as these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the jurisdiction of the United States,
the state of Alabama and the Territory.22

Although it admits that the Representative Agreement contains provisions which both
support and belie the independence of ASPAC, private respondent echoes the respondent
court's finding that the lower court did not commit grave abuse of discretion nor acted in
excess of jurisdiction when it found that the ground relied upon by the petitioners in their
motion to dismiss does not appear to be indubitable.23

The issues before us now are whether or not private respondent ITEC is an unlicensed
corporation doing business in the Philippines, and if it is, whether or not this fact bars it from
invoking the injunctive authority of our courts.

Considering the above, it is necessary to state what is meant by "doing business" in the
Philippines. Section 133 of the Corporation Code, provides that "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."24

Generally, a "foreign corporation" has no legal existence within the state in which it is foreign.
This proceeds from the principle that juridical existence of a corporation is confined within the
territory of the state under whose laws it was incorporated and organized, and it has no legal
status beyond such territory. Such foreign corporation may be excluded by any other state
from doing business within its limits, or conditions may be imposed on the exercise of such
privileges.25 Before a foreign corporation can transact business in this country, it must first
obtain a license to transact business in the Philippines, and a certificate from the appropriate
government agency. If it transacts business in the Philippines without such a license, it shall
not be permitted to maintain or intervene in any action, suit, or proceeding in any court or
administrative agency of the Philippines, but it may be sued on any valid cause of action
recognized under Philippine laws.26

In a long line of decisions, this Court has not altogether prohibited foreign corporation not
licensed to do business in the Philippines from suing or maintaining an action in Philippine
Courts. What it seeks to prevent is a foreign corporation doing business in the Philippines
without a licensed from gaining access to Philippine Courts.27

56
The purpose of the law in requiring that foreign corporations doing business in the
Philippines be licensed to do so and that they appoint an agent for service of process is to
subject the foreign corporation doing business in the Philippines to the jurisdiction of its
courts. The object is 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 steps
necessary to render it amenable to suit in the local courts.28 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, and thus, in effect, to permit
persons to avoid their contracts made with such foreign corporations.29

There is no exact rule or governing principle as to what constitutes "doing" or "engaging" 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.30

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 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 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.

Thus, a foreign corporation with a settling agent in the Philippines which issued twelve
marine policies covering different shipments to the Philippines31 and a foreign corporation
which had been collecting premiums on outstanding policies 32 were regarded as doing
business here.

The same rule was observed relating to a foreign corporation with an "exclusive distributing
agent" in the Philippines, and which has been selling its products here since 1929,33 and a
foreign corporation engaged in the business of manufacturing and selling computers
worldwide, and had installed at least 26 different products in several corporations in the
Philippines, and allowed its registered logo and trademark to be used and made it known
that there exists a designated distributor in the Philippines.34

In Georg Grotjahn GMBH and Co. vs. Isnani,35 it was held that the uninterrupted performance
by a foreign corporation of acts pursuant to its primary purposes and functions as a regional
area headquarters for its home office, qualifies such corporation as one doing business in
the country.

These foregoing instances should be distinguished from a single or isolated transaction or

occasional, incidental, or casual transactions, which do not come within the meaning of the
law,36 for in such case, the foreign corporation is deemed not engaged in business in the
Philippines.

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.3 7

In determining whether a corporation does business in the Philippines or not, aside from their
activities within the forum, reference may be made to the contractual agreements entered
into by it with other entities in the country. Thus, in the Top-Weld case (supra), the foreign
corporation's LICENSE AND TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT
with their local contacts were made the basis of their being regarded by this Tribunal as
corporations doing business in the country. Likewise, in Merill Lynch Futures, Inc. vs. Court
of Appeals, etc. 38 the FUTURES CONTRACT entered into by the petitioner foreign
corporation weighed heavily in the court's ruling.

57
With the abovestated precedents in mind, we are persuaded to conclude that private
respondent had been "engaged in" or "doing business" in the Philippines for some time now.
This is the inevitable result after a scrutiny of the different contracts and agreements entered
into by ITEC with its various business contacts in the country, particularly ASPAC and
Telephone Equipment Sales and Services, Inc. (TESSI, for brevity). The latter is a local
electronics firm engaged by ITEC to be its local technical representative, and to create a
service center for ITEC products sold locally. Its arrangements, with these entities indicate
convincingly ITEC's purpose to bring about the situation among its customers and the
general public that they are dealing directly with ITEC, and that ITEC is actively engaging in
business in the country.

In its Master Service Agreement39 with TESSI, private respondent required its local technical
representative to provide the employees of the technical and service center with ITEC
identification cards and business cards, and to correspond only on ITEC, Inc., letterhead.
TESSI personnel are instructed to answer the telephone with "ITEC Technical Assistance
Center.", such telephone being listed in the telephone book under the heading of ITEC
Technical Assistance Center, and all calls being recorded and forwarded to ITEC on a
weekly basis.

What is more, TESSI was obliged to provide ITEC with a monthly report detailing the failure
and repair of ITEC products, and to requisition monthly the materials and components
needed to replace stock consumed in the warranty repairs of the prior month.

A perusal of the agreements between petitioner ASPAC and the respondents shows that
there are provisions which are highly restrictive in nature, such as to reduce petitioner
ASPAC to a mere extension or instrument of the private respondent.

The "No Competing Product" provision of the Representative Agreement between ITEC and
ASPAC provides: "The Representative shall not represent or offer for sale within the Territory
any product which competes with an existing ITEC product or any product which ITEC has
under active development." Likewise pertinent is the following provision: "When acting under
this Agreement, REPRESENTATIVE is authorized to solicit sales within the Territory on
ITEC's behalf but is authorized to bind ITEC only in its capacity as Representative and no
other, and then only to specific customers and on terms and conditions expressly authorized
by ITEC in writing."

When ITEC entered into the disputed contracts with ASPAC and TESSI, they were carrying
out the purposes for which it was created, i.e., to market electronics and communications
products. The terms and conditions of the contracts as well as ITEC's conduct indicate that
they established within our country a continuous business, and not merely one of a
temporary character.40

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.41 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.42 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.43

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."44

58
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.

As observed by this Court in TOP-WELD (supra), viz:

The parties are charged with knowledge of the existing law at the time they enter into a
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.

The doctrine of lack of capacity to sue based on the failure to acquire a local license is based
on considerations of sound public policy. The license requirement was imposed to subject
the foreign corporation doing business in the Philippines to the jurisdiction of its courts. It 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.45

In Antam Consolidated Inc. vs. Court of Appeals, et al.46 we expressed our chagrin over this
commonly used scheme of defaulting local companies which are being sued by unlicensed
foreign companies not engaged in business in the Philippines to invoke the lack of capacity
to sue of such foreign companies. Obviously, the same ploy is resorted to by ASPAC to
prevent the injunctive action filed by ITEC to enjoin petitioner from using knowledge possibly
acquired in violation of fiduciary arrangements between the parties.

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.

In Top-Weld, we ruled that a foreign corporation may be exempted from the license
requirement in order to institute an action in our courts if its representative in the country
maintained an independent status during the existence of the disputed contract. Petitioner is
deemed to have acceded to such independent character when it entered into the
Representative Agreement with ITEC, particularly, provision 6.2 (supra).

Petitioner's insistence on the dismissal of this action due to the application, or non
application, of the private international law rule of forum non conveniens defies well-settled
rules of fair play. According to petitioner, the Philippine Court has no venue to apply its
discretion whether to give cognizance or not to the present action, because it has not
acquired jurisdiction over the person of the plaintiff in the case, the latter allegedly having no
personality to sue before Philippine Courts. This argument is misplaced because the court
has already acquired jurisdiction over the plaintiff in the suit, by virtue of his filing the original
complaint. And as we have already observed, petitioner is not at liberty to question plaintiff's
standing to sue, having already acceded to the same by virtue of its entry into the
Representative Agreement referred to earlier.

Thus, having acquired jurisdiction, it is now for the Philippine Court, based on the facts of the
case, whether to give due course to the suit or dismiss it, on the principle of forum non
convenience.4 7 Hence, the Philippine Court may refuse to assume jurisdiction in spite of its

59
having acquired jurisdiction. Conversely, the court may assume jurisdiction over the case if it
chooses to do so; provided, that the following requisites are met: 1) That the Philippine Court
is one to which the parties may conveniently resort to; 2) That the Philippine Court is in a
position to make an intelligent decision as to the law and the facts; and, 3) That the
Philippine Court has or is likely to have power to enforce its decision.48

The aforesaid requirements having been met, and in view of the court's disposition to give
due course to the questioned action, the matter of the present forum not being the "most
convenient" as a ground for the suit's dismissal, deserves scant consideration.

IN VIEW OF THE FOREGOING PREMISES, the instant Petition is hereby DISMISSED. The
decision of the Court of Appeals dated June 7, 1991, upholding the RTC Order dated
February 22, 1991, denying the petitioners' Motion to Dismiss, and ordering the issuance of
the Writ of Preliminary Injunction, is hereby affirmed in toto.

SO ORDERED.

60
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97816 July 24, 1992

MERRILL LYNCH FUTURES, INC., petitioner,

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

NARVASA, C.J.:

The capacity of a foreign corporation to maintain an action in the Philippines against residents
thereof, is the principal question in the appellate proceedings at bar. The issue arises from the
undisputed facts now to be briefly narrated.

On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES) filed a
complaint with the Regional Trial Court at Quezon City against the Spouses Pedro M. Lara and Elisa
G. Lara for the recovery of a debt and interest thereon, damages, and attorney's fees. 1 In its
complaint ML FUTURES described itself as —

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');

4) that in line with the above mentioned agreement and through said Merrill Lynch Philippines, Inc.,
the Lara Spouses actively traded in futures contracts, including "stock index futures" for four years or
so, i.e., from 1983 to October, 1987, 3 there being more or less regular accounting and
corresponding remittances of money (or crediting or debiting) made between the spouses and ML
FUTURES;

5) that because of a loss amounting to US$160,749.69 incurred in respect of three (3) transactions
involving "index futures," and after setting this off against an amount of US$75,913.42 then owing by

61
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

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

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

62
 . . . It is agreed between MERRILL LYNCH, PIERCE, FENNER & SMITH INC., and
other account carrying MERRILL LYNCH entities and their customers that all legal
relationships between them will be governed by applicable laws in countries outside
the Philippines where sale and purchase transactions take place.

c) and it argued that —

(1) it is not permitted for defendant spouses to present "evidence" in connection with
a motion to dismiss based on failure of the complaint to state a cause of action;

(2) even if the documents appended to the motion to dismiss be considered as

admissible "evidence," the same would be immaterial since the documents refer to a
different account number: 138-12136, the defendants' account number with ML
FUTURES being 138-12161;

(3) it is a lie for the defendant spouses to assert that they were never informed that
Merrill Lynch Philippines, Inc. had not been licensed to do business in the
Philippines; and

(4) defendant spouses should not be allowed to "invoke the aid of the court with
unclean hands.

The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill Lynch
Philippines, Inc. (formerly registered as Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc.) 5 did
not have a license, claiming that they learned of this only from inquiries with the Securities and
Exchange Commission which elicited the information that it had denied said corporation's application
to operate as a commodity futures trading advisor — a denial subsequently affirmed by the Court of
Appeals (Merrill Lynch Philippines, Inc. v. Securities & Exchange Commission, CA-G.R. No. 10821-
SP, Nov. 19, 1987). The spouses also submitted additional documents (Annexes J to R) involving
transactions with Merrill Lynch Pierce Fenner & Smith, Inc., dating back to 1980, stressing that all
but one of the documents "refer to Account No. 138-12161 which is the very account that is involved
in the instant complaint."

ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure statement by which
the latter were made aware that the transactions they were agreeing on would take place outside of
the Philippines, and that "all funds in the trading program must be placed with Merrill Lynch Futures,
Inc."

On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to dismiss,
directing the dismissal of the case and discharging the writ of preliminary attachment. It later denied
ML FUTURES's motion for reconsideration, by Order dated February 29, 1988. ML FUTURES
appealed to the Court of Appeals. 6

In its own decision promulgated on November 27, 1990, 7 the Court of Appeals affirmed the Trial
Court's judgment. It declared that the Trial Court had seen "through the charade in the
representation of MLPI and the plaintiff that MLPI is only a trading advisor and in fact it is a conduit
in the plaintiff's business transactions in the Philippines as a basis for invoking the provisions of
Section 133 of the Corporation Code," 8 viz.:

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

63
 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.

64
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

65
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., 20 in which the following pronouncement was made: 21

The general rule that in the absence of fraud of person who has contracted or
otherwise dealt with an association in such a way as to recognize and in effect admit
its legal existence as a corporate body is thereby estopped to deny its corporate
existence in any action leading out of or involving such contract or dealing, unless its
existence is attacked for causes which have arisen since making the contract or
other dealing relied on as an estoppel and this applies to foreign as well as domestic
corporations. (14 C.J .7; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil.
222).

There would seem to be no question that the Laras received benefits generated by their business
relations with ML FUTURES. Those business relations, according to the Laras themselves, spanned
a period of seven (7) years; and they evidently found those relations to be of such profitability as
warranted their maintaining them for that not insignificant period of time; otherwise, it is reasonably
certain that they would have terminated their dealings with ML FUTURES much, much earlier. In
fact, even as regards their last transaction, in which the Laras allegedly suffered a loss in the sum of
US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES
credited them with the amount of US$75,913.42 then due to them, thus reducing their debt to
US$84,836.27. Given these facts, and assuming that the Lara Spouses were aware from the outset
that ML FUTURES had no license to do business in this country and MLPI, no authority to act as
broker for it, it would appear quite inequitable for the Laras to evade payment of an otherwise
legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done
business in this country in the first place, or that its agent in this country, MLPI, had no license either
to operate as a "commodity and/or financial futures broker."

Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth
liable to ML FUTURES and if so in what amount, and whether they were so far aware of the absence
of the requisite licenses on the part of ML FUTURES and its Philippine correspondent, MLPI, as to
be estopped from alleging that fact as defense to such liability, should be ventilated and adjudicated
on the merits by the proper trial court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 16478 dated November 27,
1990 and its Resolution of March 7, 1991 are REVERSED and SET ASIDE, and the Regional Trial
Court at Quezon City, Branch 84, is ORDERED to reinstate Civil Case No. Q-52360 and forthwith
conduct a hearing to adjudicate the issues set out in the preceding paragraph on the merits.

SO ORDERED.

Padilla, Regalado and Nocon, JJ., concur.

Paras, J., Retired as of July 4, 1992.

66
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 118843 February 6, 1997

ERIKS PTE. LTD., petitioner,

vs.
COURT OF APPEALS, and DELFIN F. ENRIQUEZ, JR., respondents.

PANGANIBAN, J.:

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

This is the main issue presented for resolution in the instant petition for review, which seeks the
reversal of the Decision1 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.

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

67
 16 Aug 89 31669 (handcarried by 1,862.00
buyer)
—————
S$36,392.44
21 Mar 89 28257 618-7578-4634 415.50
04 Apr 89 28601 618-7741-7605 884.09
14 Apr 89 28900 618-7741-7631 1,269.50
25 Apr 89 29127 618-7741-9720 883.80
02 May 89 29232 (By seafreight) 120.00
05 May 89 29332 618-7796-3255 1,198.40
15 May 89 29497 (Freight & hand- 111.94
ling charges per
Inv. 29127 ——————
S$ 4,989.29
31 May 89 29844 618-7796-5646 545.70
S$ 545.70
——————
Total S$ 41,927.43

The transfers of goods were perfected in Singapore, for private respondent's account, F.O.B.
Singapore, with a 90-day credit term. Subsequently, demands were made by petitioner upon private
respondent to settle his account, but the latter failed/refused to do so.

On August 28, 1991, petitioner corporation filed with the Regional Trial Court of Makati, Branch
138,4 Civil Case No. 91-2373 entitled "Eriks Pte. Ltd. vs. Delfin Enriquez, Jr." for the recovery of
S$41,939.63 or its equivalent in Philippine currency, plus interest thereon and damages. Private
respondent responded with a Motion to Dismiss, contending that petitioner corporation had no legal
capacity to sue. In an Order dated March 8, 1993,5 the trial court dismissed the action on the ground
that petitioner is a foreign corporation doing business in the Philippines without a license. The
dispositive portion of said order reads:6

WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTED

and accordingly, the above-entitled case is hereby DISMISSED.

SO ORDERED.

On appeal, respondent Court affirmed said order as it deemed the series of transactions between
petitioner, corporation and private respondent not to be an "isolated or casual transaction." Thus,
respondent Court likewise found petitioner to be without legal capacity to sue, and disposed of the
appeal as follows:7

WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED. The

complaint is dismissed. No costs.

SO ORDERED.

Hence, this petition.

The Issue

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

Petitioner insists that the series of sales made to private respondent would still constitute isolated
transactions despite the number of invoices covering several separate and distinct items sold and
shipped over a span of four to five months, and that an affirmation of respondent Court's ruling would
result in injustice and unjust enrichment.

Private respondent counters that to declare petitioner as possessing capacity to sue will render
nugatory the provisions of the Corporation Code and constitute a gross violation of our laws. Thus,
he argues, petitioner is undeserving of legal protection.

68
 The Court's Ruling

The petition has no merit.

The Concept of Doing Business

The Corporation Code provides:

Sec. 133. Doing business without a license. — No foreign corporation transacting

business in the Philippines without a license, or its 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. 70429 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. (emphasis supplied)

In the durable case of The Mentholatum Co. vs. Mangaliman, this Court discoursed on the test to
determine whether a foreign company is "doing business" in the Philippines, thus: 10

. . . 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

69
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

70
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.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., oncur.

71
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 2684 September 14, 1950

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.

Ross, Selph, Carrascoso and Janda and Martin B. Laurea for appellant Fireman's Fund Insurance
Co.
Nabong and Sese for appellees.

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.

The Union Insurance Society of Canton, ltd. has been acting as settling agent of and settling
insurance claims against the Fireman's Fund Insurance Co. even before the last world war and
continued as such at least up to November 7, 1946.

In civil case No. 511 of the Court of First Instance of manila, the General Corporation of the
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 insurance policies in
the sum of P57,137.60. Said policies were issued by the Fireman's Fund Insurance Co. for the
merchandise shipped from the United States to the Philippines in 1945, in the name of Western
Canvas Products Company and/or Rovan Trading Company, doing 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 documents were to be surrendered and title to the merchandise
covered by them to be transferred upon payment in full of the invoice price.

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 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 co-defendant 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

72
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 complaint but condemned the Fireman's Fund
Insurance Co. to pay the plaintiffs the sum of $2,000 or its equivalent in Philippine currency, with
legal interest from and including September 12, 1946, on the claim based on the marine insurance
policy No. 70448/6, Exhibit E-2.

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 is now docketed
in the Supreme Court as G. R. No. L-2303. The Fireman's Fund Insurance Co. appealed form the
decision in so far as it was sentenced to pay $2,000 to the plaintiffs. Because of the amount involved
the appeal was sent to the Court of Appeals. However, being a companion case of G. R. No. L-2303,
at the instance of the appellant, the case was finally 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 consideration.

The appellant contends that the trial court erred in holding that it acquired jurisdiction over appellant
Fireman's Fund Insurance Co. and in rendering judgment against it in the sum of $2,000.

As regards the issue of jurisdiction, it is well to state that the summons corresponding to appellant
Fireman's Funds Insurance Co. was served on September 12, 1946, on the Union Insurance Society
of Canton, Ltd. then acting as appellant's settling agent in this country. At 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, 1946, that is, a little less than two months
later.

The attorneys for the Union Insurance Society of Canton, Ltd. on September 25, 1946, petitioned the
trial court to quash and declare null and void the summons issued thru it on its co-defendant
Fireman's Fund Insurance Co. on the ground that the said company was not doing business in the
Philippines, and that the Union Insurance Society of Canton, Ltd. had no authority from its co-
defendant to receive summons on its behalf. The trial court in its order of October 18, 1946,
overruled said petition on the ground that according to the complaint, the Fireman's Fund Insurance
Co. was doing business in the Philippines and a 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 determined at the hearing of the case.

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

SEC. 14. Service upon private foreign corporations. — If the defendant is a foreign
corporation, or a non-resident joint stock company or association, doing business in the
Philippines, service may be made on its resident agent designated in accordance with law for
that purpose, or, if there be no such agent, on the government official designated by law to
that effect, or on any of its officers or agents within the Philippines.

Applying then above legal provision, the trial court in its decision held that service of summons for
appellant Fireman's Fund Insurance Co. on its settling agent Union Insurance Society of Canton,
Ltd., was legal and gave the court jurisdiction over said appellant, the court ruling that the phrase "or
agents within the Philippines" clearly embraced settling agents like the Union Insurance Society of
Canton, Ltd.

We agree with the trial court in its ruling on this point. Section 14, Rule 7 of the Rules of 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 corresponding authority and
license of the Government or, perhaps illegally, without the benefit of any such authority or license.
As long as a foreign private corporation does or engages in business in this jurisdiction, it should and
will be amenable to process and the jurisdiction of the local courts, this for the protection of the
citizens, and service upon any agent of said foreign corporation constitutes personal service upon
the corporation and accordingly judgment may be rendered against said foreign corporation. (Fisher,
Philippine Law of Stock Corporation, pp. 451, 456.)

But, was the Fireman's Funds Insurance Co. in September, 1946, then doing business in the
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 law, and that
transactions which are occasional, incidental and casual, not of a character to indicate a purpose to

73
engage in business do not constitute the doing or engaging in business contemplated by law. In
order that a foreign corporation may be regarded as doing business within a State, there must be
continuity of conduct and intention to establish a continuous business, such as the appointment of a
local agent, and not one of a temporary character. (Thompson on Corporations, Vol. 8, 3d edition,
pp. 844-847 and Fisher's Philippine Law of Stock Corporation, p. 415.).

The Fireman's Fund Insurance Co., to judge by the twelve marine insurance policies issued 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 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 keep a settling agent in this
jurisdiction, was certainly doing business in the Philippines. And these were not casual or isolated
business transactions. According to the evidence, since before the war, the Fireman's Fund
Insurance Co. would appear to have engaged in this kind of business and had employed its co-
defendant Union Insurance Society of Canton, Ltd. as its settling agent, although sometime in 1946,
between July and August of that year, appellant had its own employee from its head office in
America, one John L. Stewart, acting as its settling agent here. And, to conclusively prove continuity
of the business and the intention of the appellant not only to establish but to continue such regular
business in this jurisdiction, on November 7, 1946, less than two months after service of summons, it
applied for, obtained a license and was authorized to regularly do business in the Philippines.

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 the 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 good
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.

Appellant further contends that according to section 68 of the Corporation Law, service of summons
on a foreign corporation may be made only upon an agent of said corporation residing in the
Philippines and authorized by the foreign corporation to accept service. Said section refers to a
foreign corporation doing business in the Philippines which has complied with the law and obtained
the corresponding license. It does not refer to a foreign corporation actually doing business here but
without the corresponding license or authority. In the latter case, service of summons is governed by
section 14, Rule 7 of the Rules of Court.

We may add that the defense of lack of jurisdiction interposed by appellant seems to be based on a
mere technicality. True, on September 12, 1946, when service of the summons was made, the
appellant had not yet been authorized to do business in the Philippines and so it had not yet
designated an agent authorized to accept service of summons. But less than two months thereafter,
the appellant obtained such license or authority and even according to its own theory was then
amenable to the jurisdiction of the local courts. It employed able attorneys who filed an answer,
including motions on its behalf, and during the hearing held on October 21, 1947, that is to say,
about one year after it had been authorized to do business here, it was represented by the same
attorneys who not only cross-examined the witness for the plaintiffs and agreed to or objected on to
documentary evidence, but introduced a witness on its behalf and presented documentary evidence.
Under such circumstances, it must be clear that the appellant may not successfully plead lack of
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 the
complaint. The truth is that the plaintiffs have such interest sufficient to authorize them to sue on and
recover upon said policy because they have met all the terms of the shipper, paid all the amounts
demanded by it thru the bank and in turn were given all the shipping papers, including the insurance
policy, Exhibit E-2. It is to be remembered that this insurance policy was endorsed in blank and
payable in Manila. One of the conditions of said policy is that thru it the appellant insured the shipper
(Western Canvas Products Co.) "as well as in his or their own name as in that of those to

74
whomsoever the subject matter of this policy does, may or shall appertain, in the sum of $2,000"
(First paragraph of the policy, Exhibit E-2). Moreover, as correctly found by the trial court, there was
an agreement Exhibit 2 attached to Exhibit F-2 whereby the shipper Western Canvas Product Co.
authorized the plaintiffs herein to prosecute this case against appellant.

Now, we come to the evidence or proof as to the loss or damage said to have been suffered by the
plaintiffs. Said plaintiffs claimed that their documentary evidence Exhibit E to E-23 establish their
loss; that said documents are of the same class of documents presented in the 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 approved by appellant
or its settling agent. In this we agree. The settling agent here declined to take action upon the claim
filed by the plaintiffs based on the policy Exhibit E-2 and said plaintiffs failed or refused to present
said claim before the appellant in America. We shall therefore have to determine whether the
evidence is sufficient to support the claim. The trial court without discussing the evidence or referring
to the documents merely held that the evidence was sufficient to prove the claim.

Examining the evidence we find that Attorney Nabong for the plaintiffs gave no testimony about the
loss. He merely identified the documents intended to prove said loss. According to 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 shipment of the 21 cases of
merchandise which came on the American Mail Lines SS Wideawake which arrived in Manila, on
October 14, 1945, covered by the policy Exhibit E-2, eleven cases -- Nos. 8, 10, 11, 12, 15, 16, 17,
18, 19, 20 and 21 still remained undelivered, 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 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
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.

In view of the foregoing, the decision appealed from is hereby modified so as to reduce the amount
awarded to the plaintiffs and to be paid by the appellant Fireman's Fund Insurance Co., from $2,000
to $635.50 or its equivalent in Philippine currency, and in all other respects, the decision is affirmed.
No pronouncement as to costs.

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

75
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

FACILITIES MANAGEMENT CORPORATION, J. S. DREYER, and J. V. CATUIRA, petitioners,

vs.
LEONARDO DE LA ROSA AND THE HONORABLE COURT OF INDUSTRIAL
RELATIONS, respondents.

Sycip, Salazar, Feliciano & Associates for petitioners.

Benjamin M. Mendoza for respondent Court.

MAKASIAR, J:

Petition for review on certiorari of the decision of the Court of Industrial Relations, dated February
14, 1972, ordering petitioners herein to pay private respondent Leonardo de la Osa his overtime
compensation, as wen as his swing shift and graveyard shift premiums at the rate of fifty (50%) per
cent of his basic sa (Annex E, p. 31, rollo).

The aforesaid decision was based on a report submitted by the Hearing Examiner, CIR (Dagupan
City Branch), the pertinent portions of which are quoted hereinbelow:::

In a petition filed on July 1, 1967, Leonardo dela Osa sought his reinstatement. with
full backwages, as well as the recovery of his overtime compensation, swing shift
and graveyard shift differentials. Petitioner alleged that he was employed by
respondents as follows: (1) painter with an hourly rate of $1.25 from March, 1964 to
November, 1964, inclusive; (2) houseboy with an hourly rate of $1.26 from
December, 1964 to November, 1965, inclusive; (3) houseboy with an hourly rate of
$1.33 from December, 1965 to August, 1966, inclusive; and (4) cashier with an
hourly rate of $1.40 from August, 1966 to March 27, 1967, inclusive. He further
averred that from December, 1965 to August, 1966, inclusive, he rendered overtime
services daily and that this entire period was divided into swing and graveyard shifts
to which he was assigned, but he was not paid both overtime and night shift
premiums despite his repeated demands from respondents.

Respondents filed on August 7, 1967 their letter- answer without substantially

denying the material allegations of the basic petition but interposed the following
special defenses, namely: That respondents Facilities Management Corporation and
J. S. Dreyer are domiciled in Wake Island which is beyond the territorial jurisdiction of
the Philippine Government; that respondent J. V. Catuira, though an employee of
respondent corporation presently stationed in Manila, is without power and authority
of legal representation; and that the employment contract between petitioner and
respondent corporation carries -the approval of the Department of Labor of the
Philippines.

Subsequently on May 3, 1968. respondents filed a motion to dismiss the subject

petition on the ground that this Court has no Jurisdiction over the instant case, and
on May 24, 1968, petitioner interposed an opposition thereto. Said motion was
denied by this Court in its Order issued on July 12, 1968 sustaining jurisdiction in
accordance with the prevailing doctrine of the Supreme Court in similar cases.

xxx xxx xxx

But before we consider and discuss the foregoing issues, let us first ascertain if this
Court could acquire jurisdiction over the case at bar, it having been contended by
respondents that they are domiciled in Wake Island which is beyond the territorial

76
 jurisdiction of the Philippine Government. To this incidental question, it may be stated
that while it is true the site of work is Identified as Wake Island, it is equally true the
place of hire is established in Manila (See Section B, Filipino Employment Contract,
Exhibit '1'). Moreover, what is important is the fact that the contract of employment
between the parties litigant was shown to have been originally executed and
subsequently renewed in Manila, as asserted by petitioner and not denied by
respondents. Hence, any dispute arising therefrom should necessarily be determined
in the place or venue where it was contracted.

xxx xxx xxx

From the evidence on hand, it has been proven beyond doubt that petitioner canvas
assigned to and performed work in respondent company at slight time which
consisted of two different schedules, namely, swing shift and graveyard shifts,
particularly during his tenure as houseboy for the second period and as cashier.
Petitioner's testimony to this effect was not contradicted, much less rebutted, by
respondents, as revealed by the records. Since petitioner actually rendered night
time services as required by respondents, and considering the physical, moral and
sociological effects arising from the performance of such nocturnal duties, we think
and honestly believe that petitioner should be compensated at least fifty percent
(50%) more than his basic wage rate. This night shift premium pay would indeed be
at par with the overtime compensation stipulated at one and one-half (1 ½) times of
the straight time rate.

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

Apropos before this Court were filed three (3) other cases involving the same petitioner, all of which
had been finally dispoded of, as follows:

G.R. No Date of Filing Disposition

1. L-37117 July 30, 1973 Petition denied for

lack of merit on Sept.
13, 1973. Motion for
Reconsideration
denied lack of
merit, Nov. 20,1973.

2. L-38781 June 17,1974 Petition denied for

lack of merit on June
21,1974.

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

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

Incidentally, in connection with G.R. No. L-39111-12 (No. 3 above), WE found strong evidence that
petitioner therein, which is also the petitioner in the case at bar, "twisted the arm" of private
respondent, when the latter in his Manifestation dated July 3, 1975, stated:

3. ... Furthermore, since petitioner FMC is a foreign corporation domiciled in

California, U.S.A. and has never been engaged in business in the Philippines, nor
does it have an agent or an office in this country, there exists no valid reason for me
to participate in the continuation and/or prosecution of this case (p. 194, rollo).

— as if jurisdiction depends on the will of the parties to a case. At any rate, considering that
petitioner paid the claims of private respondent, the case had become moot and academic. Besides,

77
the fact of such payment amounts to an acknowledgment on the part of petitioner of the jurisdiction
of the court over it.

WE have also noted that the principal question involved in each of the above-numbered three (3)
cases is more or less Identical, to wit: Is the mere act by a non-resident foreign corporation of
recruiting Filipino workers for its own use abroad, in law doing business in the Philippines?

In the case at bar, which was filed with this Court on June 3, 1974, petitioners presented, inter
alia, the following issue: ... can the CIR validly affirm a judgment against persons domiciled outside
and not doing business in the Philippines, and over whom it did not acquire jurisdiction')

While it is true that the issues presented in the decided cases are worded differently from the
principal issue raised in the case at bar, the fact remains that they all boil down to one and the same
issue, which was aptly formulated and ably resolved by Mr. Justice Ramon C. Fernandez, then with
the Court of Appeals and now a member of this Court, in CA-G.R. No. SP-01485-R, later elevated to
this Court on appeal by certiorari in Case G.R. No. L-37117 this case, the majority opinion of the
Court of Appeals, which was penned by Justice Fernandez and which WE hereby adopt, runs as
follows:

The principal issue presented in this special civil action is whether petitioner has
been 'doing business in the Philippines' so that the service of summons upon its
agent in the Philippines vested the Court of First Instance of Manila with jurisdiction.

From the facts of record, the petitioner may be considered as doing busuness un the
Philippines within the the scope of Section 14, Rule 14 of the Rules of the Court
which provide:

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

a foreign corporation or a non-resident joint stock company or
association: doing business in the Philippines, service may be made
on its resident agent designated in accordance with law for that
purpose or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents
within the Philippines.

Indeed, the petitioner, in compliance with Act 2486 as implemented by Department of

Labor Order No. IV dated May 20, 1968 had to appoint Jaime V. Catuira, 1322 A.
Mabini, Ermita, Manila as agent for FMC with authority to execute Employment
Contracts and receive, in behalf of that corporation, legal services from and be bound
by processes of the Philippine Courts of Justice, for as long as he remains an
employee of FMC (Annex 'I', rollo, p. 56). It is a fact that when the summons for the
petitioner was served on Jaime V. Catuira he was still in the employ of the FMC.

In his motion to dismiss Annex B', p. 19, Rollo), petitioner admits that Mr. Catuira
represented it in this country 'for the purpose of making arrangements for the
approval by the Department of Labor of the employment of Filipinos who are
recruited by the Company as its own employees for assignment abroad.' In effect,
Mr. Catuira was a on officer representing petitioner in the Philippines.

Under the rules and regulations promulgated by the Board of Investments which took
effect Feb. 3, 1969, implementing Rep. Act No. 5455, which took effect Sept. 30,
1968, the phrase 'doing business' has been exemption with illustrations, among them
being as follows:

xxx xxx xxx

(f) the performance within the Philippines of any act or combination of

acts enumerated in section l(l) of the Act shall constitute 'doing
business' therein. in particular, 'doing business includes:

(1) Soliciting orders, purchases (sales) or service contracts. Concrete

and specific solicitations by a foreign firm, not acting independently of
the foreign firm amounting to negotiation or fixing of the terms and

78
 conditions of sales or service contracts, regardless of whether the
contracts are actually reduced to writing, shall constitute doing
business even if the enterprise has no office or fixed place of
business in the Philippines. xxx

(2) Appointing a representative or distributor who is dociled in the

Philippines, unless said representative or distributor has an
independent status, i.e., it transacts business in its name and for its
own account, and not in the name or for the account of the principal.

xxx xxx xxx

(4) Opening offices, whether called 'liaison'offices, agencies or

branches, unless proved otherwise.

xxx xxx xxx

(10) Any other act or acts that imply a continuity of commercial

dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the
functions normally incident to, or in the progressive prosecution of,
commercial gain or of the purpose and objective of the business
organization (54 O.G. 53).

Recently decided by this Court — again thru Mr. Justice Ramon C. Fernandez — which is similar to
the case at bar, is G.R. No. L-26809, entitled Aetna Casualty & Curety Company, plaintiff- appellant
versus Pacific Star Line, the Bradman Co., Inc., Manila Port Service and/or Manila Railroad
Company, Inc., defendants-appellees." The case is an appeal from the decision of the Court of First
Instance of Manila, Branch XVI, in its Civil Case No. 53074, entitled Aetna Casualty & Surety
Company vs. Pacific Star Lines, The Bradman Co., Inc., Manila Port Service and/or Manila Railroad
Company, Inc." dismissing the complaint on the ground that the plaintiff has no legal capacity to
bring the suit.

It appears that on February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Casualty &
Surety Co., Inc., as subrogee instituted Civil Case No. 53074 in the Court of First Instance of Manila
against Pacific Star Line, The Bradman Co., Inc., Manila Port Service and/or Manila Railroad
Company, Inc. to recover the amount of US$2,300.00 representing the value of stolen and damaged
cargo plus litigation expenses and exemplary damages in the amounts of P1,000.00 and P2,000.00,
respectively, with legal interest thereon from the filing of the suit and costs.

After all the defendants had filed their answer, the defendants Manila Port Service and Manila
Railroad Company, Inc. amended their answer to allege that the plaintiff, Aetna Casualty & Surety
Company, is a foreign corporation not duly licensed to do business in the Philippines and, therefore,
without capacity to sue and be sued.

After the parties submitted a partial stipulation of facts and additional documentary evidence, the
case was submitted for decision of the trial court, which dismissed the complaint on the ground that
the plaintiff insurance company is subject to the requirements of Sections 68 and 69 of Act 1459, as
amended, and for its failure to comply therewith, it has no legal capacity to bring suit in this
jurisdiction. Plaintiff appealed to this Court.

The main issue involved in the appeal is whether or not the plaintiff appellant has been doing
business in the Philippines, considering the fact that it has no license to transact business in the
Philippines as a foreign corporation. WE ruled:

The object of Sections 68 and 69 of the Corporation Law was not to prevent the
foreign corporation from performing single acts, but to prevent it from acquiring a
domicile for the purpose of business without taking the steps necessary to render it
amenable to suit in the local courts. It was never the purpose of the Legislature to
exclude a foreign corporation which happens to obtain an isolated order for business
from the Philippines, from securing redress in the Philippine courts (Marshall Co. vs.
Elser & Co., 46 Phil 70,75).

79
 In Mentholatum Co., Inc., et al vs- M Court rules that-

No general rule or governing principle can be laid down as to what

constitutes 'doing' or 'engaging in' or 'transacting' business. Indeed,
each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int Revenue [C.C.A Ohio], 223 F. 984, 987). The
term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization
(Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77;
Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118
Okl. III; Automotive Material Co. vs. American Standard Metal
Products Corp., 158 N.E. 698, 703, 327 III. 367)'. 72 Phil. 524, 528-
529.

And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held:

(d) While plaintiff is a foreign corporation without license to transact

business in the Philippines, it does not follow that it has no capacity to
bring the present action. Such license is not necessary because it is
not engaged in business in the Philippines. In fact, the transaction
herein involved is the first business undertaken by plaintiff in the
Philippines, although on a previous occasion plaintiff's vessel was
chartered by the National Rice and Corn Corporation to carry rice
cargo from abroad to the Philippines. These two isolated transactions
do not constitute engaging in business in the Philippines within the
purview of Sections 68 and 69 of the Corporation Law so as to bar
plaintiff from seeking redress in our courts. (Marshall Wens Co. vs.
Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation
vs. Angel O. Singson, G.R. No. L-7917, April 29, 1955)'. 102 Phil., pp.
1, 18.

Based on the rulings laid down in the foregoing cases, it cannot be said that the
Aetna Casualty & Surety Company is transacting business of insurance in the
Philippines for which it must have a license. The Contract of insurance was entered
into in New York, U.S.A., and payment was made to the consignee in its New York
branch. It appears from the list of cases issued by the Clerk of Court of the Court of
First Instance of Manila that all the actions, except two (2) cases filed by Smith, Beer
& Co., Inc. against the Aetna Casualty & Surety Company, are claims against the
shipper and the arrastre operators just like the case at bar.

Consequently, since the appellant Aetna Casualty & Surety Company is not engaged
in the business of insurance in the Philippines but is merely collecting a claim
assigned to it by the consignee, it is not barred from filing the instant case although it
has not secured a license to transact insurance business in the Philippines.

Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from
seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim
exemption from being sued in Philippine courts for acts done against a person or persons in the
Philippines.

WHEREFORE, THE PETITION IS HEREBY DENIED WITH COSTS AGAINST THE PETITIONERS.

SO ORDERED.

Teehankee (Chairman), Fernandez, Guerrero, De Castro, and Melencio Herrera, JJ., concur.

80
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 105141 August 31, 1993

SIGNETICS CORPORATION, petitioner,

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

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

Romulo P. Atiencia for private respondent.

RESOLUTION

VITUG, J.:

The crucial issue in this petition for review on certiorari is whether or not the lower court, given the
factual allegations in the complaint, had correctly assumed jurisdiction over the petitioner, a foreign
corporation, on its claim in a motion to dismiss, that it had since ceased to do business in the
Philippines.

The petitioner, Signetics Corporation (Signetics), was organized under the laws of the United States
of America. Through Signetics Filipinas Corporation (SigFil), a wholly-owned subsidiary, Signetics
entered into lease contract over a piece of land with Fruehauf Electronics Phils., Inc. (Freuhauf).

In a complaint initiated on 15 March 1990, Freuhauf sued Signetics for damages, accounting or
return of certain machinery, equipment and accessories, as well as the transfer of title and surrender
of possession of the buildings, installations and improvements on the leased land, before the
Regional Trial Court of Pasig, Metro Manila (Civil Case No. 59264). Claiming that Signetics caused
SigFil to insert in the lease contract the words "machineries, equipment and accessories," the
defendants were able to withdraw these assets from the cost-free transfer provision of the contract.

On the basis of the allegation that Signetics is a "subsidiary of US PHILIPS CORPORATION, and
may be served summons at Philips Electrical Lamps, Inc., Las Piñas, Metro Manila and/or c/o
Technology Electronics Assembly & Management (TEAM) Pacific Corporation, Electronics Avenue,
FTI Complex, Taguig, Metro Manila," service of summons was made on Signetics through TEAM
Pacific Corporation.

By special appearance, Signetics filed on 14 May 1990 a motion to dismiss the complaint on the
ground of lack of jurisdiction over its person. Invoking Section 14, Rule 14, of the Rules of Court and
the rule laid down in Pacific Micronisian Line, Inc., v. Del Rosario and Pelington1 to the effect that the
fact of doing business in the Philippines should first be established in order that summons could be
validly made and jurisdiction acquired by the court over a foreign corporation, Signetics moved to
dismiss the complaint.

The trial court2 denied the motion to dismiss in an Order, which reads:

In the case of Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44, the High Court
explained what constitutes "doing business" as follows:

Indeed it has been held that "where a single act or transaction of a

foreign corporation is not merely incidental or causal but is of such
character as distinctly to indicate a purpose to do other business in

81
 the State, such constitutes doing business within the meaning of
statutes prescribing the conditions under which a foreign corporation
may be served with summons (Far East Int'l. Import and Export Corp.
v. Nankai Kogyo Co. Ltd., 6 SCRA 725 [1962]).

Assuming, arguendo, that defendant is a foreign corporation not doing business in

the Philippines, it has been categorically stated in the aforecited case that although a
foreign corporation is not doing business in the Philippines, it may be used for acts
done against persons in the Philippines.

For lack of sufficient merits therefore, defendant's Motion to Dismiss is hereby

DENIED.3

Signetics filed a motion for reconsideration but this, too, was denied by the court in its Order of 11
March 1991, reiterating that the rule expressed in Wang Laboratories, Inc. v. Mendoza4 was the
applicable and prevailing "jurisprudence on the matter."

Signetics elevated the issue to the Court of Appeals, via a petition for certiorari and prohibition, with
application for preliminary injunction (CA-G.R. SP No. 24758). On 20 February 1992, the Court of
Appeals rendered its decision, 5 dismissing the petition and affirming the orders of the lower court. A
motion for the reconsideration of the appellate court's decision, having been denied, the instant
petition for review on certiorari was filed with this Court, still on the "basic question" of whether or not
"a foreign corporation can be sued in the Philippines and validly summoned by a Philippine court
without prior 'proof' that it was doing business here at the time of the suit."6

Critically dissecting the complaint, the petitioner stress that the averments in the complaint "are at
best mere allegations and do not constitute "proof of 'doing business';" 7 that the allegations, in any
case, do not demonstrate "doing business"; and that the phrase "becoming interested in doing
business" is "not actual doing of business here." The petitioner argues that what was effectively only
alleged in the complaint as an activity of doing business was "the mere equity investment" of
petitioner in SigFil, which the petitioner insists, had theretofore been transferred to TEAM holdings,
Ltd.

The petitioner relies, in good part, on the Pacific Micronisian rule. The pronouncements in Wang
Laboratories and in Facilities Management Corporation,8 the petitioner adds, are mere obiter
dicta since the foreign corporations involved in both cases were found to have, in fact, been doing
business in the Philippines and were thus unquestionably amenable to local court processes.

We rule for the affirmance of the appealed decision.

Petitioner's contention that there should be "proof" of the foreign corporation's doing business in this
country before it may be summoned is based on the following portions of the decision in Pacific
Micronisian:

The pertinent rule to be considered is section 14, Rule 7 of the Rules of Court, which
refers to service upon private foreign corporations. This section provides:

Sec. 14. Service upon private foreign corporations. — If the

defendant is a foreign corporation, or a non-resident joint stock
company or association, doing business in the Philippines, service
may be made on its resident agent designated in accordance with law
for that purpose, or, if there be no such agent, on the government
official designated by law to that effect, or on any of its officers or
agents within the Philippines.

The above section provides for three modes of effecting services upon a private
corporation, namely: (1) by serving upon the agent designated in accordance with
law to accept service by summons; (2) if there be no special agent, by serving on the
government official designated by law to that effect; and (3) by serving on any officer
or agent within the Philippines. But, it should be noted, in order that services may be
effected in the manner above stated, said section also requires that the foreign
corporation be one which is doing business in the Philippines. This is a sine qua
non requirement. This fact must first be established in order that summons can be

82
 made and jurisdiction acquired. This is not only clear in the rule but is reflected in a
recent decision of this Court. We there said that "as long as a foreign private
corporation does or engages in business in this jurisdiction, it should and will be
amenable to process and the jurisdiction of the local courts." (General Corporation of
the Philippines, et al. vs. Union Insurance Society of Canton, Ltd., et al. 49 Off. Gaz.,
73, September 14, 1950). 9

The petitioner opines that the phrase, "(the) fact (of doing business in the Philippines) must first be
established in order that summons be made and jurisdiction acquired," used in the above
pronouncement, would indicate that a mere allegation to that effect in the complaint is not enough —
there must instead be proof of doing business. 10 In any case, the petitioner, points out, the
allegations themselves did not sufficiently show the fact of its doing business in the Philippines.

It should be recalled that jurisdiction and venue of actions are, as they should be, initially determined
by the allegations of the complaint. 11 Jurisdiction cannot be made to depend on independent pleas
set up in a mere motion to dismiss, otherwise jurisdiction would become dependent almost entirely
upon the defendant. 12 The fact of doing business must then, in the first place, be established by
appropriate allegations in the complaint. This is what the Court should be seen to have meant in
the Pacific Micronisian case. The complaint, it is true, may have been vaguely structured but, taken
correlatively, not disjunctively as the petitioner would rather suggest, it is not really so weak as to be
fatally deficient in the above requirement. Witness the following allegations of the complaint:

3. In the year 1978, the defendant became interested in engaging in business in the
Philippines . . .;

4. To serve as its local business conduit, the defendant organized a wholly owned
domestic subsidiary corporation known as SIGNETICS FILIPINAS CORPORATION
(SIGFIL, for brevity), which was supposed to be its actual operating entity in the
Philippines;

xxx xxx xxx

18. In February 1983, the defendant ceased all its business operations in the leased
premise. . . .;

xxx xxx xxx

23. (a) In November 21, 1986, the defendant transferred all shares of stock of SIGFIL
in favor of TEAM HOLDING LIMITED, a foreign corporation organized under the laws
of British Virgin Islands;

xxx xxx xxx;

23. (d) Subsequently, on January 12, 1987, the new owners unmasked itself when it
dropped SIGFIL's name, and changed its corporate name to TECHNOLOGY
ELECTRONICS ASSEMBLY AND MANAGEMENT (T.E.A.M.) PACIFIC
CORPORATION, otherwise known as TEAM PACIFIC CORPORATION. The
similarity between "TEAM HOLDINGS LIMITED" and "TEAM PACIFIC
CORPORATION" is all too apparent; and

24. As seen in the next-preceding paragraph, the defendant made a devious use of
the fiction of separate corporate identity to shield chicanery and to perpetuate
fraud. 13

The petitioner's reliance on Hyopsung Maritime Co., Ltd., v. Court. of Appeals 14 is misplaced. While
the Court therein cited the Pacific Micronisian ruling and dismissed the complaint against the
petitioner for lack of jurisdiction, the Hyopsung case is under a completely different factual milieu. As
summarized by the Court, the complaint therein was —

. . . for the recovery of damages based on a breach of contract which appears to

have been entirely entered into, executed, and consummated in Korea. Indisputably,
the shipment was loaded on board the foreign vessel MV "Don Aurelio" at Pohang,
Korea, by a Korean firm with offices at Seoul, Korea; the corresponding bill of lading

83
 was issued in Seoul, Korea and the freight was prepaid also at Seoul; the above
vessel with its cargo never ever docked at Manila or at any other port of entry in the
Philippines; lastly, the petitioner did not appoint any ship agent in the Philippines.
Simply put, the petitioner is beyond the reach of our courts. 15

On the other hand, the complaint, in this instance, has alleged, among other things, that Signetics
had become interested in engaging in business in the Philippines; that it had actually organized
SigFil, as its local business conduit or actual operating entity in the Philippines; that, through Sigfil, it
had entered into the lease contract involving properties in the Philippines a situation that could have
allowed Frehauf to avail itself of the provisions of Section 17, Rule 14, on extraterritorial service of
summons since the relief sought consists in excluding the defendant from any interest in property
within the Philippines); and that while Signetics may have had transferred all its shareholdings
(before the complaint was filed) in favor of TEAM Holdings, Ltd., another foreign corporation,
SIGFIL's corporate name, however, was forthwith changed to TEAM Pacific corporation, which
Freuhauf claims is a "devious" attempt to "shield chicanery and to perpetuate fraud" (see paragraphs
23 and 24, Complaint). On this score, what might in a way also be revealing is that after Freuhauf
had moved to sell the attached property subject matter of the litigation, the petitioner filed the
following pleading, intriguingly captioned, "Manifestation"; viz:

Defendant, by counsel, respectfully states:

1. Plaintiff filed a Motion to Sell Attached Properties and scheduled it for hearing on
August 24, 1990, justifying the sale on the allegations that certain properties
belonging to the defendant are perishable in nature and liable to material
depreciation in value.

2. In pleadings filed by the defendant, the Court was requested to determine whether
there is a valid attachment on this alleged properties. This determination is
necessary because defendant has pointed out that personal jurisdiction could not be
justified on the basis of the so-called attachment because it was legally ineffective.
Two reasons were given to the Court. First, the property has not been taken into
actual custody of the sheriff as required by Rule 57, Section 7 (c). Second, the
property has not been shown to be owned by the defendant.

3. Since jurisdiction over the defendant is premised on the attachment, the

Honorable Court should therefore act on the motion to sell by determining (i) whether
plaintiff has shown that the property proposed to be sold belongs to the defendant (ii)
whether it was effectively attached and (iii) whether its sale is justified (because it is
perishable or deteriorating in value).

Respectfully submitted. 16

The petitioner contends that the motion to sell was filed by Freuhauf "ostensibly to ask permission to
sell properties (sic.), but really to hurt petitioner in the first fight" (meaning the dismissal incident)
because Freuhauf used the motion to sell "incident" as forum to prove ex-parte its argument on
jurisdiction." 17 Far from continuing the "fight" on the issue of jurisdiction, the aforequoted
manifestation reflects nothing less than a surprising interest in the property which petitioner claims
are not its own.

Having said that, Freuhauf, in effect, has invoked the doctrine of piercing the veil of corporate fiction,
and it cannot thus be held to have improperly caused the service of summons on TEAM Pacific
pursuant to Section 14, of Rule 14. As explained by the Court in Pacific Micronisian, summons may
be served upon an agent of the defendant who may not necessarily be its "resident agent
designated in accordance with law." The term "agent", in the context it is used in Section 14, refers
to its general meaning, i.e., one who acts on behalf of a principal. 18 The allegations in the complaint,
taken together, have thus been able to amply convey that not only is TEAM Pacific the business
conduit of the petitioner in the Philippines but that, also, by the charge of fraud, is none other than
the petitioner itself.

In any event, it may well be that the Court should restate the rule, and it is that a foreign corporation,
although not engaged in business in the Philippines, may still look up to our courts for relief;
reciprocally, such corporation may likewise be "sued in Philippine courts for acts done against a
person or persons in the Philippines" (Facilities Management Corporation v. De la Osa), 19 provided
that, in the latter case, it would not be impossible for court processes to reach the foreign

84
corporation, a matter that can later be consequential in the proper execution of judgment. Verily, a
State may not exercise jurisdiction in the absence of some good basis (and not offensive to
traditional notions of fair play and substantial justice) for effectively exercising it, whether the
proceedings are in rem, quasi in rem or in personam. 20

This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its
person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only
involvement in the Philippines was through a passive investment in Sigfil, 21 which it even later
disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business
in the Philippines. It is a defense, however, that requires the contravention of the allegations of the
complaint, as well as a full ventillation, in effect, of the main merits of the case, which should not thus
be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to
whether a foreign corporation which has done business in the country, but which has ceased to do
business at the time of the filing of a complaint, can still be made to answer for a cause of action
which accrued while it was doing business, is another matter that would yet have to await the
reception and admission of evidence. Since these points have seasonably been raised by the
petitioner, there should be no real cause for what may understandably be its apprehension, i.e., that
by its participation during the trial on the merits, it may, absent an invocation of separate or
independent reliefs of its own, be considered to have voluntarily submitted itself to the court's
jurisdiction.

All told Signetics cannot, at least in this early stage, assail, on the one hand, the veracity and
correctness of the allegations in the complaint and proceed, on the other hand, to prove its own, in
order to hasten a peremptory escape.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED. The lower court shall
proceed with dispatch in resolving Civil Case No. 59264. Costs against the petitioner.

SO ORDERED.

Bidin, Romero and Melo, JJ., concur.

Feliciano, J., took no part.

85
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97642 August 29, 1997

AVON INSURANCE PLC. BRITISH RESERVE INSURANCE CO. LTD., CORNHILL INSURANCE
PLC. IMPERIO REINSURANCE CO. (UK) LTD., INSTITUTE DE RESERGURROS DO BRAZIL,
INSURANCE CORPORATION OF IRELAND PLC, LEGAL AND GENERAL ASSURANCE
SOCIETY LTD., PROVINCIAL INSURANCE PLC. QBL INSURANCE (UK) LTD., ROYAL
INSURANCE CO. LTD., TRINITY INSURANCE CO. LTD., GENERAL ACCIDENT FIRE AND LIFE
ASSURANCE CORP. LTD., COOPERATIVE INSURANCE SOCIETY and PEARL ASSURANCE
CO. LTD., petitioners,
vs.
COURT OF APPEALS, REGIONAL TRIAL COURT OF MANILA, BRANCH 51. YUPANGCO
COTTON MILLS. WORLDWIDE SURETY & INSURANCE CO., INC., respondents.

TORRES, JR., J.:

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 Decision1 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 dismiss2 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

86
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 co-defendants 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.

87
 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 non-jurisdictional grounds, there is no voluntary
submission to the jurisdiction of the trial court.6

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.

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

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.

88
The Court is cognizant of the doctrine in Signetics Corp. vs. Court of Appeals11 that for the purpose of
acquiring jurisdiction by way of summons on a defendant foreign corporation, there is no need to
prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege
in the complaint that the defendant has an agent in the Philippines for summons to be validly served
thereto, even without prior evidence advancing such factual allegation.

As it is, private respondent has made no allegation or demonstration of the existence of petitioners'
domestic agent, but avers simply that they are doing business not only abroad but in the Philippines
as well. It does not appear at all that the petitioners had performed any act which would give the
general public the impression that it had been engaging, or intends to engage in its ordinary and
usual business undertakings in the country. The reinsurance treaties between the petitioners and
Worldwide Surety and Insurance were made through an international insurance 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

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.

Before a foreign corporation can transact business in the country, it must first obtain a license to
transact business here17 and secure the proper authorizations under existing law.

If a foreign corporation engages in business activities without the necessary requirements, it opens
itself to court actions against it, but it shall not be allowed 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 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.

89
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

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.27 This 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,29 it 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.Romero, Puno and Mendoza, JJ., concur.Regalado, J., is on leave.

90