G.R. No.

147905 May 28, 2007

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

The Case

Before the Court is a petition for review1 of the 18 April 2001 Decision2 of the Court of
Appeals in CA-G.R. CV No. 66236. The Court of Appeals affirmed the Order3 of the
Regional Trial Court, Branch 258, Paraaque City (trial court) dismissing the complaint for
sum of money filed by B. Van Zuiden Bros., Ltd. (petitioner) against GTVL Manufacturing
Industries, Inc. (respondent).

The Facts

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

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

x x ZUIDEN is not engaged in business in the Philippines, but is suing before the
Philippine Courts, for the reasons hereinafter stated.

xxxx

3. ZUIDEN is engaged in the importation and exportation of several products,

including lace products.

4. On several occasions, GTVL purchased lace products from [ZUIDEN].

5. The procedure for these purchases, as per the instructions of GTVL, was that
ZUIDEN delivers the products purchased by GTVL, to a certain Hong Kong
corporation, known as Kenzar Ltd. (KENZAR), x x x and the products are then
considered as sold, upon receipt by KENZAR of the goods purchased by GTVL.

KENZAR had the obligation to deliver the products to the Philippines and/or to
follow whatever instructions GTVL had on the matter.

Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong

Kong, the transaction is concluded; and GTVL became obligated to pay the agreed
purchase price.

xxxx

7. However, commencing October 31, 1994 up to the present, GTVL has failed and
refused to pay the agreed purchase price for several deliveries ordered by it and
delivered by ZUIDEN, as above-mentioned.

xxxx
 9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or
admissions of liability, GTVL has failed and refused, and continues to fail and
refuse, to pay the overdue amount of U.S.$32,088.02 [inclusive of interest].4

Instead of filing an answer, respondent filed a Motion to Dismiss5 on the ground that
petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing
business in the Philippines without securing the required license. Accordingly, petitioner
cannot sue before Philippine courts.

After an exchange of several pleadings6 between the parties, the trial court issued an Order
on 10 November 1999 dismissing the complaint.

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

Hence, this petition.

The Court of Appeals Ruling

In affirming the dismissal of the complaint, the Court of Appeals relied on Eriks Pte., Ltd. v.
Court of Appeals.7 In that case, Eriks, an unlicensed foreign corporation, sought to collect
US$41,939.63 from a Filipino businessman for goods which he purchased and received on
several occasions from January to May 1989. The transfers of goods took place in
Singapore, for the Filipinos account, F.O.B. Singapore, with a 90-day credit term. Since
the transactions involved were not isolated, this Court found Eriks to be doing business in
the Philippines. Hence, this Court upheld the dismissal of the complaint on the ground
that Eriks has no capacity to sue.

The Court of Appeals noted that in Eriks, while the deliveries of the goods were perfected
in Singapore, this Court still found Eriks to be engaged in business in the Philippines.
Thus, the Court of Appeals concluded that the place of delivery of the goods (or the place
where the transaction took place) is not material in determining whether a foreign
corporation is doing business in the Philippines. The Court of Appeals held that what is
material are the proponents to the transaction, as well as the parties to be benefited and
obligated by the transaction.

In this case, the Court of Appeals found that the parties entered into a contract of sale
whereby petitioner sold lace products to respondent in a series of transactions. While
petitioner delivered the goods in Hong Kong to Kenzar, Ltd. (Kenzar), another Hong Kong
company, the party with whom petitioner transacted was actually respondent, a Philippine
corporation, and not Kenzar. The Court of Appeals believed Kenzar is merely a shipping
company. The Court of Appeals concluded that the delivery of the goods in Hong Kong did
not exempt petitioner from being considered as doing business in the Philippines.

The Issue

The sole issue in this case is whether petitioner, an unlicensed foreign corporation, has
legal capacity to sue before Philippine courts. The resolution of this issue depends on
whether petitioner is doing business in the Philippines.

The Ruling of the Court

The petition is meritorious.

Section 133 of the Corporation Code provides:

Doing business without license. No foreign corporation transacting business in

the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.

The law is clear. An unlicensed foreign corporation doing business in the Philippines
cannot sue before Philippine courts. On the other hand, an unlicensed foreign
corporation not doing business in the Philippines can sue before Philippine courts.

In the present controversy, petitioner is a foreign corporation which claims that it is not
doing business in the Philippines. As such, it needs no license to institute a collection suit
against respondent before Philippine courts.

Respondent argues otherwise. Respondent insists that petitioner is doing business in the
Philippines without the required license. Hence, petitioner has no legal capacity to sue
before Philippine courts.

Under Section 3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign Investments Act of
1991," the phrase "doing business" includes:

x x x soliciting orders, service contracts, opening offices, whether called "liaison"

offices or branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or periods
totalling one hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance of acts
or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase "doing business" shall
not be deemed to include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise of rights
as such investor; nor having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account.

The series of transactions between petitioner and respondent cannot be classified as

"doing business" in the Philippines under Section 3(d) of RA 7042. An essential condition
to be considered as "doing business" in the Philippines is the actual performance of
specific commercial acts within the territory of the Philippines for the plain reason that the
Philippines has no jurisdiction over commercial acts performed in foreign territories. Here,
there is no showing that petitioner performed within the Philippine territory the specific
acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open
an office here in the Philippines, appoint a representative or distributor, or manage,
supervise or control a local business. While petitioner and respondent entered into a series
of transactions implying a continuity of commercial dealings, the perfection and
consummation of these transactions were done outside the Philippines.8

In its complaint, petitioner alleged that it is engaged in the importation and exportation of
several products, including lace products. Petitioner asserted that on several occasions,
respondent purchased lace products from it. Petitioner also claimed that respondent
instructed it to deliver the purchased goods to Kenzar, which is a Hong Kong company
based in Hong Kong. Upon Kenzars receipt of the goods, the products were considered
sold. Kenzar, in turn, had the obligation to deliver the lace products to the Philippines. In
other words, the sale of lace products was consummated in Hong Kong.

As earlier stated, the series of transactions between petitioner and respondent transpired
and were consummated in Hong Kong.9 We also find no single activity which petitioner
performed here in the Philippines pursuant to its purpose and object as a business
organization.10 Moreover, petitioners desire to do business within the Philippines is not
discernible from the allegations of the complaint or from its attachments. Therefore, there
is no basis for ruling that petitioner is doing business in the Philippines.

In Eriks, respondent therein alleged the existence of a distributorship agreement between

him and the foreign corporation. If duly established, such distributorship agreement could
support respondents claim that petitioner was indeed doing business in the Philippines.
Here, there is no such or similar agreement between petitioner and respondent.

We disagree with the Court of Appeals ruling that the proponents to the transaction
determine whether a foreign corporation is doing business in the Philippines, regardless of
the place of delivery or place where the transaction took place. To accede to such theory
makes it possible to classify, for instance, a series of transactions between a Filipino in the
United States and an American company based in the United States as "doing business in
the Philippines," even when these transactions are negotiated and consummated only
within the United States.

An exporter in one country may export its products to many foreign importing countries
without performing in the importing countries specific commercial acts that would
constitute doing business in the importing countries. The mere act of exporting from ones
own country, without doing any specific commercial act within the territory of the
importing country, cannot be deemed as doing business in the importing country. The
importing country does not acquire jurisdiction over the foreign exporter who has not
performed any specific commercial act within the territory of the importing country.
Without jurisdiction over the foreign exporter, the importing country cannot compel the
foreign exporter to secure a license to do business in the importing country.

Otherwise, Philippine exporters, by the mere act alone of exporting their products, could
be considered by the importing countries to be doing business in those countries. This will
require Philippine exporters to secure a business license in every foreign country where
they usually export their products, even if they do not perform any specific commercial act
within the territory of such importing countries. Such a legal concept will have a
deleterious effect not only on Philippine exports, but also on global trade.

To be doing or "transacting business in the Philippines" for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the
Philippines, that is, perform specific business transactions within the Philippine territory
on a continuing basis in its own name and for its own account. Actual transaction of
business within the Philippine territory is an essential requisite for the Philippines to
acquire jurisdiction over a foreign corporation and thus require the foreign corporation to
secure a Philippine business license. If a foreign corporation does not transact such kind
of business in the Philippines, even if it exports its products to the Philippines, the
Philippines has no jurisdiction to require such foreign corporation to secure a Philippine
business license.

Considering that petitioner is not doing business in the Philippines, it does not need a
license in order to initiate and maintain a collection suit against respondent for the unpaid
balance of respondents purchases.

WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 18 April 2001 of
the Court of Appeals in CA-G.R. CV No. 66236. No costs.

SO ORDERED.
G.R. No. 118843 February 6, 1997
ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS, and DELFIN F. ENRIQUEZ,
JR., respondents.

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?

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

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

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

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

SO ORDERED.

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

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

complaint is dismissed. No costs.

SO ORDERED.

Hence, this petition.

The Issue

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

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

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

The Court's Ruling

The petition has no merit.

 The Concept of Doing Business

The Corporation Code provides:

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

transacting business in the Philippines without a license, or its successors
or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but
such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under
Philippine laws.

The aforementioned provision prohibits, not merely absence of the prescribed license, but
it also bars a foreign corporation "doing business" in the Philippines without such license
access to our courts. 8 A foreign corporation without such license is not ipso
facto incapacitated from bringing an action. A license is necessary only if it is "transacting or
doing business in the country.

However, there is no definitive rule on what constitutes "doing," "engaging in," or

"transacting" business. The Corporation Code itself does not define such terms. To fill the
gap, the evolution of its statutory definition has produced a rather all-encompassing
concept in Republic Act No. 7042 9 in this wise:

Sec. 3. Definitions. As used in this Act:

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 foreign corporation doing business in the Philippines to the jurisdiction of our
courts. It is not to prevent the foreign corporation from performing single or isolated acts, but
to bar it from acquiring a domicile for the purpose of business without first taking the steps
necessary to render it amenable to suits in the local courts.

The trial court held that petitioner-corporation was doing business without a license,
finding that: 12

The invoices and delivery receipts covering the period of (sic) from January
17, 1989 to August 16, 1989 cannot be treated to a mean singular and
isolated business transaction that is temporary in character. Granting that
there is no distributorship agreement between herein parties, yet by the
mere fact that plaintiff, each time that the defendant posts an order delivers
the items as evidenced by the several invoices and receipts of various dates
only indicates that plaintiff has the intention and desire to repeat the (sic)
said transaction in the future in pursuit of its ordinary business.
Furthermore, "and if the corporation is doing that for which it was created,
the amount or volume of the business done is immaterial and a single act of
that character may constitute doing business". (See p. 603, Corp. Code, De
Leon 1986 Ed.).

Respondent Court affirmed this finding in its assailed Decision with this explanation: 13

. . . Considering the factual background as laid out above, the transaction

cannot be considered as an isolated one. Note that there were 17 orders and
deliveries (only sixteen per our count) over a four-month period. The appellee
(private respondent) made separate orders at various dates. The transactions
did not consist of separate deliveries for one single order. In the case at bar,
the transactions entered into by the appellant with the appellee are a series
of commercial dealings which would signify an intent on the part of the
appellant (petitioner) to do business in the Philippines and could not by any
stretch of the imagination be considered an isolated one, thus would fall
under the category of'doing business.

Even if We were to view, as contended by the appellant, that the

transactions which occurred between January to August 1989, constitute a
 single act or isolated business transaction, this being the ordinary business
of appellant corporation, it can be said to be illegally doing or transacting
business without a license. . . . Here it can be clearly gleaned from the four-
month period of transactions between appellant and appellee that it was a
continuing business relationship, which would, without doubt, constitute
doing business without a license. For all intents and purposes, appellant
corporation is doing or transacting business in the Philippines without a
license and that, therefore in accordance with the specific mandate of
section 144 of the Corporation Code, it has no capacity to sue. (emphasis
ours)

We find no reason to disagree with both lower courts. More than the sheer number of
transactions entered into, a clear and unmistakable intention on the part of petitioner to
continue the body of its business in the Philippines is more than apparent. As alleged in
its complaint, it is engaged in the manufacture and sale of elements used in sealing
pumps, valves, and pipes for industrial purposes, valves and control equipment used for
industrial fluid control and PVC pipes and fittings for industrial use. Thus, the sale by
petitioner of the items covered by the receipts, which are part and parcel of its main
product line, was actually carried out in the progressive prosecution of commercial gain
and the pursuit of the purpose and object of its business, pure and simple. Further, its
grant and extension of 90-day credit terms to private respondent for every purchase made,
unarguably shows an intention to continue transacting with private respondent, since in
the usual course of commercial transactions, credit is extended only to customers in good
standing or to those on whom there is an intention to maintain long-term relationship.
This being so, the existence of a distributorship agreement between the parties, as alleged
but not proven by private respondent, would, if duly established by competent evidence, be
merely corroborative, and failure to sufficiently prove said allegation will not significantly
affect the finding of the courts below. Nor our own ruling. It is precisely upon the set of
facts above detailed that we concur with respondent Court that petitioner corporation was
doing business in the country.

Equally important is the absence of any fact or circumstance which might tend even
remotely to negate such intention to continue the progressive prosecution of petitioner's
business activities in this country. Had private respondent not turned out to be a bad risk,
in all likelihood petitioner would have indefinitely continued its commercial transactions
with him, and not surprisingly, in ever increasing volumes.

Thus, we hold that the series of transactions in question could not have been isolated or
casual transactions. What is determinative of "doing business" is not really the number or
the quantity of the transactions, but more importantly, the intention of an entity to
continue the body of its business in the country. The number and quantity are merely
evidence of such intention. The phrase "isolated transaction" has a definite and fixed
meaning, i.e. a transaction or series of transactions set apart from the common business
of a foreign enterprise in the sense that there is no intention to engage in a progressive
pursuit of the purpose and object of the business organization. Whether a foreign
corporation is "doing business" does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the transactions. 14

Given the facts of this case, we cannot see how petitioner's business dealings will fit the
category of "isolated transactions" considering that its intention to continue and pursue
the corpus of its business in the country had been clearly established. It has not presented
any convincing argument with equally convincing evidence for us to rule otherwise.
 Incapacitated to Maintain Suit

Accordingly and ineluctably, petitioner must be held to be incapacitated to maintain the

action a quo against private respondent.

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

Other Remedy Still Available

By this judgment, we are not foreclosing petitioner's right to collect payment. Res
judicata does not set in a case dismissed for lack of capacity to sue, because there has
been no determination on the merits. 16Moreover, this Court has ruled that subsequent
acquisition of the license will cure the lack of capacity at the time of the execution of the
contract. 17

The requirement of a license is not meant to put foreign corporations at a disadvantage.

Rather, the doctrine of lack of capacity to sue is based on considerations of sound public
policy. 18 Thus, it has been ruled in Home Insurance that: 19

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

desiring to do business within the state to submit itself to the jurisdiction of
the courts of this state. The statute was not intended to exclude foreign
corporations from the state. . . . The better reason, the wiser and fairer
policy, and the greater weight lie with those decisions which hold that
where, as here, there is a prohibition with a penalty, with no express or
implied declarations respecting the validity of enforceability of contracts
made by qualified foreign corporations, the contracts . . . are enforceable . . .
upon compliance with the law. (Peter &, Burghard Stone Co. v. Carper, 172
N.E. 319 [1930].)

While we agree with petitioner that the county needs to develop trade relations and foster
friendly commercial relations with other states, we also need to enforce our laws that
regulate the conduct of foreigners who desire to do business here. Such strangers must
follow our laws and must subject themselves to reasonable regulation by our government.

WHEREFORE, premises considered, the instant petition is hereby DENIED and the
assailed Decision is AFFIRMED.

SO ORDERED.
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.

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 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

. . . 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.) did not have a license, claiming that they learned of this only from inquiries
5

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 INCLUDE soliciting orders, purchases, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar year
stay in the Philippines for a period or periods totalling one hundred eighty days or
more; participating in the management, supervision or control of any domestic
business firm, entity or corporation in the Philippines; AND ANY OTHER ACT
OR ACTS THAT IMPLY A CONTINUITY OF COMMERCIAL DEALINGS OR
ARRANGEMENTS AND CONTEMPLATE TO THAT EXTENT THE PERFORMANCE
OF ACTS OR WORKS, OR THE EXERCISE OF SOME FUNCTIONS NORMALLY
INCIDENT TO, AND IN PROGRESSIVE PROSECUTION OF COMMERCIAL GAIN
OR OF THE PURPOSE AND OBJECT OF THE BUSINESS ORGANIZATION.
As regards the claim that it was error for the Trial Court to place reliance on the decision
of the Court of Appeals in CA-G.R. No. 10821-SP sustaining the finding of the Securities
& Exchange Commission that ML FUTURES was doing business in the Philippines since
that judgment was not yet final and ML FUTURES was not a party to that proceeding, the
Court of Appeals ruled that there was no need to belabor the point considering that there
was, in any event, "adequate proof of the activities of MLPI . . . which manifestly show that
the plaintiff (ML FUTURES) performed a series of business acts, consummated contracts
and undertook transactions for the period from 1983 to October 1987," "and because ML
FUTURES had done so without license, it consequently had "no legal personality to bring
suit in Philippine courts."

Its motion for reconsideration having been denied, 10 ML FUTURES has appealed to this

Court on certiorari. Here, it submits the following issues for resolution:

(a) Whether or not the annexes appended by the Laras to their Motion to
Dismiss and Reply filed with the Regional Trial Court, but never
authenticated or offered, constitute admissible evidence.

(b) Whether or not in the proceedings below, ML FUTURES has been

accorded procedural due process.

(c) Whether or not the annexes, assuming them to be admissible, established

that ML FUTURES was doing business in the Philippines without a license.

As just stated, the Lara Spouse's motion to dismiss was founded on two (2) grounds: (a)
that the plaintiff has no legal capacity to sue, and (b) that the complaint states no cause of
action (Sec. 1 [d], and [g], Rule 16, Rules of Court).

As regards the second ground, i.e., that the complaint states no cause of action, the
settled doctrine of course is that said ground must appear on the face of the complaint,
and its existence may be determined only by the allegations of the complaint,
consideration of other facts being proscribed, and any attempt to prove extraneous
circumstances not being allowed. 11 The test of the sufficiency of the facts alleged in a
complaint as constituting a cause of action is whether or not, admitting the facts alleged, the
court might render a valid judgment upon the same in accordance with the prayer of the
complaint. 12 Indeed, it is error for a judge to conduct a preliminary hearing and receive
evidence on the affirmative defense of failure of the complaint to state a cause of action. 13

The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to
sue may be understood in two senses: one, that the plaintiff is prohibited or otherwise
incapacitated by law to institute suit in Philippine Courts, 14 or two, although not otherwise
incapacitated in the sense just stated, that it is not a real party in interest. 15 Now, the Lara
Spouses contend that ML Futures has no capacity to sue them because the transactions
subject of the complaint were had by them, not with the plaintiff ML FUTURES, but with Merrill
Lynch Pierce Fenner & Smith, Inc. Evidence is quite obviously needed in this situation, for it is
not to be expected that said ground, or any facts from which its existence may be inferred, will
be found in the averments of the complaint. When such a ground is asserted in a motion to
dismiss, the general rule governing evidence on motions applies. The rule is embodied in
Section 7, Rule 133 of the Rules of Court.

Sec. 7. Evidence on motion. When a motion is based on facts not

appearing of record the court may hear the matter on affidavits or
 depositions presented by the respective parties, but the court may direct
that the matter be heard wholly or partly on oral testimony or depositions.

There was, to be sure, no affidavit or deposition attached to the Lara Spouses' motion to
dismiss or thereafter proffered in proof of the averments of their motion. The motion itself
was not verified. What the spouses did do was to refer in their motion to documents which
purported to establish that it was not with ML FUTURES that they had theretofore been
dealing, but another, distinct entity, Merrill Lynch, Pierce, Fenner & Smith, Inc., copies of
which documents were attached to the motion. It is significant that ML FUTURES raised
no issue relative to the authenticity of the documents thus annexed to the Laras' motion.
In fact, its arguments subsumed the genuineness thereof and even adverted to one or two
of them. Its objection was centered on the propriety of taking account of those documents
as evidence, considering the established principle that no evidence should be received in
the resolution of a motion to dismiss based on an alleged failure of the complaint to state a
cause of action.

There being otherwise no question respecting the genuineness of the documents, nor of
their relevance to at least one of the grounds for dismissal i.e., the prohibition on suits
in Philippine Courts by foreign corporations doing business in the country without license
it would have been a superfluity for the Court to require prior proof of their
authenticity, and no error may be ascribed to the Trial Court in taking account of them in
the determination of the motion on the ground, not that the complaint fails to state a cause
of action as regards which evidence is improper and impermissible but that the plaintiff
has no legal capacity to sue respecting which proof may and should be presented.

Neither may ML FUTURES argue with any degree of tenability that it had been denied due
process in the premises. As just pointed out, it was very clear from the outset that the
claim of lack of its capacity to sue was being made to rest squarely on the documents
annexed thereto, and ML FUTURES had more than ample opportunity to impugn those
documents and require their authentication, but did not do so. To sustain its theory that
there should have been identification and authentication, and formal offer, of those
documents in the Trial Court pursuant to the rules of evidence would be to give
unwarranted importance to technicality and make it prevail over the substance of the
issue.

The first question then, is, as ML FUTURES formulates it, whether or not the annexes,
assuming them to be admissible, establish that (a) ML FUTURES is prohibited from suing
in Philippine Courts because doing business in the country without a license, and that (b)
it is not a real party in interest since the Lara Spouses had not been doing business with
it, but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.

The Court is satisfied that the facts on record adequately establish that ML FUTURES,
operating in the United States, had indeed done business with the Lara Spouses in the
Philippines over several years, had done so at all times through Merrill Lynch Philippines,
Inc. (MLPI), a corporation organized in this country, and had executed all these
transactions without ML FUTURES being licensed to so transact business here, and
without MLPI being authorized to operate as a commodity futures trading advisor. These
are the factual findings of both the Trial Court and the Court of Appeals. These, too, are
the conclusions of the Securities & Exchange Commission which denied MLPI's application
to operate as a commodity futures trading advisor, a denial subsequently affirmed by the
Court of Appeals. Prescinding from the proposition that factual findings of the Court of
Appeals are generally conclusive this Court has been cited to no circumstance of
substance to warrant reversal of said Appellate Court's findings or conclusions in this
case.

The Court is satisfied, too, that the Laras did transact business with ML FUTURES
through its agent corporation organized in the Philippines, it being unnecessary to
determine whether this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill
Lynch Pierce Fenner & Smith (MLPI's alleged predecessor). The fact is that ML FUTURES
did deal with futures contracts in exchanges in the United States in behalf and for the
account of the Lara Spouses, and that on several occasions the latter received account
documents and money in connection with those transactions.

Given these facts, if indeed the last transaction executed by ML FUTURES in the Laras's
behalf had resulted in a loss amounting to US $160,749.69; that in relation to this loss,
ML FUTURES had credited the Laras with the amount of US$75,913.42 which it (ML
FUTURES) then admittedly owed the spouses and thereafter sought to collect the
balance, US$84,836.27, but the Laras had refused to pay (for the reasons already above
stated), the crucial question is whether or not ML FUTURES may sue in Philippine Courts
to establish and enforce its rights against said spouses, in light of the undeniable fact that
it had transacted business in this country without being licensed to do so. In other words,
if it be true that during all the time that they were transacting with ML FUTURES, the
Laras were fully aware of its lack of license to do business in the Philippines, and in
relation to those transactions had made payments to, and received money from it for
several years, the question is whether or not the Lara Spouses are now estopped to
impugn ML FUTURES' capacity to sue them in the courts of the forum.

The rule is that a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it. 16 And the "doctrine of
estoppel to deny corporate existence applies to foreign as well as to domestic
corporations;" 17 "one who has dealt with a corporation of foreign origin as a corporate entity is
estopped to deny its corporate existence and capacity." 18 The principle "will be applied to
prevent a person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such person has received the benefits
of the contract (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and distinguished in Dudley v.
Collier, 87 Ala 431, 6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317), where such person
has acted as agent for the corporation and has violated his fiduciary obligations as such, and
where the statute does not provide that the contract shall be void, but merely fixes a special
penalty for violation of the statute. . . ." 19

The doctrine was adopted by this Court as early as 1924 in Asia Banking Corporation
v. Standard Products Co.,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.
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.

This petition for review assails the Decision dated August 12, 2002 of the Court of Appeals
in CA-G.R. SP No. 66574, which dismissed Civil Case No. 3123-2001-C and annulled and
set aside the Order dated September 4, 2001 issued by the Regional Trial Court of
Calamba, Laguna, Branch 92.

Petitioner Agilent Technologies Singapore (Pte.), Ltd. ("Agilent") is a foreign corporation,

which, by its own admission, is not licensed to do business in the
Philippines.1 Respondent Integrated Silicon Technology Philippines Corporation
("Integrated Silicon") is a private domestic corporation, 100% foreign owned, which is
engaged in the business of manufacturing and assembling electronics
components.2 Respondents Teoh Kiang Hong, Teoh Kiang Seng and Anthony Choo,
Malaysian nationals, are current members of Integrated Silicons board of directors, while
Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are its former
members.3

The juridical relation among the various parties in this case can be traced to a 5-year
Value Added Assembly Services Agreement ("VAASA"), entered into on April 2, 1996
between Integrated Silicon and the Hewlett-Packard Singapore (Pte.) Ltd., Singapore
Components Operation ("HP-Singapore").4 Under the terms of the VAASA, Integrated
Silicon was to locally manufacture and assemble fiber optics for export to 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 attorneys fees.9

On June 1, 2001, summons and a copy of the complaint were served on Atty. Ramon
Quisumbing, who returned these processes on the claim that he was not the registered
agent of Agilent. Later, he entered a special appearance to assail the courts jurisdiction
over the person of Agilent.

On July 2, 2001, Agilent filed a separate complaint against Integrated Silicon, Teoh Kang
Seng, Teoh Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz
and Rolando T. Nacilla,10 for "Specific Performance, Recovery of Possession, and Sum of
Money with Replevin, Preliminary Mandatory Injunction, and Damages", before the
Regional Trial Court, Calamba, Laguna, Branch 92, docketed as Civil Case No. 3123-2001-
C. Agilent prayed that a writ of replevin or, in the alternative, a writ of preliminary
mandatory injunction, be issued ordering defendants to immediately return and deliver to
plaintiff its equipment, machineries and the materials to be used for fiber-optic
components which were left in the plant of Integrated Silicon. It further prayed that
defendants be ordered to pay actual and exemplary damages and attorneys fees.11

Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C,12 on the grounds of
lack of Agilents legal capacity to sue;13 litis pendentia;14 forum shopping;15 and failure to
state a cause of action.16

On September 4, 2001, the trial court denied the Motion to Dismiss and granted petitioner
Agilents application for a writ of replevin.17

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

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

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

Hence, the instant petition raising the following errors:

I.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT DISMISSING

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

II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND

SETTING ASIDE THE TRIAL COURTS ORDER DATED 4 SEPTEMBER 2001 AND
ORDERING THE DISMISSAL OF CIVIL CASE NO. 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 COURTS ORDER DATED 4 SEPTEMBER 2001 AND
ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C BELOW ON THE
GROUND OF FORUM SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL
CASE NO. 3110-2001-C.

IV.
 THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING THE
DISMISSAL OF CIVIL CASE NO. 323-2001-C BELOW INSTEAD OF ORDERING IT
CONSOLIDATED WITH CIVIL CASE NO. 3110-2001-C.19

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

We find merit in the petition.

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

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

The Court of Appeals ruling that the assailed Order issued by the RTC of Calamba,
Branch 92, was a 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 opposing corporations; the individuals
are only incidentally impleaded, being the natural persons purportedly accused of violating
these corporations rights.

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

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

In Civil Case No. 3110-2001-C filed by respondents, the issue is whether or not there was
a breach of an oral promise to renew of the VAASA. The issue in Civil Case No. 3123-2001-
C, filed by petitioner, is whether petitioner has the right to take possession of the subject
properties. Petitioners right of possession is founded on the ownership of the subject
goods, which ownership is not disputed and is not contingent on the extension or non-
extension of the VAASA. Hence, the replevin suit can validly be tried even while the prior
suit is being litigated in the Regional Trial Court.

Possession of the subject properties is not an issue in Civil Case No. 3110-2001-C. The
reliefs sought by respondent Integrated Silicon therein are as follows: (1) execution of a
written extension or renewal of the VAASA; (2) compliance with the extended VAASA; and
(3) payment of overdue accounts, damages, and attorneys fees. The reliefs sought by
petitioner Agilent in Civil Case No. 3123-2001-C, on the other hand, are as follows: (1)
issuance of a Writ of Replevin or Writ of Preliminary Mandatory Injunction; (2) recovery of
possession of the subject properties; (3) damages and attorneys fees.

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

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

(a) The former judgment must be final;

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

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

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

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

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

We now proceed to the issue of forum shopping.

The test for determining whether a party violated the rule against forum-shopping was laid
down in the case ofBuan v. Lopez.34 Forum shopping exists where the elements of litis
pendentia are present, or where a final judgment in one case will amount to res judicata in
the final other. There being no litis pendentia in this case, a judgment in the said case will
not amount to res judicata in Civil Case No. 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 VAASAs terms are extended, petitioner corporation will have to comply with its
obligations thereunder, which would include the consignment of properties similar to
those it may recover by way of replevin in Civil Case No. 3123-2001-C. However, petitioner
will also suffer an injustice if denied the remedy of replevin, resort to which is not only
allowed but encouraged by law.

Respondents argue that since Agilent is an unlicensed foreign corporation doing business
in the Philippines, it lacks the legal capacity to file suit.35 The assailed acts of petitioner
Agilent, purportedly in the nature of "doing business" in the Philippines, are the following:
(1) mere entering into the VAASA, which is a "service contract";36(2) appointment of a full-
time representative in Integrated Silicon, to "oversee and supervise the production" of
Agilents products;37 (3) the appointment by Agilent of six full-time staff members, who
were permanently stationed at Integrated Silicons facilities in order to inspect the finished
goods for Agilent;38 and (4) Agilents participation in the management, supervision and
control of Integrated Silicon,39 including instructing Integrated Silicon to hire more
employees to meet Agilents increasing production needs,40 regularly performing quality
audit, evaluation and supervision of Integrated Silicons employees,41 regularly performing
inventory audit of raw materials to be used by Integrated Silicon, which was also required
to provide weekly inventory updates to Agilent,42 and providing and dictating Integrated
Silicon on the daily production schedule, volume and models of the products to
manufacture and ship for Agilent.43

A foreign corporation without a license is not ipso facto incapacitated from bringing an
action in Philippine courts. A license is necessary only if a foreign corporation is
"transacting" or "doing business" in the country. The Corporation Code provides:

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

transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine
laws.

The aforementioned provision prevents an unlicensed foreign corporation "doing business"

in the Philippines from accessing our courts.
In a number of cases, however, we have held that an unlicensed foreign corporation doing
business in the Philippines may bring suit in Philippine courts against a Philippine citizen
or entity who had contracted with and benefited from said corporation.44 Such a suit is
premised on the doctrine of estoppel. A party is estopped from challenging the personality
of a corporation after having acknowledged the same by entering into a contract with it.
This doctrine of estoppel to deny corporate existence and capacity applies to foreign as well
as domestic corporations.45 The application of this principle prevents a person contracting
with a foreign corporation from later taking advantage of its noncompliance with the
statutes chiefly in cases where such person has received the benefits of the contract.46

The principles regarding the right of a foreign corporation to bring suit in Philippine courts
may thus be condensed in four statements: (1) if a foreign corporation does business in
the Philippines without a license, it cannot sue before the Philippine courts;47 (2) if a
foreign corporation is not doing business in the Philippines, it needs no license to sue
before Philippine courts on an isolated transaction or on a cause of action entirely
independent of any business transaction48; (3) if a foreign corporation does business in the
Philippines without a license, a Philippine citizen or entity which has contracted with said
corporation may be estopped from challenging the foreign corporations corporate
personality in a suit brought before Philippine courts;49 and (4) if a foreign corporation
does business in the Philippines with the required license, it can sue before Philippine
courts on any transaction.

The challenge to Agilents legal capacity to file suit hinges on whether or not it is doing
business in the Philippines. However, there is no definitive rule on what constitutes
"doing", "engaging in", or "transacting" business in the Philippines, as this Court observed
in the case of Mentholatum v. Mangaliman.50 The Corporation Code itself is silent as to
what acts constitute doing or transacting business in the Philippines.

Jurisprudence has it, however, that the term "implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to or in progressive prosecution of
the purpose and subject of its organization."51

In Mentholatum,52 this Court discoursed on the two general tests to determine whether or
not a foreign corporation can be considered as "doing business" in the Philippines. The
first of these is the substance test, thus:53

The true test [for doing business], however, seems to be whether the foreign
corporation is continuing the body of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another.

The second test is the continuity test, expressed thus:54

The term [doing business] implies a continuity of commercial dealings and

arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to, and in the progressive
prosecution of, the purpose and object of its organization.

Although each case must be judged in light of its attendant circumstances, jurisprudence
has evolved several guiding principles for the application of these tests. For instance,
considering that it transacted with its Philippine counterpart for seven years, engaging in
futures contracts, this Court concluded that the foreign corporation inMerrill Lynch
Futures, Inc. v. Court of Appeals and Spouses Lara,55 was doing business in the Philippines.
InCommissioner of Internal Revenue v. Japan Airlines ("JAL"), 56 the Court held that JAL was
doing business in the Philippines, i.e., its commercial dealings in the country were
continuous despite the fact that no JAL aircraft landed in the country as it sold tickets
in the Philippines through a general sales agent, and opened a promotions office here as
well.

In General Corp. of the Phils. v. Union Insurance Society of Canton and Firemans Fund
Insurance,57 a foreign insurance corporation was held to be doing business in the
Philippines, as it appointed a settling agent here, and issued 12 marine insurance policies.
We held that these transactions were not isolated or casual, but manifested the continuity
of the foreign corporations conduct and its intent to establish a continuous business in
the country. In Eriks PTE Ltd. v. Court of Appeals and Enriquez,58 the foreign corporation
sold its products to a Filipino buyer who ordered the goods 16 times within an eight-
month period. Accordingly, this Court ruled that the corporation was doing business in the
Philippines, as there was a clear intention on its part to continue the body of its business
here, despite the relatively short span of time involved. Communication Materials and
Design, Inc., et al. v. Court of Appeals, ITEC, et al.59 and Top-Weld Manufacturing v. ECED,
IRTI, et al.60 both involved the License and Technical Agreement and Distributor Agreement
of foreign corporations with their respective local counterparts that were the primary bases
for the Courts ruling that the foreign corporations were doing business in the
Philippines.61 In particular, the Court cited the highly restrictive nature of certain
provisions in the agreements involved, such that, as stated in Communication Materials,
the Philippine entity is reduced to a mere extension or instrument of the foreign
corporation. For example, in Communication Materials, the Court deemed the "No
Competing Product" provision of the Representative Agreement therein restrictive.62

The case law definition has evolved into a statutory definition, having been adopted with
some qualifications in various pieces of legislation. The Foreign Investments Act of 1991
(the "FIA"; Republic Act No. 7042, as amended), defines "doing business" as follows:

Sec. 3, par. (d). The phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totaling one hundred eighty (180)
days or more; participating in the management, supervision or control of any
domestic business, firm, entity, or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some
of the functions normally incident to, and in the progressive prosecution of,
commercial gain or of the purpose and object of the business organization.

An analysis of the relevant case law, in conjunction with Section 1 of the

Implementing Rules and Regulations of the FIA (as amended by Republic Act No.
8179), would demonstrate that the acts enumerated in the VAASA do not constitute
"doing business" in the Philippines.
 Section 1 of the Implementing Rules and Regulations of the FIA (as amended by
Republic Act No. 8179) provides that the following shall not be deemed "doing
business":

(1) Mere investment as a shareholder by a foreign entity in domestic

corporations duly registered to do business, and/or the exercise of rights
as such investor;
(2) Having a nominee director or officer to represent its interest in such
corporation;
(3) Appointing a representative or distributor domiciled in the Philippines
which transacts business in the representatives or distributors own
name and account;
(4) The publication of a general advertisement through any print or
broadcast media;
(5) Maintaining a stock of goods in the Philippines solely for the purpose
of having the same processed by another entity in the Philippines;
(6) Consignment by a foreign entity of equipment with a local company to
be used in the processing of products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated contract of sale
which are not on a continuing basis, such as installing in the Philippines
machinery it has manufactured or exported to the Philippines, servicing
the same, training domestic workers to operate it, and similar incidental
services.

By and large, to constitute "doing business", the activity to be undertaken in the

Philippines is one that is for profit-making.63

By the clear terms of the VAASA, Agilents activities in the Philippines were confined to (1)
maintaining a stock of goods in the Philippines solely for the purpose of having the same
processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon
to be used in the processing of products for export. As such, we hold that, based on the
evidence presented thus far, Agilent cannot be deemed to be "doing business" in the
Philippines. Respondents contention that Agilent lacks the legal capacity to file suit is
therefore devoid of merit. As a foreign corporation not doing business in the Philippines, it
needed no license before it can sue before our courts.

Finally, as to Agilents purported failure to state a cause of action against the individual
respondents, we likewise rule in favor of petitioner. A Motion to Dismiss hypothetically
admits all the allegations in the Complaint, which plainly alleges that these individual
respondents had committed or permitted the commission of acts prejudicial to Agilent.
Whether or not these individuals had divested themselves of their interests in Integrated
Silicon, or are no longer members of Integrated Silicons Board of Directors, is a matter of
defense best threshed out during trial.

WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Decision of the

Court of Appeals in CA-G.R. SP No. 66574 dated August 12, 2002, which dismissed Civil
Case No. 3123-2001-C,
is REVERSED and SET ASIDE. The Order dated September 4, 2001 issued by the
Regional Trial Court of Calamba, Laguna, Branch 92, in Civil Case No. 3123-2001-C,
is REINSTATED. Agilents application for a Writ of Replevin is GRANTED.

No pronouncement as to costs.

SO ORDERED.
VAN ZUIDEN BROS., LTD., Petitioner, vs. GTVL MANUFACTURING INDUSTRIES,
INC., Respondent.
[G.R. No. 147905, May 28, 2007]

FACTS:
1. Petitioner B. Van Zuiden Bros., Ltd (Zuiden) filed a complaint for sum of
money against respondent GTVL MANUFACTURING INDUSTRIES, INC
2. Zuiden is a corporation, incorporated under the laws of Hong Kong
a. not engaged in business in the Philippines
b. engaged in the importation and exportation of several products,
including lace products.
c. suing before the Philippine Courts on the following reasons:
i. GTVL purchased lace products from Zuiden
ii. procedure for these purchases, as per the instructions of GTVL:
1. Zuiden delivers the products purchased by GTVL, to a
certain Hong Kong corporation, known as Kenzar Ltd.
(KENZAR which is located in Hong Kong)
After delivery transaction is concluded
GTVL is obligated to pay the agreed purchase price
2. products are then considered as sold, upon receipt by
KENZAR of the goods purchased by GTVL
3. KENZAR had the obligation to deliver the products to the
Philippines and/or to follow whatever instructions GTVL
had on the matter.
iii. GTVL has failed and refused to pay the agreed purchase price for
several deliveries ordered by it and delivered by ZUIDEN having an
overdue of U.S.$32,088.02 [inclusive of interest].
3. GVTL filed a Motion to Dismiss
a. Zuiden has no legal capacity to sue
b. Alleging that Zuiden is doing business in the Philippines without
securing the required license.
4. TC ordered for the dismissal of the complaint
5. CA concluded that the delivery of the goods in Hong Kong did not exempt
Zuiden from being considered as doing business in the Philippines.
a. the parties entered into a contract of sale whereby Zuiden sold lace
products to GVTL in a series of transactions.
b. Zuiden delivered the goods in Hong Kong to Kenzar, Ltd. (Kenzar),
another Hong Kong company,
i. the party with whom Zuiden transacted was actually GVTL, a
Philippine corporation, and not Kenzar
ii. Kenzar is merely a shipping company.

ISSUE: W/N Zuiden, an unlicensed foreign corporation, has legal capacity to sue
before Philippine courts.

HELD: YES. Petition granted.

1. Section 133 of the Corporation Code provides:
Doing business without license. No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.
2. The law is clear that an unlicensed foreign corporation doing business in the
Philippines cannot sue before Philippine courts and an unlicensed foreign
corporation not doing business in the Philippines can sue before Philippine
courts
3. IN THE CASE: ZUIDEN IS NOT DOING BUSINESS IN THE PHILIPPINES
a. Under Section 3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign
Investments Act of 1991," the series of transactions between Zuiden and
GVTL cannot be classified as "doing business" in the Philippines
i. There was no showing that the essential condition (to be
considered as doing business in the Philippines), namely that the
actual performance of specific commercial acts within the
territory of the Philippines for the plain reason that the
Philippines has no jurisdiction over commercial acts
performed in foreign territories was present
1. the perfection and consummation of these transactions
were done outside the Philippines namely Hong Kong (see
FACTS 2.c.)
4. To be doing or "transacting business in the Philippines", the foreign corporation
must actually transact business in the Philippines, meaning to perform
specific business transactions within the Philippine territory on a
continuing basis in its own name and for its own account.
a. Actual transaction of business within the Philippine territory is an
essential requisite for the Philippines to acquire jurisdiction over a
foreign corporation and thus require the foreign corporation to secure a
Philippine business license.
b. If a foreign corporation does not transact such kind of business in the
Philippines, even if it exports its products to the Philippines, the
Philippines has no jurisdiction to require such foreign corporation to
secure a Philippine business license.
5. IN THE PRESENT CASE: Zuiden is not doing business in the Philippines, it
does not need a license in order to initiate and maintain a collection suit
against respondent for the unpaid balance of respondents purchases.
6. The mere act of exporting from ones own country, without doing any specific
commercial act within the territory of the importing country, cannot be deemed
as doing business in the importing country.
a. importing country does not acquire jurisdiction over the foreign exporter
who has not performed any specific commercial act within the territory of
the importing country
b. Without jurisdiction over the foreign exporter, the importing country
cannot compel the foreign exporter to secure a license to do business in
the importing country.
Eriks Pte. Ltd. vs. Court of Appeals [GR 118843, 6 February 1997]
Third Division, Panganiban (J): 4 concur

Facts: 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. On various dates covering the period
January 17 August 16, 1989, Delfin Enriquez, Jr., doing business under the name
and style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered and
received from Eriks Pte. Ltd., various elements used in sealing pumps, valves, pipes
and control equipment, PVC pipes and fittings. The transfers of goods were perfected
in Singapore, for Enriquez's account, F.O.B. Singapore, with a 90-day credit term.
Subsequently, demands were made by Eriks upon Enriquez to settle his account, but
the latter failed/refused to do so. On 28 August 1991, Eriks filed with the Regional
Trial Court of Makati, Branch 138, Civil Case 91- 2373 for the recovery of
S$41,939.63 or its equivalent in Philippine currency, plus interest thereon and
damages. Enriquez responded with a Motion to Dismiss, contending that Eriks had no
legal capacity to sue. In an Order dated 8 March 1993, the trial court dismissed the
action on the ground that Eriks is a foreign corporation doing business in the
Philippines without a license. On appeal and on 25 January 1995, the appellate court
(CA GR CV 41275) affirmed said order as it deemed the series of transactions between
Eriks and Enriquez not to be an "isolated or casual transaction." Thus, the appellate
court likewise found Eriks to be without legal capacity to sue. Eriks filed the petition
for review.

Issue: Whether a foreign corporation which sold its products 16 times over a five-
month period to the same Filipino buyer without first obtaining a license to do
business in the Philippines, is prohibited from maintaining an action to collect
payment therefor in Philippine courts.

Held: 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." The 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 Philippine courts. 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 7042 in this wise: "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 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." The accepted rule
in jurisprudence is that each case must be judged in the light of its own
environmental circumstances. It should be kept in mind that the purpose of the law is
to subject the foreign corporation doing business in the Philippines to the jurisdiction
of Philippine 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. Herein, more than the sheer number of transactions entered into, a clear and
unmistakable intention on the part of Eriks 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 Eriks 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 Enriquez for every purchase made, unarguably shows an
intention to continue transacting with Enriquez, 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. 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. Given the facts of the
case, the Court cannot see how Eriks' 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 the Court to
rule otherwise. Accordingly and ineluctably, Eriks must be held to be incapacitated to
maintain the action a quo against Enriquez
MERRILL LYNCH FUTURES, INC. VS. COURT OF APPEALS, SPOUSES PEDRO M.
LARA AND ELISA G. LARA
G.R. No. 97816
July 24, 1992

FACTS: Merrill Lynch Futures, Inc. filed a complaint against the Spouses Pedro M.
Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and
attorney's fees. In its complaint ML FUTURES alleged the following: that it entered into
a Futures Customer Agreement with the defendant spouses, 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.; that the 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; 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 SEC to
operate as a commodity trading advisor; the Lara Spouses actively traded in futures
contracts for four years; that because of a loss incurred said spouses became
indebted to ML FUTURES; that the Lara Spouses refused to pay this balance, "alleging
that the transactions were null and void because Merrill Lynch Philippines, Inc., had
no license to operate as a 'commodity and/or financial futures broker.'"

ISSUE: Whether or not a foreign corporation has a capacity to maintain an action in

the Philippines against residents thereof

HELD: 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, 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.
The rule is that a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it. And the "doctrine
of estoppel to deny corporate existence applies to foreign as well as to domestic
corporations;" "one who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its 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, 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"
AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., vs. INTEGRATED SILICON
TECHNOLOGY PHILIPPINES CORP et al
G.R. No. 154618
April 14, 2004

FACTS: Petitioner Agilent is a foreign corporation, which, by its own admission, is not
licensed to do business in the Philippines. Respondent Integrated Silicon is a private
domestic corporation, 100% foreign owned, which is engaged in the business of
manufacturing and assembling electronics components.

The juridical relation among the various parties in this case can be traced to a 5-year
Value Added Assembly Services Agreement (VAASA), between Integrated Silicon and
HP-Singapore. 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. The VAASA had a five-year
term with a provision for annual renewal by mutual written consent. Later, with the
consent of Integrated Silicon, HP-Singapore assigned all its rights and obligations in
the VAASA to Agilent.

Later, Integrated Silicon filed a complaint for Specific Performance and Damages
against Agilent and its officers. It alleged that Agilent breached the parties oral
agreement to extend the VAASA. Agilent filed a separate complaint against Integrated
Silicon for Specific Performance, Recovery of Possession, and Sum of Money with
Replevin, Preliminary Mandatory Injunction, and Damages.
Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilents legal
capacity to sue; litis pendentia; forum shopping; and failure to state a cause of action.

The trial court denied the MTD and granted petitioner Agilents application for a writ of
replevin. Without filing a MR, respondents filed a petition for certiorari with the CA.
The CA granted respondents petition for certiorari, set aside the assailed Order of the
trial court (denying the MTD) and ordered the dismissal of the 2nd case. Hence, the
instant petition.

ISSUE: WON an unlicensed foreign corporation not doing business in the Philippines
lacks the legal capacity to file suit.

HELD: The petition is GRANTED. The Decision of the CA which dismissed the 2nd
case is REVERSED and SET ASIDE. The Order denying the MTD is REINSTATED.
Agilents application for a Writ of Replevin is GRANTED.

NO

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. 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. 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.]
The principles regarding the right of a foreign corporation to bring suit in Philippine
courts may thus be condensed in four statements:

if a foreign corporation does business in the Philippines without a license, it

cannot sue before the Philippine courts;

if a foreign corporation is not doing business in the Philippines, it needs no

license to sue before Philippine courts on an isolated transaction or on a cause
of action entirely independent of any business transaction;

if a foreign corporation does business in the Philippines without a license, a

Philippine citizen or entity which has contracted with said corporation may be
estopped from challenging the foreign corporations corporate personality in a
suit brought before Philippine courts; and

if a foreign corporation does business in the Philippines with the required

license, it can sue before Philippine courts on any transaction.

**
The challenge to Agilents legal capacity to file suit hinges on whether or not it is doing
business in the Philippines. However, there is no definitive rule on what constitutes
doing, engaging in, or transacting business in the Philippines. 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.

In the Mentholatum case 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:
 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:

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.]

**
The Foreign Investments Act of 1991 (the FIA; Republic Act No. 7042, as amended),
defines doing business as follows:

Sec. 3, par. (d). The phrase doing business shall include soliciting orders,
service contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totaling one
hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity, or corporation in
the Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to, and
in the progressive prosecution of, commercial gain or of the purpose and object
of the business organization.

An analysis of the relevant case law, in conjunction with Sec 1 of the IRR of the FIA (as
amended by RA 8179), would demonstrate that the acts enumerated in the VAASA do
not constitute doing business in the Philippines. The said provision provides that the
following shall not be deemed doing business:

(1) Mere investment as a shareholder by a foreign entity in domestic

corporations duly registered to do business, and/or the exercise of rights as
such investor;

(2) Having a nominee director or officer to represent its interest in such

corporation;

(3) Appointing a representative or distributor domiciled in the Philippines which

transacts business in the representatives or distributors own name and
account;

(4) The publication of a general advertisement through any print or broadcast

media;

(5) Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;
 (6) Consignment by a foreign entity of equipment with a local company to be
used in the processing of products for export;

(7) Collecting information in the Philippines; and

(8) Performing services auxiliary to an existing isolated contract of sale which

are not on a continuing basis, such as installing in the Philippines machinery it
has manufactured or exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.

By and large, to constitute doing business, the activity to be undertaken in the

Philippines is one that is for profit-making.

By the clear terms of the VAASA, Agilents activities in the Philippines were confined to
(1) maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by Integrated Silicon; and (2) consignment of equipment with
Integrated Silicon to be used in the processing of products for export. As such, we hold
that, based on the evidence presented thus far, Agilent cannot be deemed to be doing
business in the Philippines. Respondents contention that Agilent lacks the legal
capacity to file suit is therefore devoid of merit. As a foreign corporation not doing
business in the Philippines, it needed no license before it can sue before our courts.