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
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. Compaia 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 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, Avancea, Villamor, Ostrand and Romualdez, JJ.,
concur.

SIGNETICS vs. CA

Facts:
1. The petitioner, 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).
2. 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
RTC of Pasig (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.
3. Service of summons was made on Signetics through TEAM
Pacific Corp. on the basis of the allegation that Signetics is a
"subsidiary of US PHILIPS CORPORATION, and may be served
summons at Philips Electrical Lamps, Inc., Las Pias, Metro
Manila and/or c/o Technology Electronics Assembly &
Management (TEAM) Pacific Corporation, Electronics Avenue,
FTI Complex, Taguig, Metro Manila," service of summons was
made on Signetics through TEAM Pacific Corporation.
4. Petitioner filed a motion to dismiss the complaint on the
ground of lack of jurisdiction over its person. Invoking Section 14,

Rule 14, of the Rules of Court and the rule laid down in Pacific
Micronisian Line, Inc., v. Del Rosario and Pelington 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.
5. The RTC denied the Motion to dismiss. While the CA affirmed
RTC. Hence this petition. The petitioner argues that what was
effectively 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.
Issue: Whether or not the lower court, 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.
YES.
1. 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. 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.
The allegations in the complaint 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.

2. The rule 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), provided that, in the latter case, it would not be impossible
for court processes to reach the foreign corporation, a matter
that can later be consequential in the proper execution of
judgment. Hence, 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.

AGILENT TECHNOLOGIES vs. INTEGRATED SILICON TECHNOLOGY

FACTS:PetitionerAgilentisaforeigncorporation,which,
byitsownadmission,isnotlicensedtodobusinessinthe
Philippines.RespondentIntegratedSiliconisaprivate
domesticcorporation,100%foreignowned,whichis
engagedinthebusinessofmanufacturingandassembling
electronicscomponents.
Thejuridicalrelationamongthevariouspartiesinthiscase

canbetracedtoa5yearValueAddedAssemblyServices
Agreement(VAASA),betweenIntegratedSiliconandHP
Singapore.UnderthetermsoftheVAASA,Integrated
Siliconwastolocallymanufactureandassemblefiber
opticsforexporttoHPSingapore.HPSingapore,forits
part,wastoconsignrawmaterialstoIntegrated
Silicon.TheVAASAhadafiveyeartermwithaprovision
forannualrenewalbymutualwrittenconsent.Later,with
theconsentofIntegratedSilicon,HPSingaporeassigned
allitsrightsandobligationsintheVAASAtoAgilent.
Later,IntegratedSiliconfiledacomplaintforSpecific
PerformanceandDamagesagainstAgilentanditsofficers.
ItallegedthatAgilentbreachedthepartiesoralagreement
toextendtheVAASA.Agilentfiledaseparatecomplaint
againstIntegratedSiliconforSpecificPerformance,
RecoveryofPossession,andSumofMoneywithReplevin,
PreliminaryMandatoryInjunction,andDamages.
RespondentsfiledaMTDinthe2ndcase,onthegrounds
oflackofAgilentslegalcapacitytosue;litis
pendentia;forumshopping;andfailuretostateacauseof
action.
ThetrialcourtdeniedtheMTDandgrantedpetitioner
Agilentsapplicationforawritofreplevin.Withoutfilinga
MR,respondentsfiledapetitionforcertiorariwiththeCA.
TheCAgrantedrespondentspetitionforcertiorari,set
asidetheassailedOrderofthetrialcourt(denyingthe
MTD)andorderedthedismissalofthe2ndcase.Hence,

theinstantpetition.
ISSUE:WONanunlicensedforeigncorporationnotdoing
businessinthePhilippineslacksthelegalcapacitytofile
suit.
HELD:ThepetitionisGRANTED.TheDecisionofthe
CAwhichdismissedthe2ndcaseisREVERSEDandSET
ASIDE.TheOrderdenyingtheMTDisREINSTATED.
AgilentsapplicationforaWritofReplevinisGRANTED.
NO
Aforeigncorporationwithoutalicenseisnotipso
factoincapacitatedfrombringinganactioninPhilippine
courts.Alicenseisnecessaryonlyifaforeigncorporation
istransactingordoingbusinessinthecountry.The
CorporationCodeprovides:Sec.133.Doingbusiness
withoutalicense.Noforeigncorporationtransacting
businessinthePhilippineswithoutalicense,orits
successorsorassigns,shallbepermittedtomaintainor
interveneinanyaction,suitorproceedinginanycourtor
administrativeagencyofthePhilippines;butsuch
corporationmaybesuedorproceededagainstbefore
Philippinecourtsoradministrativetribunalsonanyvalid
causeofactionrecognizedunderPhilippinelaws.
Theaforementionedprovisionpreventsanunlicensed

foreigncorporationdoingbusinessinthePhilippines
fromaccessingourcourts.
[Inanumberofcases,however,wehaveheldthatan
unlicensedforeigncorporationdoingbusinessinthe
PhilippinesmaybringsuitinPhilippinecourtsagainsta
Philippinecitizenorentitywhohadcontractedwithand
benefitedfromsaidcorporation.Suchasuitispremisedon
thedoctrineofestoppel.Apartyisestoppedfrom
challengingthepersonalityofacorporationafterhaving
acknowledgedthesamebyenteringintoacontractwithit.
Thisdoctrineofestoppeltodenycorporateexistenceand
capacityappliestoforeignaswellasdomestic
corporations.Theapplicationofthisprinciplepreventsa
personcontractingwithaforeigncorporationfromlater
takingadvantageofitsnoncompliancewiththestatutes
chieflyincaseswheresuchpersonhasreceivedthebenefits
ofthecontract.]Theprinciplesregardingtherightofa
foreigncorporationtobringsuitinPhilippinecourtsmay
thusbecondensedinfourstatements:
ifaforeigncorporationdoesbusinessinthePhilippines
withoutalicense,itcannotsuebeforethePhilippinecourts;
ifaforeigncorporationisnotdoingbusinessinthe
Philippines,itneedsnolicensetosuebeforePhilippine
courtsonanisolatedtransactionoronacauseofaction
entirelyindependentofanybusinesstransaction;

ifaforeigncorporationdoesbusinessinthePhilippines
withoutalicense,aPhilippinecitizenorentitywhichhas
contractedwithsaidcorporationmaybeestoppedfrom
challengingtheforeigncorporationscorporatepersonality
inasuitbroughtbeforePhilippinecourts;and
ifaforeigncorporationdoesbusinessinthe
Philippineswiththerequiredlicense,itcansuebefore
Philippinecourtsonanytransaction.
**ThechallengetoAgilentslegalcapacitytofilesuit
hingesonwhetherornotitisdoingbusinessinthe
Philippines.However,thereisnodefinitiveruleonwhat
constitutesdoing,engagingin,ortransacting
businessinthePhilippines.TheCorporationCodeitselfis
silentastowhatactsconstitutedoingortransacting
businessinthePhilippines.
[Jurisprudencehasit,however,thatthetermimpliesa
continuityofcommercialdealingsandarrangements,and
contemplates,tothatextent,theperformanceofactsor
worksortheexerciseofsomeofthefunctionsnormally
incidenttoorinprogressiveprosecutionofthepurposeand
subjectofitsorganization.
IntheMentholatumcasethisCourtdiscoursedonthetwo
generalteststodeterminewhetherornotaforeign
corporationcanbeconsideredasdoingbusinessinthe

Philippines.Thefirstoftheseisthesubstancetest,thus:
Thetruetest[fordoingbusiness],however,seemstobe
whethertheforeigncorporationiscontinuingthebodyof
thebusinessorenterpriseforwhichitwasorganizedor
whetherithassubstantiallyretiredfromitandturnedit
overtoanother.
Thesecondtestisthecontinuitytest,expressedthus:
Theterm[doingbusiness]impliesacontinuityof
commercialdealingsandarrangements,andcontemplates,
tothatextent,theperformanceofactsorworksorthe
exerciseofsomeofthefunctionsnormallyincidentto,and
intheprogressiveprosecutionof,thepurposeandobjectof
itsorganization.]
**TheForeignInvestmentsActof1991(theFIA;
RepublicActNo.7042,asamended),definesdoing
businessasfollows:
Sec.3,par.(d).Thephrasedoingbusinessshallinclude
solicitingorders,servicecontracts,openingoffices,
whethercalledliaisonofficesorbranches;appointing
representativesordistributorsdomiciledinthePhilippines
orwhoinanycalendaryearstayinthecountryforaperiod
orperiodstotalingonehundredeighty(180)daysormore;
participatinginthemanagement,supervisionorcontrolof

anydomesticbusiness,firm,entity,orcorporationinthe
Philippines;andanyotheractoractsthatimplya
continuityofcommercialdealingsorarrangements,and
contemplatetothatextenttheperformanceofactsor
works,ortheexerciseofsomeofthefunctionsnormally
incidentto,andintheprogressiveprosecutionof,
commercialgainorofthepurposeandobjectofthe
businessorganization.
Ananalysisoftherelevantcaselaw,inconjunctionwith
Sec1oftheIRRoftheFIA(asamendedbyRA8179),
woulddemonstratethattheactsenumeratedintheVAASA
donotconstitutedoingbusinessinthePhilippines.The
saidprovisionprovidesthatthefollowingshallnotbe
deemeddoingbusiness:
(1)Mereinvestmentasashareholderbyaforeignentityin
domesticcorporationsdulyregisteredtodobusiness,
and/ortheexerciseofrightsassuchinvestor;
(2)Havinganomineedirectororofficertorepresentits
interestinsuchcorporation;
(3)Appointingarepresentativeordistributordomiciledin
thePhilippineswhichtransactsbusinessinthe
representativesordistributorsownnameandaccount;
(4)Thepublicationofageneraladvertisementthroughany

printorbroadcastmedia;
(5)MaintainingastockofgoodsinthePhilippinessolely
forthepurposeofhavingthesameprocessedbyanother
entityinthePhilippines;
(6)Consignmentbyaforeignentityofequipmentwitha
localcompanytobeusedintheprocessingofproductsfor
export;
(7)CollectinginformationinthePhilippines;and
(8)Performingservicesauxiliarytoanexistingisolated
contractofsalewhicharenotonacontinuingbasis,suchas
installinginthePhilippinesmachineryithasmanufactured
orexportedtothePhilippines,servicingthesame,training
domesticworkerstooperateit,andsimilarincidental
services.
Byandlarge,toconstitutedoingbusiness,theactivityto
beundertakeninthePhilippinesisonethatisforprofit
making.
BythecleartermsoftheVAASA,Agilentsactivitiesin
thePhilippineswereconfinedto(1)maintainingastockof
goodsinthePhilippinessolelyforthepurposeofhaving
thesameprocessedbyIntegratedSilicon;and(2)
consignmentofequipmentwithIntegratedSilicontobe

usedintheprocessingofproductsforexport.Assuch,we
holdthat,basedontheevidencepresentedthusfar,Agilent
cannotbedeemedtobedoingbusinessinthePhilippines.
RespondentscontentionthatAgilentlacksthelegal
capacitytofilesuitisthereforedevoidofmerit.Asa
foreigncorporationnotdoingbusinessinthePhilippines,it
needednolicensebeforeitcansuebeforeourcourts.