G.R. No.

L-37682 November 26, 1932 Motions to dissolve said writ of attachment and receivership were fled in the court below,
supported by affidavits of the attorney in fact for the petitioner in which it is recited, among other
CLAUDE NEON LIGHTS, FEDERAL INC., U. S. A., petitioner, things, that the petitioner is not indebted to the respondent in any sum whatever nor has it in any
vs. way breached any contracts with the respondent or at any time interfered in the management of
PHILIPPINE ADVERTISING CORPORATION and FRANCISCO SANTAMARIA, Judge of its business in the Philippine Islands as carried on by its agent, the respondent, and it has
First Instance of Manila, respondents. faithfully complied with every condition of said contract; that the attachment of the machinery and
plants of the petitioner, as well as its other assets, is highly prejudicial to it as it is unable to
Gibbs & McDonough for petitioner. proceed with its business in the Philippine Islands and irreparable loss will result to it unless such
Courtney Whitney for respondents. attachment be raised; that the filing of said suit was malicious, without foundation, and intended
only to injure the petitioner and to depreciate the value of its holdings in the Philippine Islands. It
does not appear that any answer was made to said motion in which said allegations were denied
or that any refuting evidence was offered.

On June 20 1932, the court denied said motions to vacate the attachment and receivership,
BUTTE, J.: declaring that the writ of attachment conforms to section 424 of the Code of Civil Procedure.

This case is to be determined upon the petition for writ of certiorari and the demurrer thereto filed The petitioner for certiorari prays that the writ of attachment issued by the respondent judge on
by the respondents. The petition sets up two causes of action: one attacking the validity of a writ April 6, 1932, as well as the order of the same date, appointing Manuel C. Grey receiver of the
of attachment issued by the respondent judge on the petition and affidavit of the respondent property of the petitioner, be annulled.
Philippine Advertising Corporation, on April 6, 1932; the second, attacking the validity of the
order of the respondent judge issued the same day on the petition of the respondent Philippine
The sufficiency of the application for the writ of attachment assailed by the petitioner upon
Advertising Corporation, appointing a receiver of the property which was seized by the sheriff
several grounds but we shall confine ourselves to the consideration of the question whether or
under said writ of attachment.
not paragraph 2 of section 424 of the Code of Civil Procedure is applicable to this petitioner.
On April 5, 1932, the respondent Philippine Advertising Corporation filed suit against the
The petitioner is a corporation duly organized under the laws of the District of Columbia; it had
petitioner in the Court of First Instance of Manila, claiming P300,000 as damages for alleged
complied with all the requirements of the Philippine laws and the was duly licensed to do
breach of the agency contract existing between the said respondent and the petitioner. At the
business in the Philippine Islands on the date said writ of attachment was issues. The petitioner
same time, said respondent filed in said court an application for writ of attachment duly verified in
was actively engaged in doing business in the Philippine Islands and had considerable property
which it is stated that the defendant (petitioner herein) is a foreign corporation having its principal
therein, which consisted to its manufacturing plant, machinery, merchandise and a large income
place of business in the City of Washington, District of Columbia. It is not alleged in said
under valuable contracts, all of which property was in the possession and under the control and
application that the defendant, Claude Neon Lights, Inc. (the petitioner herein) was about to
management of the respondent Philippine Advertising Corporation, as the agent of the petitioner,
depart from the Philippine Islands with intent to defraud its creditors or that it was insolvent or
on the date said attachment was levied. Considered from a practical and economic viewpoint, its
had removed or disposed of its property or was about to do so with intent to defraud its creditors.
position in the business community was indistinguishable from that of a domestic corporation.
The only statutory ground relied upon in the court below and in this court for the issuance of the
writ of attachment against the petitioner is paragraph 2 of section 424 of the Code of Civil
Procedure, which provides that plaintiff may have the property of the defendant attached "in an Section 242 of the Code of Civil Procedure under which the petitioner's property was attached,
action against a defendant not residing in the Philippine Islands". reads as follows:

On April 6, 1932, the respondent judge issued the writ of attachment as prayed for, and the Attachment. — A plaintiff may, at the commencement of his action, or at any time
sheriff has attached all the properties of the petitioner in the Philippine Islands. On the same afterwards, have the property of the defendant attached as security for the satisfaction of
date, on the ex parte petition and nomination of the respondent, the respondent judge appointed any judgment that may be recovered, unless the defendant gives security to pay such
Manuel C. Grey receiver of said properties of the petitioner, fixing his bond at P3,000. judgment, in the manner hereinafter provided, in the following cases.
 1. In all the cases mentioned in section four hundred and twelve, providing for the arrest
of a defendant. But the plaintiff must make an election as to whether he will ask for an
order of arrest or an order of attachment; he shall not be entitled to both orders;
2. In an action against a defendant not residing in the Philippine Islands.
It may be observed at the outset that the words of section 424, supra, taken in their literal sense
seem to refer to a physical defendant who is capable of being "arrested" or who is "not residing
in the Philippine Islands". It is only by a fiction that it can be held that a corporation is "not
residing in the Philippine Islands". A corporation has no home or residence in the sense in which
those terms are applied to natural persons. For practical purposes, a corporation is sometimes
said, in a metaphorical sense, to be "a resident" of a certain state or a "citizen" of a certain
country, which is usually the state or country by which or under the laws of which it was created.
But that fiction or analogy between corporations and natural persons by no means extends so far
that it can be said that every statute applicable to natural persons is applicable to corporations.
Indeed, within the same jurisdiction a corporation has been held to be a "citizen" of the state of
its creation for the purpose of determining the jurisdiction of the Federal courts
(Wisconsin vs. Pelican Insurance Co., 127 U. S., 265) but not a "citizen" within the meaning of
section 2 of article 4 of the Constitution of the United States which provides that the citizens of
each state shall be entitled to all the privileges and immunities of citizens of the several states
(Paul vs. Virginia, 8 Wall., 169).
The question arises whether this petitioner, a foreign corporation, shall, in a metaphorical sense,
be deemed as "not residing in the Philippine Islands" in the sense in which that expression would
apply to a natural person.
Having regard to the reason for the statute which is the protection of the creditors of a non-
resident, we are of the opinion that there is not the same reason for subjecting a duly licensed
foreign corporation to the attachment of its property by a plaintiff under section 424, paragraph 2,
as may exist in the case of a natural person not residing in the Philippine Islands. The law does
not require the latter, as it does the former, to appoint a resident agent for service of process; nor
to prove to the satisfaction of the Government before he does business here, as the foreign
corporation must prove, that he "is solvent and in sound financial condition" (section 68, Act No.
1459, as amended, the Corporation Law), or to produce evidence of "fair dealing" (ibid.). He
pays no license fee nor is his business subject at any time to investigation by the Secretary of
Finance and the Governor-General; nor is his right to continue to do business revocable by the
Government (Cf. section 71, Act No. 1459 of the Corporation Law). His books and papers are
not liable to examination "at any time" by the Attorney-General, the Insular Auditor, the Insular
Treasurer, "or any other officer of the Government" on the order of the Governor-General
(section 54, ibid.). He is not, like a foreign corporation "bound by all laws, rules and regulations
applicable to domestic corporations" . . . (section 73, ibid.), which are designed to protect
creditors and the public. He can evade service of summons and other legal process, the foreign
corporation never. (Section 72, ibid.)
Corporations, as a rule, are less mobile than individuals. This is a specially true of foreign
corporations that are carrying on business by proper authority in these Islands. They possess, as
a rule, great capital which is seeking lucrative and more or less permanent investment in young
and developing countries like our Philippines. Some of them came here as far back as the
Spanish regime and are still important factors in our financial and industrial life. They are
anything but "fly-by-night" concerns. The latter, we believe, are effectually excluded from our
Islands both by our laws and by our geographical and economic situation.
If, as we believe, section 424, paragraph 2, should not be held applicable to foreign corporations
duly licensed to do business in the Philippine Islands both because the language and the reason
of the statute limit it to natural persons, we sustain and reinforce the provisions of section 71 of
the Corporation Law, Act No. 1459, which provides in substance that if the Secretary of Finance
or the Secretary of Commerce and Communications and the Governor-General find a duly
licensed foreign corporation to be insolvent or that its continuance in business will involve
probable loss to its creditors, they may revoke its license and "the Attorney-General shall take
such proceedings as may be proper to protect creditors and the public". Section 71, supra,
contemplates that the proceedings instituted by the Attorney-General shall effect the protection
of all creditors and the public equally. Obviously, the benefit of that section will be minimized, if
not entirely defeated, if a creditor or a few creditors can obtain privileged liens by writs of
attachment based on the sole allegation, which is easily and safely made, that the corporation is
"not residing in the Philippine Islands". (Cf. Kuenzle & Streiff vs. Villanueva, 41 Phil., 611.)
lawphil.net
Paragraph 2 of section 424, supra does not apply to a domestic corporation. Our laws and
jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed to do business
here, to the status of domestic corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells
Co. vs. Henry W. Elser & Co., 46 Phil., 70, 76; Yu Cong Eng vs. Trinidad, 47 Phil., 385, 411.) We
think it would be entirely out of line with this policy should we make a discrimination against a
foreign corporation, like the petitioner, and subject its property to the harsh writ of seizure by
attachment when it has complied not only with every requirement of law made especially of
foreign corporations, but in addition with every requirement of law made of domestic
corporations. (Section 73, supra.)
It is true that the majority of the states in the American Union hold the contrary rule. But our
situation is obviously very dissimilar from that of a state in the American Union. There forty-eight
states and the central government, all creating corporations which do a tremendous interstate
business, are contiguous and separated by imaginary lines. A higher degree of protection
against irresponsible corporations may be more necessary there than here. We have no
interstate business. Only the central government grants charters to corporations. But even in the
American Union there is a minority rule which we regard as the better reasoned and the better
suited to our conditions, both geographical and economical, and more nearly in harmony with the
policy of our law both under the Spanish regime and since the American occupation. This
minority rule is supported by the following authorities: Brand vs. Auto Service Co. (New Jersey,
1907), 67 Atl., 19, 20; Mellor vs. Edward V. Hartford, Inc. (New Jersey, 1929), 146 Atl., 206;
Charles Friend & Co. vs. Gold Smith & Co. (Illinois, 1923), 138 N. E., 185; Fullilove vs. Central
State Bank (Louisiana, 1926), 107 So., 590.

In the present instance, a particularly monstrous result has followed as s consequence of the
granting of the writ attaching all of the property of the petitioner on the sole allegation that it "is
not residing in the Philippine Islands". As the petitioner's business was a going concern, which
the sheriff, who levied the writ, obviously could not manage, it became necessary on the same
day for the court to appoint a receiver. This receiver, as the demurrer admits, "was and is an
employee working under the president of the respondent Philippine Advertising Corporation, so
that to all intents and purposes, all the property of the petitioner in the Philippine Islands was
seized and delivered into the hands of the respondent Philippine Advertising Corporation."

The prayer of the petitioner is granted. The order and writ of attachment complained of are
annulled and set aside and the court below is directed to vacate the order appointing Manuel C.
Grey receiver of the property of the petitioner and to require said Manuel C. Grey to submit his
final report at the earliest practicable date. Costs in both instances to be borne by the
respondent, Philippine Advertising Corporation. So ordered.
G.R. No. L-34382 July 20, 1983 from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The
said VESSEL is owned and operated by defendant Eastern Shipping Lines
THE HOME INSURANCE COMPANY, petitioner, (CARRIER). The shipment was covered by Bill of Lading No. O-MA-9, with arrival
vs. notice to Phelps Dodge Copper Products Corporation of the Philippines
EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A. (CONSIGNEE) at Manila. The shipment was insured with plaintiff against all risks
MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch in the amount of P1,580,105.06 under its Insurance Policy No. AS-73633.
XVII, respondents.
xxx xxx xxx
G.R. No. L-34383 July 20, 1983
The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad
THE HOME INSURANCE COMPANY, petitioner, order. What the CONSIGNEE ultimately received at its warehouse was the same
vs. number of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled,
N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and partly cut, and which had to be considered as scrap. Upon weighing at
HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos
Branch XVII, respondents. as against its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15
kilos, according to Exhibit "A", or 1,209,56 lbs., according to the claims presented
No. L-34382. by the consignee against the plaintiff (Exhibit "D-1"), the CARRIER (Exhibit "J-
1"), and the TRANSPORTATION COMPANY (Exhibit "K- l").
Zapa Law Office for petitioner.
For the loss/damage suffered by the cargo, plaintiff paid the consignee under its
insurance policy the amount of P3,260.44, by virtue of which plaintiff became
Bito, Misa & Lozada Law Office for respondents.
subrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands
for payment against the CARRIER and the TRANSPORTATION COMPANY for
No. L-34383. reimbursement of the aforesaid amount but each refused to pay the same. ...

Zapa Law Office for petitioner. The facts of L-34383 are found in the decision of the lower court as follows:

Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.
GUTIERREZ, JR., J.:
Questioned in these consolidated petitions for review on certiorari are the decisions of the Court
of First Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No. 71923 and
in Civil Case No. 71694, on the ground that plaintiff therein, now appellant, had failed to prove its
capacity to sue.
There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382,
the facts are found in the decision of the respondent court which stated:
On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated
Mining & Development Corporation, shipped on board the SS "Eastern Jupiter'
On or about December 22, 1966, the Hansa Transport Kontor shipped from
Bremen, Germany, 30 packages of Service Parts of Farm Equipment and
Implements on board the VESSEL, SS "NEDER RIJN" owned by the defendant,
N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the
defendant Columbian Philippines, Inc. (CARRIER). The shipment was covered
by Bill of Lading No. 22 for transportation to, and delivery at, Manila, in favor of
the consignee, international Harvester Macleod, Inc. (CONSIGNEE). The
shipment was insured with plaintiff company under its Cargo Policy No. AS-
73735 "with average terms" for P98,567.79.
xxx xxx xxx
The packages discharged from the VESSEL numbered 29, of which seven
packages were found to be in bad order. What the CONSIGNEE ultimately
received at its warehouse was the same number of 29 packages with 9 packages
in bad order. Out of these 9 packages, 1 package was accepted by the
 CONSIGNEE in good order due to the negligible damages sustained. Upon
inspection at the consignee's warehouse, the contents of 3 out of the 8 cases
were also found to be complete and intact, leaving 5 cases in bad order. The
contents of these 5 packages showed several items missing in the total amount
of $131.14; while the contents of the undelivered 1 package were valued at
$394.66, or a total of $525.80 or P2,426.98.
For the short-delivery of 1 package and the missing items in 5 other packages,
plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the amount of
P2,426.98, by virtue of which plaintiff became subrogated to the rights and
actions of the CONSIGNEE. Demands were made on defendants CARRIER and
CONSIGNEE for reimbursement thereof but they failed and refused to pay the
same.
In both cases, the petitioner-appellant made the following averment regarding its capacity to sue:
The plaintiff is a foreign insurance company duly authorized to do business in the Philippines
through its agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan
Building, Ayala Avenue, Makati, Rizal.
In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and alleged
that it:
Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of
knowledge or information sufficient to form a belief as to the truth thereof.
Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the
allegations of the complaint, regarding the capacity of plaintiff-appellant. The pertinent paragraph
of this answer reads as follows:
Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading Parties.
In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and
Guacods, Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack
of knowledge or information sufficient to form a belief as to the truth thereof.
As earlier stated, the respondent court dismissed the complaints in the two cases on the same
ground, that the plaintiff failed to prove its capacity to sue. The court reasoned as follows:
In the opinion of the Court, if plaintiff had the capacity to sue, the Court should
hold that a) defendant Eastern Shipping Lines should pay plaintiff the sum of
P1,630.22 with interest at the legal rate from January 5, 1968, the date of the
institution of the Complaint, until fully paid; b) defendant Angel Jose
Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at
the legal rate from January 5, 1968 until fully paid; c) the counterclaim of
defendant Angel Jose transportation, Inc. should be ordered dismissed; and d)
each defendant to pay one-half of the costs.
The Court is of the opinion that Section 68 of the Corporation Law reflects a
policy designed to protect the public interest. Hence, although defendants have
not raised the question of plaintiff's compliance with that provision of law, the
Court has resolved to take the matter into account.
A suing foreign corporation, like plaintiff, has to plead affirmatively and prove
either that the transaction upon which it bases its complaint is an isolated one, or
that it is licensed to transact business in this country, failing which, it will be
deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs. Cebu
Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by
plaintiff before this Court, of which judicial cognizance can be taken, and under
the ruling in Far East International Import and Export Corporation vs. Hankai
Koayo Co., 6 SCRA 725, it has to be held that plaintiff is doing business in the
Philippines. Consequently, it must have a license under Section 68 of the
Corporation Law before it can be allowed to sue.
The situation of plaintiff under said Section 68 has been described as follows in
Civil Case No. 71923 of this Court, entitled 'Home Insurance Co. vs. N. V.
Nedlloyd Lijnen, of which judicial cognizance can also be taken:
Exhibit "R",presented by plaintiff is a certified copy of a license,
dated July 1, 1967, issued by the Office of the Insurance
Commissioner authorizing plaintiff to transact insurance business
in this country. By virtue of Section 176 of the Insurance Law, it
has to be presumed that a license to transact business under
Section 68 of the Corporation Law had previously been issued to
plaintiff. No copy thereof, however, was submitted for a reason
unknown. The date of that license must not have been much
anterior to July 1, 1967. The preponderance of the evidence
would therefore call for the finding that the insurance contract
involved in this case, which was executed at Makati, Rizal, on
February 8, 1967, was contracted before plaintiff was licensed to
transact business in the Philippines.
This Court views Section 68 of the Corporation Law as reflective
of a basic public policy. Hence, it is of the opinion that, in the eyes
of Philippine law, the insurance contract involved in this case
must be held void under the provisions of Article 1409 (1) of the
 Civil Code, and could not be validated by subsequent
procurement of the license. That view of the Court finds support
in the following citation:
According to many authorities, a constitutional or
statutory prohibition against a foreign corporation
doing business in the state, unless such
corporation has complied with conditions
prescribed, is effective to make the contracts of
such corporation void, or at least unenforceable,
and prevents the maintenance by the corporation
of any action on such contracts. Although the
usual construction is to the contrary, and to the
effect that only the remedy for enforcement is
affected thereby, a statute prohibiting a non-
complying corporation from suing in the state
courts on any contract has been held by some
courts to render the contract void and
unenforceable by the corporation, even after its
has complied with the statute." (36 Am. Jur. 2d
299-300).
xxx xxx xxx
The said Civil Case No. 71923 was dismissed by this Court. As the insurance
contract involved herein was executed on January 20, 1967, the instant case
should also be dismissed.
We resolved to consolidate the two cases when we gave due course to the petition.
The petitioner raised the following assignments of errors:
First Assignment of Error
THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE
THE LEGAL EXISTENCE OR CAPACITY OF PLAINTIFF-APPELLANT.
Second Assignment of Error
THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT
ON THE FINDING THAT PLAINTIFF-APPELLANT HAS NO CAPACITY TO
SUE.
On the basis of factual and equitable considerations, there is no question that the private
respondents should pay the obligations found by the trial court as owing to the petitioner. Only
the question of validity of the contracts in relation to lack of capacity to sue stands in the way of
the petitioner being given the affirmative relief it seeks. Whether or not the petitioner was
engaged in single acts or solitary transactions and not engaged in business is likewise not in
issue. The petitioner was engaged in business without a license. The private respondents'
obligation to pay under the terms of the contracts has been proved.
When the complaints in these two cases were filed, the petitioner had already secured the
necessary license to conduct its insurance business in the Philippines. It could already filed suits.
Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreign
insurance company duly authorized to do business in the Philippines through its agent Mr. Victor
H. Bello. However, when the insurance contracts which formed the basis of these cases were
executed, the petitioner had not yet secured the necessary licenses and authority. The lower
court, therefore, declared that pursuant to the basic public policy reflected in the Corporation
Law, the insurance contracts executed before a license was secured must be held null and void.
The court ruled that the contracts could not be validated by the subsequent procurement of the
license.
The applicable provisions of the old Corporation Law, Act 1459, as amended are:
Sec. 68. No foreign corporation or corporations formed, organized, or existing
under any laws other than those of the Philippine Islands shall be permitted to
transact business in the Philippine Islands until after it shall have obtained a
license for that purpose from the chief of the Mercantile Register of the Bureau of
Commerce and Industry, (Now Securities and Exchange Commission. See RA
5455) upon order of the Secretary of Finance (Now Monetary Board) in case of
banks, savings, and loan banks, trust corporations, and banking institutions of all
kinds, and upon order of the Secretary of Commerce and Communications (Now
Secretary of Trade. See 5455, section 4 for other requirements) in case of all
other foreign corporations. ...
xxx xxx xxx
Sec. 69. No foreign corporation or corporation formed, organized, or existing
under any laws other than those of the Philippine Islands shall be permitted to
transact business in the Philippine Islands or maintain by itself or assignee any
suit for the recovery of any debt, claim, or demand whatever, unless it shall have
the license prescribed in the section immediately preceding. Any officer, director,
or agent of the corporation or any person transacting business for any foreign
corporation not having the license prescribed shag be punished by imprisonment
for not less than six months nor more than two years or by a fine of not less than
 two hundred pesos nor more than one thousand pesos, or by both such
imprisonment and fine, in the discretion of the court.
As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser &
Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the
foreign corporation doing business in the Philippines to the jurisdiction of our courts. The
Marshall Wells Co. decision referred to a litigation over an isolated act for the unpaid balance on
a bill of goods but the philosophy behind the law applies to the factual circumstances of these
cases. The Court stated:
xxx xxx xxx
Defendant isolates a portion of one sentence of section 69 of the Corporation
Law and asks the court to give it a literal meaning Counsel would have the law
read thus: "No foreign corporation shall be permitted to maintain by itself or
assignee any suit for the recovery of any debt, claim, or demand whatever,
unless it shall have the license prescribed in section 68 of the law." Plaintiff, on
the contrary, desires for the court to consider the particular point under
discussion with reference to all the law, and thereafter to give the law a common
sense interpretation.
The object of the statute was to subject the foreign corporation doing business in
the Philippines to the jurisdiction of its courts. The object of the statute was not to
prevent the foreign corporation from performing single acts, but to prevent it from
acquiring a domicile for the purpose of business without taking the steps
necessary to render it amenable to suit in the local courts. The implication of the
law is that it was never the purpose of the Legislature to exclude a foreign
corporation which happens to obtain an isolated order for business from the
Philippines, from securing redress in the Philippine courts, and thus, in effect, to
permit persons to avoid their contracts made with such foreign corporations. The
effect of the statute preventing foreign corporations from doing business and
from bringing actions in the local courts, except on compliance with elaborate
requirements, must not be unduly extended or improperly applied. It should not
be construed to extend beyond the plain meaning of its terms, considered in
connection with its object, and in connection with the spirit of the entire law.
(State vs. American Book Co. [1904], 69 Kan, 1; American De Forest Wireless
Telegraph Co. vs. Superior Court of City & Country of San Francisco and
Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2d ed., chap. 184.)
Confronted with the option of giving to the Corporation Law a harsh
interpretation, which would disastrously embarrass trade, or of giving to the law a
reasonable interpretation, which would markedly help in the development of
trade; confronted with the option of barring from the courts foreign litigants with
good causes of action or of assuming jurisdiction of their cases; confronted with
the option of construing the law to mean that any corporation in the United
States, which might want to sell to a person in the Philippines must send some
representative to the Islands before the sale, and go through the complicated
formulae provided by the Corporation Law with regard to the obtaining of the
license, before the sale was made, in order to avoid being swindled by Philippine
citizens, or of construing the law to mean that no foreign corporation doing
business in the Philippines can maintain any suit until it shall possess the
necessary license;-confronted with these options, can anyone doubt what our
decision will be? The law simply means that no foreign corporation shall be
permitted "to transact business in the Philippine Islands," as this phrase is known
in corporation law, unless it shall have the license required by law, and, until it
complies with the law, shall not be permitted to maintain any suit in the local
courts. A contrary holding would bring the law to the verge of unconstitutionality,
a result which should be and can be easily avoided. (Sioux Remedy
Co. vs. Cope and Cope, supra; Perkins, Philippine Business Law, p. 264.)
To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of our
courts. The Corporation Law must be given a reasonable, not an unduly harsh, interpretation
which does not hamper the development of trade relations and which fosters friendly commercial
intercourse among countries.
The objectives enunciated in the 1924 decision are even more relevant today when we view
commercial relations in terms of a world economy, when the tendency is to re-examine the
political boundaries separating one nation from another insofar as they define business
requirements or restrict marketing conditions.
We distinguish between the denial of a right to take remedial action and the penal sanction for
non-registration.
Insofar as transacting business without a license is concerned, Section 69 of the Corporation
Law imposed a penal sanction-imprisonment for not less than six months nor more than two
years or payment of a fine not less than P200.00 nor more than P1,000.00 or both in the
discretion of the court. There is a penalty for transacting business without registration.
And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain
any suit for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent
on whether or not the contract executed by a foreign corporation with no capacity to sue is null
and void ab initio.
We are not unaware of the conflicting schools of thought both here and abroad which are divided
on whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in his
book Corporation Law (Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234) cites an
Illinois decision which holds the contracts void and a Michigan statute and decision declaring
them merely voidable:
xxx xxx xxx
Where a contract which is entered into by a foreign corporation without
complying with the local requirements of doing business is rendered void either
by the express terms of a statute or by statutory construction, a subsequent
compliance with the statute by the corporation will not enable it to maintain an
action on the contract. (Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930].
See also Diamond Glue Co. v. U.S. Glue Co., supra see note 18.) But where the
statute merely prohibits the maintenance of a suit on such contract (without
expressly declaring the contract "void"), it was held that a failure to comply with
the statute rendered the contract voidable and not void, and compliance at any
time before suit was sufficient. (Perkins Mfg. Co. v. Clinton Const. Co., supra.)
Notwithstanding the above decision, the Illinois statute provides, among other
things that a foreign corporation that fails to comply with the conditions of doing
business in that state cannot maintain a suit or action, etc. The court said: 'The
contract upon which this suit was brought, having been entered into in this state
when appellant was not permitted to transact business in this state, is in violation
of the plain provisions of the statute, and is therefore null and void, and no action
can be maintained thereon at any time, even if the corporation shall, at some
time after the making of the contract, qualify itself to transact business in this
state by a compliance with our laws in reference to foreign corporations that
desire to engage in business here. (United Lead Co. v. J.M. Ready Elevator Mfg.
Co., 222 Ill. 199, 73 N.N. 567 [1906].)
A Michigan statute provides: "No foreign corporation subject to the provisions of
this Act, shall maintain any action in this state upon any contract made by it in
this state after the taking effect of this Act, until it shall have fully complied with
the requirement of this Act, and procured a certificate to that effect from the
Secretary of State," It was held that the above statute does not render contracts
of a foreign corporation that fails to comply with the statute void, but they may be
enforced only after compliance therewith. (Hastings Industrial Co. v. Moral, 143
Mich. 679,107 N.E. 706 [1906]; Kuennan v. U.S. Fidelity & G. Co., Mich. 122;
123 N.W. 799 [1909]; Despres, Bridges & Noel v. Zierleyn, 163 Mich. 399, 128
N.W. 769 [1910]).
It has also been held that where the law provided that a corporation which has
not complied with the statutory requirements "shall not maintain an action until
such compliance". "At the commencement of this action the plaintiff had not filed
the certified copy with the country clerk of Madera County, but it did file with the
officer several months before the defendant filed his amended answer, setting up
this defense, as that at the time this defense was pleaded by the defendant the
plaintiff had complied with the statute. The defense pleaded by the defendant
was therefore unavailable to him to prevent the plaintiff from thereafter
maintaining the action. Section 299 does not declare that the plaintiff shall not
commence an action in any county unless it has filed a certified copy in the office
of the county clerk, but merely declares that it shall not maintain an action until it
has filled it. To maintain an action is not the same as to commence an action, but
implies that the action has already been commenced." (See also Kendrick &
Roberts Inc. v. Warren Bros. Co., 110 Md. 47, 72 A. 461 [1909]).
In another case, the court said: "The very fact that the prohibition against
maintaining an action in the courts of the state was inserted in the statute ought
to be conclusive proof that the legislature did not intend or understand that
contracts made without compliance with the law were void. The statute does not
fix any time within which foreign corporations shall comply with the Act. If such
contracts were void, no suits could be prosecuted on them in any court. ... The
primary purpose of our statute is to compel a foreign corporation desiring to do
business within the state to submit itself to the jurisdiction of the courts of this
state. The statute was not intended to exclude foreign corporations from the
state. It does not, in terms, render invalid contracts made in this state by non-
complying corporations. The better reason, the wiser and fairer policy, and the
greater weight lie with those decisions which hold that where, as here, there is a
prohibition with a penalty, with no express or implied declarations respecting the
validity of enforceability of contracts made by qualified foreign corporations, the
contracts ... are enforceable ... upon compliance with the law." (Peter & Burghard
Stone Co. v. Carper, 172 N.E. 319 [1930].)
Our jurisprudence leans towards the later view. Apart from the objectives earlier cited
from Marshall Wells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign
corporation actually doing business in the Philippines without license to do so may be sued in
our courts. The defendant American corporation in General Corporation of the Philippines v.
Union Insurance Society of Canton Ltd et al. (87 Phil. 313) entered into insurance contracts
without the necessary license or authority. When summons was served on the agent, the
defendant had not yet been registered and authorized to do business. The registration and
authority came a little less than two months later. This Court ruled:
Counsel for appellant contends that at the time of the service of summons, the
appellant had not yet been authorized to do business. But, as already stated,
section 14, Rule 7 of the Rules of Court makes no distinction as to corporations
with or without authority to do business in the Philippines. The test is whether a
foreign corporation was actually doing business here. Otherwise, a foreign
corporation illegally doing business here because of its refusal or neglect to
obtain the corresponding license and authority to do business may successfully
though unfairly plead such neglect or illegal act so as to avoid service and
thereby impugn the jurisdiction of the local courts. It would indeed be anomalous
 and quite prejudicial, even disastrous, to the citizens in this jurisdiction who in all
good faith and in the regular course of business accept and pay for shipments of
goods from America, relying for their protection on duly executed foreign marine
insurance policies made payable in Manila and duly endorsed and delivered to
them, that when they go to court to enforce said policies, the insurer who all
along has been engaging in this business of issuing similar marine policies,
serenely pleads immunity to local jurisdiction because of its refusal or neglect to
obtain the corresponding license to do business here thereby compelling the
consignees or purchasers of the goods insured to go to America and sue in its
courts for redress.
There is no question that the contracts are enforceable. The requirement of registration affects
only the remedy.
Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected
the ambiguity caused by the wording of Section 69 of the old Corporation Law.
Section 133 of the present Corporation Code provides:
SEC. 133. Doing business without a license.-No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shag
be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency in the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
The old Section 69 has been reworded in terms of non-access to courts and administrative
agencies in order to maintain or intervene in any action or proceeding.
The prohibition against doing business without first securing a license is now given penal
sanction which is also applicable to other violations of the Corporation Code under the general
provisions of Section 144 of the Code.
It is, therefore, not necessary to declare the contract nun and void even as against the erring
foreign corporation. The penal sanction for the violation and the denial of access to our courts
and administrative bodies are sufficient from the viewpoint of legislative policy.
Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the
subsequent registration is also strengthened by the procedural aspects of these cases.
The petitioner averred in its complaints that it is a foreign insurance company, that it is
authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello, and that its
office address is the Oledan Building at Ayala Avenue, Makati. These are all the averments
required by Section 4, Rule 8 of the Rules of Court. The petitioner sufficiently alleged its capacity
to sue. The private respondents countered either with an admission of the plaintiff's jurisdictional
averments or with a general denial based on lack of knowledge or information sufficient to form a
belief as to the truth of the averments.
We find the general denials inadequate to attack the foreign corporations lack of capacity to sue
in the light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a
party desiring to raise an issue as to the legal existence of any party or the capacity of any party
to sue or be sued in a representative capacity shall do so by specific denial, which shag include
such supporting particulars as are particularly within the pleader's knowledge. At the very least,
the private respondents should have stated particulars in their answers upon which a specific
denial of the petitioner's capacity to sue could have been based or which could have supported
its denial for lack of knowledge. And yet, even if the plaintiff's lack of capacity to sue was not
properly raised as an issue by the answers, the petitioner introduced documentary evidence that
it had the authority to engage in the insurance business at the time it filed the complaints.
WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are
reversed and set aside.
In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of
P1,630.22 with interest at the legal rate from January 5, 1968 until fully paid and respondent
Angel Jose Transportation Inc. is ordered to pay the petitioner the sum of P1,630.22 also with
interest at the legal rate from January 5, 1968 until fully paid. Each respondent shall pay one-half
of the costs. The counterclaim of Angel Jose Transportation Inc. is dismissed.
In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to pay
the petitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully
paid, the sum of P500.00 attorney's fees, and costs, The complaint against Guacods, Inc. is
dismissed.
SO ORDERED.
G.R. No. L-44944 August 9, 1985
TOP-WELD MANUFACTURING, INC., petitioner,
vs.
ECED, S.A., IRTI, S.A., EUTECTIC CORPORATION, VICTOR C. GAERLAN, and THE HON.
COURT OF APPEALS, respondents.
Angara, Conception, Regula & Cruz Law Office for petitioner.
Alonzo Q. Ancheta for respondents.
GUTIERREZ, JR., J.:
This is a petition to review the decision of the Court of Appeals now Intermediate Appellate Court
annulling portions of the orders issued by Judge Gregorio Pineda of the Court of First Instance of
Rizal.
Petitioner Top-weld Manufacturing, Inc. (Top-weld) is a Philippine corporation engaged in the
business of manufacturing and selling welding supplies and equipment.
In pursuance of its business, the petitioner entered into separate contracts with two different
foreign entities. One contract, entitled a "LICENSE AND TECHNICAL ASSISTANCE
AGREEMENT" and dated January 2, 1972 was entered into with IRTI, S.A., (IRTI), a corporation
organized and existing under the laws of Switzerland with principal office at Fribourg,
Switzerland. By virtue of this agreement, the petitioner was constituted a licensee of IRTI to
manufacture welding products under certain specifications, with raw materials to be purchased
by the former from suppliers designated by IRTI, for a period of three (3) years or up to January
1, 1975. This contract was later extended up to December 31, 1975 in a subsequent agreement.
The other contract was a "DISTRIBUTOR AGREEMENT" dated January 1, 1975 entered into
with ECED, S.A., (ECED), a company organized and existing under the laws of Panama with
principal office at Apartado 1903, Panama I, City of Panama. Under this agreement, the
petitioner was designated as ECED's distributor in the Philippines of certain welding products
and equipment. By its terms, the contract was to remain effective until terminated by either party
upon giving six (6) months or 180 days written notice to the other.
Upon learning that the two foreign entities were negotiating with another group to replace the
petitioner as their licensee and distributor, the latter instituted on June 16, 1975, Civil Case No.
21409 against IRTI, ECED another corporation named EUTECTIC Corporation, organized under
the laws of the State of New York, U.S.A., and an individual named Victor C. Gaerlan, a Filipino
citizen alleged to be the representative and employee of these three corporations.
In its complaint, the petitioner sought the issuance of a writ of preliminary injunction to restrain
the corporations from negotiating with third persons or from actually carrying out the transfer of
its distributorship and franchising rights, It also asked the court to prohibit the defendants from
terminating their contracts with the petitioner, and if said termination had already been
accomplished, from putting into effect and carrying out the terms and the consequences of said
termination until after good faith negotiations on existing contracts between them had been
carried out and completed.
On June 17, 1975, the lower court issued a restraining order against the corporation pending the
hearing on the issuance of a writ of preliminary injunction.
On July 25,1975, IRTI and ECED wrote Top-weld separate notices about the termination of their
respective contracts.
On September 3,1975, Top-weld filed an amended complaint together with a supplemental
complaint which embodied a new application for a preliminary mandatory injunction to compel
ECED to ship and deliver various items covered by the distributorship contract, and to prohibit
the corporations from importing into the Philippines directly or indirectly any EUTECTIC
materials, supplies or equipment except to and/or through the petitioner.
Among others, the petitioner invoked the provisions of No. 9. Section 4 of Republic Act 5455 on
alien firms doing business in the Philippines.
The corporations filed their answers setting up as affirmative defenses violations of the contracts
allegedly committed by the petitioner consisting of the following:
a) Failure to pay respondent IRTI the stipulated 3% royalties;
b) The use of other wrong materials in the manufacture of welding products
bearing the Eutectic label;
c) The use of the wrong core wire in the manufacture of Eutectic 680;
d) The use of obsolete and antiquated equipment;
e) Rebranding of other manufactured welding products or non-Eutectic products
with the Eutectic label;
f) The manufacture and sale of inferior and substandard quality products bearing
the Eutectic label resulting in numerous complaints from customers such as
Saulog Transit and Manila Mining Corporation;
 g) The falsification of ECED pro-forma invoices in order to procure Eutectic
goods at lower prices;
h) The illegal channeling of sales of Eutectic products through the Que Pe
Hardware Store; and
i) The sale of welding products bearing brands other than Eutectic, such as
Fujiweld, and even Eutectic products not included in its authority and for which it
has never been supplied by respondent EUTECTIC with the raw materials for its
manufacture nor with finished products thereof.
The respondent corporation further alleged that Section 4 (9) of R.A. No. 5455 cannot possibly
apply to the instant case because:
a) With the violations of the contracts by the plaintiff and "other just causes"
earlier mentioned, the defendants IRTI and ECED are fully justified in terminating
them without being obliged to pay any compensation nor to reimburse plaintiff of
investment or other expenses;
b) In fact, the defendants have sent written notices dated July 25, 1975 of the
termination of their respective agreements with plaintiffs; and
c) Since no written certificate was applied for nor obtained by defendant entities
from the Board of Investments, the latter cannot legally require of them
compliance with No. 9, Section 4, R.A. No, 5455.
On October 9, 1975, the trial court issued an order granting the petitioner's application for
preliminary injunction embodied in the amended complaint and its application for a writ of
mandatory preliminary injunction embodied in the supplemental complaint,
The corporations filed with the trial court a motion for reconsideration.
On December 18, 1975, the trial court issued another order denying the said motion for
reconsideration with respect to the lifting of the writ of preliminary injunction but granting the
prayer for the lifting of the writ of preliminary mandatory injunction.
The case was elevated to the Court of Appeals on a petition for certiorari with preliminary
injunction filed by the corporations. In setting aside the questioned orders, the appelate court
held that:
The determinative question defined by the contentions of the parties in this case
is, whether or not TOP-WELD may rightfully invoke the provisions of Sec. 4,
Republic Act No. 5455 to enjoin petitioner corporations from terminating the
subject licensing and distributorship contracts they have with TOP-WELD. The
pertinent portion of the provision reads:
Section 4. Licenses to do business.-No alien, and no firm,
association, partnership, corporation, or any other form of
business organization formed, organized, chartered or existing
under any laws other than those of the Philippines, or which is not
a Philippine National, or more than thirty per cent of the
outstanding capital of which is owned or controlled by aliens shall
do business or engage in any economic activity in alien the
Philippines, or be registered, licensed, or permitted by the
Securities and Exchange Commission, or by any other bureau,
office, agency, political subdivision, or instrumentality of the
government, to do business, or engage in an economic activity in
the Philippines without first securing a written certificate from the
Board of Investments to the effect ... .
Upon granting said certificate, the Board shall impose the
following requirements on the alien or the firm, association,
partnership, corporation, or other form of business organization
that is not organized or existing under the laws of the Philippines.
... .
(9) Not to terminate any franchise, licensing or other agreement
that applicant may have with a resident of the Philippines,
authorizing the latter to assemble, manufacture or sell within the
Philippines the products of the applicant, except for violation
thereof or other just cause and upon payment of compensation
and reimbursement and other expenses incurred by the licensee
in developing a market for the said products; Provided. however,
That in case of disagreement, the amount of compensation or
reimbursement shall be determined by the court where the
licensee is domiciled or has its principal office who shall require
the applicant to file a bond in such amount as, in its opinion, is
sufficient for this purpose.
By the licensing and distributorship arrangements had with TOPWELD, there is
no doubt that IRTI and ECED were doing business and engaging in economic
activity in the Philippines (see Sections 1 and 4, R.A. No. 5455), as a prerequisite
to which they should have first secured a written certificate from the Board of
Investments. It is not disputed, however, that IRTI and ECED have not secured
such written certificate in consequence of which there was no occasion for the
Board of Investments to impose the requirements prescribed in the aforequoted
 provisions of Sec. 4, R.A. No. 5455, among which is that the grantee of the
certificate shall not terminate any franchise, licensing or other agreement it may
have with a resident of the Philippines for the assembly, manufacture or sale
within the country of the products of said grantee, except for violation thereof or
other just cause and upon payment of compensation and reimbursement and
other expenses incurred by the resident licensee in developing a market for said
products. In this case, while the parties are in dispute as to the existence of a
violation of the contracts involved or of other just cause, there is no quarrel over
the fact that IRTI and ECED have not paid, and do not intend to pay, such
compensation or reimbursement contemplated in the law, maintaining that
TOPWELD is not entitled to the same.
Under the particular situation obtaining in this case, this Court is of the opinion
that petitioner corporations are not bound by the requirement on termination, and
TOPWELD cannot invoke the same against the former. The reason is not simply
because IRTI and ECED, by failing to get the required certificate from the Board
of Investment, were not made subject by the said Board to the requirement on
termination, as maintained by petitioners. To impose such requirement on
petitioners would be to perpetuate, and force them to remain in, an unlawful
business operation. Moreover, it was incumbent upon TOPWELD to know
whether or not IRTI and ECED were properly authorized to engage into the
licensing and distributorship agreements. At the very least TOPWELD has not
come to court with clear hands, and cannot be heard to invoke the equitable
remedy of injunction to perpetuate an illegal situation it voluntarily helped bring
about.
If only for the foregoing considerations, there appears a grave abuse of discretion
on the part of respondent Judge in issuing the orders complained of.
Petitioner, TOP-WELD filed this present petition putting in issue the following assignments of
errors:
I
Respondent Court of Appeals committed a grave error when it held that a foreign
corporation, which is admittedly 'doing business in the Philippines' but which has
failed to secure the required certificate and license to do business in the
Philippines, is not subject to the stricture imposed by Sec. 4 (9) of Republic Act
No. 5455.
II
Respondent Court of Appeals committed a grave error when it held that the
failure of petitioner to know at the outset whether or not respondents were
properly authorized to engage in business in the Philippines stops petitioner to
invoke the protection of Sec. 4 (9) of Republic Act No. 5455.
III
Respondent Court of Appeals committed a grave error when it held that petitioner
cannot invoke the remedy of injunction against respondents.
At the vortex of the controversy is the issue whether or not respondent corporations can be
considered as "doing business" in the Philippines and, therefore, subject to the provisions of R.A.
No. 5455. There is no dispute that respondents are foreign corporations not licensed to do
business in the Philippines. More important, however, there is no serious objection interposed by
the respondents as to their amenability to the jurisdiction of our courts.
There is no general rule or governing principle laid down as to what constitutes "doing" or
engaging in" or "transacting" business in the Philippines. Each case must be judged in the light
of its peculiar circumstances. (Mentholatum Co. V. Mangaliman, 72 Phil. 524). Thus, a foreign
corporation with a settling agent in the Philippines which issued twelve marine policies covering
different shipments to the Philippines (General Corporation of the Philippines v. Union Insurance
Society of Canton, Ltd., 87 Phil. 313) and a foreign corporation which had been collecting
premiums on outstanding policies (Manufacturing Life Insurance Co. v. Meer, 89 Phil. 351) were
regarded as doing business here. The acts of these corporations should be distinguished from a
single or isolated business transaction or occasional, incidental and casual transactions which
do not come within the meaning of the law. Where a single act or transaction, however, is not
merely incidental or casual but indicates the foreign corporation's intention to do other business
in the Philippines, said single act or transaction constitutes "doing" or "engaging in" or
"transacting" business in the Philippines. (Far East International Import and Export Corporation
v. Nankai Kogyo, Co., 6 SCRA 725).
In the Mentholatum Co. v. Mangaliman case earlier cited, this Court held:
xxx xxx xxx
... The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another. (Traction Cos. v. Collectors of Int. Revenue [C.C.A. Ohio], 223 F. 984,
987.) The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization. (Griffin v. Implement
 Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77, Pauline Oil & Gas Co. v. Mutual
Tank Line Co., 246 P. 851, 852, 118 Okl. 111 Automotive Material Co. v.
American Standard Metal Products Corp., 158 N.E. 698, 703, 327 111. 367.)
Judged by the foregoing standards, we agree with the Court of Appeals in considering the
respondents as "doing business" in the Philippines. When the respondents entered into the
disputed contracts with the petitioner, they were carrying out the purposes for which they were
created, i.e. to manufacture and market welding products and equipment. The terms and
conditions of the contracts as well as the respondents' conduct indicate that they established
within our country a continuous business, and not merely one of a temporary character. This fact
is even more strengthened by the admission of the respondents that they are negotiating with
another group for the transfer of the distributorship and franchising rights from the petitioner.
Respondents' acts enabled them to enter into the mainstream of our economic life in competition
with our local business interests. This necessarily brings them under the provisions of R.A. No.
5455.
The respondents contend that they should be exempted from the requirements of R.A. 5455
because the petitioner maintained an independent status during the existence of the disputed
contracts.
This may be true if the petitioner is an independent entity which buys and distributes products
not only of the petitioner but also of other manufacturers or transacts business in its name and
for its account and not in the name or for the account of the foreign principal.
A perusal of the agreements between the petitioner and the respondents shows that they are
highly restrictive in nature. The agreements provide in part the following terms:
xxx xxx xxx
10. No Sales in Territory by IRTI
IRTI shall not solicitor or cause or permit its employees, licensees or agents to
solicit or make any sales, directly or indirectly, of WELDING PRODUCTS within
or to the Philippines. IRTI agrees to refer to LICENSEE all product inquiries
received by IRTI for WELDING PRODUCTS destined for Philippines.
xxx xxx xxx
16. x x x x x x x x x
Restrictive Covenant
LICENSEE will not, directly or indirectly, without the written consent of IRTI at
any time during the continuance of this Agreement and for a period of two years
after the date of the termination of this Agreement, engage either directly or
indirectly in the business of selling products similar to said WELDING
PRODUCTS, either as principal, agent, employee or through stock or proprietary
interests in a third part entity.
xxx xxx xxx
RESTRICTI
VE COVENANT
6. DISTRIBUTOR shall not during the continuance of this agreement distribute
products of any other manufacturer or supplier in the Territory assigned to him,
which are similar to the Products.
Upon the termination of this agreement by either party, DISTRIBUTOR agrees
not to engage, directly or indirectly, in the commercialization, distribution and/or
manufacture of products competing with any EUTECTIC + CASTOLIN products
covered by this agreement, or of products likely to affect the sale of any
EUTECTIC + CASTOLIN products, either as principal, agent or employee in the
Territory, this prohibition to extend for a period of two (2) years from the date of
termination, except for the explicit purpose of selling any remaining Products still
in DISTRIBUTOR's possession on the date of termination of this agreement
which sales shall not be below the DISTRIBUTOR's pretermination selling price
for such Products unless such sale is to ECED or its nominee in which case
Clause 19 hereof shall govern.
xxx xxx xxx
We can conclude that assuming the petitioner maintains an independent status, in essence it
merely extends to the Philippines the business of the foreign corporations.
On the basis of the foregoing, we uphold the appellate court's finding that "IRTI AND ECED were
doing business and engaging in economic activity in the Philippines ... as a prerequisite to which
they should have first secured a written certificate from the Board of Investments."
The respondent court, however, erred in holding that "IRTI and ECED have not secured such
written certificate in consequence of which there is no occasion for the Board of Investments to
impose the requirements prescribed in the aforequoted provisions of Sec. 4, R.A. No. 5455 ... ."
To accept this view would open the way for an interpretation that by doing business in the
country without first securing the required written certificate from the Board of Investments, a
foreign corporation may violate or disregard the safeguards which the law, by its provisions,
seeks to establish.
We agree, however, that there is a more compelling reason behind the finding that the
"corporations are not bound by the requirement on termination, and TOP-WELD cannot invoke
the same against the former."
As between the parties themselves, R.A. No. 5455 does not declare as void or invalid the
contracts entered into without first securing a license or certificate to do business in the
Philippines. Neither does it appear to intend to prevent the courts from enforcing contracts made
in contravention of its licensing provisions. There is no denying, though, that an "illegal situation,"
as the appellate court has put it, was created when the parties voluntarily contracted without
such license.
The parties are charged with knowledge of the existing law at the time they enter into the
contract and at the time it is to become operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall v.
Bucher, 227 SW 2d 98). Moreover, a person is presumed to be more knowledgeable about his
own state law than his alien or foreign contemporary. In this case, the record shows that, at
least, petitioner had actual knowledge of the applicability of R.A. No. 5455 at the time the
contract was executed and at all times thereafter. This conclusion is compelled by the fact that
the same statute is now being propounded by the petitioner to bolster its claim. We, therefore,
sustain the appellate court's view that "it was incumbent upon TOP-WELD to know whether or
not IRTI and ECED were properly authorized to engage in business in the Philippines when they
entered into the licensing and distributorship agreements." The very purpose of the law was
circumvented and evaded when the petitioner entered into said agreements despite the
prohibition of R.A. No. 5455. The parties in this case being equally guilty of violating R.A, No.
5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not
entitled to the relief prayed for in this case.
In Bough v. Cantiveros (40 Phil. 210), the principle is laid down in these words: "The rule of pari
delicto is expressed in the maxims "ex dolo malo non eritur actio" and "in pari delicto potior est
conditio defedentis." The law will not aid either party to an illegal agreement. It leaves the parties
where it finds them."
No remedy could be afforded to the parties because of their presumptive knowledge that the
transaction was tainted with illegality. (Soriano v. Ong Hoo, 103 Phil. 829). Equity cannot lend its
aid to the enforcement of an alleged right claimed by virtue of an agreement entered into in
contravention of law.
Lastly, we come to the issue of "just cause" for the termination of the contracts or the alleged
violations of the contracts made by petitioner. Though properly ventilated below, this factual
issue was not determined by both the trial court and the appellate court.
The record shows that respondents, in opposing the injunction suit and alleging the violations of
the contracts, submitted and relied on their affidavits. The petitioner, however, to refute these
charges, submitted a "Reply to Opposition" which is neither verified nor supported by counter-
affidavits. There is no showing in the records before us whether oral testimony was presented by
any of the parties or whether the affiants were subjected to the test of cross-examination and if
any, what was stated during the oral testimony.
The burden of overcoming the responsive effect of the answer is upon the petitioner. He who
alleges a fact has the burden of proving it and a mere allegation is not evidence. (Legasca v. De
Vera, 79 Phil. 376) Hearsay evidence alone may be insufficient to establish a fact in an
injunction suit (Parker v. Furlong, 62 P. 490) but, when no objection is made thereto, it is, like
any other evidence, to be considered and given the importance it deserves. (Smith v. Delaware
& Atlantic Telegraph & Telephone Co., 51 A 464). Although we should warn of the undesirability
of issuing judgments solely on the basis of the affidavits submitted, where as here, said affidavits
are overwhelming, uncontroverted by competent evidence and not inherently improbable, we are
constrained to uphold the allegations of the respondents regarding the multifarious violations of
the contracts made by the petitioner. Accordingly, we rule that there exists a just cause for
respondents to move for the termination of their contracts with the petitioner.
Moreover, the facts on record show that the "License and Technical Assistance Agreement"
between petitioner and respondent IRTI was extended only for a period of one year or to be
precise, from January 1, 1975 to December 31, 1975. The original injunction suit was brought in
the court a quo in June1975, the purpose being to stop the respondent from terminating the
contract. This purpose was realized when the court granted the injunction. By the time
respondents' appeal was decided by the Court of Appeals, it was already past the extended
period. The dispute between the parties had been rendered moot and academic. It should be
stated that the courts be it the original trial court or the appellate court have no power to make
contracts for the parties. No court would be justified in extending the life of the contracts, subject
of this controversy, since that would do violence to the basic principle that contracts must be the
voluntary agreements of parties,
Parties can not be coerced to enter into a contract where no agreement is had between them as
to the principal terms and condition of the contract (Republic v. Philippine Long Distance
Telephone Co., 26 SCRA 620).
With the above observations, there is nothing more for this Court to do except to dismiss the
petition.
ACCORDINGLY, the petition is hereby dismissed. The appealed decision of the Court of
Appeals is AFFIRMED,
SO ORDERED.
G.R. No. 97816 July 24, 1992
MERRILL LYNCH FUTURES, INC., petitioner,
vs.
HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and ELISA G.
LARA, respondents.
NARVASA, C.J.:
The capacity of a foreign corporation to maintain an action in the Philippines against residents
thereof, is the principal question in the appellate proceedings at bar. The issue arises from the
undisputed facts now to be briefly narrated.
On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES) filed a
complaint with the Regional Trial Court at Quezon City against the Spouses Pedro M. Lara and
Elisa G. Lara for the recovery of a debt and interest thereon, damages, and attorney's fees. 1 In
its complaint ML FUTURES described itself as —
a) a non-resident foreign corporation, not doing business in the Philippines, duly
organized and existing under and by virtue of the laws of the state of Delaware,
U.S.A.;" as well as
b) a "futures commission merchant" duly licensed to act as such in the futures
markets and exchanges in the United States, . . essentially functioning as a
broker . . (executing) orders to buy and sell futures contracts received from its
customers on U.S. futures exchanges.
It also defined a "futures contract" as a "contractual commitment to buy and sell a standardized
quantity of a particular item at a specified future settlement date and at a price agreed upon, with
the purchase or sale being executed on a regulated futures exchange."
In its complaint ML FUTURES alleged the following:
1) that on September 28, 1983 it entered into a Futures Customer Agreement with the defendant
spouses (Account No. 138-12161), in virtue of which it agreed to act as the latter's broker for the
purchase and sale of futures contracts in the U.S.;
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:

2) that pursuant to the contract, orders to buy and sell futures contracts were transmitted to ML (1) plaintiff ML FUTURES had "no legal capacity to sue" and
FUTURES by the Lara Spouses "through the facilities of Merrill Lynch Philippines, Inc., a
Philippine corporation and a company servicing plaintiffs customers; 2
 (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
— (4) defendant spouses should not be allowed to "invoke the aid of the court with
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
unclean hands.
The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill Lynch
Philippines, Inc. (formerly registered as Merrill Lynch, Pierce, Fenner & Smith Philippines,
Inc.) 5 did not have a license, claiming that they learned of this only from inquiries with the
Securities and Exchange Commission which elicited the information that it had denied said
corporation's application to operate as a commodity futures trading advisor — a denial
subsequently affirmed by the Court of Appeals (Merrill Lynch Philippines, Inc. v. Securities &
Exchange Commission, CA-G.R. No. 10821-SP, Nov. 19, 1987). The spouses also submitted
additional documents (Annexes J to R) involving transactions with Merrill Lynch Pierce Fenner &
Smith, Inc., dating back to 1980, stressing that all but one of the documents "refer to Account
No. 138-12161 which is the very account that is involved in the instant complaint."
ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure statement by
which the latter were made aware that the transactions they were agreeing on would take place
outside of the Philippines, and that "all funds in the trading program must be placed with Merrill
Lynch Futures, Inc."
On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to dismiss,
directing the dismissal of the case and discharging the writ of preliminary attachment. It later
denied ML FUTURES's motion for reconsideration, by Order dated February 29, 1988. ML
FUTURES appealed to the Court of Appeals. 6
In its own decision promulgated on November 27, 1990, 7 the Court of Appeals affirmed the Trial
Court's judgment. It declared that the Trial Court had seen "through the charade in the
representation of MLPI and the plaintiff that MLPI is only a trading advisor and in fact it is a
conduit in the plaintiff's business transactions in the Philippines as a basis for invoking the
provisions of Section 133 of the Corporation Code," 8 viz.:
Sec. 133. Doing business without a license. — No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency in the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
It also declared that the evidence established that plaintiff had in fact been "doing
business" in this country in legal contemplation, adverting to Mentholatum
v. Mangaliman, 72 Phil. 524, 528-530, and Section 1 of Republic Act No. 5455 reading
as follows: 9
Sec. 1. Definition and scope of this ACT . (1) As used in this Act, the term
"investment" shall mean equity participation in any enterprise formed, organized,
or existing under the laws of the Philippines; and the phrase "doing
business" shall 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. 118843 February 6, 1997 17 Jan 89 27065 618-7496-2941 S$ 5,010.59
24 Feb 89 27738 618-7553-6672 14,402.13
ERIKS PTE. LTD., petitioner, 02 Mar 89 27855 (freight & hand- 1,164.18
vs. ling charges per
COURT OF APPEALS, and DELFIN F. ENRIQUEZ, JR., respondents. Inv. 27738)
03 Mar 89 27876 618-7553-7501 1,394.32
03 Mar 89 27877 618-7553-7501 1,641.57
10 Mar 89 28046 618-7578-3256/ 7,854.60
618-7578-3481
PANGANIBAN, J.: 21 Mar 89 28258 618-7578-4634 27.72
14 Apr 89 28901 618-7741-7631 2,756.53
Is a foreign corporation which sold its products sixteen times over a five-month period to the 19 Apr 89 29001 Self-collect 458.80
same Filipino buyer without first obtaining a license to do business in the Philippines, prohibited 16 Aug 89 31669 (handcarried by 1,862.00
from maintaining an action to collect payment therefor in Philippine courts? In other words, is buyer)
such foreign corporation "doing business" in the Philippines without the required license and thus —————
barred access to our court system? S$36,392.44
21 Mar 89 28257 618-7578-4634 415.50
This is the main issue presented for resolution in the instant petition for review, which seeks the 04 Apr 89 28601 618-7741-7605 884.09
reversal of the Decision1 of the Court of Appeals, Seventh Division, promulgated on January 25, 14 Apr 89 28900 618-7741-7631 1,269.50
1995, in CA-G.R. CV No. 41275 which affirmed, for want of capacity to sue, the trial court's 25 Apr 89 29127 618-7741-9720 883.80
dismissal of the collection suit instituted by petitioner. 02 May 89 29232 (By seafreight) 120.00
05 May 89 29332 618-7796-3255 1,198.40
The Facts 15 May 89 29497 (Freight & hand- 111.94
ling charges per
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and Inv. 29127 ——————
sale of elements used in sealing pumps, valves and pipes for industrial purposes, valves and S$ 4,989.29
control equipment used for industrial fluid control and PVC pipes and fittings for industrial uses. 31 May 89 29844 618-7796-5646 545.70
In its complaint, it alleged that:2 S$ 545.70
——————
(I)t is a corporation duly organized and existing under the laws of the Republic of Total S$ 41,927.43
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 The transfers of goods were perfected in Singapore, for private respondent's account, F.O.B.
i(s) not so engaged and is suing on an isolated transaction for which it has Singapore, with a 90-day credit term. Subsequently, demands were made by petitioner upon
capacity to sue . . . (par. 1, Complaint; p. 1, Record) private respondent to settle his account, but the latter failed/refused to do so.

On various dates covering the period January 17 — August 16, 1989, private respondent Delfin
Enriquez, Jr., doing business under the name and style of Delrene EB Controls Center and/or
EB Karmine Commercial, ordered and received from petitioner various elements used in sealing
pumps, valves, pipes and control equipment, PVC pipes and fittings. The ordered materials were
delivered via airfreight under the following invoices:3
Date Invoice No. AWB No. Amount
—— ————— ———— ———
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.
70429 in this wise:
Sec. 3. Definitions. — As used in this Act:
xxx xxx xxx
(d) the phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eight(y)
(180) days or more; participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the Philippines; and any
other act or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works,or the exercise
of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase "doing business" shall not be
deemed to include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise of
rights as such investor; nor having a nominee director or officer to represent its
interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its
own account. (emphasis supplied)
In the durable case of The Mentholatum Co. vs. Mangaliman, this Court discoursed on the test to
determine whether a foreign company is "doing business" in the Philippines, thus: 10
 . . . The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another. (Traction Cos. v. Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984,
987.] The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization.] (sic) (Griffin v.
Implement Dealer's Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v.
Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v.
American Standard Metal Products Corp., 158 N.E. 698, 703, 327 III. 367.)
The accepted rule in jurisprudence is that each case must be judged in the light of its own
environmental circumstances. 11 It should be kept in mind that the purpose of the law is to subject
the 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
. 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.

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 . .
G.R. No. 22015 September 1, 1924
MARSHALL-WELLS COMPANY, plaintiff-appellant,
vs.
HENRY W. ELSER & CO., INC., defendant-appellee.
Hartigan and Welch for appellant.
J. F. Boomer for appellee.
MALCOLM, J.:
Marshall-Wells Company, an Oregon corporation, sued Henry W. Elser & Co., Inc., a domestic
corporation, in the Court of First Instance of Manila, for the unpaid balance of a bill of goods
amounting to P2,660.74, sold by plaintiff to defendant and for which plaintiff holds accepted
drafts. Defendant demurred to the complaint on the statutory ground that the plaintiff has not
legal capacity to sue. In the demurrer, counsel stated that "The said complaint does not show
that the plaintiff has complied with the laws of the Philippine Islands in that which is required of
foreign corporations desiring to do business in the Philippine Islands, neither does it show that it
was authorized to do business in the Philippine Islands." The demurrer was sustained by the trial
judge. Inasmuch as the plaintiff could not allege compliance with the statute, the order was
allowed to become final and an appeal was perfected.
To begin with the law as a fit setting for the issue. The Corporation Law (Act No. 1459) contains
six sections relating particularly to foreign corporations. Section 68, as amended by Act No.
2900, provides that no foreign corporation "shall be permitted to transact business in the
Philippine Islands until after it shall have obtained a license for that purpose from the Chief of the
Mercantile Register of the Bureau of Commerce and Industry," upon order either of the Secretary
of Finance or the Secretary of Commerce and Communications. No order for a license shall be
issued except upon a statement under oath of the managing agent of the corporation, showing to
the satisfaction of the proper Secretary that the corporation is solvent and in sound financial
condition, and setting forth the resources and liabilities of the corporation. Said statement shall
contain the following: (1) The name of the corporation; (2) the purpose for which it was
organized; (3) the location of its principal or home office; (4) the capital stock of the corporation
and the amount thereof actually subscribed and paid into the treasury; (5) the net assets of the
corporation over and above all debts, liabilities, obligations, and claims outstanding against it;
and (6) the name of an agent residing in the Philippine Islands authorized by the corporation to
accept evidence of summons and process in all legal proceedings against the corporation and of
all notices affecting the corporation. Further evidence of the solvency and fair dealing of the
corporation may be required. Upon filing in the Mercantile Register of the Bureau of Commerce
and Industry the said statement, a certified copy of its charter, and the order of the Secretary for
the issuance of a license, the Chief of the Mercantile Register "shall issue to the foreign
corporation as directed in the order of license to do business in the Philippine Islands," and for
the issuance of the license shall collect a fee fixed in accordance with the schedule established
in section 8 of the Law.
Passing section 69 of the Corporation Law for the moment, section 70, as amended, covers the
cases of foreign corporations "transacting business in the Islands at the time of the passage" of
the Act. Section 71 authorizes the Secretary of Finance or the Secretary of Commerce and
Communications, as the case may be, by and with the approval of the Governor-General, "to
revoke the license to transact business in the Philippine Islands" of any foreign corporation.
Section 72 concerns summons and legal process. Section 73 makes a foreign corporation bound
by all the laws, rules, and regulations applicable to domestic corporations of the same class, with
certain exceptions.
Returning now to section 69 of the Corporation Law, its literal terminology is as follows:
No foreign corporation or corporation formed, organized, or existing under any laws other
that those of the Philippine Islands shall be permitted to transact business in the
Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt,
claim, or demand whatever, unless it shall have the license prescribed in the section
immediately preceding. Any officer, director, or agent of the corporation not having the
license prescribed shall be punished by imprisonment for not less than six months nor
more than two years or by a fine of not less than two hundred pesos nor more than one
thousand pesos, or by both such imprisonment and fine, in the discretion of the court.
Is the obtaining of the license prescribed in section 68, as amended, of the Corporation Law a
condition precedent to the maintaining of any kind of action in the courts of the Philippine Islands
by a foreign corporation? The issue is framed to correspond with defendant's theory of the case
on appeal, although possibly somewhat at variance with its stand in the lower court.
So far as we are informed, this is a question of first impression. The case of Dampfschieffs
Rhederei Union vs. Compañia Trasatlantica ([1907], 8 Phil., 766), relating to the provisions of the
Code of Commerce, only held that a foreign corporation which has not established itself in the
Philippines, nor engaged in business in the Philippines, could, without filing its articles of
incorporation in the mercantile registry, maintain an action against another for damages. The
case of Spreckles vs. Ward ([1909], 12 Phil., 414), while making reference to a point similar to
the one before us, was merely authority for the holding, that the provisions of section 69 of the
Corporation Law denying to unregistered foreign corporations the right to maintain suits for the
recovery of any debt, claim, or demand, do not impose on all plaintiff-litigants the burden of
establishing by affirmative proof that they are not unregistered foreign corporations; that fact will
not be presumed without some evidence tending to establish its existence. But the question is
not alone new, but of prime importance, to the consideration of which we have given mature
thought.
Corporations have no legal status beyond the bounds of the sovereignty by which they are
created. A state may restrict the right of a foreign corporation to engage in business within its
limits, and to sue in its courts. But by virtue of state comity, a corporation created by the laws of
one state is usually allowed to transact business in other states and to sue in the courts of the
forum. (Paul vs. Virginia [1869], 8 Wall., 168; Sioux Remedy Co., vs. Cope and Cope [1914], 235
U. S., 197; Cyclone Mining Co. vs. Baker Light & Power Co., [1908], 165 Fed., 996.)
But here we have present for resolution no question of constitutional law. Article 4 of the United
States Constitution and the Fourteenth Amendment to the Constitution are not invoked. The
issue is not complicated with matters affecting interstate commerce under the American
Constitution. Nor are we concerned with a question of private international law. It all simmers
down to an issue of statutory construction.
Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the
court to give it a literal meaning. Counsel would have the law read thus: "No foreign corporation
shall be permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or
demand whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff,
on the contrary, desires for the court to consider the particular point under discussion with
reference to all the law, and thereafter to give the law a common sense interpretation.
by Philippine citizens, or of construing the law to mean that no foreign corporation doing
business in the Philippines can maintain any suit until it shall possess the necessary license, —
confronted with these options, can anyone doubt what our decision will be? The law simply
means that no foreign corporation shall be permitted "to transact business in the Philippine
Islands," as this phrase is known in corporation law, unless it shall have the license required by
law, and, until it complies with the law, shall not be permitted to maintain any suit in the local
courts. A contrary holding would bring the law to the verge of unconstitutionality, a result which
should be and can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope, supra; Perkins,
Philippine Business Law, p. 264.)
The noncompliance of a foreign corporation with the statute may be pleaded as an affirmative
defense. Thereafter, it must appear from the evidence, first, that the plaintiff is a foreign
corporation, second, that it is doing business in the Philippines, and third, that it has not obtained
the proper license as provided by the statute. (Standard Stock Food Co. vs. Jasper [1907], 76
Kan., 926; Spreckles vs. Ward, supra.)
The order appealed from shall be set aside and the record shall be returned to the court of origin
for further proceedings. Without special finding as to costs in this instance, it is so ordered.

The object of the statute was to subject the foreign corporation doing business in the Philippines
to the jurisdiction of its courts. The object of the statute was not to prevent the foreign
corporation from performing single acts, but to prevent it from acquiring a domicile for the
purpose of business without taking the steps necessary to render it amenable to suit in the local
courts. The implication of the law is that it was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order for business from the Philippines,
from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their
contracts made with such foreign corporations. The effect of the statute preventing foreign
corporations from doing business and from bringing actions in the local courts, except on
compliance with elaborate requirements, must not be unduly extended or improperly applied. It
should not be construed to extend beyond the plain meaning of its terms, considered in
connection with its object, and in connection with the spirit of the entire law. (State vs. American
Book Co. [1904], 69 Kan., 1; American De Forest Wireless Telegraph Co. vs. Superior Court of
City & County of San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on
Corporations, 2d ed., chap. 184.)

Confronted with the option of giving to the Corporation Law a harsh interpretation, which would
disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would
markedly help in the development of trade; confronted with the option of barring from the courts
foreign litigants with good causes of action or of assuming jurisdiction of their cases; confronted
with the option of construing the law to mean that any corporation in the United States, which
might want to sell to a person in the Philippine must send some representative to the Islands
before the sale, and go through the complicated formulae provided by the Corporation Law with
regard to the obtaining of the license, before the sale was made, in order to avoid being swindled
G.R. No. L-47701 June 27, 1941
THE MENTHOLATUM CO., INC., ET AL., petitioners,
vs.
ANACLETO MANGALIMAN, ET AL., respondents.
Araneta, Zaragoza, Araneta & Bautista for petitioners.
Benito Soliven for respondents.
LAUREL, J.:
This is a petition for a writ of certiorari to review the decision of the Court of Appeals dated June
29, 1940, reversing the judgment of the Court of First Instance of Manila and dismissing
petitioners' complaint.
On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc.
instituted an action in the Court of First Instance of Manila, civil case No. 48855, against
Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for
infringement of trade mark and unfair competition. Plaintiffs prayed for the issuance of an order
restraining Anacleto and Florencio Mangaliman from selling their product "Mentholiman," and
directing them to render an accounting of their sales and profits and to pay damages. The
complaint stated, among other particulars, that the Mentholatum Co., Inc., is a Kansas
corporation which manufactures Mentholatum," a medicament and salve adapted for the
treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and other external
ailments of the body; that the Philippine-American Drug co., Inc., is its exclusive distributing
agent in the Philippines authorized by it to look after and protect its interests; that on June 26,
1919 and on January 21, 1921, the Mentholatum Co., Inc., registered with the Bureau of
Commerce and Industry the word, "Mentholatum," as trade mark for its products; that the
Mangaliman brothers prepared a medicament and salve named "Mentholiman" which they sold
to the public packed in a container of the same size, color and shape as "Mentholatum"; and
that, as a consequence of these acts of the defendants, plaintiffs suffered damages from the
dimunition of their sales and the loss of goodwill and reputation of their product in the market.
After a protracted trial, featured by the dismissal of the case on March 9, 1936 for failure of
plaintiff's counsel to attend, and its subsequent reinstatement on April 4, 1936, the Court of First
Instance of Manila, on October 29, 1937, rendered judgment in favor of the complainants, the
dispositive part of its decision reading thus:
En meritos de todo lo expuesto, este Juzgado dicta sentencia:
(a) Haciendo que sea perpetuo y permanente el iterdicto prohibitorio preliminar expedido
contra Anacleto Mangaliman, sus agentes y empleados, prohibiendoles vender su
producto en la forma en que se vendia al incoarse la demanda de autos, o de alguna
otra manera competir injustamente contra el producto de las demandantes, y de usar la
marca industrial "MENTHOLIMAN" en sus productos;
(b) Ordenando al demandado Anacleto Mangaliman, que rinda exacta cuenta de sus
ganancias por la venta de su producto desde el dia 10 de marzo de 1934, hasta la fecha
de esta decision, y que pague a las demandantes, en concepto de daños y perjuicios, lo
que resulte ser la ganancia de dicho demandado;
(c) Condenando a dicho demandado, Anacleto Mangaliman, a pagar un multa de
cincuenta pesos (P50) por desacato al Juzgado, y las costas del juicio; y
(d) Sobreseyendo la contra-reclamacion del demandado, Anacleto Mangaliman, contra
las demandantes.
In the Court of Appeals, where the cause was docketed as CA-G. R. No. 46067, the decision of
the trial court was, on June 29, 1940, reversed, said tribunal holding that the activities of the
Mentholatum Co., Inc., were business transactions in the Philippines, and that, by section 69 of
the Corporation Law, it may not maintain the present suit. Hence, this petition for certiorari.
In seeking a reversal of the decision appealed from, petitioners assign the following errors:
1. The Court of Appeals erred in declaring that the transactions of the Mentholatum Co.,
Inc., in the Philippines constitute "transacting business" in this country as this term is
used in section 69 of the Corporation Law. The aforesaid conclusion of the Court of
Appeals is a conclusion of law and not of fact.
2. The Court of Appeals erred in not holding that whether or not the Mentholatum Co.,
Inc., has transacted business in the Philippines is an issue foreign to the case at bar.
3. The Court of Appeals erred in not considering the fact that the complaint was filed not
only by the Mentholatum Co., Inc., but also by the Philippine-American Drug Co., Inc.,
and that even if the Mentholatum Co., Inc., has no legal standing in this jurisdiction, the
complaint filed should be decided on its merits since the Philippine-American Drug Co.,
Inc., has sufficient interest and standing to maintain the complaint.
Categorically stated, this appeal simmers down to an interpretation of section 69 of the
Corporation Law, and incidentally turns upon a substantial consideration of two fundamental
propositions, to wit: (1) whether or not the petitioners could prosecute the instant action without
having secured the license required in section 69 of the Corporation Law; and (2) whether or not
the Philippine-American Drug Co., Inc., could by itself maintain this proceeding.
Petitioners maintain that the Mentholatum Co., Inc., has not sold personally any of its products in
the Philippines; that the Philippine-American Drug Co., Inc., like fifteen or twenty other local
entities, was merely an importer of the products of the Mentholatum Co., Inc., and that the sales
of the Philippine-American Drug Co., Inc., were its own and not for the account of the
Mentholatum Co., Inc. Upon the other hand, the defendants contend that the Philippine-
American Drug Co., Inc., is the exclusive distributing agent in the Philippines of the Mentholatum
Co., Inc., in the sale and distribution of its product known as "Mentholatum"; that, because of this
arrangement, the acts of the latter; and that the Mentholatum Co., Inc., being thus engaged in
business in the Philippines, and not having acquired the license required by section 68 of the
Corporation Law, neither it nor the Philippine-American Drug co., Inc., could prosecute the
present action.
Section 69 of Act No. 1459 reads:
SEC. 69. No foreign corporation or corporation formed, organized, or existing under any
laws other than those of the Philippine Islands shall be permitted to transact business in
the Philippine Islands or maintain by itself or assignee any suit for the recovery of any
debt, claim, or demand whatever, unless it shall have the license prescribed in the
section immediately preceding. Any officer, or agent of the corporation or any person
transacting business for any foreign corporation not having the license prescribed shall
be punished by imprisonment for not less than six months nor more than two years or by
a fine of not less than two hundred pesos nor more than one thousand pesos, or by both
such imprisonment and fine, in the discretion of the court.
In the present case, no dispute exists as to facts: (1) that the plaintiff, the Mentholatum Co., Inc.,
is a foreign corporation; (2) that it is not licensed to do business in the Philippines. The
controversy, in reality, hinges on the question of whether the said corporation is or is not
transacting business in the Philippines.
No general rule or governing principle can be laid down as to what constitutes "doing" or
"engaging in" or "transacting" business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int. Revenue [C. C. A. Ohio], 223 F. 984, 987.) The term implies a continuity
of commercial dealings and arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization. (Griffin v. Implement Dealers' Mut. Fire
Ins. Co., 241 N. W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118
Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp., 158 N. E. 698,
703, 327 III. 367.)
In its decision of June 29, 1940, the Court of Appeals concluded that "it is undeniable that the
Mentholatum Co., through its agent, the Philippine-American Drug Co., Inc., has been doing
business in the Philippines by selling its products here since the year 1929, at least." This is
assailed by petitioners as a pure conclusion of law. This finding is predicated upon the testimony
of Mr. Roy Springer of the Philippine-American Drug Co., Inc., and the pleadings filed by
petitioners. The complaint filed in the Court of First Instance of Manila on October 1, 1935,
clearly stated that the Philippine-American Drug Co., Inc., is the exclusive distributing agent in
the Philippine Islands of the Mentholatum Co., Inc., in the sale and distribution of its product
known as the Mentholatum." The object of the pleadings being to draw the lines of battle
between litigants and to indicate fairly the nature of the claims or defenses of both parties (1
Sutherland's Code Pleading, Practice & Forms, sec. 83; Milliken v. Western Union Tel. Co., 110
N. Y. 403, 18 N. E. 251; Eckrom v. Swenseld, 46 N. D. 561, 563, 179 N. W. 920), a party cannot
subsequently take a position contradictory to, or inconsistent with, his pleadings, as the facts
therein admitted are to be taken as true for the purpose of the action. (46 C. J., sec. 121, pp.
122-124.) It follows that whatever transactions the Philippine-American Drug Co., Inc., had
executed in view of the law, the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co.,
Inc., being a foreign corporation doing business in the Philippines without the license required by
section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and
unfair competition. Neither may the Philippine-American Drug Co., Inc., maintain the action here
for the reason that the distinguishing features of the agent being his representative character
and derivative authority (Mechem on Agency, sec. 1; Sory on Agency, sec. 3; Sternaman v.
Metropolitan Life Ins. Co., 170 N. Y. 21), it cannot now, to the advantage of its principal, claim an
independent standing in court.
The appellees below, petitioners here, invoke the case of Western Equipment and Supply Co.
vs. Reyes (51 Phil., 115). The Court of Appeals, however, properly distinguished that case from
the one at bar in that in the former "the decision expressly says that the Western Equipment and
Supply Co. was not engaged in business in the Philippines, and significantly added that if the
plaintiff had been doing business in the Philippine Islands without first obtaining a license,
'another and a very different question would be presented'. " It is almost unnecessary to remark
in this connection that the recognition of the legal status of a foreign corporation is a matter
affecting the policy of the forum, and the distinction drawn in our Corporation Law is an
expression of that policy. The general statement made in Western Equipment and Supply Co. vs.
Reyes regarding the character of the right involved should not be construed in derogation of the
policy-determining authority of the State.
The right of the petitioner conditioned upon compliance with the requirements of section 69 of
the Corporation Law to protect its rights, is hereby reserved.
The writ prayed for should be, as it hereby is, denied, with costs against the petitioners.
So ordered.
Avanceña, C.J., Diaz, and Horrilleno, JJ., concur.
Separate Opinions

MORAN, J., dissenting:

Section 69 of the Corporation Law provides that, without license no foreign corporation may
maintain by itself or assignee any suit in the Philippine courts for the recovery of any debt, claim
or demand whatever. But this provision, as we have held in Western Equipment & Supply
Company vs. Reyes (51 Phil., 115), does not apply to suits for infringement of trade marks and
unfair competition, the theory being that "the right to the use of the corporate and trade name of
a foreign corporation is a property right, a right in rem, which it may assert and protect in any of
the courts of the world even in countries where it does not personally transact any business,"
and that "trade mark does not acknowledge any territorial boundaries but extends to every mark
where the traders' goods have become known and identified by the use of the mark."

For this reason, I dissent from the majority opinion.

*** Pacific Vegetable Oil Corporation vs. Angle O. Singson ***
G.R. No. 110318 August 28, 1996
COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES
CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION, UNITED ARTISTS
CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and
WARNER BROTHERS, INC., petitioners,
vs.
COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A.
PELINDARIO, respondents.
REGALADO, J.:p
Before us is a petition for review on certiorari of the decision of the Court of
Appeals1 promulgated on July 22, 1992 and its resolution2 of May 10, 1993 denying
petitioners' motion for reconsideration, both of which sustained the order3 of the Regional
Trial Court, Branch 133, Makati, Metro Manila, dated November 22, 1988 for the quashal
of Search Warrant No. 87-053 earlier issued per its own order4 on September 5, 1988 for
violation of Section 56 of Presidential Decree No. 49, as amended, otherwise known as
the "Decree on the Protection of Intellectual Property."
The material facts found by respondent appellate court are as follows:
Complainants thru counsel lodged a formal complaint with the National Bureau of
Investigation for violation of PD No. 49, as amended, and sought its assistance in
their anti-film piracy drive. Agents of the NBI and private researchers made
discreet surveillance on various video establishments in Metro Manila including
Sunshine Home Video Inc. (Sunshine for brevity), owned and operated by Danilo
A. Pelindario with address at No. 6 Mayfair Center, Magallanes, Makati, Metro
Manila.
On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a search
warrant with the court a quo against Sunshine seeking the seizure, among
others, of pirated video tapes of copyrighted films all of which were enumerated
in a list attached to the application; and, television sets, video cassettes and/or
laser disc recordings equipment and other machines and paraphernalia used or
intended to be used in the unlawful exhibition, showing, reproduction, sale, lease
or disposition of videograms tapes in the premises above described. In the
hearing of the application, NBI Senior Agent Lauro C. Reyes, upon questions by
the court a quo, reiterated in substance his averments in his affidavit. His
testimony was corroborated by another witness, Mr. Rene C. Baltazar. Atty. Rico
V. Domingo's deposition was also taken. On the basis of the affidavits and
depositions of NBI Senior Agent Lauro C. Reyes, Rene C. Baltazar and Atty.
Rico V. Domingo, Search Warrant No. 87-053 for violation of Section 56 of PD
No. 49, as amended, was issued by the court a quo.
The search warrant was served at about 1:45 p.m. on December 14, 1987 to
Sunshine and/or their representatives. In the course of the search of the
premises indicated in the search warrant, the NBI Agents found and seized
various video tapes of duly copyrighted motion pictures/films owned or
exclusively distributed by private complainants, and machines, equipment,
television sets, paraphernalia, materials, accessories all of which were included
in the receipt for properties accomplished by the raiding team. Copy of the
receipt was furnished and/or tendered to Mr. Danilo A. Pelindario, registered
owner-proprietor of Sunshine Home Video.
On December 16, 1987, a "Return of Search Warrant" was filed with the Court.
A "Motion To Lift the Order of Search Warrant" was filed but was later denied for
lack of merit (p. 280, Records).
A Motion for reconsideration of the Order of denial was filed. The court a
quo granted the said motion for reconsideration and justified it in this manner:
It is undisputed that the master tapes of the copyrighted films
from which the pirated films were allegedly copies (sic), were
never presented in the proceedings for the issuance of the search
warrants in question. The orders of the Court granting the search
warrants and denying the urgent motion to lift order of search
warrants were, therefore, issued in error. Consequently, they
must be set aside. (p. 13, Appellant's Brief)5
Petitioners thereafter appealed the order of the trial court granting private respondents'
motion for reconsideration, thus lifting the search warrant which it had theretofore issued,
to the Court of Appeals. As stated at the outset, said appeal was dismissed and the
motion for reconsideration thereof was denied. Hence, this petition was brought to this
Court particularly challenging the validity of respondent court's retroactive application of
the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et al.,6 in dismissing
petitioners' appeal and upholding the quashal of the search warrant by the trial court.
I
Inceptively, we shall settle the procedural considerations on the matter of and the
challenge to petitioners' legal standing in our courts, they being foreign corporations not
licensed to do business in the Philippines.
Private respondents aver that being foreign corporations, petitioners should have such
license to be able to maintain an action in Philippine courts. In so challenging petitioners'
personality to sue, private respondents point to the fact that petitioners are the copyright
owners or owners of exclusive rights of distribution in the Philippines of copyrighted
motion pictures or films, and also to the appointment of Atty. Rico V. Domingo as their
attorney-in-fact, as being constitutive of "doing business in the Philippines" under Section
1 (f)(1) and (2), Rule 1 of the Rules of the Board of Investments. As foreign corporations
doing business in the Philippines, Section 133 of Batas Pambansa Blg. 68, or the
Corporation Code of the Philippines, denies them the right to maintain a suit in Philippine
courts in the absence of a license to do business. Consequently, they have no right to
ask for the issuance of a search warrant.7
In refutation, petitioners flatly deny that they are doing business in the Philippines,8 and
contend that private respondents have not adduced evidence to prove that petitioners
are doing such business here, as would require them to be licensed by the Securities
and Exchange Commission, other than averments in the quoted portions of petitioners'
"Opposition to Urgent Motion to Lift Order of Search Warrant" dated April 28, 1988 and
Atty. Rico V. Domingo's affidavit of December 14, 1987. Moreover, an exclusive right to
distribute a product or the ownership of such exclusive right does not conclusively prove
the act of doing business nor establish the presumption of doing business.9
The Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
The obtainment of a license prescribed by Section 125 of the Corporation Code is not a
condition precedent to the maintenance of any kind of action in Philippine courts by a
foreign corporation. However, under the aforequoted provision, no foreign corporation
shall be permitted to transact business in the Philippines, as this phrase is understood
under the Corporation Code, unless it shall have the license required by law, and until it
complies with the law intransacting business here, it shall not be permitted to maintain
any suit in local courts.10 As thus interpreted, any foreign corporation not doing business
in the Philippines may maintain an action in our courts upon any cause of action,
provided that the subject matter and the defendant are within the jurisdiction of the court.
It is not the absence of the prescribed license but "doing business" in the Philippines
without such license which debars the foreign corporation from access to our courts. In
other words, although a foreign corporation is without license to transact business in the
Philippines, it does not follow that it has no capacity to bring an action. Such license is
not necessary if it is not engaged in business in the Philippines.11
Statutory provisions in many jurisdictions are determinative of what constitutes "doing
business" or "transacting business" within that forum, in which case said provisions are
controlling there. In others where no such definition or qualification is laid down regarding
acts or transactions failing within its purview, the question rests primarily on facts and
intent. It is thus held that all the combined acts of a foreign corporation in the State must
be considered, and every circumstance is material which indicates a purpose on the part
of the corporation to engage in some part of its regular business in the State.12
No general rule or governing principles can be laid down as to what constitutes "doing"
or "engaging in" or "transacting" business. Each case must be judged in the light of its
own peculiar environmental circumstances.13 The true tests, however, seem to be
whether the foreign corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially retired from it and
turned it over to another.14
As a general proposition upon which many authorities agree in principle, subject to such
modifications as may be necessary in view of the particular issue or of the terms of the
statute involved, it is recognized that a foreign corporation is "doing," "transacting,"
"engaging in," or "carrying on" business in the State when, and ordinarily only when, it
has entered the State by its agents and is there engaged in carrying on and transacting
through them some substantial part of its ordinary or customary business, usually
continuous in the sense that it may be distinguished from merely casual, sporadic, or
occasional transactions and isolated acts.15
The Corporation Code does not itself define or categorize what acts constitute doing or
transacting business in the Philippines. Jurisprudence has, however, held that the term
implies a continuity of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the functions
normally incident to or in progressive prosecution of the purpose and subject of its
organization.16
This traditional case law definition has evolved into a statutory definition, having been
adopted with some qualifications in various pieces of legislation in our jurisdiction.
For instance, Republic Act No. 5455 17 provides:
Sec. 1. Definitions and scope of this Act. — (1) . . . ; and the phrase "doing
business" shall include soliciting orders, purchases, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar year stay
in the Philippines for a period or periods totalling one hundred eighty days or
more; participating in the management, supervision or control of any domestic
business firm, entity or corporation in the Philippines; and any other act or acts
 that imply a continuity of commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization.
Presidential Decree No. 1789,18 in Article 65 thereof, defines "doing business" to include
soliciting orders, purchases, service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or distributors who are domiciled in the
Philippines or who in any calendar year stay in the Philippines for a period or periods
totalling one hundred eighty days or more; participating in the management, supervision
or control of any domestic business firm, entity or corporation in the Philippines, and any
other act or acts that imply a continuity of commercial dealings or arrangements and
contemplate to that extent the performance of acts or works, or the exercise of some of
the functions normally incident to, and in progressive prosecution of, commercial gain or
of the purpose and object of the business organization.
The implementing rules and regulations of said presidential decree conclude the
enumeration of acts constituting "doing business" with a catch-all definition, thus:
Sec. 1(g). "Doing Business" shall be any act or combination of acts enumerated
in Article 65 of the Code. In particular "doing business" includes:
xxx xxx xxx
(10) Any other act or acts which imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, or in the progressive
prosecution of, commercial gain or of the purpose and object of the business
organization.
Finally, Republic Act No. 704219 embodies such concept in this wise:
Sec. 3. Definitions. — As used in this Act:
xxx xxx xxx
(d) the phrase "doing business shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eight(y)
(180) days or more; participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the Philippines; and any
other act or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase "doing business" shall not be
deemed to include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise of
rights as such investor; nor having a nominee director or officer to represent its
interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its
own account.
Based on Article 133 of the Corporation Code and gauged by such statutory standards,
petitioners are not barred from maintaining the present action. There is no showing that,
under our statutory or case law, petitioners are doing, transacting, engaging in or
carrying on business in the Philippines as would require obtention of a license before
they can seek redress from our courts. No evidence has been offered to show that
petitioners have performed any of the enumerated acts or any other specific act
indicative of an intention to conduct or transact business in the Philippines.
Accordingly, the certification issued by the Securities and Exchange
Commission20 stating that its records do not show the registration of petitioner film
companies either as corporations or partnerships or that they have been licensed to
transact business in the Philippines, while undeniably true, is of no consequence to
petitioners' right to bring action in the Philippines. Verily, no record of such registration by
petitioners can be expected to be found for, as aforestated, said foreign film corporations
do not transact or do business in the Philippines and, therefore, do not need to be
licensed in order to take recourse to our courts.
Although Section 1(g) of the Implementing Rules and Regulations of the Omnibus
Investments Code lists, among others —
(1) Soliciting orders, purchases (sales) or service contracts. Concrete and
specific solicitations by a foreign firm, or by an agent of such foreign firm, not
acting independently of the foreign firm amounting to negotiations or fixing of the
terms and conditions of sales or service contracts, regardless of where the
contracts are actually reduced to writing, shall constitute doing business even if
the enterprise has no office or fixed place of business in the Philippines. The
arrangements agreed upon as to manner, time and terms of delivery of the goods
or the transfer of title thereto is immaterial. A foreign firm which does business
through the middlemen acting in their own names, such as indentors, commercial
brokers or commission merchants, shall not be deemed doing business in the
Philippines. But such indentors, commercial brokers or commission merchants
shall be the ones deemed to be doing business in the Philippines.
 (2) Appointing a representative or distributor who is domiciled in the Philippines,
unless said representative or distributor has an independent status, i.e., it
transacts business in its name and for its own account, and not in the name or for
the account of a principal. Thus, where a foreign firm is represented in the
Philippines by a person or local company which does not act in its name but in
the name of the foreign firm, the latter is doing business in the Philippines.
as acts constitutive of "doing business," the fact that petitioners are admittedly copyright
owners or owners of exclusive distribution rights in the Philippines of motion pictures or
films does not convert such ownership into an indicium of doing business which would
require them to obtain a license before they can sue upon a cause of action in local
courts.
Neither is the appointment of Atty. Rico V. Domingo as attorney-in-fact of petitioners,
with express authority pursuant to a special power of attorney, inter alia —
To lay criminal complaints with the appropriate authorities and to provide
evidence in support of both civil and criminal proceedings against any person or
persons involved in the criminal infringement of copyright or concerning the
unauthorized importation, duplication, exhibition or distribution of any
cinematographic work(s) — films or video cassettes — of which . . . is the owner
of copyright or the owner of exclusive rights of distribution in the Philippines
pursuant to any agreement(s) between . . . and the respective owners of
copyright in such cinematographic work(s), to initiate and prosecute on behalf of .
. . criminal or civil actions in the Philippines against any person or persons
unlawfully distributing, exhibiting, selling or offering for sale any films or video
cassettes of which . . . is the owner of copyright or the owner of exclusive rights
of distribution in the Philippines pursuant to any agreement(s) between . . . and
the respective owners of copyright in such works.21
tantamount to doing business in the Philippines. We fail to see how exercising one's
legal and property rights and taking steps for the vigilant protection of said rights,
particularly the appointment of an attorney-in-fact, can be deemed by and of themselves
to be doing business here.
As a general rule, a foreign corporation will not be regarded as doing business in the
State simply because it enters into contracts with residents of the State, where such
contracts are consummated outside the State.22 In fact, a view is taken that a foreign
corporation is not doing business in the State merely because sales of its product are
made there or other business furthering its interests is transacted there by an alleged
agent, whether a corporation or a natural person, where such activities are not under the
direction and control of the foreign corporation but are engaged in by the alleged agent
as an independent business.23
It is generally held that sales made to customers in the State by an independent dealer
who has purchased and obtained title from the corporation to the products sold are not a
doing of business by the corporation.24 Likewise, a foreign corporation which sells its
products to persons styled "distributing agents" in the State, for distribution by them, is
not doing business in the State so as to render it subject to service of process therein,
where the contract with these purchasers is that they shall buy exclusively from the
foreign corporation such goods as it manufactures and shall sell them at trade prices
established by it.25
It has moreover been held that the act of a foreign corporation in engaging an attorney to
represent it in a Federal court sitting in a particular State is not doing business within the
scope of the minimum contact test. 26 With much more reason should this doctrine apply
to the mere retainer of Atty. Domingo for legal protection against contingent acts of
intellectual piracy.
In accordance with the rule that "doing business" imports only acts in furtherance of the
purposes for which a foreign corporation was organized, it is held that the mere
institution and prosecution or defense of a suit, particularly if the transaction which is the
basis of the suit took place out of the State, do not amount to the doing of business in the
State. The institution of a suit or the removal thereof is neither the making of a contract
nor the doing of business within a constitutional provision placing foreign corporations
licensed to do business in the State under the same regulations, limitations and liabilities
with respect to such acts as domestic corporations. Merely engaging in litigation has
been considered as not a sufficient minimum contact to warrant the exercise of
jurisdiction over a foreign corporation.27
As a consideration aside, we have perforce to comment on private respondents' basis for
arguing that petitioners are barred from maintaining suit in the Philippines. For allegedly
being foreign corporations doing business in the Philippines without a license, private
respondents repeatedly maintain in all their pleadings that petitioners have thereby no
legal personality to bring an action before Philippine Courts.28
Among the grounds for a motion to dismiss under the Rules of Court
are lack of legal capacity to sue29 and that the complaint states no cause of action. 30 Lack
of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or
does not have the necessary qualification to appear in the case, or does not have the
character or representation he claims.31 On the other hand, a case is dismissible for lack
of personality to sue upon proof that the plaintiff is not the real party in interest, hence
grounded on failure to state a cause of action.32 The term "lack of capacity to sue" should
not be confused with the term "lack of personality to sue." While the former refers to a
plaintiff's general disability to sue, such as on account of minority, insanity,
incompetence, lack of juridical personality or any other general disqualifications of a
party, the latter refers to the fact that the plaintiff is not the real party in interest.
Correspondingly, the first can be a ground for a motion to dismiss based on the ground
of lack of legal capacity to sue;33 whereas the second can be used as a ground for a
motion to dismiss based on the fact that the complaint, on the face thereof, evidently
states no cause of action.34
Applying the above discussion to the instant petition, the ground available for barring
recourse to our courts by an unlicensed foreign corporation doing or transacting business
in the Philippines should properly be "lack of capacity to sue," not "lack of personality to
sue." Certainly, a corporation whose legal rights have been violated is undeniably such, if
not the only, real party in interest to bring suit thereon although, for failure to comply with
the licensing requirement, it is not capacitated to maintain any suit before our courts.
Lastly, on this point, we reiterate this Court's rejection of the common procedural tactics
of erring local companies which, when sued by unlicensed foreign corporations not
engaged in business in the Philippines, invoke the latter's supposed lack of capacity to
sue. The doctrine of lack of capacity to sue based on failure to first acquire a local
license is based on considerations of public policy. It was never intended to favor nor
insulate from suit unscrupulous establishments or nationals in case of breach of valid
obligations or violation of legal rights of unsuspecting foreign firms or entities simply
because they are not licensed to do business in the country.35
II
We now proceed to the main issue of the retroactive application to the present
controversy of the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et
al., promulgated on August 19, 1988,36 that for the determination of probable cause to
support the issuance of a search warrant in copyright infringement cases involving
videograms, the production of the master tape for comparison with the allegedly pirate
copies is necessary.
Petitioners assert that the issuance of a search warrant is addressed to the discretion of
the court subject to the determination of probable cause in accordance with the
procedure prescribed therefore under Sections 3 and 4 of Rule 126. As of the time of the
application for the search warrant in question, the controlling criterion for the finding of
probable cause was that enunciated in Burgos vs. Chief of Staff 3 7 stating that:
Probable cause for a search warrant is defined as such facts and circumstances
which would lead a reasonably discreet and prudent man to believe that an
offense has been committed and that the objects sought in connection with the
offense are in the place sought to be searched.
According to petitioners, after complying with what the law then required, the lower court
determined that there was probable cause for the issuance of a search warrant, and
which determination in fact led to the issuance and service on December 14, 1987 of
Search Warrant No. 87-053. It is further argued that any search warrant so issued in
accordance with all applicable legal requirements is valid, for the lower court could not
possibly have been expected to apply, as the basis for a finding of probable cause for the
issuance of a search warrant in copyright infringement cases involving videograms, a
pronouncement which was not existent at the time of such determination, on December
14, 1987, that is, the doctrine in the 20th Century Fox case that was promulgated only on
August 19, 1988, or over eight months later.
Private respondents predictably argue in support of the ruling of the Court of Appeals
sustaining the quashal of the search warrant by the lower court on the strength of
that 20th Century Fox ruling which, they claim, goes into the very essence of probable
cause. At the time of the issuance of the search warrant involved here, although the 20th
Century Fox case had not yet been decided, Section 2, Article III of the Constitution and
Section 3, Rule 126 of the 1985 Rules on Criminal Procedure embodied the prevailing
and governing law on the matter. The ruling in 20th Century Fox was merely an
application of the law on probable cause. Hence, they posit that there was no law that
was retrospectively applied, since the law had been there all along. To refrain from
applying the 20th Century Fox ruling, which had supervened as a doctrine promulgated
at the time of the resolution of private respondents' motion for reconsideration seeking
the quashal of the search warrant for failure of the trial court to require presentation of
the master tapes prior to the issuance of the search warrant, would have constituted
grave abuse of discretion.38
Respondent court upheld the retroactive application of the 20th Century Fox ruling by the
trial court in resolving petitioners' motion for reconsideration in favor of the quashal of the
search warrant, on this renovated thesis:
And whether this doctrine should apply retroactively, it must be noted that in the
20th Century Fox case, the lower court quashed the earlier search warrant it
issued. On certiorari, the Supreme Court affirmed the quashal on the ground
among others that the master tapes or copyrighted films were not presented for
comparison with the purchased evidence of the video tapes to determine whether
the latter is an unauthorized reproduction of the former.
If the lower court in the Century Fox case did not quash the warrant, it is Our
view that the Supreme Court would have invalidated the warrant just the same
considering the very strict requirement set by the Supreme Court for the
determination of "probable cause" in copyright infringement cases as enunciated
in this 20th Century Fox case. This is so because, as was stated by the Supreme
Court in the said case, the master tapes and the pirated tapes must be presented
for comparison to satisfy the requirement of "probable cause." So it goes back to
the very existence of probable
cause. . . .39
Mindful as we are of the ramifications of the doctrine of stare decisis and the rudiments
of fair play, it is our considered view that the 20th Century Fox ruling cannot be
retroactively applied to the instant case to justify the quashal of Search Warrant No. 87-
053. Herein petitioners' consistent position that the order of the lower court of September
5, 1988 denying therein defendants' motion to lift the order of search warrant was
properly issued, there having been satisfactory compliance with the then prevailing
standards under the law for determination of probable cause, is indeed well taken. The
lower court could not possibly have expected more evidence from petitioners in their
application for a search warrant other than what the law and jurisprudence, then existing
and judicially accepted, required with respect to the finding of probable cause.
Article 4 of the Civil Code provides that "(l)aws shall have no retroactive effect, unless
the contrary is provided. Correlatively, Article 8 of the same Code declares that "(j)udicial
decisions applying the laws or the Constitution shall form part of the legal system of the
Philippines."
Jurisprudence, in our system of government, cannot be considered as an independent
source of law; it cannot create law.40 While it is true that judicial decisions which apply or
interpret the Constitution or the laws are part of the legal system of the Philippines, still
they are not laws. Judicial decisions, though not laws, are nonetheless evidence of what
the laws mean, and it is for this reason that they are part of the legal system of the
Philippines.41 Judicial decisions of the Supreme Court assume the same authority as the
statute
itself.42
Interpreting the aforequoted correlated provisions of the Civil Code and in light of the
above disquisition, this Court emphatically declared in Co vs. Court of Appeals, et
al.43 that the principle of prospectivity applies not only to original or amendatory statutes
and administrative rulings and circulars, but also, and properly so, to judicial decisions.
Our holding in the earlier case of People vs. Jabinal44 echoes the rationale for this judicial
declaration, viz.:
Decisions of this Court, although in themselves not laws, are nevertheless
evidence of what the laws mean, and this is the reason why under Article 8 of the
New Civil Code, "Judicial decisions applying or interpreting the laws or the
Constitution shall form part of the legal system." The interpretation upon a law by
this Court constitutes, in a way, a part of the law as of the date that the law was
originally passed, since this Court's construction merely establishes the
contemporaneous legislative intent that the law thus construed intends to
effectuate. The settled rule supported by numerous authorities is a restatement
of the legal maxim "legis interpretatio legis vim obtinet" — the interpretation
placed upon the written law by a competent court has the force of law. . . . , but
when a doctrine of this Court is overruled and a different view is adopted, the
new doctrine should be applied prospectively, and should not apply to parties
who had relied on the old doctrine and acted on the faith thereof . . . . (Emphasis
supplied).
This was forcefully reiterated in Spouses Benzonan vs. Court of Appeals, et al.,45 where
the Court expounded:
. . . . But while our decisions form part of the law of the land, they are also subject
to Article 4 of the Civil Code which provides that "laws shall have no retroactive
effect unless the contrary is provided." This is expressed in the familiar legal
maxim lex prospicit, non respicit, the law looks forward not backward. The
rationale against retroactivity is easy to perceive. The retroactive application of a
law usually divests rights that have already become vested or impairs the
obligations of contract and hence, is unconstitutional (Francisco v. Certeza, 3
SCRA 565 [1961]). The same consideration underlies our rulings giving only
prospective effect to decisions enunciating new doctrines. . . . .
The reasoning behind Senarillos vs. Hermosisima46 that judicial interpretation of a statute
constitutes part of the law as of the date it was originally passed, since the Court's
construction merely establishes the contemporaneous legislative intent that the
interpreted law carried into effect, is all too familiar. Such judicial doctrine does not
amount to the passage of a new law but consists merely of a construction or
interpretation of a pre-existing one, and that is precisely the situation obtaining in this
case.
It is consequently clear that a judicial interpretation becomes a part of the law as of the
date that law was originally passed, subject only to the qualification that when a doctrine
of this Court is overruled and a different view is adopted, and more so when there is a
reversal thereof, the new doctrine should be applied prospectively and should not apply
to parties who relied on the old doctrine and acted in good faith.4 7 To hold otherwise
would be to deprive the law of its quality of fairness and justice then, if there is no
recognition of what had transpired prior to such adjudication.48
There is merit in petitioners' impassioned and well-founded argumentation:
The case of 20th Century Fox Film Corporation vs. Court of Appeals, et al., 164
SCRA 655 (August 19, 1988) (hereinafter 20th Century Fox) was inexistent in
December of 1987 when Search Warrant 87-053 was issued by the lower court.
Hence, it boggles the imagination how the lower court could be expected to apply
the formulation of 20th Century Fox in finding probable cause when the
formulation was yet non-existent.
xxx xxx xxx
 In short, the lower court was convinced at that time after conducting searching
examination questions of the applicant and his witnesses that "an offense had
been committed and that the objects sought in connection with the offense (were)
in the place sought to be searched" (Burgos v. Chief of Staff, et al., 133 SCRA
800). It is indisputable, therefore, that at the time of the application, or on
December 14, 1987, the lower court did not commit any error nor did it fail to
comply with any legal requirement for the valid issuance of search warrant.
. . . (W)e believe that the lower court should be considered as having followed
the requirements of the law in issuing Search Warrant No. 87-053. The search
warrant is therefore valid and binding. It must be noted that nowhere is it found in
the allegations of the Respondents that the lower court failed to apply the law as
then interpreted in 1987. Hence, we find it absurd that it is (sic) should be seen
otherwise, because it is simply impossible to have required the lower court to
apply a formulation which will only be defined six months later.
Furthermore, it is unjust and unfair to require compliance with legal and/or
doctrinal requirements which are inexistent at the time they were supposed to
have been complied with.
xxx xxx xxx
. . . If the lower court's reversal will be sustained, what encouragement can be
given to courts and litigants to respect the law and rules if they can expect with
reasonable certainty that upon the passage of a new rule, their conduct can still
be open to question? This certainly breeds instability in our system of dispensing
justice. For Petitioners who took special effort to redress their grievances and to
protect their property rights by resorting to the remedies provided by the law, it is
most unfair that fealty to the rules and procedures then obtaining would bear but
fruits of
injustice.49
Withal, even the proposition that the prospectivity of judicial decisions imports application
thereof not only to future cases but also to cases still ongoing or not yet final when the
decision was promulgated, should not be countenanced in the jural sphere on account of
its inevitably unsettling repercussions. More to the point, it is felt that the reasonableness
of the added requirement in 20th Century Fox calling for the production of the master
tapes of the copyrighted films for determination of probable cause in copyright
infringement cases needs revisiting and clarification.
It will be recalled that the 20th Century Fox case arose from search warrant proceedings
in anticipation of the filing of a case for the unauthorized sale or renting out of
copyrighted films in videotape format in violation of Presidential Decree No. 49. It
revolved around the meaning of probable cause within the context of the constitutional
provision against illegal searches and seizures, as applied to copyright infringement
cases involving videotapes.
Therein it was ruled that —
The presentation of master tapes of the copyrighted films from which the pirated
films were allegedly copied, was necessary for the validity of search warrants
against those who have in their possession the pirated films. The petitioner's
argument to the effect that the presentation of the master tapes at the time of
application may not be necessary as these would be merely evidentiary in nature
and not determinative of whether or not a probable cause exists to justify the
issuance of the search warrants is not meritorious. The court cannot presume
that duplicate or copied tapes were necessarily reproduced from master tapes
that it owns.
The application for search warrants was directed against video tape outlets which
allegedly were engaged in the unauthorized sale and renting out of copyrighted
films belonging to the petitioner pursuant to P.D. 49.
The essence of a copyright infringement is the similarity or at least substantial
similarity of the purported pirated works to the copyrighted work. Hence, the
applicant must present to the court the copyrighted films to compare them with
the purchased evidence of the video tapes allegedly pirated to determine
whether the latter is an unauthorized reproduction of the former. This linkage of
the copyrighted films to the pirated films must be established to satisfy the
requirements of probable cause. Mere allegations as to the existence of the
copyrighted films cannot serve as basis for the issuance of a search warrant.
For a closer and more perspicuous appreciation of the factual antecedents of 20th
Century Fox, the pertinent portions of the decision therein are quoted hereunder, to wit:
In the instant case, the lower court lifted the three questioned search warrants
against the private respondents on the ground that it acted on the application for
the issuance of the said search warrants and granted it on the
misrepresentations of applicant NBI and its witnesses that infringement of
copyright or a piracy of a particular film have been committed. Thus the lower
court stated in its questioned order dated January 2, 1986:
According to the movant, all three witnesses during the
proceedings in the application for the three search warrants
testified of their own personal knowledge. Yet, Atty. Albino Reyes
of the NBI stated that the counsel or representative of the
Twentieth Century Fox Corporation will testify on the video
cassettes that were pirated, so that he did not have personal
knowledge of the alleged piracy. The witness Bacani also said
that the video cassettes were pirated without stating the manner it
was pirated and that it was Atty. Domingo that has knowledge of
that fact.
On the part of Atty. Domingo, he said that the re-taping of the
allegedly pirated tapes was from master tapes allegedly
belonging to the Twentieth Century Fox, because, according to
him it is of his personal knowledge.
At the hearing of the Motion for Reconsideration, Senior NBI
Agent Atty. Albino Reyes testified that when the complaint for
infringement was brought to the NBI, the master tapes of the
allegedly pirated tapes were shown to him and he made
comparisons of the tapes with those purchased by their man
Bacani. Why the master tapes or at least the film reels of the
allegedly pirated tapes were not shown to the Court during the
application gives some misgivings as to the truth of that bare
statement of the NBI agent on the witness stand.
Again as the application and search proceedings is a prelude to
the filing of criminal cases under PD 49, the copyright
infringement law, and although what is required for the issuance
thereof is merely the presence of probable cause, that probable
cause must be satisfactory to the Court, for it is a time-honored
precept that proceedings to put a man to task as an offender
under our laws should be interpreted in strictissimi juris against
the government and liberally in favor of the alleged offender.
xxx xxx xxx
This doctrine has never been overturned, and as a matter of fact
it had been enshrined in the Bill of Rights in our 1973
Constitution.
So that lacking in persuasive effect, the allegation that master
tapes were viewed by the NBI and were compared to the
purchased and seized video tapes from the respondents'
establishments, it should be dismissed as not supported by
competent evidence and for that matter the probable cause
hovers in that grey debatable twilight zone between black and
white resolvable in favor of respondents herein.
But the glaring fact is that "Cocoon," the first video tape
mentioned in the search warrant, was not even duly registered or
copyrighted in the Philippines. (Annex C of Opposition p. 152
record.) So, that lacking in the requisite presentation to the Court
of an alleged master tape for purposes of comparison with the
purchased evidence of the video tapes allegedly pirated and
those seized from respondents, there was no way to determine
whether there really was piracy, or copying of the film of the
complainant Twentieth Century Fox.
xxx xxx xxx
The lower court, therefore, lifted the three (3) questioned search warrants in the
absence of probable cause that the private respondents violated P.D. 49. As
found out by the court, the NBI agents who acted as witnesses did not have
personal knowledge of the subject matter of their testimony which was the
alleged commission of the offense by the private respondents. Only the
petitioner's counsel who was also a witness during the application for the
issuance of the search warrants stated that he had personal knowledge that the
confiscated tapes owned by the private respondents were pirated tapes taken
from master tapes belonging to the petitioner. However, the lower court did not
give much credence to his testimony in view of the fact that the master tapes of
the allegedly pirated tapes were not shown to the court during the application
(Emphasis ours).
The italicized passages readily expose the reason why the trial court therein required the
presentation of the master tapes of the allegedly pirated films in order to convince itself
of the existence of probable cause under the factual milieu peculiar to that case. In the
case at bar, respondent appellate court itself observed:
We feel that the rationale behind the aforequoted doctrine is that the pirated
copies as well as the master tapes, unlike the other types of personal properties
which may be seized, were available for presentation to the court at the time of
the application for a search warrant to determine the existence of the linkage of
the copyrighted films with the pirated ones. Thus, there is no reason not the
present them (Emphasis supplied ).50
In fine, the supposed pronunciamento in said case regarding the necessity for the
presentation of the master tapes of the copyrighted films for the validity of search
warrants should at most be understood to merely serve as a guidepost in determining the
existence of probable cause in copyright infringement cases where there is doubt as to
the true nexus between the master tape and the pirated copies. An objective and careful
reading of the decision in said case could lead to no other conclusion than that said
directive was hardly intended to be a sweeping and inflexible requirement in all or similar
copyright infringement cases. Judicial dicta should always be construed within the factual
matrix of their parturition, otherwise a careless interpretation thereof could unfairly fault
the writer with the vice of overstatement and the reader with the fallacy of undue
generalization.
In the case at bar, NBI Senior Agent Lauro C. Reyes who filed the application for search
warrant with the lower court following a formal complaint lodged by petitioners, judging
from his affidavit51 and his deposition,52 did testify on matters within his personal
knowledge based on said complaint of petitioners as well as his own investigation and
surveillance of the private respondents' video rental shop. Likewise, Atty. Rico V.
Domingo, in his capacity as attorney-in-fact, stated in his affidavit53 and further
expounded in his deposition54 that he personally knew of the fact that private respondents
had never been authorized by his clients to reproduce, lease and possess for the
purpose of selling any of the copyrighted films.
Both testimonies of Agent Reyes and Atty. Domingo were corroborated by Rene C.
Baltazar, a private researcher retained by Motion Pictures Association of America, Inc.
(MPAA, Inc.), who was likewise presented as a witness during the search warrant
proceedings.55 The records clearly reflect that the testimonies of the abovenamed
witnesses were straightforward and stemmed from matters within their personal
knowledge. They displayed none of the ambivalence and uncertainty that the witnesses
in the 20th Century Fox case exhibited. This categorical forthrightness in their
statements, among others, was what initially and correctly convinced the trial court to
make a finding of the existence of probable cause.
There is no originality in the argument of private respondents against the validity of the
search warrant, obviously borrowed from 20th Century Fox, that petitioners' witnesses —
NBI Agent Lauro C. Reyes, Atty. Rico V. Domingo and Rene C. Baltazar — did not have
personal knowledge of the subject matter of their respective testimonies and that said
witnesses' claim that the video tapes were pirated, without stating the manner by which
these were pirated, is a conclusion of fact without basis.56 The difference, it must be
pointed out, is that the records in the present case reveal that (1) there is no allegation of
misrepresentation, much less a finding thereof by the lower court, on the part of
petitioners' witnesses; (2) there is no denial on the part of private respondents that the
tapes seized were illegitimate copies of the copyrighted ones not have they shown that
they were given any authority by petitioners to copy, sell, lease, distribute or circulate, or
at least, to offer for sale, lease, distribution or circulation the said video tapes; and (3) a
discreet but extensive surveillance of the suspected area was undertaken by petitioners'
witnesses sufficient to enable them to execute trustworthy affidavits and depositions
regarding matters discovered in the course thereof and of which they have personal
knowledge.
It is evidently incorrect to suggest, as the ruling in 20th Century Fox may appear to do,
that in copyright infringement cases, the presentation of master tapes of the copyrighted
films is always necessary to meet the requirement of probable cause and that, in the
absence thereof, there can be no finding of probable cause for the issuance of a search
warrant. It is true that such master tapes are object evidence, with the merit that in this
class of evidence the ascertainment of the controverted fact is made through
demonstrations involving the direct use of the senses of the presiding magistrate.57 Such
auxiliary procedure, however, does not rule out the use of testimonial or documentary
evidence, depositions, admissions or other classes of evidence tending to prove
the factum probandum,58 especially where the production in court of object evidence
would result in delay, inconvenience or expenses out of proportion to its evidentiary
value.59
Of course, as a general rule, constitutional and statutory provisions relating to search
warrants prohibit their issuance except on a showing of probable cause, supported by
oath or affirmation. These provisions prevent the issuance of warrants on loose, vague,
or doubtful bases of fact, and emphasize the purpose to protect against all general
searches.60 Indeed, Article III of our Constitution mandates in Sec. 2 thereof that no
search warrant shall issue except upon probable cause to be determined personally by
the judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be searched and the
things to be seized; and Sec. 3 thereof provides that any evidence obtained in violation
of the preceding section shall be inadmissible for any purpose in any proceeding.
These constitutional strictures are implemented by the following provisions of Rule 126 of
the Rules of Court:
Sec. 3. Requisites for issuing search warrant. — A search warrant shall not issue
but upon probable cause in connection with one specific offense to be
determined personally by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly describing
the place to be searched and the things to be seized.
Sec. 4. Examination of complainant; record. — The judge must, before issuing
the warrant, personally examine in the form of searching questions and answers,
in writing and under oath the complainant and any witnesses he may produce on
facts personally known to them and attach to the record their sworn statements
together with any affidavits submitted.
 Sec. 5. Issuance and form of search warrant. — If the judge is thereupon
satisfied of the existence of facts upon which the application is based, or that
there is probable cause to believe that they exist, he must issue the warrant,
which must be substantially in the form prescribed by these Rules.
The constitutional and statutory provisions of various jurisdictions requiring a showing of
probable cause before a search warrant can be issued are mandatory and must be
complied with, and such a showing has been held to be an unqualified condition
precedent to the issuance of a warrant. A search warrant not based on probable cause is
a nullity, or is void, and the issuance thereof is, in legal contemplation, arbitrary.61 It
behooves us, then, to review the concept of probable cause, firstly, from representative
holdings in the American jurisdiction from which we patterned our doctrines on the
matter.
Although the term "probable cause" has been said to have a well-defined meaning in the
law, the term is exceedingly difficult to define, in this case, with any degree of precision;
indeed, no definition of it which would justify the issuance of a search warrant can be
formulated which would cover every state of facts which might arise, and no formula or
standard, or hard and fast rule, may be laid down which may be applied to the facts of
every situation.62 As to what acts constitute probable cause seem incapable of
definition.63 There is, of necessity, no exact test.64
At best, the term "probable cause" has been understood to mean a reasonable ground of
suspicion, supported by circumstances sufficiently strong in themselves to warrant a
cautious man in the belief that the person accused is guilty of the offense with which he
is charged;65 or the existence of such facts and circumstances as would excite an honest
belief in a reasonable mind acting on all the facts and circumstances within the
knowledge of the magistrate that the charge made by the applicant for the warrant is
true.66
Probable cause does not mean actual and positive cause, nor does it import absolute
certainty. The determination of the existence of probable cause is not concerned with the
question of whether the offense charged has been or is being committed in fact, or
whether the accused is guilty or innocent, but only whether the affiant has reasonable
grounds for his belief.67 The requirement is less than certainty or proof , but more than
suspicion or possibility.68
In Philippine jurisprudence, probable cause has been uniformly defined as such facts
and circumstances which would lead a reasonable, discreet and prudent man to believe
that an offense has been committed, and that the objects sought in connection with the
offense are in the place sought to be searched.69 It being the duty of the issuing officer to
issue, or refuse to issue, the warrant as soon as practicable after the application therefor
is filed,70 the facts warranting the conclusion of probable cause must be assessed at the
time of such judicial determination by necessarily using legal standards then set forth in
law and jurisprudence, and not those that have yet to be crafted thereafter.
As already stated, the definition of probable cause enunciated in Burgos, Sr. vs. Chief of
Staff, et al., supra, vis-a-vis the provisions of Sections 3 and 4 of Rule 126, were the
prevailing and controlling legal standards, as they continue to be, by which a finding of
probable cause is tested. Since the propriety of the issuance of a search warrant is to be
determined at the time of the application therefor, which in turn must not be too remote in
time from the occurrence of the offense alleged to have been committed, the issuing
judge, in determining the existence of probable cause, can and should logically look to
the touchstones in the laws theretofore enacted and the decisions already promulgated
at the time, and not to those which had not yet even been conceived or formulated.
It is worth noting that neither the Constitution nor the Rules of Court attempt to define
probable cause, obviously for the purpose of leaving such matter to the court's discretion
within the particular facts of each case. Although the Constitution prohibits the issuance
of a search warrant in the absence of probable cause, such constitutional inhibition does
not command the legislature to establish a definition or formula for determining what
shall constitute probable cause.71 Thus, Congress, despite its broad authority to fashion
standards of reasonableness for searches and seizures,72 does not venture to make such
a definition or standard formulation of probable cause, nor categorize what facts and
circumstances make up the same, much less limit the determination thereof to and within
the circumscription of a particular class of evidence, all in deference to judicial discretion
and probity.73
Accordingly, to restrict the exercise of discretion by a judge by adding a particular
requirement (the presentation of master tapes, as intimated by 20th Century Fox) not
provided nor implied in the law for a finding of probable cause is beyond the realm of
judicial competence or statesmanship. It serves no purpose but to stultify and constrict
the judicious exercise of a court's prerogatives and to denigrate the judicial duty of
determining the existence of probable cause to a mere ministerial or mechanical
function. There is, to repeat, no law or rule which requires that the existence of probable
cause is or should be determined solely by a specific kind of evidence. Surely, this could
not have been contemplated by the framers of the Constitution, and we do not believe
that the Court intended the statement in 20th Century Fox regarding master tapes as the
dictum for all seasons and reasons in infringement cases.
Turning now to the case at bar, it can be gleaned from the records that the lower court
followed the prescribed procedure for the issuance of a search warrant: (1) the
examination under oath or affirmation of the complainant and his witnesses, with them
particularly describing the place to be searched and the things to be seized; (2) an
examination personally conducted by the judge in the form of searching questions and
answers, in writing and under oath of the complainant and witnesses on facts personally
known to them; and, (3) the taking of sworn statements, together with the affidavits
submitted, which were duly attached to the records.
Thereafter, the court a quo made the following factual findings leading to the issuance of
the search warrant now subject of this controversy:
In the instant case, the following facts have been established: (1) copyrighted
video tapes bearing titles enumerated in Search Warrant No. 87-053 were being
sold, leased, distributed or circulated, or offered for sale, lease, distribution, or
transferred or caused to be transferred by defendants at their video outlets,
without the written consent of the private complainants or their assignee; (2)
recovered or confiscated from defendants' possession were video tapes
containing copyrighted motion picture films without the authority of the
complainant; (3) the video tapes originated from spurious or unauthorized
persons; and (4) said video tapes were exact reproductions of the films listed in
the search warrant whose copyrights or distribution rights were owned by
complainants.
The basis of these facts are the affidavits and depositions of NBI Senior Agent
Lauro C. Reyes, Atty. Rico V. Domingo, and Rene C. Baltazar. Motion Pictures
Association of America, Inc. (MPAA) thru their counsel, Atty. Rico V. Domingo,
filed a complaint with the National Bureau of Investigation against certain video
establishments one of which is defendant, for violation of PD No. 49 as amended
by PD No. 1988. Atty. Lauro C. Reyes led a team to conduct discreet
surveillance operations on said video establishments. Per information earlier
gathered by Atty. Domingo, defendants were engaged in the illegal sale, rental,
distribution, circulation or public exhibition of copyrighted films of MPAA without
its written authority or its members. Knowing that defendant Sunshine Home
Video and its proprietor, Mr. Danilo Pelindario, were not authorized by MPAA to
reproduce, lease, and possess for the purpose of selling any of its copyrighted
motion pictures, instructed his researcher, Mr. Rene Baltazar to rent two video
cassettes from said defendants on October 21, 1987. Rene C. Baltazar
proceeded to Sunshine Home Video and rented tapes containing Little Shop of
Horror. He was issued rental slip No. 26362 dated October 21, 1987 for P10.00
with a deposit of P100.00. Again, on December 11, 1987, the returned to
Sunshine Home Video and rented Robocop with rental slip No. 25271 also for
P10.00: On the basis of the complaint of MPAA thru counsel, Atty. Lauro C.
Reyes personally went to Sunshine Home Video at No. 6 Mayfair Center,
Magallanes Commercial Center, Makati. His last visit was on December 7, 1987.
There, he found the video outlet renting, leasing, distributing video cassette tapes
whose titles were copyrighted and without the authority of MPAA.
Given these facts, a probable cause exists. . . .74
The lower court subsequently executed a volte-face, despite its prior detailed and
substantiated findings, by stating in its order of November 22, 1988 denying petitioners'
motion for reconsideration and quashing the search warrant that —
. . . The two (2) cases have a common factual milieu; both involve alleged pirated
copyrighted films of private complainants which were found in the possession or
control of the defendants. Hence, the necessity of the presentation of the master
tapes from which the pirated films were allegedly copied is necessary in the
instant case, to establish the existence of probable cause.75
Being based solely on an unjustifiable and improper retroactive application of the master
tape requirement generated by 20th Century Fox upon a factual situation completely
different from that in the case at bar, and without anything more, this later order clearly
defies elemental fair play and is a gross reversible error. In fact, this observation of the
Court in La Chemise Lacoste, S.A. vs. Fernandez, et al., supra, may just as easily apply
to the present case:
A review of the grounds invoked . . . in his motion to quash the search warrants
reveals the fact that they are not appropriate for quashing a warrant. They are
matters of defense which should be ventilated during the trial on the merits of the
case. . . .
As correctly pointed out by petitioners, a blind espousal of the requisite of presentation of
the master tapes in copyright infringement cases, as the prime determinant of probable
cause, is too exacting and impracticable a requirement to be complied with in a search
warrant application which, it must not be overlooked, is only an ancillary proceeding.
Further, on realistic considerations, a strict application of said requirement militates
against the elements of secrecy and speed which underlie covert investigative and
surveillance operations in police enforcement campaigns against all forms of criminality,
considering that the master tapes of a motion picture required to be presented before the
court consists of several reels contained in circular steel casings which, because of their
bulk, will definitely draw attention, unlike diminutive objects like video tapes which can be
easily concealed.76 With hundreds of titles being pirated, this onerous and tedious
imposition would be multiplied a hundredfold by judicial fiat, discouraging and preventing
legal recourses in foreign jurisdictions.
Given the present international awareness and furor over violations in large scale of
intellectual property rights, calling for transnational sanctions, it bears calling to mind the
Court's admonition also in La Chemise Lacoste, supra, that —
. . . . Judges all over the country are well advised to remember that court
processes should not be used as instruments to, unwittingly or otherwise, aid
counterfeiters and intellectual pirates, tie the hands of the law as it seeks to
 protect the Filipino consuming public and frustrate executive and administrative
implementation of solemn commitments pursuant to international conventions
and treaties.
III
The amendment to Section 56 of Presidential Decree No. 49 by Presidential Decree No.
1987,77 which should here be publicized judicially, brought about the revision of its
penalty structure and enumerated additional acts considered violative of said decree on
intellectual property, namely, (1) directly or indirectly transferring or causing to be
transferred any sound recording or motion picture or other audio-visual works so
recorded with intent to sell, lease, publicly exhibit or cause to be sold, leased or publicly
exhibited, or to use or cause to be used for profit such articles on which sounds, motion
pictures, or other audio-visual works are so transferred without the written consent of the
owner or his assignee; (2) selling, leasing, distributing, circulating, publicly exhibiting, or
offering for sale, lease, distribution, or possessing for the purpose of sale, lease,
distribution, circulation or public exhibition any of the abovementioned articles, without
the written consent of the owner or his assignee; and, (3) directly or indirectly offering or
making available for a fee, rental, or any other form of compensation any equipment,
machinery, paraphernalia or any material with the knowledge that such equipment,
machinery, paraphernalia or material will be used by another to reproduce, without the
consent of the owner, any phonograph record, disc, wire, tape, film or other article on
which sounds, motion pictures or other audio-visual recordings may be transferred, and
which provide distinct bases for criminal prosecution, being crimes independently
punishable under Presidential Decree No. 49, as amended, aside from the act of
infringing or aiding or abetting such infringement under Section 29.
The trial court's finding that private respondents committed acts in blatant transgression
of Presidential Decree No. 49 all the more bolsters its findings of probable cause, which
determination can be reached even in the absence of master tapes by the judge in the
exercise of sound discretion. The executive concern and resolve expressed in the
foregoing amendments to the decree for the protection of intellectual property rights
should be matched by corresponding judicial vigilance and activism, instead of the
apathy of submitting to technicalities in the face of ample evidence of guilt.
The essence of intellectual piracy should be essayed in conceptual terms in order to
underscore its gravity by an appropriate understanding thereof. Infringement of a
copyright is a trespass on a private domain owned and occupied by the owner of the
copyright, and, therefore, protected by law, and infringement of copyright, or piracy,
which is a synonymous term in this connection, consists in the doing by any person,
without the consent of the owner of the copyright, of anything the sole right to do which is
conferred by statute on the owner of the copyright.78
A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in
such cases, did not know what works he was indirectly copying, or did not know whether
or not he was infringing any copyright; he at least knew that what he was copying was
not his, and he copied at his peril. In determining the question of infringement, the
amount of matter copied from the copyrighted work is an important consideration. To
constitute infringement, it is not necessary that the whole or even a large portion of the
work shall have been copied. If so much is taken that the value of the original is sensibly
diminished, or the labors of the original author are substantially and to an injurious extent
appropriated by another, that is sufficient in point of law to constitute a
piracy.79 The question of whether there has been an actionable infringement of a literary,
musical, or artistic work in motion pictures, radio or television being one of fact,80 it should
properly be determined during the trial. That is the stage calling for conclusive or
preponderating evidence, and not the summary proceeding for the issuance of a search
warrant wherein both lower courts erroneously require the master tapes.
In disregarding private respondent's argument that Search Warrant No. 87-053 is a
general warrant, the lower court observed that "it was worded in a manner that the
enumerated seizable items bear direct relation to the offense of violation of Sec. 56 of
PD 49 as amended. It authorized only the seizur(e) of articles used or intended to be
used in the unlawful sale, lease and other unconcerted acts in violation of PD 49 as
amended. . . .81
On this point, Bache and Co., (Phil.), Inc., et al. vs. Ruiz, et al.,82 instructs and enlightens:
A search warrant may be said to particularly describe the things to be seized
when the description therein is as specific as the circumstances will ordinarily
allow (People vs. Rubio, 57 Phil. 384); or when the description expresses a
conclusion of fact — not of law — by which the warrant officer may be guided in
making the search and seizure (idem., dissent of Abad Santos, J.,); or when the
things described are limited to those which bear direct relation to the offense for
which the warrant is being issued (Sec 2, Rule 126, Revised Rules of Court). . . .
If the articles desired to be seized have any direct relation to an offense
committed, the applicant must necessarily have some evidence, other than those
articles, to prove the said offense; and the articles subject of search and seizure
should come in handy merely to strengthen such evidence. . . .
On private respondents' averment that the search warrant was made applicable to more
than one specific offense on the ground that there are as many offenses of infringement
as there are rights protected and, therefore, to issue one search warrant for all the movie
titles allegedly pirated violates the rule that a search warrant must be issued only in
connection with one specific offense, the lower court said:
 . . . . As the face of the search warrant itself indicates, it was issued for violation
of Section 56, PD 49 as amended only. The specifications therein (in Annex A)
merely refer to the titles of the copyrighted motion pictures/films belonging to
private complainants which defendants were in control/possession for sale,
lease, distribution or public exhibition in contravention of Sec. 56, PD 49 as
amended.83
That there were several counts of the offense of copyright infringement and the search
warrant uncovered several contraband items in the form of pirated video tapes is not to
be confused with the number of offenses charged. The search warrant herein issued
does not violate the one-specific-offense rule.
It is pointless for private respondents to insist on compliance with the registration and
deposit requirements under Presidential Decree No. 49 as prerequisites for invoking the
court's protective mantle in copyright infringement cases. As explained by the court
below:
Defendants-movants contend that PD 49 as amended covers only producers
who have complied with the requirements of deposit and notice (in other words
registration) under Sections 49 and 50 thereof. Absent such registration, as in
this case, there was no right created, hence, no infringement under PD 49 as
amended. This is not well-taken.
As correctly pointed out by private complainants-oppositors, the Department of
Justice has resolved this legal question as far back as December 12, 1978 in its
Opinion No. 191 of the then Secretary of Justice Vicente Abad Santos which
stated that Sections 26 and 50 do not apply to cinematographic works and PD
No. 49 "had done away with the registration and deposit of cinematographic
works" and that "even without prior registration and deposit of a work which may
be entitled to protection under the Decree, the creator can file action for
infringement of its rights". He cannot demand, however, payment of damages
arising from infringement. The same opinion stressed that "the requirements of
registration and deposit are thus retained under the Decree, not as conditions for
the acquisition of copyright and other rights, but as prerequisites to a suit for
damages". The statutory interpretation of the Executive Branch being correct, is
entitled (to) weight and respect.
xxx xxx xxx
Defendants-movants maintain that complainant and his witnesses led the Court
to believe that a crime existed when in fact there was none. This is wrong. As
earlier discussed, PD 49 as amended, does not require registration and deposit
for a creator to be able to file an action for infringement of his rights. These
conditions are merely pre-requisites to an action for damages. So, as long as the
proscribed acts are shown to exist, an action for infringement may be initiated.84
Accordingly, the certifications85 from the Copyright Section of the National Library,
presented as evidence by private respondents to show non-registration of some of the
films of petitioners, assume no evidentiary weight or significance whatsoever.
Furthermore, a closer review of Presidential Decree No. 49 reveals that even with
respect to works which are required under Section 26 thereof to be registered and with
copies to deposited with the National Library, such as books, including composite and
cyclopedic works, manuscripts, directories and gazetteers; and periodicals, including
pamphlets and newspapers; lectures, sermons, addresses, dissertations prepared for
oral delivery; and letters, the failure to comply with said requirements does not deprive
the copyright owner of the right to sue for infringement. Such non-compliance merely
limits the remedies available to him and subjects him to the corresponding sanction.
The reason for this is expressed in Section 2 of the decree which prefaces its
enumeration of copyrightable works with the explicit statement that "the rights granted
under this Decree shall, from the moment of creation, subsist with respect to any of the
following classes of works." This means that under the present state of the law, the
copyright for a work is acquired by an intellectual creator from the moment of creation
even in the absence of registration and deposit. As has been authoritatively clarified:
The registration and deposit of two complete copies or reproductions of the work
with the National Library within three weeks after the first public dissemination or
performance of the work, as provided for in Section 26 (P.D. No. 49, as
amended), is not for the purpose of securing a copyright of the work, but rather to
avoid the penalty for non-compliance of the deposit of said two copies and in
order to recover damages in an infringement suit.86
One distressing observation. This case has been fought on the basis of, and its
resolution long delayed by resort to, technicalities to a virtually abusive extent by private
respondents, without so much as an attempt to adduce any credible evidence showing
that they conduct their business legitimately and fairly. The fact that private respondents
could not show proof of their authority or that there was consent from the copyright
owners for them to sell, lease, distribute or circulate petitioners' copyrighted films
immeasurably bolsters the lower court's initial finding of probable cause. That private
respondents are licensed by the Videogram Regulatory Board does not insulate them
from criminal and civil liability for their unlawful business practices. What is more
deplorable is that the reprehensible acts of some unscrupulous characters have
stigmatized the Philippines with an unsavory reputation as a hub for intellectual piracy in
this part of the globe, formerly in the records of the General Agreement on Tariffs and
Trade and, now, of the World Trade Organization. Such acts must not be glossed over
but should be denounced and repressed lest the Philippines become an international
pariah in the global intellectual community.

WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals,

and necessarily inclusive of the order of the lower court dated November 22, 1988, are
hereby REVERSED and SET ASIDE. The order of the court a quo of September 5, 1988
upholding the validity of Search Warrant No. 87-053 is hereby REINSTATED, and said
court is DIRECTED to take and expeditiously proceed with such appropriate proceedings
as may be called for in this case. Treble costs are further assessed against private
respondents.

SO ORDERED.
G.R. No. 72147 December 1, 1987
WANG LABORATORIES, INC., petitioner,
vs.
THE HONORABLE RAFAEL T. MENDOZA, then Presiding Judge, Regional Trial Court,
Branch CXXXIV, Makati, Metro Manila, THE HONORABLE BERNARDO ABESAMIS,
incumbent Presiding Judge, Regional Trial Court, Branch CXX-XIV, Makati, Metro Manila,
Public Respondents and ANGARA CONCEPCION REGALA & CRUZ LAW OFFICES Private
Respondents, respondents.
PARAS, J.:
This is a petition for Certiorari, Prohibition and mandamus with Preliminary Injunction, seeking:
(1) to annul and set aside the order issued by the Regional Trial Court of Makati, Branch
CXXXIV, * ruling that (a) petitioner had voluntarily submitted itself to the jurisdiction of the respondent court, and (b) granting
respondents' Ex Abundante Cautela Motion for Leave to Effect Extraterritorial Jurisdiction; (2) to prohibit respondent Court from
proceeding further in Civil Case No. 7183; and (3) to order the same Court to pass upon the legal and factual issues raised in
petitioner's Motion to Dismiss.
The factual background of this case is as follows:
Petitioner is a corporation duly organized under the laws of the United States with principal
address at One Industrial Avenue, Lowell, Massachusetts, U.S.A., engaged in the business of
manufacturing and selling computers worldwide. In the Philippines, petitioner sells its products to
EXXBYTE TECHNOLOGIES CORPORATION, hereinafter referred to as EXXBYTE, its
exclusive distributor. EXXBYTE is a domestic corporation engaged in the business of selling
computer products to the public in its own name for its own account (Petitioner's Brief, p. 2;
Rollo, pp. 268-319).
Angara, Concepcion, Regala & Cruz Law Offices (hereinafter referred to as ACCRALAW for
brevity) is a duly registered professional partnership (Rollo, p. 4).
On September 10, 1980, respondent ACCRALAW entered into a contract with EXXBYTE for
acquisition and installation of a Wang 2200 US Integrated Information System at the former's
office. As stipulated in the above-said contract, a letter of credit for US$ 86,142.55 was thereafter
opened by ACCRALAW in favor of petitioner herein to pay for the Wang 2200 US System.
Sometime in May 1981, the hardware was delivered and installed by EXXBYTE in ACCRALAW's
office (Rollo, p. 151).
On June 10, 1981, ACCRALAW and EXXBYTE entered into another contract for the
development of a data processing software program needed to computerize the ACCRALAW
office (Petitioner's Brief, p. 2).
Subsequent thereto and for one reason or the other, the contract for the development of a data
processing software program or ISLA was not implemented.
On May 7, 1984, ACCRALAW filed a complaint for breach of contract with damages, replevin
and attachment against herein petitioner (Rollo, p. 152), in Civil Case No. 7183 of the Regional
Trial Court, Makati (Petitioner's Brief, p. 3).
On May 23, 1984, petitioner filed a Motion to Dismiss the complaint on the ground that there was
improper service of summons, hence, the court below had not obtained jurisdiction over the
person of the petitioner (Petitioner's Brief, p. 3).
On July 13, 1984, petitioner filed a Motion for Deposition by Oral Examination for the purpose of
presenting testimonial evidence in support of its motion to dismiss. The respondent court
thereafter ordered the taking of the deposition by way of oral examination.
On February 21, 1985, petitioner filed its reply to the opposition to motion to dismiss (Petitioner's
Brief, P. 3).
On March 29, 1985, ACCRALAW filed an Ex-Abundante Cautela Motion for leave to Effect
Extraterritorial Service of Summons on petitioner.
In an order dated April 24, 1985, respondent Judge Mendoza, among others, granted the Ex-
Abundante Cautela Motion to Effect Extraterritorial Service of Summons, denied the petitioner's
motion to dismiss on the ground that it had voluntarily submitted itself to the jurisdiction of the
court, and thus declined to consider the legal and factual issues raised in the Motion to Dismiss.
Hence, this petition.
In the resolution of October 7, 1985, the Second Division of this Court without giving due course
to the petition resolved to require respondents to comment and to issue a temporary restraining
order enjoining respondent Judge from further proceeding with Civil Case No. 7183 (Rollo, pp.
138-139).
On October 31, 1985, private respondents submitted their comment (Rollo, pp. 147-178). In the
resolution of January 13, 1986, the Court resolved to give due course to the petition (Rollo, p.
187-A). In the resolution of February 5, 1986, the Court granted petitioner's motion to admit reply
to comment and noted aforesaid reply. Petitioner submitted its brief on September 15, 1986
(Rollo, p. 268); the respondents, on November 15, 1986 (Rollo, p. 272).
Petitioner assigns the following errors:
I.
RESPONDENT JUDGE MENDOZA ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
RULING THAT PETITIONER HAD VOLUNTARILY SUBMITTED TO THE JURISDICTION OF
THE COURT BELOW.
II
RESPONDENT JUDGE MENDOZA ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
RULING THAT ACCRALAW CAN SERVE SUMMONS ON PETITIONER EXTRA-
TERRITORIALLY.
III
RESPONDENT JUDGE MENDOZA ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN NOT
HOLDING THAT THERE WAS IMPROPER SERVICE OF SUMMONS ON PETITIONER.
The petition is devoid of merit.
The only issue in this case is whether or not respondent Court has acquired jurisdiction over the
person of the petitioner, a foreign corporation.
In its Motion to Dismiss, petitioner interposed that the court has no jurisdiction over its person
primarily because it is a United States corporation with principal address at One Industrial
Avenue, Lowell, Massachusetts, U.S.A., is not domiciled in the Philippines, does not have any
office or place of business in the Philippines, is not licensed to engage and is not engaging in
business here. EXXBYTE upon whom summons was served on behalf of this defendant is a
local company entirely separate and distinct from and is not the representative of the defendant
(Rollo, pp. 57-60).
Petitioner's contention is untenable. The issue is not novel in our jurisdiction.
There are three (3) modes of effecting service of summons upon private foreign corporations as
provided for in Section 14, Rule 7 of the Rules of Court, to wit: (1) by serving upon the agent
designated in accordance with law to accept service of summons; (2) if there is no resident
agent, by service on the government official designated by law to that office; and (3) by serving
on any officer or agent of said corporation within the Philippines (Far East Int'l. Import and Export
Corp. v. Nankai Kogyo Co., Ltd., 6 SCRA 725 [1962]).
Summons intended for the petitioner was served on EXXBYTE at the 3rd. Floor, Zeta Building,
191 Salcedo Street, Legaspi Village, Makati, Metro Manila (Rollo, p. 57) as its duly authorized
and exclusive representative and distributor in the Philippines (Rollo, p. 24 and p. 149).
Petitioner opposed such service and filed a Motion to Dismiss on the ground of lack of
jurisdiction on its person, being a foreign corporation not engaged in business in the Philippines.
Evidence presented by private respondent however, shows that contrary to petitioner's
allegations, the various public advertisements of WANG and EXXBYTE clearly show that Wang
has appointed EXXBYTE, which is domiciled in the Philippines, as its authorized exclusive
representative in this country. In fact, WANG represents that its office in the Philippines is
EXXBYTE, while the letterhead of EXXBYTE and its invoices show that it is WANG's
representative. (Rollo, p. 65). Moreover, in its Reply to Opposition to Motion to Dismiss, WANG
itself admitted that it deals exclusively with EXXBYTE in the sale of its products in the Philippines
(Rollo, pp. 79 and 154).
In any event, as previously stated, private respondent moved further, ex abundante cautela, for
leave to effect extraterritorial service of summons on petitioner WANG. Private respondent
presented to the Court documentary evidence proving that the defendant Wang has properties in
the Philippines consisting of trademarks registered with the Philippine Patent Office and that
WANG designated Rafael E. Evangelists of 638 Philippine Banking Building, Ayala Avenue,
Makati, Metro Manila as its Resident Agent upon whom notice or process affecting the mark may
be served. The same counsel represented petitioner in the oral deposition of Mr. Yeoh Asia
Controller for Wang Laboratories (Annex "S," Petition). Private respondent further showed that
said trademarks have been judicially attached (Rollo, p. 110). Petitioner in its Rejoinder to
ACCRALAW's Reply, prays for the issuance of an order holding in abeyance any and all
proceedings relative to ACCRALAW's motion for leave of court to effect extraterritorial service of
summons (Rollo, p. 155).
Petitioner insists on its argument that extra-judicial summons or any kind thereof cannot bind the
petitioner inasmuch as it is not doing business in the Philippines nor is it licensed to do business
in the country.
In the cases of Mentholatum Co., Inc. v. Mangaliman (72 Phil. 524 119411 and Topweld
Manufacturing, Inc. v. Eced S.A. et al., 138 SCRA 118 [1985]), it was held that no general rule or
governing principle can be laid down as to what constitutes doing or "engaging" or "trading" in
business. Indeed each case must be judged in the light of its peculiar environmental
circumstances; upon peculiar facts and upon the language of the Statute applicable (Far East
Int'l. Import Export Corp. v. Nankai Kogyo, Co., Ltd. (6 SCRA 725 [1962]).
Under the circumstances; petitioner cannot unilaterally declare that it is not doing business in the
Philippines. In fact, it has installed, at least 26 different products in several corporations in the
Philippines since 1976 (Respondent's Brief, Rollo, p. 272). It has registered its trade name with
the Philippine Patents Office (ibid) and Mr. Yeoh who is petitioner's controller in Asia has visited
the office of its distributor for at least four times where he conducted training programs in the
Philippines (Oral Deposition, pp. 16; 22-23, Rollo, pp. 335; 341-342, Annex "S" to Petitioner's
Brief). Wang has allowed its registered logo and trademark to be used by EXXBYTE (Pran
Deposition, p. 23, Rollo, p. 342) and made it known that there exists a designated distributor in
the Philippines as published in its advertisements.
Indeed it has been held that "where a single act or transaction of a foreign corporation is not
merely incidental or casual but is of such character as distinctly to indicate a purpose to do other
business in the State, such act constitutes doing business within the meaning of statutes
prescribing the conditions under which a foreign corporation may be served with summons (Far
East Int'l. Import and Export Corp. v. Nankai Kogyo Co. Ltd., 6 SCRA 725 [1962]).
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, with costs against the
petitioner. The temporary restraining order is hereby lifted immediately.
SO ORDERED.

Be that as it may, the issue on the suability of foreign corporation whether or not doing business
in the Philippines has already been laid to rest. The Court has categorically stated that although
a foreign corporation is not doing business in the Philippines, it may be sued for acts done
against persons in the Philippines. The Court has ruled as follows:

Indeed if a foreign corporation, not engaged in business in the Philippines, is not

barred from seeking redress from courts in the Philippines, a fortiori, that same
corporation cannot claim exemption from being sued in Philippine courts for acts
done against a person or persons in the Philippines (Facilities Management
Corporation v. De la Osa, 89 SCRA 131 [1979]).

Furthermore, even though petitioner objects to the jurisdiction of the Court over its person, the
fact that it alleged non-jurisdictional grounds in its pleadings indicates that it has waived lack of
jurisdiction of the court.

As noted by the trial court, defendant Wang (petitioner herein) in its Motion to Dismiss sought
affirmative reliefs requiring the exercise of jurisdiction, by praying: (1) for authority to take
testimony by way of deposition upon oral examination; (2) for extension of time to file opposition
to plaintiffs' motion to effect Extraterritorial Service of Summons; (3) to hold in abeyance any and
all proceedings relative to plaintiffs' foregoing motion and (4) to consider as a mere scrap of
paper plaintiff's motion to strike out Deposition (Rollo, p. 111).

In addition, the records show that petitioner also prayed for: (1) authority to reset date of taking
of deposition; (2) admission of the formal stenographic notes and (3) suspension of time to file
responsive pleadings, not to mention its various participation in the proceedings in the court
other than for the purpose of objecting to lack of jurisdiction (Rollo, p. 169).

In fact, it is well settled that "A voluntary appearance is a waiver of the necessity of formal
notice." Thus, it has been held that when the appearance is by motion for the purpose of
objecting to the jurisdiction of the court over the person it must be for the sole and separate
purpose of objecting to the jurisdiction of the Court. If the appearance is for any other purpose,
the defendant is deemed to have submitted himself to the jurisdiction of the court. Such an
appearance gives the court jurisdiction over the person (Flores v. Zurbito, 37 Phil. 746 [1918]).
Clarifying further, the Court has likewise ruled that even though the defendant objects to the
jurisdiction of the Court, if at the same time he alleges any non-jurisdictional ground for
dismissing the action, the Court acquires jurisdiction over him (Far East International Import &
Export Corporation v. Nankai Kogyo, Co., Ltd., 6 SCRA 725 11962]).
G.R. No. L-18961 August 31, 1966
ATLANTIC MUTUAL INSURANCE COMPANY and CONTINENTAL INSURANCE
COMPANY, plaintiffs and appellants,
vs.
CEBU STEVEDORING CO., INC., defendant and appellee.
William H. Quasha and Associates for plaintiffs and appellants.
Deen Law Offices for defendant and appellee.
MAKALINTAL, J.:
This is an appeal from three orders of the Court of First Instance of Cebu, the last one dismissing
appellants' complaint. These appellants — Atlantic Mutual Insurance Company and Continental
Insurance Company — are both foreign corporations existing under the laws of the United
States. They sued the Cebu Stevedoring Co., Inc., a domestic corporation, for recovery of a sum
of money on the following allegations: that defendant, a common carrier, undertook to carry a
shipment of copra for deliver to Procter & Gamble Company, at Cebu City; that upon discharge,
a portion of the copra was found damaged; that since the copra had been previously insured
with plaintiffs they paid the shipper and/or consignee, upon proper claim and assessment of the
damage, the sum of P15,980.30; and that as subrogee to the shipper's and/or consignee's rights,
plaintiffs demanded, without success, settlement from defendant by reason of its failure to
comply with its obligation, as carrier, to deliver the copra in good order.
Defendant moved to dismiss on two grounds: (a) that plaintiffs had "no legal personality to
appear before Philippine courts and with no capacity to sue;" and (b) that the complaint did not
state a cause of action. Both grounds were based upon failure of the complaint to allege
compliance with section 69 of the Corporation Law, which states:
SEC. 69. No foreign corporation or corporation formed, organized, or existing under any
laws other than those of the Philippines shall be permitted to transact business in the
Philippines or maintain by itself or assigned any suit for the recovery of any debt, claim,
or demand whatever, unless it shall have the license prescribed in the section
immediately preceeding. Any officer, director or agent of the corporation or any person
transacting business for any foreign corporation not having the license prescribed shall
be punished by imprisonment for not less than six months nor more than two years or by
a fine of not less than two hundred pesos nor more than one thousand pesos, or by both
such imprisonment and fine, in the discretion of the Court.
Section 68 of the Corporation Law is almost identical with the first part of Section 69 which
requires a license before a foreign corporation may be permitted to transact business in the
Philippines, but adds that such license may be obtained from the Director of Commerce upon
order of the Secretary of Commerce and Industry.
Plaintiffs opposed the motion to dismiss; and the trial court, in an order dated June 27, 1960,
found the complaint deficient in that it failed to state the plaintiffs were duly licensed to transact
business in the Philippines, but gave them an opportunity to amend said complaint within a
period of ten days. Plaintiffs moved to reconsider and, after the motion was denied, filed a
manifestation to the effect that they could not comply with the order to amend but would wait for
the dismissal of the complaint so as to be able to elevate the matter to this Court on appeal. On
September 6, 1960, the order of dismissal was issued.
The trial court would have plaintiffs amend the complaint by including therein an allegation that
as foreign corporations they were duly licensed to engage in business in the Philippines. The
implication of the court's ruling is that without such license a foreign corporation may not sue in
our courts in view of section 69 of the Corporation Law. Appellants contend that this is an
erroneous interpretation of the statute; that a license is necessary before a foreign corporation
may transact, that is, engage in, business in the Philippines, and if so engaged before, it may
maintain a suit in our courts; but that if a foreign corporation is not doing business here it is not
barred from seeking redress in our courts in proper cases, as when it sues on an isolated
transaction, even if it has not obtained a license pursuant to Section 69.
Appellants' contention is correct as far as it goes. It finds support in the decision written by Mr.
Justice Malcolm in Marshall-Wells Co. vs. Elser & Co., 46 Phil. 71 (September 8, 1924), where
this Court said after analyzing Section 69 of the Corporation Law: "The Law simply means that
no foreign corporation shall be permitted to transact business in the Philippines, ... unless it shall
have the license required by law, and, until it complies with this law, shall not be permitted to
maintain any suit in the local courts."
"The object of the statute," this Court explained in that case, "was to object of the statute was not
to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a
domicile for the purpose of business without taking the steps necessary to render it amenable to
suit in the local courts. The implication of the law is that it was never the purpose of the
Legislature to exclude a foreign corporation which happens to obtain an isolated order for
business from the Philippines, from securing redress in the Philippine Courts, and thus, in effect,
to permit persons to avoid their contracts made with such foreign corporations. The effect of the
statute preventing foreign corporations from doing business and from bringing actions in the
local courts, except in compliance with elaborate requirements, must not be unduly extended or
improperly applied. It should not be construed to extend beyond the plain meaning of its terms,
considered in connection with its object, and in connection with the spirit of the entire law."
But merely to say that a foreign corporation not doing business in the Philippines does not need
a license in order to sue in our courts does not completely resolve the issue in the present case.
The proposition, as stated, refers to the right to sue; the question here refers to pleading and
procedure. It should be noted that insofar as the allegations in the complaint have a bearing on
appellants' capacity to sue, all that is averred is that they are both foreign corporations existing
under the laws of the United States. This averment conjures two alternative possibilities: either
they are engaged in business in the Philippines or they are not so engaged. If the first, they must
have been duly licensed in order to maintain this suit; if the second, if the transaction sued upon
is singular and isolated, no such license is required. In either case, the qualifying circumstance is
an essential part of the element of plaintiffs' capacity to sue and must be affirmatively pleaded. 1äwphï1.ñët

To be sure, under the Rules of Court (Section 11, Rule 15) in force prior to the promulgation of
the Revised Rules on January 1, 1964, it was not necessary to aver the capacity of a party to
sue except to the extent required to show jurisdiction of the court. In our opinion, however, such
rule does not apply in all situations and under all circumstances. The theory behind a similar rule
in the United States is "that capacity ... of a party for purpose of suit is not in dispute in the great
bulk of cases, and that pleading and proof can be simplified by a rule that an averment of such
matter is not necessary, except to show jurisdiction."1 But where as in the present case, the
law denies to a foreign corporation the right to maintain suit unless it has previously complied
with a certain requirement, then such compliance, or the fact that the suing corporation is exempt
therefrom, becomes a necessary averment in the complaint. These are matters peculiarly within
the knowledge of appellants alone, and it would be unfair to impose upon appellee the burden of
asserting and proving the contrary. It is enough that foreign corporations are allowed by law to
seek redress in our courts under certain conditions: the interpretation of the law should not go so
far as to include, in effect, an inference that those conditions have been met from the mere fact
that the party suing is a foreign corporation.

It was indeed in the light of these and other consideration that this Court has seen fit to amend
the former rule by requiring in the Revised Rules (Section 4, Rule 8) that "facts showing the
capacity of a party to sue or be sued or the authority of a party to sue or be sued in a
representative capacity or the legal existence of an organized association of persons that is
made a party, must be averred."

The orders appealed from are affirmed, with costs against plaintiffs-appellants.
G.R. No. 105141 August 31, 1993
SIGNETICS CORPORATION, petitioner,
vs.
COURT OF APPEALS and FRUEHAUF ELECTRONICS PHILS. INC., respondents.
Sycip, Salazar, Hernandez & Gatmaitan Law Office for petitioner.
Romulo P. Atiencia for private respondent.
RESOLUTION
VITUG, J.:
The crucial issue in this petition for review on certiorari is whether or not the lower court, given
the factual allegations in the complaint, had correctly assumed jurisdiction over the petitioner, a
foreign corporation, on its claim in a motion to dismiss, that it had since ceased to do business in
the Philippines.
The petitioner, Signetics Corporation (Signetics), was organized under the laws of the United
States of America. Through Signetics Filipinas Corporation (SigFil), a wholly-owned subsidiary,
Signetics entered into lease contract over a piece of land with Fruehauf Electronics Phils., Inc.
(Freuhauf).
In a complaint initiated on 15 March 1990, Freuhauf sued Signetics for damages, accounting or
return of certain machinery, equipment and accessories, as well as the transfer of title and
surrender of possession of the buildings, installations and improvements on the leased land,
before the Regional Trial Court of Pasig, Metro Manila (Civil Case No. 59264). Claiming that
Signetics caused SigFil to insert in the lease contract the words "machineries, equipment and
accessories," the defendants were able to withdraw these assets from the cost-free transfer
provision of the contract.
On the basis of the allegation that Signetics is a "subsidiary of US PHILIPS CORPORATION,
and may be served summons at Philips Electrical Lamps, Inc., Las Piñas, Metro Manila and/or
c/o Technology Electronics Assembly & Management (TEAM) Pacific Corporation, Electronics
Avenue, FTI Complex, Taguig, Metro Manila," service of summons was made on Signetics
through TEAM Pacific Corporation.
By special appearance, Signetics filed on 14 May 1990 a motion to dismiss the complaint on the
ground of lack of jurisdiction over its person. Invoking Section 14, Rule 14, of the Rules of Court
and the rule laid down in Pacific Micronisian Line, Inc., v. Del Rosario and Pelington1 to the effect
that the fact of doing business in the Philippines should first be established in order that
summons could be validly made and jurisdiction acquired by the court over a foreign corporation,
Signetics moved to dismiss the complaint.
The trial court2 denied the motion to dismiss in an Order, which reads:
In the case of Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44, the High
Court explained what constitutes "doing business" as follows:
Indeed it has been held that "where a single act or transaction of
a foreign corporation is not merely incidental or causal but is of
such character as distinctly to indicate a purpose to do other
business in the State, such constitutes doing business within the
meaning of statutes prescribing the conditions under which a
foreign corporation may be served with summons (Far East Int'l.
Import and Export Corp. v. Nankai Kogyo Co. Ltd., 6 SCRA 725
[1962]).
Assuming, arguendo, that defendant is a foreign corporation not doing business
in the Philippines, it has been categorically stated in the aforecited case that
although a foreign corporation is not doing business in the Philippines, it may be
used for acts done against persons in the Philippines.
For lack of sufficient merits therefore, defendant's Motion to Dismiss is hereby
DENIED.3
Signetics filed a motion for reconsideration but this, too, was denied by the court in its Order of
11 March 1991, reiterating that the rule expressed in Wang Laboratories, Inc. v. Mendoza4 was
the applicable and prevailing "jurisprudence on the matter."
Signetics elevated the issue to the Court of Appeals, via a petition for certiorari and prohibition,
with application for preliminary injunction (CA-G.R. SP No. 24758). On 20 February 1992, the
Court of Appeals rendered its decision, 5 dismissing the petition and affirming the orders of the
lower court. A motion for the reconsideration of the appellate court's decision, having been
denied, the instant petition for review on certiorari was filed with this Court, still on the "basic
question" of whether or not "a foreign corporation can be sued in the Philippines and validly
summoned by a Philippine court without prior 'proof' that it was doing business here at the time
of the suit."6
Critically dissecting the complaint, the petitioner stress that the averments in the complaint "are
at best mere allegations and do not constitute "proof of 'doing business';" 7 that the allegations, in
any case, do not demonstrate "doing business"; and that the phrase "becoming interested in
doing business" is "not actual doing of business here." The petitioner argues that what was
effectively only alleged in the complaint as an activity of doing business was "the mere equity
investment" of petitioner in SigFil, which the petitioner insists, had theretofore been transferred to
TEAM holdings, Ltd.
The petitioner relies, in good part, on the Pacific Micronisian rule. The pronouncements in Wang
Laboratories and in Facilities Management Corporation,8 the petitioner adds, are mere obiter
dicta since the foreign corporations involved in both cases were found to have, in fact, been
doing business in the Philippines and were thus unquestionably amenable to local court
processes.
We rule for the affirmance of the appealed decision.
Petitioner's contention that there should be "proof" of the foreign corporation's doing business in
this country before it may be summoned is based on the following portions of the decision
in Pacific Micronisian:
The pertinent rule to be considered is section 14, Rule 7 of the Rules of Court,
which refers to service upon private foreign corporations. This section provides:
Sec. 14. Service upon private foreign corporations. — If the
defendant is a foreign corporation, or a non-resident joint stock
company or association, doing business in the Philippines,
service may be made on its resident agent designated in
accordance with law for that purpose, or, if there be no such
agent, on the government official designated by law to that effect,
or on any of its officers or agents within the Philippines.
The above section provides for three modes of effecting services upon a private
corporation, namely: (1) by serving upon the agent designated in accordance
with law to accept service by summons; (2) if there be no special agent, by
serving on the government official designated by law to that effect; and (3) by
serving on any officer or agent within the Philippines. But, it should be noted, in
order that services may be effected in the manner above stated, said section also
requires that the foreign corporation be one which is doing business in the
Philippines. This is a sine qua non requirement. This fact must first be
established in order that summons can be made and jurisdiction acquired. This is
not only clear in the rule but is reflected in a recent decision of this Court. We
there said that "as long as a foreign private corporation does or engages in
business in this jurisdiction, it should and will be amenable to process and the
jurisdiction of the local courts." (General Corporation of the Philippines, et al. vs.
Union Insurance Society of Canton, Ltd., et al. 49 Off. Gaz., 73, September 14,
1950). 9
The petitioner opines that the phrase, "(the) fact (of doing business in the Philippines) must first
be established in order that summons be made and jurisdiction acquired," used in the above
pronouncement, would indicate that a mere allegation to that effect in the complaint is not
enough — there must instead be proof of doing business. 10 In any case, the petitioner, points
out, the allegations themselves did not sufficiently show the fact of its doing business in the
Philippines.
It should be recalled that jurisdiction and venue of actions are, as they should be, initially
determined by the allegations of the complaint. 11 Jurisdiction cannot be made to depend on
independent pleas set up in a mere motion to dismiss, otherwise jurisdiction would become
dependent almost entirely upon the defendant. 12 The fact of doing business must then, in the
first place, be established by appropriate allegations in the complaint. This is what the Court
should be seen to have meant in the Pacific Micronisian case. The complaint, it is true, may have
been vaguely structured but, taken correlatively, not disjunctively as the petitioner would rather
suggest, it is not really so weak as to be fatally deficient in the above requirement. Witness the
following allegations of the complaint:
3. In the year 1978, the defendant became interested in engaging in business in
the Philippines . . .;
4. To serve as its local business conduit, the defendant organized a wholly
owned domestic subsidiary corporation known as SIGNETICS FILIPINAS
CORPORATION (SIGFIL, for brevity), which was supposed to be its actual
operating entity in the Philippines;
xxx xxx xxx
18. In February 1983, the defendant ceased all its business operations in the
leased premise. . . .;
xxx xxx xxx
23. (a) In November 21, 1986, the defendant transferred all shares of stock of
SIGFIL in favor of TEAM HOLDING LIMITED, a foreign corporation organized
under the laws of British Virgin Islands;
xxx xxx xxx;
 23. (d) Subsequently, on January 12, 1987, the new owners unmasked itself
when it dropped SIGFIL's name, and changed its corporate name to
TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT (T.E.A.M.)
PACIFIC CORPORATION, otherwise known as TEAM PACIFIC
CORPORATION. The similarity between "TEAM HOLDINGS LIMITED" and
"TEAM PACIFIC CORPORATION" is all too apparent; and
24. As seen in the next-preceding paragraph, the defendant made a devious use
of the fiction of separate corporate identity to shield chicanery and to perpetuate
fraud. 13
The petitioner's reliance on Hyopsung Maritime Co., Ltd., v. Court. of Appeals 14 is misplaced.
While the Court therein cited the Pacific Micronisian ruling and dismissed the complaint against
the petitioner for lack of jurisdiction, the Hyopsung case is under a completely different factual
milieu. As summarized by the Court, the complaint therein was —
. . . for the recovery of damages based on a breach of contract which appears to
have been entirely entered into, executed, and consummated in Korea.
Indisputably, the shipment was loaded on board the foreign vessel MV "Don
Aurelio" at Pohang, Korea, by a Korean firm with offices at Seoul, Korea; the
corresponding bill of lading was issued in Seoul, Korea and the freight was
prepaid also at Seoul; the above vessel with its cargo never ever docked at
Manila or at any other port of entry in the Philippines; lastly, the petitioner did not
appoint any ship agent in the Philippines. Simply put, the petitioner is beyond the
reach of our courts. 15
On the other hand, the complaint, in this instance, has alleged, among other things, that
Signetics had become interested in engaging in business in the Philippines; that it had actually
organized SigFil, as its local business conduit or actual operating entity in the Philippines; that,
through Sigfil, it had entered into the lease contract involving properties in the Philippines a
situation that could have allowed Frehauf to avail itself of the provisions of Section 17, Rule 14,
on extraterritorial service of summons since the relief sought consists in excluding the defendant
from any interest in property within the Philippines); and that while Signetics may have
had transferred all its shareholdings (before the complaint was filed) in favor of TEAM Holdings,
Ltd., another foreign corporation, SIGFIL's corporate name, however, was forthwith changed to
TEAM Pacific corporation, which Freuhauf claims is a "devious" attempt to "shield chicanery and
to perpetuate fraud" (see paragraphs 23 and 24, Complaint). On this score, what might in a way
also be revealing is that after Freuhauf had moved to sell the attached property subject matter of
the litigation, the petitioner filed the following pleading, intriguingly captioned,
"Manifestation"; viz:
Defendant, by counsel, respectfully states:
1. Plaintiff filed a Motion to Sell Attached Properties and scheduled it for hearing
on August 24, 1990, justifying the sale on the allegations that certain properties
belonging to the defendant are perishable in nature and liable to material
depreciation in value.
2. In pleadings filed by the defendant, the Court was requested to determine
whether there is a valid attachment on this alleged properties. This determination
is necessary because defendant has pointed out that personal jurisdiction could
not be justified on the basis of the so-called attachment because it was legally
ineffective. Two reasons were given to the Court. First, the property has not been
taken into actual custody of the sheriff as required by Rule 57, Section 7 (c).
Second, the property has not been shown to be owned by the defendant.
3. Since jurisdiction over the defendant is premised on the attachment, the
Honorable Court should therefore act on the motion to sell by determining (i)
whether plaintiff has shown that the property proposed to be sold belongs to the
defendant (ii) whether it was effectively attached and (iii) whether its sale is
justified (because it is perishable or deteriorating in value).
Respectfully submitted. 16
The petitioner contends that the motion to sell was filed by Freuhauf "ostensibly to ask
permission to sell properties (sic.), but really to hurt petitioner in the first fight" (meaning the
dismissal incident) because Freuhauf used the motion to sell "incident" as forum to prove ex-
parte its argument on jurisdiction." 17 Far from continuing the "fight" on the issue of jurisdiction,
the aforequoted manifestation reflects nothing less than a surprising interest in the property
which petitioner claims are not its own.
Having said that, Freuhauf, in effect, has invoked the doctrine of piercing the veil of corporate
fiction, and it cannot thus be held to have improperly caused the service of summons on TEAM
Pacific pursuant to Section 14, of Rule 14. As explained by the Court in Pacific Micronisian,
summons may be served upon an agent of the defendant who may not necessarily be its
"resident agent designated in accordance with law." The term "agent", in the context it is used in
Section 14, refers to its general meaning, i.e., one who acts on behalf of a principal. 18 The
allegations in the complaint, taken together, have thus been able to amply convey that not only is
TEAM Pacific the business conduit of the petitioner in the Philippines but that, also, by the
charge of fraud, is none other than the petitioner itself.
In any event, it may well be that the Court should restate the rule, and it is that a foreign
corporation, although not engaged in business in the Philippines, may still look up to our courts
for relief; reciprocally, such corporation may likewise be "sued in Philippine courts for acts done
against a person or persons in the Philippines" (Facilities Management Corporation v. De la
Osa), 19 provided that, in the latter case, it would not be impossible for court processes to reach
the foreign corporation, a matter that can later be consequential in the proper execution of
judgment. Verily, a State may not exercise jurisdiction in the absence of some good basis (and
not offensive to traditional notions of fair play and substantial justice) for effectively exercising it,
whether the proceedings are in rem, quasi in rem or in personam. 20

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

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

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

SO ORDERED.