You are on page 1of 106

THE HOME INSURANCE COMPANY, Petitioner, vs.

EASTERN
SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC.
Respondent.

ISSUE: Whether or not that the trial court erred in dismissing the finding that
plaintiff-appellant has no capacity to sue.

G. R. L-34382, July 20, 1983


RULING:

FACTS:
On or about January 13, 1967, S. Kajikita & Co. on board the SS
Eastern Jupiter, which is owned by the respondent, from Osaka, Japan coils
of Black Hot Rolled Copper Wires Rods. The shipment was covered by
Bill of Lading with arrival notice to the Phelps Dodge Copper Products
Corporation, the consignee. It was also insured with the plaintiff against all
risks in the amount of P1,580,105.06.
The coils discharged from the vessel were in bad order, consisting of
loose and partly cut coils which had to be considered scrap. The plaintiff paid
the consignee under insurance the amount of P3,260.44 for the loss/damage
suffered by the cargo. Plaintiff, a foreign insurance company duly authorized
to do business in the Philippines, made demands for payment of the aforesaid
amount against the carrier and transportation company for reimbursement of
the aforesaid amount, but each refused to pay the same. The Eastern Shipping
Lines filed its answer and denied the allegations of Paragraph I which refer to
the plaintiffs capacity to sue for lack of knowledge or information sufficient
to form a belief as to the truth thereof. Angel Jose Transportation, on the
other hand, admitted the jurisdictional averments in paragraphs 1, 2 and 3 of
the heading parties.
The Court of First Instance dismissed the complaint on the ground
that the appellant had failed to prove its capacity to sue. The petitioner then
filed a petition for review on certiorari.

The court held that the objective of the law is to subject the foreign
corporation to the jurisdiction of our court. The Corporation Law must be
given reasonable, not an unduly harsh interpretation which does not hamper
the development of trade relations and which fosters friendly commercial
intercourse among countries.
Counsel for appellant contends that at the time of the service of
summons, the appellant had not yet been authorized to do business. But, 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 the
case.
The court 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 shall 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.

The Supreme Court granted the petition, reversing the decision of the
lower court.
G.R. No. L-24295 September 30, 1971
GENERAL GARMENTS CORPORATION, petitioner,
vs.
THE DIRECTOR OF PATENTS and PURITAN SPORTSWEAR
CORPORATION, respondents.
Facts: The General Garments Corporation, organized and existing under the
laws of the Philippines, is the owner of the trademark "Puritan. Puritan
Sportswear Corporation, organized and existing in and under the laws of the
state of Pennsylvania, U.S.A., filed a petition with the Philippine Patent
Office for the cancellation of the trademark "Puritan" registered in the name
of General Garments Corporation, alleging ownership and prior use in the
Philippines of the said trademark on the same kinds of goods, which use it
had not abandoned; and alleging further that the registration thereof by
General Garments Corporation had been obtained fraudulently and in
violation of Section 17(c) of Republic Act No. 166, as amended, in relation
to Section 4(d) thereof. On March 30, 1964 General Garments Corporation
moved to dismiss the petition.
Issue: Whether or not Puritan Sportswear Corporation, which is a foreign
corporation not licensed to do business and not doing business in the
Philippines, has legal capacity to maintain a suit in the Philippine Patent
Office for cancellation of a trademark registered therein.
Ruling: Yes. Respondent is not suing in our courts "for the recovery of any
debt, claim or demand," for which a license to transact business in the
Philippines is required by Section 69 of the Corporation Law, subject only to
COMMUNICATION MATERIALS VS. CA

the exception already noted. The purpose of such a suit is to protect its
reputation, corporate name and goodwill which has been established, through
the natural development of its trade for a long period of years, in the doing of
which it does not seek to enforce any legal or contract rights arising from, or
growing out of any business which it has transacted in the Philippine Islands.
The right to the use of the corporate or trade name is a property right, a right
in rem, which it may assert and protect in any of the courts of the world
even in jurisdictions where it does not transact business just the same as it
may protect its tangible property, real or personal against trespass or
conversion.
A foreign corporation is allowed there under to sue "whether or not it has
been licensed to do business in the Philippines" pursuant to the Corporation
Law. In any event, respondent in the present case is not suing for
infringement or unfair competition under Section 21- A, but for cancellation
under Section 17, on one of the grounds enumerated in Section 4. And while
a suit under Section 21-A requires that the mark or tradename alleged to have
been infringed has been "registered or assigned" to the suing foreign
corporation, a suit for cancellation of the registration of a mark or tradename
under Section 17 has no such requirement. For such mark or tradename
should not have been registered in the first place (and consequently may be
cancelled if so registered) if it "consists of or comprises a mark or tradename
which so resembles a mark or tradename ... previously used in the
Philippines by another and not abandoned, as to be likely, when applied to or
used in connection with goods, business or services of the applicant, to cause
confusion or mistake or to deceive purchasers.

COMMUNICATION MATERIALS AND DESIGN, INC et al vs.CA et al.


G.R. No. 102223
August 22, 1996

domestic corporations.. Private Respondents ITEC, INC. and/or ITEC,


INTERNATIONAL, INC. (ITEC) are corporations duly organized and
existing under the laws of the State of Alabama, USA. There is no dispute
that ITEC is a foreign corporation not licensed to do business in the
Philippines.

FACTS: Petitioners COMMUNICATION MATERIALS AND DESIGN,


INC., (CMDI) and ASPAC MULTI-TRADE INC., (ASPAC) are both

ITEC entered into a contract with ASPAC referred to as Representative


Agreement. Pursuant to the contract, ITEC engaged ASPAC as its
2

exclusive representative in the Philippines for the sale of ITECs products,


in consideration of which, ASPAC was paid a stipulated commission.
Through a License Agreement entered into by the same parties later on,
ASPAC was able to incorporate and use the name ITEC in its own name.
Thus , ASPAC Multi-Trade, Inc. became legally and publicly known as
ASPAC-ITEC (Philippines).
One year into the second term of the parties Representative Agreement,
ITEC decided to terminate the same, because petitioner ASPAC allegedly
violated its contractual commitment as stipulated in their agreements. ITEC
charges the petitioners and another Philippine Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL), the President of which is likewise
petitioner Aguirre, of using knowledge and information of ITECs products
specifications to develop their own line of equipment and product support,
which are similar, if not identical to ITECs own, and offering them to
ITECs former customer.
The complaint was filed with the RTC-Makati by ITEC, INC. Defendants
filed a MTD the complaint on the following grounds: (1) That plaintiff has
no legal capacity to sue as it is a foreign corporation doing business in the
Philippines without the required BOI authority and SEC license, and (2) that
plaintiff is simply engaged in forum shopping which justifies the application
against it of the principle of forum non conveniens. The MTD was denied.
Petitioners elevated the case to the respondent CA on a Petition for Certiorari
and Prohibition under Rule 65 of the Revised ROC. It was dismissed as well.
MR denied, hence this Petition for Review on Certiorari under Rule 45.
ISSUE:
1. Did the Philippine court acquire jurisdiction over the person of the
petitioner corp, despite allegations of lack of capacity to sue because of nonregistration?
2. Can the Philippine court give due course to the suit or dismiss it, on the
principle of forum non convenience?
HELD: petition dismissed.
1. YES; We are persuaded to conclude that ITEC had been engaged in or
doing business in the Philippines for some time now. This is the inevitable
result after a scrutiny of the different contracts and agreements entered into
by ITEC with its various business contacts in the country. Its arrangements,

with these entities indicate convincingly that ITEC is actively engaging in


business in the country.
A foreign corporation doing business in the Philippines may sue in Philippine
Courts although not authorized to do business here against a Philippine
citizen or entity who had contracted with and benefited by said corporation.
To put it in another way, a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a contract
with it. And the doctrine of estoppel to deny corporate existence applies to a
foreign as well as to domestic corporations. One who has dealt with a
corporation of foreign origin as a corporate entity is estopped to deny its
corporate existence and capacity.
In Antam Consolidated Inc. vs. CA et al. we expressed our chagrin over this
commonly used scheme of defaulting local companies which are being sued
by unlicensed foreign companies not engaged in business in the Philippines
to invoke the lack of capacity to sue of such foreign companies. Obviously,
the same ploy is resorted to by ASPAC to prevent the injunctive action filed
by ITEC to enjoin petitioner from using knowledge possibly acquired in
violation of fiduciary arrangements between the parties.
2. YES; Petitioners insistence on the dismissal of this action due to the
application, or non application, of the private international law rule of forum
non conveniens defies well-settled rules of fair play. According to petitioner,
the Philippine Court has no venue to apply its discretion whether to give
cognizance or not to the present action, because it has not acquired
jurisdiction over the person of the plaintiff in the case, the latter allegedly
having no personality to sue before Philippine Courts. This argument is
misplaced because the court has already acquired jurisdiction over the
plaintiff in the suit, by virtue of his filing the original complaint. And as we
have already observed, petitioner is not at liberty to question plaintiffs
standing to sue, having already acceded to the same by virtue of its entry into
the Representative Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine Court, based
on the facts of the case, whether to give due course to the suit or dismiss it,
on the principle of forum non convenience. Hence, the Philippine Court may
refuse to assume jurisdiction in spite of its having acquired jurisdiction.
Conversely, the court may assume jurisdiction over the case if it chooses to
do so; provided, that the following requisites are met:
3

1) That the Philippine Court is one to which the parties may conveniently
resort to;
2) That the Philippine Court is in a position to make an intelligent decision as
to the law and the facts; and,
3) That the Philippine Court has or is likely to have power to enforce its

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

Dee vs Sec
FACTS:

the "manufacture, supply, delivery and installation" of telephone


equipment

1954: Naga Telephone Company (Natelco), Inc. was organized


with P100K authorized capital

1974: Natelco decided to increase its authorized capital to


P3,000,000.00
o

As required by the Public Service Act, Natelco filed an


application for the approval of the increased authorized
capital with the then Board of Communications (BOC)

Natelco issued 24K shares of CS to CSI as downpayment

May 5, 1979: issued another 12K shares of CS to CSI

May 19, 1979: annual stockholders' meeting to elect their 7 directors


to their BOD for the year 1979-1980
o

Pedro Lopez Dee (Dee) was unseated as Chairman of the


Board and President but was elected as one of the directors,
together with his wife, Amelia Lopez Dee

CSI was able to gain control when their legal counsel, Atty.
Luciano Maggay (Maggay) won a seat in the Board

Atty. Maggay became president upon reorganization

January 8, 1975: approved with conditions:


o

That the issuance of the shares of stocks will be for a period


of one year from the date hereof, "after which no further
issues will be made without previous authority from this
Board."

Natelco filed its Amended Articles of Incorporation with the SEC


o

the original authorized capital of P100K was already paid

increased capital of P2.9M the subscribers subscribed to


P580K of which P145K was fully paid

capital stock of Natelco was divided into 213K CS and 87K PS, both
at a par value of P10/shares

April 12, 1977: Without no prior authorization from the BOC


(now National Telecommunications Commission) (NTC), Natelco
entered into a contract with Communication Services, Inc. (CSI) for

Among the directors: Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee
and Mrs Amelia C. Lopez Dee never attended the Maggay
Board thereby only Maggay representatives and Atty. Maggay
attended
o

as per contract they issued 113,800 shares of stock in favor


of CSI

Dee having been unseated filed a petition in the SEC questioning the
validity of the elections
o

ground: no valid list of stockholders through which the right


to vote could be determined
4

As prayed for a restraining order was issued by the SEC placing


officers of the 1978-1979 Natelco Board in hold-over capacity

Upon elevation to the SC: dismissed the petition for being


premature; restraining order was restrained
o

resulted in the unseating of the Maggay group from the


BOD in a "hold-over" capacity

May 28, 1982: SEC issued another order directing the hold-over
directors and officers to turn over their respective posts and directing
the Sheriff of Naga City and other enforcement agencies to enforce
its order

May 29, 1982: hold-over officers peacefully vacated

June 2, 1982: Villasenor filed a charge for contempt

SEC: ordering the holding of special stockholder' meeting to elect


the new members of the BOD based on its findings of who are
entitled to vote

September 7, 1982: lower court rendered CSI Nilda Ramos, Luciano


Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel,
guilty of contempt of court

June 23, 1981: Dee filed a petition for certiorari/appeal with the
SEC en banc

September 17, 1982: CSI group filed a petition for certiorari and
prohibition with preliminary injunction or restraining order against
the CFI

April 14, 1983: IAC: Annuling contempt charge

SEC en banc: dismissed for lack of merit

May 20, 1982: Antonio Villasenor filed w/ the CFI claiming that he
was an assignee of an option to repurchase 36K shares of CS of
Natelco under a Deed of Assignment executed in his favor

May 21, 1982: restraining order dwas issued by the lower court
commanding desistance from the scheduled election until further
orders

May 22, 1982: controlling majority of the stockholders proceeded


with the elections under the supervision of the SEC representatives

ISSUES:
1. W/N SEC has the power and jurisdiction to declare null and void
shares of stock issued by NATELCO to CSI for violation of Sec. 20
(h) of the Public Service Act - NO
2. W/N Natelco stockholders have a right of preemption to the 113,800
shares
3. W/N the May 22, 1982 election was valid

May 25, 1982: SEC recognized the election and the duly elected
directors
o

Lopez Dee group headed by Messrs. Justino De Jesus and


Julio Lopez Dee kept insisting no elections were held and
refused to vacate their positions

HELD: Dismissed for lack of merit


1. NO

The jurisdiction of the SEC is limited to matters intrinsically


connected with the regulation of corporations, partnerships and
associations and those dealing with internal affairs of such entities;
P.D. 902-A does not confer jurisdiction to SEC over all matters
affecting corporations
5

The jurisdiction of the SEC is limited to deciding the


controversy in the election of the directors and officers of
Natelco

The SEC is empowered by P.D. 902-A to decide intracorporate controversies and that is precisely the only issue in
this case.

consider it because additional issuance of shares of stocks does not


need approval of the stockholders - no violation of preemptive right
3. YES.

2. NO

Clear from records that it was held

within the jurisdiction of the lower court as it does not involve an


intra-corporate matter but merely a claim of a private party of the
right to repurchase common shares of stock of Natelco and that the
restraining order was not meant to stop the election duly called for
by the SEC and a matter purely within the exclusive jurisdiction of
the SEC

There is distinction between:


o

an order to issue shares on or before May 19, 1979; and

actual issuance of the shares after May 19, 1979 - CSI was
in control of voting shares and the Board

temporary restraining order amounted to an injunctive relief against


the SEC

The power to issue shares of stocks in a corporation is lodged in the


board of directors and no stockholders meeting is required to

since the trial judge in the lower court did not have jurisdiction in
issuing the questioned restraining order, disobedience thereto did not
constitute contempt

Republic of the Philippines v. Sandiganbayan


GR. No. 152154, July 15, 2003, Corona, J.

Bank of the Philippines, now Bangko Sentral ng Pilipinas, by virtue of the


freeze order issued by the PCGG.

FACTS:
Republic (petitioner), through the Presidential Commission on Good
Government (PCGG), represented by the Office of the Solicitor General
(OSG), filed a petition for forfeiture before the Sandiganbayan pursuant to
RA 1379, An Act Declaring Forfeiture In Favor of the State Any Property
To Have Been Unlawfully Acquired By Any Public Officer or Employee and
Providing For the Procedure Therefor.

Before the case was set for pre-trial, a General Agreement and the
Supplemental Agreement dated December 28, 1993 were executed by the
Marcos children and then PCGG Chairman Magtanggol Gunigundo for a
global settlement of the assets of the Marcos family. The General
Agreement/Supplemental Agreements sought to identify, collate, cause the
inventory of and distribute all assets presumed to be owned by the Marcos
family under the conditions contained therein. The General Agreement
specified in one of its "whereas clauses" the fact that petitioner obtained a
judgment from the Swiss Federal Tribunal on December 21, 1990, that the
US$356 million belongs deposited in the name of the aforementioned 5
account groups were of illegal provenance. The funds were thereafter.
remitted to the Philippines in escrow. Subsequently, respondent Marcos
children moved that the funds be placed incustodia legis because the deposit
in escrow in the PNB was allegedly in danger of dissipation by petitioner.
The Sandiganbayan, in its resolution dated September 8, 1998, granted the
motion.
6

In the said case, petitioner sought the declaration of the aggregate amount of
US$ 356M deposited in escrow in the PNB, as ill-gotten wealth. The funds
were previously held by 5 account groups, using various foreign foundations
in certain Swiss banks. In addition, the Republic sought the forfeiture of
US$25 million and US$5 million in treasury notes, which exceeded the
Marcos couple's salaries, other lawful income as well as income from
legitimately acquired property. The treasury notes were frozen at the Central

c
Hearings were conducted by the Sandiganbayan on the motion for summary
judgment filed by petitioner. Sandiganbayan ruled in favor of the Petitioner,
approving the General/Supplemental Agreements. However, in a resolution
dated 31 January 2002, the Sandiganbayan reversed itself and denied said
motion for summary judgment. It ruled that the evidence offered for
summary judgment of the case did not prove that the money in the Swiss
Banks belonged to the Marcos spouses because no legal proof exists in the
record as to the ownership by the Marcoses of the funds in escrow from the
Swiss Banks. The basis for the forfeiture in favor of the government cannot
be deemed to have been established.
The Republic filed the petition for certiorari.
ISSUE: Whether petitioner Republic was able to prove its case for forfeiture
in accordance with the requisites of Sections 2 and 3 of RA 1379.
Note: Section 2. Filing of petition. Whenever any public officer or
employee has acquired during his incumbency an amount or property
which is manifestly out of proportion to his salary as such public
officer or employee and to his other lawful income and the income
from legitimately acquired property, said property shall be
presumed prima facie to have been unlawfully acquired.
RULING: YES. The Republic was able to establish a prima facie case for the
forfeiture of the Swiss funds pursuant to RA 1379.
RA 1379 raises the prima facie presumption that a property is unlawfully
acquired, hence subject to forfeiture, if its amount or value is manifestly
disproportionate to the official salary and other lawful income of the public
officer who owns it.
The following facts must be established in order that forfeiture or seizure of
the Swiss deposits may be effected:
a ownership
by
the
public
officer
of
money
or
property acquired during his incumbency, whether it be in his
name or otherwise, and
b the extent to which the amount of that money or property exceeds, i.
e., is grossly disproportionate to, the legitimate income of the public
officer.

that the said amount is manifestly out of proportion to his salary as


such public officer or employee and to his other lawful income and
the income from legitimately acquired property.

That spouses Ferdinand and Imelda Marcos were public officials during the
time material to the instant case was never in dispute. The combined
accumulated salaries of the Marcos couple were reflected in the Certification
dated May 27, 1986 issued by then Minister of Budget and Management
Alberto Romulo. The Certification showed that, from 1966 to 1985,
Ferdinand E. Marcos and Imelda R. Marcos had accumulated salaries in the
amount of P1,570,000 andP718,750, respectively, or a total of P2,288,750. In
addition to their accumulated salaries from 1966 to 1985 are the Marcos
couples combined salaries from January to February 1986 in the amount
of P30,833.33. Hence, their total accumulated salaries amounted
to P2,319,583.33. Converted to U.S. dollars on the basis of the corresponding
peso-dollar exchange rates prevailing during the applicable period when said
salaries were received, the total amount had an equivalent value of
$304,372.43.
The sum of $304,372.43 should be held as the only known lawful
income of respondents since they did not file any Statement of Assets and
Liabilities (SAL), as required by law, from which their net worth could be
determined. Besides, under the 1935 Constitution, Ferdinand E. Marcos as
President could not receive any other emolument from the Government or
any of its subdivisions and instrumentalities. Likewise, under the 1973
Constitution, Ferdinand E. Marcos as President could not receive during his
tenure any other emolument from the Government or any other source. In
fact, his management of businesses, like the administration of foundations to
accumulate funds, was expressly prohibited under the 1973 Constitution:
Article VII, Sec. 4(2) The President and the Vice-President
shall not, during their tenure, hold any other office except
when otherwise provided in this Constitution, nor may they
practice any profession, participate directly or indirectly in
the management of any business, or be financially interested
directly or indirectly in any contract with, or in any franchise
or special privilege granted by the Government or any other
subdivision, agency, or instrumentality thereof, including
any government owned or controlled corporation.
7

Article VII, Sec. 11 No Member of the National Assembly


shall appear as counsel before any court inferior to a court
with appellate jurisdiction, x x x. Neither shall he, directly
or indirectly, be interested financially in any contract with, or
in any franchise or special privilege granted by the
Government, or any subdivision, agency, or instrumentality
thereof including any government owned or controlled
corporation during his term of office. He shall not intervene
in any matter before any office of the government for his
pecuniary benefit.

THIRD DIVISION

[G.R. No. 131680. September 14, 2000]


SUBIC BAY METROPOLITAN AUTHORITY, RICHARD J.
GORDON, FERDINAND M. ARISTORENAS, MANUEL W.
QUIJANO and RAYMOND P. VENTURA, petitioners, vs.
UNIVERSAL INTERNATIONAL GROUP OF TAIWAN, UIG
INTERNATIONAL DEVELOPMENT CORPORATION and SUBIC
BAY GOLF AND COUNTRY CLUB, Inc., respondents.
DECISION
PANGANIBAN, J.:
A stipulation authorizing a party to extrajudicially rescind a contract
and to recover possession of the property in case of contractual
breach is lawful. But when a valid objection is raised, a judicial
determination of the issue is still necessary before a takeover may be
allowed. In the present case, however, respondents do not deny that
there was such a breach of the Agreement; they merely argue that the
stipulation allowing a rescission and a recovery of possession is void.
Hence, the other party may validly enforce such stipulation.
The Case
Before us is a Petitioni[1] under Rule 45 of the Rules of Court
assailing the December 3, 1997 Decisionii[2]of the Court of Appeals
(CA) in CA-GR SP No. 45501. The decretal portion of the CA
Decision reads as follows:
WHEREFORE, premises considered, the Petition is, as it is hereby,
DISMISSED for lack of merit, and certiorari DENIED. The Orders

Article IX, Sec. 7 The Prime Minister and Members of the


Cabinet shall be subject to the provision of Section 11,
Article VIII hereof and may not appear as counsel before any
court or administrative body, or manage any business, or
practice any profession, and shall also be subject to such
other disqualification as may be provided by law.
Their only known lawful income of $304,372.43 can therefore legally
and fairly serve as basis for determining the existence of a prima facie case
of forfeiture of the Swiss funds.

of the respondent court both dated 03 October 1997 hereby


STAND.iii[3]
The first Orderiv[4] of the Regional Trial Court (RTC) of Olongapo
City (Branch 73),v[5] which was affirmed by the appellate court,
granted herein respondents application for a writ of preliminary
mandatory and prohibitory injunction in this wise:vi[6]
WHEREFORE, premises considered, the defendants, their agents,
officers and employees, and all persons acting in their behalf are
directed to restore peacefully to the plaintiffs all possession of the
golf course, clubhouse, offices and other appurtenances subject of
the Lease and Development Agreement between UIG Taiwan and the
SBMA; and the said defendants, and their agents, officers [and]
employees to refrain [from] obstructing or meddling in the operation
and management thereof or x x x otherwise committing acts inimical
to the interest of plaintiffs in the management or operation of the
same, until the parties may be heard on the merits of the case.
The Injunction bond is fixed at One Million Pesos (P1,000,000.00)
in cash or surety bond provided by a surety company of reputable
solvency.
The second RTC Order, also dated October 3, 1997, disposed of
petitioners Motion to Dismiss as follows:vii[7]
WHEREFORE, and the foregoing p[re]mises considered,
Defendants Amended and Consolidated Motion To Dismiss is
hereby DENIED for lack of merit.
The Motion to Dismiss filed by Richard J. Gordon is [g]ranted
insofar as the suit against him is concerned in his private or personal
8

capacity. He shall, however, remain as defendant in his official


capacity.
The Facts
The undisputed facts are summarized by the Court of Appeals as
follows:viii[8]
On 25 May 1995, a Lease and Development Agreement was
executed by respondent UIG and petitioner SBMA under which
respondent UIG shall lease from petitioner SBMA the Binictican
Golf Course and appurtenant facilities thereto to be transformed into
a world class 18-hole golf course, golf club/resort, commercial
tourism and residential center. The contract in pertinent part contains
pre-termination clauses, which provide:
Section 22. Default
(a) The following acts and omissions shall constitute default by
Tenant (each an Event of Default):
x x xx x x
xxx
(ii) Tenant or any of its Subsidiaries shall commit a material breach
or violation of any of the conditions, covenants or agreements herein
made by Tenant or such Subsidiary (other than those described in
Sections 22.2 [a] [l] and such violation or failure shall continue for
thirty (30) days after notice from the Landlord, or, at Landlords sole
discretion, sixty (60) days if such violations or failure is reasonably
susceptible of cure during such 60 day period and Tenant or such
Subsidiary begins and diligently pursues to completion such cure
within thirty (30) days of the initial notice from Landlord;
xxx xxx xxx
(b) If an event of default shall have occurred and be continuing,
Landlord may, in its sole discretion;
(i) Terminate this Lease thirty (30) days after the expiration of any
period granted hereunder to cure any Event of Default and retain all
rent and other amounts previously paid by tenant and its
Subsidiaries. Thereafter, Landlord may immediately reenter, renovate
or relet all or part of the Property to others, and cancel all rights and
privileges granted to Tenant and its Subsidiaries without any
restriction on recovery by Landlord for rents, fees and damages
owned by Tenant and its Subsidiaries.
On 4 February 1997, Petitioner SBMA sent a letter to private
respondent UIG calling its attention to its alleged several contractual
violations in view of private respondent UIGs failure to deliver its
various contractual obligations, primarily its failure to complete the

rehabilitation of the Golf Course in time for the APEC Leaders


Summit, and to pay accumulated lease rentals and utilities, and to
post the required performance bond. Respondent UIG, in its letter of
7 February 1997, interposed as an excuse the alleged default of its
main contractor FF Cruz, resulting in their filing of suit against the
latter, and committed itself to comply with its obligations within a
few days. Private respondent UIG, however, failed to comply with its
undertakings. On 7 March 1997, petitioner SBMA sent a letter to
private respondent UIG declaring the latter in default of its
contractual obligations to SBMA under Section 22.1 of the Lease and
Development Agreement and required it to show cause why
petitioner SBMA should not pre-terminate the agreement. Private
respondents paid the rental arrearages but the other obligations
remained unsatisfied.
On 8 September 1997, a letter of pre-termination was served by
petitioner SBMA requiring private respondent UIG to vacate the
premises. On 12 September 1997, petitioner served the formal notice
of closure of Subic Bay Golf Course and took over possession of the
subject premises. On even date, private respondent filed a complaint
against petitioner SBMA for Injunction and Damages with prayer
for a writ of temporary restraining order and writ of preliminary
injunction. On 3 October 1997, respondent court issued the two
assailed orders subject of the petition.
Ruling of the Court of Appeals
The Court of Appeals upheld the capacity to sue of Respondent
Universal International Group of Taiwan (UIG) because petitioners,
having entered into a Lease Development Agreement (LDA) with it,
were estopped from questioning its standing. It also held that
Respondents UIG International Development Corporation (UIGDC)
and Subic Bay Golf and Country Club, Inc., (SBGCCI) were real
parties in interest because they had made substantial investments in
the venture and had been in possession of the property when Subic
Bay Metropolitan Authority (SBMA) rescinded the LDA.
Likewise, it debunked petitioners submission that Section 21 of RA
7227ix[9] was a blanket proscription against the issuance of any and
all injunctive relief[s] against SBMA. It said that those actions
which are removed from the stated objectives of the corporate entity
x x x cannot be placed beyond the pale of prohibitory writs. x[10]
While it conceded that the law allowed extrajudicial rescission of a
contract, it ruled that no rationalization was possible for the
9

extrajudicial taking of possession. It reasoned that no one may take


the law into his own hands. To hold otherwise would be productive
of nothing but mischief and chaos.
It also rejected petitioners reliance on Consing v. Jamandre,xi[11] in
which the Supreme Court allowed a contractual stipulation giving the
lessor the right to take possession of the leased property without need
of court order. It explained that Consing was a judicial aberration,
not common but not unknown in the body of our jurisprudence,
which lays down a ruling contrary to the teaching of the greater mass
of cases.xii[12]
Furthermore, it held that the issuance of the Writ of Preliminary
Injunction did not dispose of the main issue. Concluding, it observed
that we cannot and should not send the message to foreigners who
do business here that we are a group of jingoists who cannot look
beyond our narrow interests and must look at every stranger with a
wary eye and treat them with uneven hands.
Disagreeing with the above judgment, petitioners elevated the matter
to this Court.xiii[13]
The Issues
In its Memorandum, Petitioner SBMA submits the following issues
for our consideration:xiv[14]
I.
Whether or not the respondent court committed a reversible error in
ruling that petitioners action of extra-judicially recovering the
possession of the subject premises is supposedly illegal [as it] runs
counter to the established law and [the] applicable decisions of the
Supreme Court on the matter.
II.
Whether or not the respondent court committed a reversible error in
ruling that:
(a) The trial court ha[d] jurisdiction over the nature and subject
matter of the case despite the fact that the suit filed by private
respondents is essentially an ejectment case, and
(b) The trial court ha[d] authority to issue the questioned injunctive
relief despite the express prohibition under Section 21 of R.A. 7227
III.
Whether or not respondent court committed a reversible error in
ruling that private respondents ha[d] the capacity to sue and possess
material interest to institute an action against petitioners.
IV.

Whether or not the respondent court committed a reversible error by


sanctioning departure by the trial court from the accepted and usual
course of judicial proceedings by failing to make any ruling on the
essential elements of injunctive relief consisting of: (1) a clear and
unmistakable right and (2) irreparable damage on the part of the
private respondents.
V.
Whether or not respondent court committed a reversible error in
departing from the accepted and usual course of judicial proceedings
by sanctioning the illegal procedure of taking possession of the
subject premises from petitioner SBMA and transferring it into the
hands of the private respondents, although the rights of the latter
ha[d] not yet been clearly established.
VI.
Whether or not respondent court committed a reversible error by
departing from the accepted and usual course of judicial proceedings
by sustaining the grant of injunctive relief which effectively
prejudged the merits of the main case.
VII.
Whether or not respondent court committed a reversible error by
departing from the accepted and usual course of judicial proceedings
by sustaining the grant of injunctive relief in favor of the private
respondents although the latter [we]re clearly not entitled thereto as
they came before the courts with unclean hands.
VIII.
Whether or not in the event of a no reversible error judgment on
the questioned decision of the respondent court, this Honorable
Division of the Supreme Court might modify or even reverse the
doctrines and principles of law laid down by the Supreme Court in
several leading cases, in violation of Section 4, Article VIII of the
1987 Philippine Constitution.
IX.
Whether or not in the event of a no reversible error judgment, this
Honorable Division of the Supreme Court might unwittingly cause
great loss or irreparable damage to the government because such a
ruling tend[ed] to send a wrong signal that Philippine Courts [would]
reward rather than punish foreign investors who miserably failed to
comply with their contractual commitments to develop vital
government assets.
10

Distilling the above-quoted assignment of errors, we find two main


issues before us: (a) whether the denial of petitioners Motion to
Dismiss was correct, and (b) whether the issuance of the Writ of
Preliminary Mandatory and Prohibitory Injunction was proper.
Under the first issue, the Court shall resolve (1) whether Respondent
UIG has the capacity to sue, (2) whether Respondents UIGDC and
SBGCCI are real parties in interest, and (3) whether the RTC has
jurisdiction over the suit.
Under the second issue, the Court shall determine these questions:
(1) whether the Writ of Injunction against SBMA issued by the trial
court contravenes Section 21 of RA 7227; (2) whether respondents
have established their entitlement to the Writ; and (3) whether
SBMAs rescission of the LDA and takeover of the property are
allowed by law.
The Courts Ruling
The Petition is partly meritorious. The CA correctly affirmed the
denial of the Motion to Dismiss, but erred in sustaining the Writ of
Preliminary Mandatory and Prohibitory Injunction.
First Issue:
Denial of the Motion to Dismiss
In its amended Motion to Dismiss filed before the RTC, petitioners
contended that UIG had no capacity to sue, and that UIGDC and
SBGCCI had no material interest in the present case. Both the
appellate and the trial courts rejected these contentions. Reiterating
the arguments before us, petitioners add that the RTC had no
jurisdiction over the nature of the case.
(a) Respondents Capacity to Sue
Petitioners contend that UIG does not have the capacity to sue
because it is a foreign non-resident corporation not licensed by the
Securities and Exchange Commission to do business in the
Philippines. They contend that the capacity to sue is conferred by law
and not by the parties.
As a general rule, unlicensed foreign non-resident corporations
cannot file suits in the Philippines. Section 133 of the Corporation
Code specifically provides:
Sec. 133. 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.
A corporation has legal status only within the state or territory in
which it was organized. For this reason, a corporation organized in
another country has no personality to file suits in the Philippines. In
order to subject a foreign corporation doing business in the country
to the jurisdiction of our courts, it must acquire a license from the
SEC and appoint an agent for service of process. xv[15] Without such
license, it cannot institute a suit in the Philippines.
It should be stressed, however, that the licensing requirement was
never intended to favor domestic corporations who enter into
solitary transactions with unwary foreign firms and then repudiate
their obligations simply because the latter are not licensed to do
business in this country.xvi[16] After contracting with a foreign
corporation, a domestic firm is estopped from denying the formers
capacity to sue. Hence, in Merril Lynch Futures v. CA,xvii[17] the
Court ruled:
The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a
contract with it. And the doctrine of estoppel to deny corporate
existence applies to foreign as well as to domestic corporations;
one who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its existence and capacity. The
principle will be applied to prevent a person contracting with a
foreign corporation from later taking advantage of its noncompliance
with the statutes, chiefly in cases where such person has received the
benefits of the contract x x x.
This doctrine was initiated as early as 1924 in Asia Banking
Corporation v. Standard Productsxviii[18] and reiterated in Georg
Grotjahn GMBH v. Isnanixix[19] and Communication Materials and
Design v. CA.xx[20] In Antam Consolidated v. CA,xxi[21] the Court
also rejected a similar argument and noted that it is a common ploy
of defaulting local companies which are sued by unlicensed foreign
companies not engaged in business in the Philippines to invoke lack
of capacity to sue.
In this case, SBMA is estopped from questioning the capacity to sue
of UIG. In entering into the LDA with UIG, SBMA effectively
recognized its personality and capacity to institute the suit before the
trial court.
(b) Material Interest of
11

SBGCCI and UIGDC


Section 2, Rule 3 of the 1997 Rules of Court, defines a real party in
interest in this manner:
Sec. 2. Parties in Interest. - A real party in interest is the party who
stands to be benefited or injured by the judgment of the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.xxii[22]
SBMA contends that UIGDC is not a real party in interest because it
was not privy to the LDA between UIG and SBMA. It further alleges
that it did not approve the assignment to UIGDC of UIGs rights
thereunder. In like manner, SBGCCI had no interest in the LDA
because it only derived its rights from the Development Agreement it
had entered into with UIGDC.
We are not persuaded. The CA made a factual finding that UIGDC
and SBGCCI were in possession of the property when SBMA took
over. Moreover, it also found that they had already made substantial
investments in the project. We find no reason at this time to justify a
different conclusion. In view of these circumstances, we agree with
the CA that UIGDC and SBGCCI stand to be benefitted or injured by
the present suit and should be deemed real parties in interest. xxiii[23]
SBMAs contention -- that it had not approved UIGs assignment of
rights to UIGDC -- is not necessarily bereft of merit, however.
SBMA should raise this issue, not now but in appropriate
proceedings before the trial court.
(c) Jurisdiction Over the Subject Matter
Petitioners also argue that the RTC had no jurisdiction over the case,
which was allegedly an ejectment suit cognizable by municipal trial
courts. They add that the Complaint demanded that respondents be
restored to the possession of the subject leased premises.
We disagree. A close scrutiny of the amended Complaint reveals that
it sought to enjoin petitioners from rescinding the contract and taking
over the property. While possession was a necessary consequence of
the suit, it was merely incidental. The main issue was whether
SBMA could rescind the Agreement. Because it was a dispute that
was incapable of pecuniary estimation, it was within the jurisdiction
of the RTC.xxiv[24]
Second Issue:
Issuance of the Writ of Injunction
(a) Present Writ of Injunction Not Barred by RA 7227

Petitioners contend that the RTC was barred from issuing a writ of
injunction in this case, pursuant to Section 21 of RA 7227 which
provides as follows:
Sec. 21. Injunction and Restraining Order. -- The implementation of
the projects for the conversion into alternative productive uses of the
military reservations is urgent and necessary and shall not be
restrained or enjoined except by an order issued by the Supreme
Court of the Philippines.xxv[25]
We are not persuaded. We agree with the CA that the present
provision is not a blanket prohibition of the issuance of an injunctive
relief against any SBMA action. Section 21 of RA 7227 prohibits
only such court orders which restrain the implementation of the
projects for the conversion into alternative productive uses of the
military reservations.
The Writ issued in this case did not restrain or enjoin the
implementation of any of SBMAs conversion projects. In fact, it
allowed UIG to proceed with the development of the golf course
pursuant to the LDA. It merely restrained SBMA from taking over
the golf course. Clearly, the assailed RTC Order did not seek to delay
or hamper the conversion of the former naval base into civilian uses.
Moreover, the assailed Writ of Preliminary Injunction was issued in
connection with a dispute pertaining to the correct interpretation of
the LDA. To divest the trial court of that authority is to give SBMA
unhampered discretion to disregard its contractual obligations under
the guise of implementing its projects. Indeed, Section 21 of RA
7227 should not bar judicial scrutiny of irregularities allegedly
committed by SBMA.xxvi[26]
(b)Right of Respondents to Injunctive Relief
A writ of mandatory injunction requires the performance of a
particular actxxvii[27] and is granted only upon a showing of the
following requisites:
1.The invasion of the right is material and substantial;
2.
The right of a complainant is clear and unmistakable.
3.
There is an urgent and permanent necessity for the writ to
prevent serious damage.xxviii[28]
Because it commands the performance of an act, a mandatory
injunction does not preserve the status quoxxix[29] and is thus more
cautiously regarded than a mere prohibitive injunction. Accordingly,
the issuance of the former is justified only in a clear case, free from
12

doubt and dispute. Necessarily, the applicant has the burden of


showing that it is entitled to the writ.
In this case, the first assailed RTC Order dated October 3, 1997 was
effectively a preliminary mandatory injunction because it directed
[herein petitioners] to restore peacefully to the [herein respondents]
possession of the golf course, clubhouse, offices and other
appurtenances subject of the Lease and Development Agreement
between UIG Taiwan and the SBMA. In addition, it was also a
prohibitive injunction because it restrained petitioners from
obstructing or meddling in the operation and management of the
disputed property.
The records, however, do not show that herein respondents were
indubitably entitled to a mandatory writ. Under the LDA, we find no
proof of a clear and unmistakable right on their part to continue the
operation and the development of the golf course. Indeed, the RTC
based its assailed Order mainly on the ground that SBMAs takeover
was not legally justifiable. Thus, it ruled in this wise: xxx[30]
From all the foregoing, the Court is of the considered view that the
forcible take over [by] the [petitioners] of the golf course and its
appurtenances is not legally justifiable. Based on the evidence
adduced during the hearing, the [respondents] have established a
clear right to continue the operation and management of the golf
course, and x x x continued withholding of the premises by the
[petitioners] will result to irreparable damages to [respondents].
Furthermore, the CA did not make any categorical ruling that
respondents established a clear and unmistakable right to the Writ.
Like the RTC, it emphasized that there was no rationalization for
SBMAs extrajudicial takeover of the disputed property. In other
words, both the CA and the trial court effectively ruled that
respondents are entitled to the Writ of Mandatory Injunction because
SBMAs action was not in accordance with law.
On this point, we disagree with the trial and the appellate courts. As
we will now show, there is legal basis for petitioners rescission of
the contract and takeover of the property without any court order.
(c)Legality of SBMAs Rescission of the LDA and Takeover of the
Property
Because of UIGs failure to comply with several of its contractual
undertakings, SBMA rescinded the LDA and took over the
possession, the operation and the management of the property

without any judicial imprimatur. In doing so, it relied on the


provisions of the LDA, which we quoted earlier.
The Court of Appeals held that the extrajudicial rescission of the
LDA was lawful, but that the extrajudicial takeover of the property
was not. It relied on Nera v. Vacante,xxxi[31] in which the Supreme
Court held:
x x x. A stipulation entitling one party to take possession of the land
and building if the other party violates the contract does not ex
proprio vigore confer upon the former the right to take possession
thereof if objected to without judicial intervention and
determination.
It also cited Zulueta v. Mariano,xxxii[32] which reiterated the abovequoted ruling. That case was purportedly applicable because it
involved a similar contractual stipulation, which reads as follows:
12. That upon failure of the BUYER to fulfill any of the conditions
herein stipulated, BUYER automatically and irrevocably authorizes
OWNER to recover extra-judicially, physical possession of the land,
building and other improvements which are subject of this contract,
and to take possession also extra-judicially whatever personal
properties may be found within the aforesaid premises from the date
of said failure to answer for whatever unfulfilled monetary
obligations BUYER may have with OWNER; and this contract shall
be considered as without force and effect also from said date; x x x.
Because Zulueta was a subsequent Decision, it supposedly
overturned the diametrically opposed earlier ruling in Consing v.
Jamandre,xxxiii[33] in which the Supreme Court upheld a contractual
stipulation authorizing the sub-lessor to take possession of the leased
premises in case of contractual breach. As earlier noted, the CA also
ruled that Consing was a judicial aberration.
We disagree. At the outset, it should be underscored that these cases
are not diametrically opposed to each other. In fact, they coexist. It
should be noted also that the CA erred in holding that Zulueta, being
a later case, overturned Consing. The CA logic is flawed, because
after the promulgation of Zulueta, Consing was reiterated in 1991 in
Viray v. IAC.xxxiv[34]
Moreover, Zulueta and Nera recognized the validity and the
effectivity of a contractual provision authorizing the extrajudicial
rescission of a contract and the concomitant recovery of possession.
Like Nera, Zulueta merely added the qualification that the stipulation
has legal effect x x x where the other party does not oppose it.
13

Where it is objected to, a judicial determination of the issues is still


necessary. Significantly, they did not categorically rule that such
stipulation was void.
In fact, the stipulation is lawful. In Consing, the Court held that this
kind of contractual stipulation is not illegal, there being nothing in
the law proscribing such kind of agreement.xxxv[35] Affirming this
ruling, the Court in Viray v. IACxxxvi[36] reiterated that the stipulation
was in the nature of a resolutory condition, for upon the exercise by
the sub-lessor of his right to take possession of the leased property,
the contract is deemed terminated.
UP v. De los Angelesxxxvii[37] is instructive on this point. Pursuant to a
stipulation similar to that in the present case, the University of the
Philippines (UP) rescinded its Logging Agreement with ALUMCO
and subsequently appointed another concessionaire to take over the
logging operation. Hence, the issue was whether [P]etitioner UP can
treat its contract with ALUMCO rescinded, and may disregard the
same before any judicial pronouncement to that effect. Ruling in
favor of UP, the Court held that a party could enforce such
stipulation:
[T]he party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court
action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and
finally settle whether the action taken was or was not correct in law.
But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment
before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the others breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own
damages. (Emphasis supplied.)
The Court also noted that the rescission was provisional and
subject to scrutiny and review by the proper court. It further noted
that if the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to
court. It observed that the practical effect of the stipulation [was]
to transfer to the defaulter the initiative of instituting suit, instead of
the rescinder.

In the present case, it is clear that the subject stipulation is allowed


by law. Moreover, a party is free to enforce it by rescinding the
contract and recovering possession of the property even without
court intervention. Where it is objected to, however, a judicial
determination of the issue is still necessary.xxxviii[38] Force or
bloodshed cannot be justified in the enforcement of the stipulation.
Where the lessees offer physical resistance, the lessors may apply for
a writ of preliminary mandatory injunction, to which they have a
clear and unmistakable right. Indeed, courts are the final arbiters.
Thus, contrary to the ruling of the CA and the RTC, there is a
rationalization and a legal justification for the stipulation authorizing
SBMA to rescind the contract and to take over the property.
No Valid Objection on the Part of Respondents
As earlier observed, there were several violations xxxix[39] of the
LDA, which were duly reported by SBMA to UIG. Respondents,
however, did not deny or controvert them. Effectively, therefore, they
offered no valid or sufficient objection to SBMAs exercise of its
stipulated right to extrajudicially rescind the LDA and take over the
property in case of material breach.
First, the Amended Complaint merely argued that the takeover was
grounded upon a void provision of the agreement.xl[40] It did not
controvert the grounds for SBMAs exercise of its rights under the
subject stipulation. Indeed, glaring was respondents failure to deny
the alleged violations of the LDA.
Second, Respondent UIG was given several opportunities by SBMA
to explain the alleged violations. Instead of controverting them, UIG
instead indicated its willingness to comply with all its undertakings.
Hence, in its February 4, 1997 letter,xli[41] SBMA called its attention
to several instances showing contractual breach. In response, UIGs
counsel did not deny the violations and instead apologized for the
delay.xlii[42]
Finding the response and the explanation unsatisfactory, SBMA, in a
letter dated March 7, 1997, declared UIG in default and required it to
explain why the LDA should not be terminated. UIG did not submit
any written explanation. Instead, its counsel called the SBMA chief
operating officerxliii[43] to inform him of its commitment to
undertake anew the remedial measures regarding the matter. xliv[44]
In its letter dated September 8, 1997, SBMA directed UIG to vacate
the premises and to settle its outstanding accounts. Finally, on
September 12, 1997, SBMA served UIG a Notice of Closure. xlv[45]
14

It should be underscored that during all these exchanges, UIG did


not controvert its alleged noncompliance with the LDA.
Third, in the hearing for the application for a writ of mandatory
injunction, respondents presented two witnesses: Orlando de la
Masa, operations manager of SBGCCI; and Danilo Alabado,
comptroller of UIGDC. De la Masa testified on the alleged forcible
takeover by SBMA, while Alabado testified that respondents had
invested $12 million in the rehabilitation of the golf course.
Respondents, however, did not deny the violations of their
undertaking, which were explained by Atty. Raymond P. Ventura. xlvi
[46]
Most significant, neither the CA nor the RTC made any finding that
there was no breach on the part of UIG. Likewise, they did not even
make any observation that respondents had controverted SBMAs
claim.
Clearly, respondents stand was not a valid or sufficient objection to
SBMAs exercise of its right. Indeed, sustaining their claim would
unduly diminish the force of such lawful stipulation and allow
parties to disregard it at will without any valid reason. In this case,
respondents miserably failed to give any semblance of objection to
the merits of SBMAs allegations. Moreover, we find no adequate
showing of resistance to SBMAs implementation of the subject
stipulation.
Under the circumstances, SBMA showed that it had a right not only
to rescind the contract, but also to take over the property. On the
other hand, respondents have not shown any clear and unmistakable
right to restrain SBMA from enforcing the contractual stipulation.

THIRD DIVISION

[G.R. No. 118843. February 6, 1997]


ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS and
DELFIN F. ENRIQUEZ, JR., respondents.
DECISION
PANGANIBAN, J.:
Is a foreign corporation which sold its products sixteen times over a
five-month period to the same Filipino buyer without first obtaining
a license to do business in the Philippines, prohibited from
maintaining an action to collect payment therefor in Philippine
courts? In other words, is such foreign corporation doing business

Indeed, they have offered no objection to SBMAs allegations of


contractual breach. Without prejudging their right to offer
controverting evidence during the trial on the merits, the Court holds
that they failed to do so in their application for a writ of preliminary
injunction.
Epilogue
The Court of Appeals expressed its apprehension that a ruling against
UIG would send a message to foreign investors that we are a group
of jingoists. We do not share that view. Jingoism is not an issue
here. Far from it. In partially reversing the CA, this Court is merely
performing its mandate to do justice and to apply the law to the facts
of the case. It is merely affirming the message that in this country,
the rule of law prevails; and contracts freely entered into, whether by
foreign or by local investors, must be complied with. Indeed, rule of
law and faithfulness in the performance of contracts are cherished
values everywhere.
WHEREFORE, the Petition is partially GRANTED, and the assailed
Decision of the Court of Appeals REVERSED and SET ASIDE
insofar as it affirmed the Writ of Preliminary Injunction issued by the
trial court. The said Writ is hereby LIFTED and the case
REMANDED to the RTC for trial on the merits. In the meantime,
respondents shall, upon finality of this Decision, yield the
possession, the operation and the management of the subject
property to SBMA. No costs.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
in the Philippines without the required license and thus barred access
to our court system?
This is the main issue presented for resolution in the instant petition
for review, which seeks the reversal of the Decision xlvii[1] of the
Court of Appeals, Seventh Division, promulgated on January 25,
1995, in CA-G.R. CV No. 41275 which affirmed, for want of
capacity to sue, the trial courts dismissal of the collection suit
instituted by petitioner.
The Facts
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation
engaged in the manufacture and sale of elements used in sealing
pumps, valves and pipes for industrial purposes, valves and control
15

equipment used for industrial fluid control and PVC pipes and
fittings for industrial uses. In its complaint, it alleged that: xlviii[2]
(I)t is a corporation duly organized and existing under the laws of
the Republic of Singapore with address at 18 Pasir Panjang Road
#09-01, PSA Multi-Storey Complex, Singapore 0511. It is not
licensed to do business in the Philippines and i(s) not so engaged and
is suing on an isolated transaction for which it has capacity to sue x x
x. (par. 1, Complaint; p. 1, Record)
On various dates covering the period January 17 -- August 16, 1989,
private respondent Delfin Enriquez, Jr., doing business under the
name and style of Delrene EB Controls Center and/or EB Karmine
Commercial, ordered and received from petitioner various elements
used in sealing pumps, valves, pipes and control equipment, PVC
pipes and fittings. The ordered materials were delivered via
airfreight under the following invoices:xlix[3]
Date

17 Jan

89

24 Feb

89

02 Mar

89

03 Mar

89

03 Mar

89

10 Mar

89

21 Mar

89

14 Apr

89

19 Apr

89

89

16 Aug

Invoice No.
27065
27738
27855
27876
27877
28046
28258
28901
29001
31669
28257
28601
28900
29127
29232
29332
29497

AWB No.
618-7496-2941
618-7553-6672
(freight & handling charges per
Inv. 27738)
618-7553-7501
618-7553-7501
618-7578-3256/
618-7578-3481
618-7578-4634
618-7741-7631
Self-collect
(handcarried by buyer)
618-7578-4634
618-7741-7605
618-7741-7631
618-7741-9720
(By seafreight)
618-7796-3255
(Freight & handling charges per

21 Mar

89

04 Apr

89

14 Apr

29844

Inv. 29127)
618-7796-5646
Total

89

25 Apr

89

02

May 89

05

May 89

15

May 89

31

May 89

The transfers of goods were perfected in Singapore, for private


respondents account, F.O.B. Singapore, with a 90-day credit term.
Subsequently, demands were made by petitioner upon private
respondent to settle his account, but the latter failed/refused to do so.
On August 28, 1991, petitioner corporation filed with the Regional
Trial Court of Makati, Branch 138,l[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, li[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:lii[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.
16

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: liii[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 petitioners business with private respondent
may be treated as isolated transactions.
Petitioner insists that the series of sales made to private respondent
would still constitute isolated transactions despite the number of
invoices covering several separate and distinct items sold and
shipped over a span of four to five months, and that an affirmation of
respondent Courts ruling would result in injustice and unjust
enrichment.
Private respondent counters that to declare petitioner as possessing
capacity to sue will render nugatory the provisions of the
Corporation Code and constitute a gross violation of our laws. Thus,
he argues, petitioner is undeserving of legal protection.
The Courts Ruling
The petition has no merit.
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.liv[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. 7042lv[9] in this wise:
SEC. 3. Definitions. - As used in this Act:
xxx
xxx
xxx
(d) the phrase doing business shall include soliciting orders, service
contracts, opening offices, whether called liaison offices or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a
period or periods totalling one hundred eight(y) (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase doing business shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account.
(underscoring supplied)
In the durable case of The Mentholatum Co. vs. Mangaliman, this
Court discoursed on the test to determine whether a foreign company
is doing business in the Philippines, thus:lvi[10]
x x x The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another. (Traction Cos. v.
Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984, 987.] The
term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or
17

the exercise of some of the functions normally incident to, and in


progressive prosecution of, the purpose and object of its
organization.] (sic) (Griffin v. Implement Dealers Mut. Fire Ins. Co.,
241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co.,
246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American
Standard Metal Products Corp., 158 N.E. 698, 703, 327 III. 367.)
The accepted rule in jurisprudence is that each case must be judged
in the light of its own environmental circumstances. lvii[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:lviii[12]
The invoices and delivery receipts covering the period of (sic) from
January 17, 1989 to August 16, 1989 cannot be treated to mean a
singular and isolated business transaction that is temporary in
character. Granting that there is no distributorship agreement
between herein parties, yet by the mere fact that plaintiff, each time
that the defendant posts an order delivers the items as evidenced by
the several invoices and receipts of various dates only indicates that
plaintiff has the intention and desire to repeat the (sic) said
transaction in the future in pursuit of its ordinary business.
Furthermore, and if the corporation is doing that for which it was
created, the amount or volume of the business done is immaterial and
a single act of that character may constitute doing business. (See p.
603, Corp. Code, De Leon - 1986 Ed.).
Respondent Court affirmed this finding in its assailed Decision with
this explanation:lix[13]
x x x Considering the factual background as laid out above, the
transaction cannot be considered as an isolated one. Note that there
were 17 orders and deliveries (only sixteen per our count) over a
four-month period. The appellee (private respondent) made separate
orders at various dates. The transactions did not consist of separate
deliveries for one single order. In the case at bar, the transactions
entered into by the appellant with the appellee are a series of
commercial dealings which would signify an intent on the part of the
appellant (petitioner) to do business in the Philippines and could not

by any stretch of the imagination be considered an isolated one, thus


would fall under the category of doing business.
Even if We were to view, as contended by the appellant, that the
transactions which occurred between January to August 1989,
constitute a single act or isolated business transaction, this being the
ordinary business of appellant corporation, it can be said to be
illegally doing or transacting business without a license. x x x Here
it can be clearly gleaned from the four-month period of transactions
between appellant and appellee that it was a continuing business
relationship, which would, without doubt, constitute doing business
without a license. For all intents and purposes, appellant corporation
is doing or transacting business in the Philippines without a license
and that, therefore, in accordance with the specific mandate of
Section 144 of the Corporation Code, it has no capacity to sue.
(addition ours)
We find no reason to disagree with both lower courts. More than the
sheer number of transactions entered into, a clear and unmistakable
intention on the part of petitioner to continue the body of its business
in the Philippines is more than apparent. As alleged in its complaint,
it is engaged in the manufacture and sale of elements used in sealing
pumps, valves, and pipes for industrial purposes, valves and control
equipment used for industrial fluid control and PVC pipes and
fittings for industrial use. Thus, the sale by petitioner of the items
covered by the receipts, which are part and parcel of its main product
line, was actually carried out in the progressive prosecution of
commercial gain and the pursuit of the purpose and object of its
business, pure and simple. Further, its grant and extension of 90-day
credit terms to private respondent for every purchase made,
unarguably shows an intention to continue transacting with private
respondent, since in the usual course of commercial transactions,
credit is extended only to customers in good standing or to those on
whom there is an intention to maintain long-term relationship. This
being so, the existence of a distributorship agreement between the
parties, as alleged but not proven by private respondent, would, if
duly established by competent evidence, be merely corroborative,
and failure to sufficiently prove said allegation will not significantly
affect the finding of the courts below. Nor our own ruling. It is
precisely upon the set of facts above-detailed that we concur with
respondent Court that petitioner corporation was doing business in
the country.
18

Equally important is the absence of any fact or circumstance which


might tend even remotely to negate such intention to continue the
progressive prosecution of petitioners business activities in this
country. Had private respondent not turned out to be a bad risk, in
all likelihood petitioner would have indefinitely continued its
commercial transactions with him, and not surprisingly, in ever
increasing volumes.
Thus, we hold that the series of transactions in question could not
have been isolated or casual transactions. What is determinative of
doing business is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to
continue the body of its business in the country. The number and
quantity are merely evidence of such intention. The phrase isolated
transaction has a definite and fixed meaning, i.e. a transaction or
series of transactions set apart from the common business of a
foreign enterprise in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the business
organization. Whether a foreign corporation is doing business
does not necessarily depend upon the frequency of its transactions,
but more upon the nature and character of the transactions. lx[14]
Given the facts of this case, we cannot see how petitioners business
dealings will fit the category of isolated transactions considering
that its intention to continue and pursue the corpus of its business in
the country had been clearly established. It has not presented any
convincing argument with equally convincing evidence for us to rule
otherwise.
Incapacitated to Maintain Suit
Accordingly and ineluctably, petitioner must be held to be
incapacitated to maintain the action a quo against private respondent.
It was never the intent of the legislature to bar court access to a
foreign corporation or entity which happens to obtain an isolated
order for business in the Philippines. Neither, did it intend to shield
debtors from their legitimate liabilities or obligations. lxi[15] But it
cannot allow foreign corporations or entities which conduct regular
business any access to courts without the fulfillment by such

corporations of the necessary requisites to be subjected to our


governments regulation and authority. By securing a license, the
foreign entity would be giving assurance that it will abide by the
decisions of our courts, even if adverse to it.
Other Remedy Still Available
By this judgment, we are not foreclosing petitioners right to collect
payment. Res judicata does not set in a case dismissed for lack of
capacity to sue, because there has been no determination on the
merits.lxii[16] Moreover, this Court has ruled that subsequent
acquisition of the license will cure the lack of capacity at the time of
the execution of the contract.lxiii[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.lxiv[18] Thus, it has
been ruled in Home Insurance that:lxv[19]
x x x The primary purpose of our statute is to compel a foreign
corporation desiring to do business within the state to submit itself to
the jurisdiction of the courts of this state. The statute was not
intended to exclude foreign corporations from the state. x x x x The
better reason, the wiser and fairer policy, and the greater weight lie
with those decisions which hold that where, as here, there is a
prohibition with a penalty, with no express or implied declarations
respecting the validity of enforceability of contracts made by
qualified foreign corporations, the contracts x x x are enforceable x x
x upon compliance with the law.(Peter & Burghard Stone Co. v.
Carper, 172 N.E. 319 [1930].)
While we agree with petitioner that the country needs to develop
trade relations and foster friendly commercial relations with other
states, we also need to enforce our laws that regulate the conduct of
foreigners who desire to do business here. Such strangers must
follow our laws and must subject themselves to reasonable regulation
by our government.
WHEREFORE, premises considered, the instant petition is hereby
DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.

19

iRepublic of the Philippines


SUPREME COURT
ManilaFIRST DIVISION
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.
Plana, Relova, De la Fuente and Alampay, JJ., concur.
Melencio-Herrera, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 109272 August 10, 1994


GEORG GROTJAHN GMBH & CO., petitioner,
vs.
HON. LUCIA VIOLAGO ISNANI, Presiding Judge, Regional Trial Court, Makati, Br. 59; ROMANA R.
LANCHINEBRE; and TEOFILO A. LANCHINEBRE, respondents.
A.M. Sison, Jr. & Associates for petitioner.
Pedro L. Laso for private respondents.

PUNO, J.:
Petitioner impugns the dismissal of its Complaint for a sum of money by the respondent judge for lack of
jurisdiction and lack of capacity to sue.
The records show that petitioner is a multinational company organized and existing under the laws of the Federal
Republic of Germany. On July 6, 1983, petitioner filed an application, dated July 2, 1983, 1 with the Securities
and Exchange Commission (SEC) for the establishment of a regional or area headquarters in the Philippines,
pursuant to Presidential Decree No. 218. The application was approved by the Board of Investments (BOI) on
September 6, 1983. Consequently, on September 20, 1983, the SEC issued a Certificate of Registration and
License to petitioner. 2
Private respondent Romana R. Lanchinebre was a sales representative of petitioner from 1983 to mid-1992. On
March 12, 1992, she secured a loan of twenty-five thousand pesos (P25,000.00) from petitioner. On March 26
and June 10, 1992, she made additional cash advances in the sum of ten thousand pesos (P10,000.00). Of the
total amount, twelve thousand one hundred seventy pesos and thirty-seven centavos (P12,170.37) remained
unpaid. Despite demand, private respondent Romana failed to settle her obligation with petitioner.
On July 22, 1992, private respondent Romana Lanchinebre filed with the Arbitration Branch of the National
Labor Relations Commission (NLRC) in Manila, a Complaint for illegal suspension, dismissal and non-payment
of commissions against petitioner. On August 18, 1992, petitioner in turn filed against private respondent a
Complaint for damages amounting to one hundred twenty thousand pesos (P120,000.00) also with the NLRC
Arbitration Branch (Manila). 3 The two cases were consolidated.
On September 2, 1992, petitioner filed another Complaint for collection of sum of money against private
respondents spouses Romana and Teofilo Lanchinebre which was docketed as Civil Case No. 92-2486 and
raffled to the sala of respondent judge. Instead of filing their Answer, private respondents moved to dismiss the
Complaint. This was opposed by petitioner.
On December 21, 1992, respondent judge issued the first impugned Order, granting the motion to dismiss. She
held, viz:
Jurisdiction over the subject matter or nature of the action is conferred by law and not subject to
the whims and caprices of the parties.

Under Article 217 of the Labor Code of the Philippines, the Labor Arbiters shall have original
and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision, the following cases involving all workers,
whether agricultural or non-agricultural:
(4) claims for actual, moral, exemplary and other forms of damages arising from an employeremployee relations.
xxx xxx xxx
(6) Except claims for employees compensation, social security, medicare and maternity benefits,
all other claims arising from employer-employee relations, including those of persons in
domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00)
regardless of whether or not accompanied with a claim for reinstatement.
In its complaint, the plaintiff (petitioner herein) seeks to recover alleged cash advances made by
defendant (private respondent herein) Romana Lanchinebre while the latter was in the employ of
the former. Obviously the said cash advances were made pursuant to the employer-employee
relationship between the (petitioner) and the said (private respondent) and as such, within the
original and exclusive jurisdiction of the National Labor Relations Commission.
Again, it is not disputed that the Certificate of Registration and License issued to the (petitioner)
by the Securities and Exchange Commission was merely "for the establishment of a regional or
area headquarters in the Philippines, pursuant to Presidential Decree No. 218 and its
implementing rules and regulations." It does not include a license to do business in the
Philippines. There is no allegation in the complaint moreover that (petitioner) is suing under an
isolated transaction. It must be considered that under Section 4, Rule 8 of the Revised Rules of
Court, 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. There is no averment in the complaint regarding
(petitioner's) capacity to sue or be sued.
Finally, (petitioner's) claim being clearly incidental to the occupation or exercise of (respondent)
Romana Lanchinebre's profession, (respondent) husband should not be joined as party
defendant. 4
On March 8, 1993, the respondent judge issued a minute Order denying petitioner's Motion for Reconsideration.
Petitioner now raises the following assignments of errors:
I
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE REGULAR COURTS
HAVE NO JURISDICTION OVER DISPUTES BETWEEN AN EMPLOYER AND AN
EMPLOYEE INVOLVING THE APPLICATION PURELY OF THE GENERAL CIVIL LAW.
II
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PETITIONER HAS NO
CAPACITY TO SUE AND BE SUED IN THE PHILIPPINES DESPITE THE FACT THAT

PETITIONER IS DULY LICENSED BY THE SECURITIES AND EXCHANGE


COMMISSION TO SET UP AND OPERATE A REGIONAL OR AREA HEADQUARTERS IN
THE COUNTRY AND THAT IT HAS CONTINUOUSLY OPERATED AS SUCH FOR THE
LAST NINE (9) YEARS.
III
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE ERRONEOUS
INCLUSION OF THE HUSBAND IN A COMPLAINT IS A FATAL DEFECT THAT SHALL
RESULT IN THE OUTRIGHT DISMISSAL OF THE COMPLAINT.
IV
THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE HUSBAND IS NOT
REQUIRED BY THE RULES TO BE JOINED AS A DEFENDANT IN A COMPLAINT
AGAINST THE WIFE.
There is merit to the petition.
Firstly, the trial court should not have held itself without jurisdiction over Civil Case No. 92-2486. It is true that
the loan and cash advances sought to be recovered by petitioner were contracted by private respondent Romana
Lanchinebre while she was still in the employ of petitioner. Nonetheless, it does not follow that Article 217 of
the Labor Code covers their relationship.
Not every dispute between an employer and employee involves matters that only labor arbiters and the NLRC
can resolve in the exercise of their adjudicatory or quasi-judicial powers. The jurisdiction of labor arbiters and
the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee
relationship which can only be resolved by reference to the Labor Code, other labor statutes, or their collective
bargaining agreement. In this regard, we held in the earlier case of Molave Motor Sales, Inc. vs. Laron, 129
SCRA 485 (1984), viz:
Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters, under paragraph 5 of
Article 217 of the Labor Code had jurisdiction over "all other cases arising from employeremployee relation, unless expressly excluded by this Code." Even then, the principal followed
by this Court was that, although a controversy is between an employer and an employee, the
Labor Arbiters have no jurisdiction if the Labor Code is not involved. In Medina vs. CastroBartolome, 116 SCRA 597, 604 in negating jurisdiction of the Labor Arbiter, although the
parties were an employer and two employees, Mr. Justice Abad Santos stated:
The pivotal question to Our mind is whether or not the Labor Code has any
relevance to the reliefs sought by plaintiffs. For if the Labor Code has no
relevance, any discussion concerning the statutes amending it and whether or
not they have retroactive effect is unnecessary.
xxx xxx xxx
And in Singapore Airlines Limited vs. Pao, 122 SCRA 671, 677, the following was said:
Stated differently, petitioner seeks protection under the civil laws and claims no
benefits under the Labor Code. The primary relief sought is for liquidated

damages for breach of a contractual obligation. The other items demanded are
not labor benefits demanded by workers generally taken cognizance of in labor
disputes, such as payment of wages, overtime compensation or separation pay.
The items claimed are the natural consequences flowing from breach of an
obligation, intrinsically a civil dispute.
xxx xxx xxx
In San Miguel Corporation vs. NLRC, 161 SCRA 719 (1988), we crystallized the doctrines set forth in the
Medina, Singapore Airlines, and Molave Motors cases, thus:
. . . The important principle that runs through these three (3) cases is that where the claim to the
principal relief sought is to be resolved not by reference to the Labor Code or other labor
relations statute or a collective bargaining agreement but by the general civil law, the jurisdiction
over the dispute belongs to the regular courts of justice and not to the Labor Arbiter and the
NLRC. In such situations, resolutions of the dispute requires expertise, not in labor management
relations nor in wage structures and other terms and conditions of employment, but rather in the
application of the general civil law. Clearly, such claims fall outside the area of competence or
expertise ordinarily ascribed to Labor Arbiters and the NLRC and the rationale for granting
jurisdiction over such claims to these agencies disappears.
Civil Case No. 92-2486 is a simple collection of a sum of money brought by petitioner, as creditor, against
private respondent Romana Lanchinebre, as debtor. The fact that they were employer and employee at the time
of the transaction does not negate the civil jurisdiction of the trial court. The case does not involve adjudication
of a labor dispute but recovery of a sum of money based on our civil laws on obligation and contract.
Secondly, the trial court erred in holding that petitioner does not have capacity to sue in the Philippines. It is
clear that petitioner is a foreign corporation doing business in the Philippines. Petitioner is covered by the
Omnibus Investment Code of 1987. Said law defines "doing business," as follows:
. . . 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 (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. 5
There is no general rule or governing principle 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. 6 In the case at
bench, petitioner does not engage in commercial dealings or activities in the country because it is precluded from
doing so by P.D. No. 218, under which it was established. 7 Nonetheless, it has been continuously, since 1983,
acting as a supervision, communications and coordination center for its home office's affiliates in Singapore, and
in the process has named its local agent and has employed Philippine nationals like private respondent Romana
Lanchinebre. From this uninterrupted performance by petitioner of acts pursuant to its primary purposes and
functions as a regional/area headquarters for its home office, it is clear that petitioner is doing business in the
country. Moreover, private respondents are estopped from assailing the personality of petitioner. So we held in
Merrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824, 837 (1992):

The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the "doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations;" "one who has dealth
with a corporation of foreign origin as a corporate entity is estopped to deny its corporate
existence and capacity." The principle "will be applied to prevent a person contracting with a
foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in
cases where such person has received the benefits of the contract, . . . (Citations omitted.)
Finally, the trial court erred when it dismissed Civil Case No. 92-2486 on what it found to be the misjoinder of
private respondent Teofilo Lanchinebre as party defendant. It is a basic rule that "(m)isjoinder or parties is not
ground for dismissal of an action." 8 Moreover, the Order of the trial court is based on Section 4(h), Rule 3 of the
Revised Rules of Court, which provides:
A married woman may not . . . be sued alone without joining her husband, except . . . if the
litigation is incidental to the profession, occupation or business in which she is engaged,
Whether or not the subject loan was incurred by private respondent as an incident to her profession, occupation
or business is a question of fact. In the absence of relevant evidence, the issue cannot be resolved in a motion to
dismiss.
IN VIEW WHEREOF, the instant Petition is GRANTED. The Orders, dated December 21, 1992 and March 8,
1993, in Civil Case No. 92-2486 are REVERSED AND SET ASIDE. The RTC of Makati, Br. 59, is hereby
ordered to hear the reinstated case on its merits. No costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Mendoza, JJ., concur.

ii

iii

iv

vi

vii

viii

ix

xi

xii

Antam Consolidated vs. CA Case Digest


Antam Consolidated vs. Court of Appeals
[GR L-61523, July 31, 1986]
Facts:
On 9 April 1981, Stokely Van Camp. Inc. filed a complaint against Banahaw MillingCorporation, Antam
Consolidated, Inc., Tambunting Trading Corporation, Aurora ConsolidatedSecurities and Investment
Corporation, and United Coconut Oil Mills, Inc. (Unicom) for collection of sum of money. In its complaint,

Stokely alleged: (1) that it is a corporation organized and existingunder the laws of the state of Indiana, U.S.A.
and has its principal office at 941 North MeridianStreet, Indianapolis, Indiana, U.S.A., and one of its
subdivisions "Capital City Product Company"(Capital City) has its office in Columbus, Ohio, U.S.A.; (2) that
Stokely and Capital City were notengaged in business in the Philippines prior to the commencement of the suit
so that Stokely is notlicensed to do business in this country and is not required to secure such license; (3) that on
21 August 1978, Capital City and Coconut Oil Manufacturing (Phil.) Inc. (Comphil) with the latter
actingthrough its broker Rothschild Brokerage Company, entered into a contract (RBS 3655) whereinComphil
undertook to sell and deliver and Capital City agreed to buy 500 long tons of crude coconutoil to be delivered in
October/November 1978 at the c.i.f price of US$0.30/lb. but Comphil failed todeliver the coconut oil so that
Capital City covered its coconut oil needs in the open market at a pricesubstantially in excess of the contract and
sustained a loss of US$103,600; that to settle CapitalCity's loss under the contract, the parties entered into a
second contract (RBS 3738) on 3 November 1978 wherein Comphil undertook to buy and Capital City agreed to
sell 500 long tons of coconutcrude oil under the same terms and conditions but at an increased c.i.f. price of
US$0.3925/lb.; (4)that the second contract states that "it is a wash out against RBS 3655" so that Comphil
wassupposed to repurchase the undelivered coconut oil at US $0.3925 from Capital City by paying thelatter the
sum of US$103,600.00 which is the same amount of loss that Capital City sustained under the first contract; that
Comphil again failed to pay said amount, so to settle Capital City's loss, itentered into a third contract with
Comphil on 24 January 1979 wherein the latter undertook to selland deliver and Capital City agreed to buy the
same quantity of crude coconut oil to be delivered in April/May 1979 at the c.i.f. price of US$0.3425/lb.; (5) that
the latter price was 9.25 cents/lb. or US$103,600 for 500 long tons below the then current market price of 43.2
cents/lb. and by deliveringsaid quantity of coconut oil to Capital City at the discounted price, Comphil was to
have settled itsUS$103,600 liability to Capital City; (6) that Comphil failed to deliver the coconut oil so Capital
Citynotified the former that it was in default; (7) that Capital City sustained damages in the amount
of US$175,000; and (8) that after repeated demands from Comphil to pay the said amount, the latter still refuses
to pay the same. Stokely further prayed that a writ of attachment be issued against anyand all the properties of
Antam, et al. in an amount sufficient to satisfy any lien of judgment thatStokely may obtain in its action. In
support of this provisional remedy and of its cause of actionagainst Antam, et al., other than Comphil, Stokely
alleged that: 1) After demands were made byrespondent on Comphil, the Tambuntings ceased to be directors and
officers of Comphil and werereplaced by their five employees, who were managers of Tambunting's pawnshops
and saidemployees caused the name of Comphil to be changed to "Banahaw Milling Corporation" andauthorized
one of the Tambuntings, Antonio P. Tambunting, Jr., who was at that time neither adirector nor officer of
Banahaw to sell its oil mill; 2) Unicom has taken over the entire operations and assets of Banahaw because the
entire and outstanding capital stock of the latter was sold to theformer; 3) All of the issued and outstanding
capital stock of Comphil are owned by the Tambuntingswho were the directors and officers of Comphil and who
were the ones who benefited from the saleof Banahaw's assets or shares to Unicom; 4) All of the petitioners
evaded their obligation torespondent by the devious scheme of using Tambunting employees to replace the
Tambuntings inthe management of Banahaw and disposing of the oil mill of Banahaw or their entire interests
toUnicom; and 5) Respondent has reasonable cause to believe and does believe that the coconut oilmill, which is
the only substantial asset of Banahaw is about to be sold or removed so that unlessprevented by the Court there
will probably be no assets of Banahaw to satisfy its claim. On 10 April1981, the trial court ordered the issuance
of a writ of attachment in favor of Stokely upon the latter'sdeposit of a bond in the amount of P1,285,000.00.On
3 June 1981, Stokely filed a motion for reconsideration to reduce the attachment bond. On 11June 1981, Antam,
et al. filed a motion to dismiss the complaint on the ground that Stokely, being aforeign corporation not licensed
to do business in the Philippines, has no personality to maintain thesuit. Thereafter, the trial court issued an
order, dated 10 August 1981, reducing the attachment bondto P500,000.00 and denying the motion to dismiss by
Antam, et al. on the ground that the reasoncited therein does not appear to be indubitable. Antam, et al. filed a
petition for certiorari before theIntermediate Appellate Court. On 14 June 1982, the appellate court dismissed the
petition. Antam, etal. filed a motion for reconsideration but the same was denied. Hence, they filed the petition
for certiorari and prohibition with prayer for temporary restraining order.
Issue: Whether Stokely Van Camp, Inc. has the capacity to sue, in light of three transactions itentered into with
Comphil, Antam, etc. without license.

Held:
The transactions entered into by Stokely with Comphil, Antam, et al. are not a series of commercial dealings
which signify an intent on the part of Stokely to do business in the Philippinesbut constitute an isolated one
which does not fall under the category of "doing business." The onlyreason why Stokely entered into the second
and third transactions with Comphil, Antam, et al. wasbecause it wanted to recover the loss it sustained from the
failure of Comphil, Antam, et al. to deliver the crude coconut oil under the first transaction and in order to give
the latter a chance to make goodon their obligation. Instead of making an outright demand on Comphil, Antam,
et al., Stokely opted totry to push through with the transaction to recover the amount of US$103,600.00 it lost.
Thisexplains why in the second transaction, Comphil, Antam, et al. were supposed to buy back the crudecoconut
oil they should have delivered to the respondent in an amount which will earn the latter aprofit of
US$103,600.00. When this failed the third transaction was entered into by the partieswhereby Comphil, Antam,
et al. were supposed to sell crude coconut oil to the respondent at adiscounted rate, the total amount of such
discount being US$103,600.00. Unfortunately, Comphil, Antam, et al. failed to deliver again, prompting Stokely
to file the suit below. From these facts alone,it can be deduced that in reality, there was only one agreement
between Comphil, Antam, et al. andStokely and that was the delivery by the former of 500 long tons of crude
coconut oil to the latter,who in turn, must pay the corresponding price for the same. The three seemingly
different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in
noway indicate an intent on the part of Stokely to engage in a continuity of transactions with Comphil, Antam, et
al. which will categorize it as a foreign corporation doing business in the Philippines.Stokely, being a foreign
corporation not doing business in the Philippines, does not need to obtain alicense to do business in order to have
the capacity to sue.

xiii

xiv

xv

xvi

xvii

xviii

xix

xx

xxi

xxii

xxiii

xxiv

xxv

xxvi

xxvii

xxviii

xxix

xxx

xxxi

xxxii

Digested by: Jr Abul


Subject: Insurance Law
Title: Avon Insurance vs CA
Topic: Reinsurance (sections 95-98)
FACTS:
- It all started with Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co.
Inc., several of its properties totaling P200 Million
- These contracts were covered by reinsurance treaties between Worldwide Surety and Insurance, and
several foreign reinsurance companies including the petitioners through CJ Boatrwright acting as agent
of Worldwide Surety and Insurance
- A Fire then razed the properties insured on December 1969 and May 2, 1981
- A Deed of Assignment made by Worldwide Surety and Insurance acknowledged a remaining balance of
P19,444,447.75 still due and assigned to Yupangco all reinsurance proceeds still collectible from all the
foreign reinsurance companies.
- Yupangco then filed a collection suit on the above petitioners
- The service of summons were made through the office of the Insurance Commissioner but since the
international reinsurers question the jurisdiction the trial court the case has not proceeded to trial on the
merits
- The reinsurer is questioning also the service of summons through extraterritorial service under Sect 17
Rule 14 of the Rules of Court nor through the Insurance Commissioner under Sec 14
- Yupangco also contends that since the reinsurers question the jurisdiction of the court they are deemed to
have submitted to the jurisdiction of the court.
ISSUE: WON the international reinsurers are doing business in the Philippines.
- WON the Philippine court has jurisdiction over these international reinsurers who are not doing business
in the Philippines
RULING: NO, international reinsurers are not doing business in the Philippines and the Philippine court
has not acquired jurisdiction over them.
- The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made
through an international insurance broker and NOT through any entity or means remotely connected
with the Philippines

Reinsurance company is not doing business in a certain state even if the property or lives which are
insured by the original insurer company are located in that state.
Reinsurance Contract is generally separate and distinct arrangement from the original contract of
insurance.
Doing business in the Philippines must be judged in the light of its peculiar circumstances upon its
peculiar facts and upon the language of the statute applicable.
o True test: whether the foreign corporation is continuing the body or substance of the business or
enterprise for which it was organized
If there exist a domestic agent of the foreign corporation it can be served with summons through that
agent without proving that such corporation is doing business in the phils or not.
o NO allegation or demonstration of the existence of petitioners domestic agent but avers simply
that they are doing business not only abroad but in the Phils
o Petitioners had not performed any act which would give the general public the impression that it
had been engaging or intends to engage in its ordinary and usual business undertaking in the
country.
The purpose of the law in requiring that foreign corporations doing business in the country be licensed to
do so, is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the
courts, 19 otherwise, a foreign corporation illegally doing business here because of its refusal or neglect
to obtain the required license and authority to do business may successfully though unfairly plead such
neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts.
Voluntary appearance before the lower court to question the jurisdiction is not equivalent to submission
to jurisdiction

The SC disposed the case in favor of the international insurers (petitioners) declaring that the lower court has
not acquired and cannot acquire jurisdiction over them and was ordered to desist from maintaining further
proceeding against them.

xxxiii

xxxiv

xxxv

xxxvi

xxxvii

xxxviii

xxxix

xl

xli

COLUMBIA PICTURES INC. v CA [237 SCRA 367 (1994)]


Nature: Petitions for review on certiorari of the decision of the CA.
Ponente: J. Vitug
Facts:
07 April 1998: NBI filed with the RTC of Pasig 3 applications for SW against private respondent (Tube
Video Enterprises Edward C. Cham; Blooming Rose Tape Center Ma. Jajorie T. Uy; Video Channel
Lydia Nabong) charging them with violations of Sec. 56 of PD 49 (Decree on the Protection of
Intellectual Property) as amended by PD 1988.
RTC Judge Austria consolidated the 3 applications and conducted a joint hearing where she made a
personal examination of the applicant (NBI Agent Reyes) and his witnesses.
Finding just and probable cause, Judge Austria issued the search warrants.
Private Respondents filed their Motion to Quash the SW citing as grounds that there was no probable
cause; the films in question are not protected by PD 1988 in that they were never registered in the
National Library as a condition precedent to the availment of the protection; the Motion Picture
Association of America have not proven nor established their ownership over the films; etc.
Judge Austria reversed her former stand initially finding probable cause for the issuance of the search
warrants and ordered their quashal:
o Private complainants uncertain of their ownership over the titles;
o Complainants did not comply with the requirement that master tapes should be presented during
the application for search warrants;
o Complainants failed to comply with the deposit and registration requirements of PD 49 as
amended by PD 1988.
Judge Austria also ordered the return of the items seized by virtue of the warrants.
CA affirmed the quashal of the SWs.
Issue: WON the SWs were issued with probable cause. NO
Ratio:
BASIC REQUIREMENT for the validity of search warrants (in cases of this nature) is the presentation of the
master tapes of the copyrighted films from which the pirated films are supposed to have been copied (20th
Century Fox Film Corp. vs. CA, 164 SCRA 655).
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.
According to the CA, in which the SC concurs:

It is not correct to say that "the basic fact" to be proven to establish probable cause in the instant
cases is not the "unauthorized transfer" of a motion picture that has been recorded but the "sale,
lease, or distribution of pirated video tapes of copyrighted films."

In applying for the search warrants the NBI charged violation of the entire provisions of Section
56 of P.D. No. 49 as amended by P.D.No. 1988. This included not only the sale, lease or
distribution of pirated tapes but also the transfer or causing to be transferred of any sound
recording or motion picture or other audio visual work.

But even assuming, as appellants argue, that only the sale, lease, or distribution of pirated video
tapes is involved, the fact remains that there is need to establish probable cause that the tapes
being sold, leased or distributed are pirated tapes, hence the issue reverts back to the question of
whether there was unauthorized transfer, directly or indirectly, of a sound recording or motion
picture or other audio visual work that has been recorded

Petitions denied.
SECOND DIVISION
[G.R. No. 94980. May 15,1996]
LITTON MILLS; INC., petitioner, vs. COURT OF APPEALS and GELHAAR UNIFORM COMPANY, INC.,
respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; SUMMONS; A COURT NEED NOT GO BEYOND THE
ALLEGATIONS IN THE COMPLAINT TO DETERMINE WHETHER OR NOT A DEFENDANT
FOREIGN CORPORATION IS DOING BUSINESS FOR THE PURPOSE OF RULE 14, SECTION 14;
CASE AT BAR. A court need not go beyond the allegations in the complaint to determine whether or not a
defendant foreign corporation is doing business for the purpose of Rule 14, 14. In the case at bar, the allegation
that Empire, for and in behalf of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton and for this
purpose Gelhaar caused the opening of an irrevocable letter of credit in favor of Litton is a sufficient allegation
that Gelhaar was doing business in the Philippines.
2. ID.; ID.; ID.; SERVICE OF SUMMONS; VALID IN CASE AT BAR. In accordance with Rule 14, 14,
service upon Gelhaar could be made in three ways: (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 effect; and (3) by serving on any officer or agent of said corporation within the
Philippines. Here, service was made through Gelhaars agent, the Empire Sales Philippines Corp. There was,
therefore, a valid service of summons on Gelhaar, sufficient to confer on the trial court jurisdiction over the
person of Gelhaar.

APPEARANCES OF COUNSEL
Juanitas, Perez, Gonzales, Bolos & Associates for petitioner.
Sycip Salazar Hernandez & Gatmaitan for private respondent.
DECISION
MENDOZA, J.:
This is a petition to review the decision of the Court of Appeals annulling the order of the Regional Trial Court
which denied private respondents plea that it is a foreign corporation not doing business in the Philippines and
therefore not subject to the jurisdiction of Philippine courts.
Petitioner Litton Mills, Inc. (Litton) entered into an agreement with Empire Sales Philippines Corporation
(Empire), as local agent of private respondent Gelhaar Uniform Company (Gelhaar), a corporation organized
under the laws of the United States, whereby Litton agreed to supply Gelhaar 7,770 dozens of soccer jerseys.
The agreement stipulated that be fore it could collect from the bank on the letter of credit, Litton must present an
inspection certificate issued by Gelhaars agent in the Philippines, Empire Sales, that the goods were in
satisfactory condition.
Litton sent four shipments totalling 4,770 dozens of the soccer jerseys between December 2 and December 30,
1983. A fifth shipment, consisting of 2,110 dozens of the jerseys, was inspected by Empire from January 9 to
January 19, 1984, but Empire refused to issue the required certificate of inspection.
Alleging that Empires refusal to issue a certificate was without valid reason, Litton filed a complaint with the
Regional Trial Court of Pasig (Branch 158) on January 23,1984, for specific performance. Litton alleged that
under the terms of the letter of credit, the goods should be shipped not later than January 30, 1984; that the
vessel stipulated to carry the shipment was scheduled to receive the cargo only on January 27, 1984; and that the
letter of credit itself was due to expire on February 14, 1984. Litton sought the issuance of a writ of preliminary
mandatory injunction to compel Empire to issue the inspection certificate covering the 2,110 dozen jerseys and
the recovery of compensatory and exemplary damages, costs, attorneys fees and other just and equitable relief.
The trial court issued the writ on January 25, 1984. The next day, Empire issued the inspection certificate, so that
the cargo was shipped on time.
On February 8, 1984, Atty. Remie Noval filed in behalf of the defendants a Motion For Extension of Time To
File An Answer/Responsive Pleading. He filed on February 17, February 22, March 2, March 14, March 26,
April 5, April 16, May 2, May 16, May 31, all in 1984, ten other motions for extension, all of which were
granted by the court, with the exception of the last, which the Court denied. On his motion, the court later
reconsidered its order of denial and admitted the answer of the defendants. On September 10, 1984, Atty. Noval
filed the pretrial brief for the defendants.
On January 29,1985, the law firm of Sycip, Salazar, Feliciano and Hernandez entered a special appearance for
the purpose of objecting to the jurisdiction of the court over Gelhaar. On February 4,1985, it moved to dismiss
the case and to quash the summons on the ground that Gelhaar was a foreign corporation not doing business in
the Philippines, and as such, was beyond the reach of the local courts.
It contended that Litton failed to allege and prove that Gelhaar was doing business in the Philippines, which they
argued was required by the ruling in Pacific Micronisian Lines, Inc. v. Del Rosario,1 before summons could be

served under Rule 14, 14.


It likewise denied the authority of Atty. Noval to appear for Gelhaar and contended that the answer filed by Atty.
Noval on June 15, 1984 could not bind Gelhaar and its filing did not amount to Gelhaars submission to the
jurisdiction of the court.
Litton opposed the motion. On the other hand, Empire moved to dismiss on the ground of failure of the
complaint to state a cause of action since the complaint alleged that Empire only acted as agent of Gelhaar; that
it was made party-defendant only for the purpose of securing the issuance of an inspection certificate; and that it
had already issued such certificate and the shipment had already been shipped on time.
For his part, Atty. Remie Noval claimed that he had been authorized by Gelhaar to appear for it in the case; that
he had in fact given legal advice to Empire and his advice had been transmitted to Gelhaar; that Gelhaar had
been furnished a copy of the answer; that Gelhaar denied his authority only on December of 1984; and that the
belated repudiation of his authority could be only an afterthought because of problems which had developed
between Gelhaar and Empire. (Gelhaar refused to pay Empire for its services as agent). Nevertheless, Atty.
Noval withdrew his appearance with respect to Gelhaar.
On September 24, 1986, the trial court issued an order denying for lack of merit Gelhaars motion to dismiss and
to quash the summons. It held that Gelhaar was doing business in the Philippines, and that the service of
summons on Gelhaar was therefore valid. Gelhaar filed a motion for reconsideration, but its motion was denied.
Gelhaar then filed a special civil action of certiorari with the Court of Appeals, which on August 20, 1990, set
aside the orders of the trial court. The appellate court held that proof that Gelhaar was doing business in the
Philippines should have been presented because, under the doctrine of Pacific Micronisian, this is a condition
sine qua non for the service of summons under Rule 14, 14 of the Rules of Court, and
that it was error for the trial court to rely on the mere allegations of the complaint.
The appellate court held that neither did the trial court acquire jurisdiction over Gelhaar through voluntary
submission because the authority of Atty. Noval to represent Gelhaar had been questioned. Pursuant to Rule 138,
21, the trial court should have required Atty. Noval to prove his authority.
Consequently, the appellate court ordered the trial court to issue anew summons to be served on Empire Sales
Philippines Corporation, after the allegation in the complaint that Gelhaar was doing business in the Philippines
had been established. Hence this petition.
Litton contends that jurisdiction over Gelhaar was acquired by the trial court by the service of summons through
Gelhaars agent and, at any rate, by the voluntary appearance of Atty. Remie Noval as counsel of Gelhaar.
We sustain petitioners contention based on the first ground, namely, that the trial court acquired jurisdiction
over Gelhaar by service of summons upon its agent pursuant to Rule 14, 14.
First. The appellate court invoked the ruling in Pacific Micronisian, in which it was stated that the fact of doing
business must first be established before summons can be served in accordance with Rule 14, 14. The Court of
Appeals quoted the following portion of the opinion in that case:
The above section [referring to Rule 14, Section 14] provides for three modes of effecting service upon a private
corporation, namely: [enumerates the three modes of service of summons]. But, it should be noted, in order that
service 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. (Italics by the Court of Appeals)2
In the later case of Signetics Corporation v. Court of Appeals,3 however, we clarified the holding in Pacific
Micronisian, thus:
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. 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 so be, initially determined by the
allegations of the complaint. 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. 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. . . .
Hence, a court need not go beyond the allegations in the complaint to determine whether or not a defendant
foreign corporation is doing business for the purpose of Rule 14, 14. In the case at bar, the allegation that
Empire, for and in behalf of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton and for this purpose
Gelhaar caused the opening of an irrevocable letter of credit in favor of Litton is a sufficient allegation that
Gelhaar was doing business in the Philippines.
Second. Gelhaar contends that the contract with Litton was a single, isolated transaction and that it did not
constitute doing business. Reference is made to Pacific Micronisian in which the only act done by the foreign
company was to employ a Filipino as a member of the crew on one of its ships. This court held that the act was
an isolated, incidental or casual transaction, not sufficient to indicate a purpose to engage in business.
It is not really the fact that there is only a single act done that is material. The other circumstances of the case
must be considered. Thus, in Wang Laboratories, Inc. v. Mendoza,4 it was 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 on the part of the foreign corporation to do other business in the state, such act will be
considered as constituting doing business.5 This Court referred to acts which were in the ordinary course of
business of the foreign corporation.
In the case at bar, the trial court was certainly correct in holding that Gelhaars act in purchasing soccer jerseys
to be within the ordinary course of business of the company considering that it was engaged in the manufacture
of uniforms. The acts noted above are of such a character as to indicate a purpose to do business.
In accordance with Rule 14, 14, service upon Gelhaar could be made in three ways: (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 effect; and (3) by serving on any officer or agent of
said corporation within the Philippines.6 Here, service was made through Gelhaars agent, the Empire Sales
Philippines Corp. There was, therefore, a valid service of summons on Gelhaar, sufficient to confer on the trial
court jurisdiction over the person of Gelhaar.

Third. On the question, however, of whether the appearance of Atty. Noval in behalf of Gelhaar was binding on
the latter, we hold that the Court of Appeals correctly ruled that it was not.
Atty. Noval admits that he was not appointed by Gelhaar as its counsel. What he claims is simply that Gelhaar
knew of the filing of the case in the trial court and of his representation but Gelhaar did not object. Atty. Noval
contends that there was thus a tacit confirmation of his authority.
Gelhaar claims, however, that it was only sometime in December, 1994 when it found out that the answer which
Atty. Noval had filed in June was also made in its behalf. Gelhaar in fact sent a telex message dated January 15,
1985 to its counsel, the Sycip law firm, stating
WE NEVER AUTHORIZED THE RETENTION OF MR. NOVAL ON OUR BEHALF. WE HAVE NEVER
EXCHANGED CORRESPONDENCE NOR HAD ANY TELEPHONE CONVERSATIONS WITH HIM RE
ANY ASPECT OF THIS CASE, INCL. HIS FEES. WE ARE TOLD THAT HE HAS FILED AN ANSWER TO
LTNS (Littons) COMPLT. PURPORTEDLY ON OUR BEHALF BUT HE HAS NEVER DISCUSSED THAT
ANSWER WITH US NOR EVEN SENT US A DRAFT OR THE FINAL VERSION OF SUCH ANSWER. WE
ARE SENDING SWORN AFFIDAVITS TO THIS EFFECT BY COURIER.7
Atty. Noval has not denied any of these statements. He claims that the advisory opinions he had rendered in the
case was sent to Gelhaar by the president of Empire, Enoch Chiu, and that he was informed by Chiu that
Gelhaar had been advised on all developments in the case and the necessity of filing an answer, and that a copy
of the answer he had filed was furnished Gelhaar.
All this is, however, merely hearsay. Noval does not claim that he ever directly conferred with Gelhaar regarding
the case. There is no evidence to show that he notified Gelhaar of his appearance in its behalf, or that he
furnished Gelhaar with copies of pleadings or the answer which he filed in its behalf.
No voluntary appearance by Gelhaar can, therefore, be inferred from the acts of Atty. Noval. Nor can Atty.
Novals representations in the answer he considered binding on Gelhaar. Gelhaar should be allowed a new period
for filing its own answer.
WHEREFORE, the decision of the Court of Appeals is REVERSED. The order of the trial court denying the
motion to dismiss is hereby REINSTATED, with the MODIFICATION that Gelhaar is given a new period of ten
(10) days for the purpose of filing its answer.
SO ORDERED.
Regalado (Chairman), Romero, Puno, and Torres, Jr., JJ., concur.

MERRILL LYNCH FUTURES, INC. VS. COURT OF APPEALS, SPOUSES PEDRO M. LARA AND ELISA
G. LARA
G.R. No. 97816
July 24, 1992
NARVASA, C.J.:
FACTS:
Merrill Lynch Futures, Inc. filed a complaint against the Spouses Pedro M. Lara and Elisa G. Lara for
the recovery of a debt and interest thereon, damages, and attorney's fees. In its complaint ML FUTURES alleged
the following: that it entered into a Futures Customer Agreement with the defendant spouses, in virtue of which
it agreed to act as the latter's broker for the purchase and sale of futures contracts in the U.S.; that the orders to
buy and sell futures contracts were transmitted to ML FUTURES by the Lara Spouses "through the facilities of
Merrill Lynch Philippines, Inc., a Philippine corporation and a company servicing plaintiffs customers; the Lara
Spouses "knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts,"
and that it "did not have a license from the SEC to operate as a commodity trading advisor; the Lara Spouses
actively traded in futures contracts for four years; that because of a loss incurred said spouses became indebted
to ML FUTURES; that the Lara Spouses refused to pay this balance, "alleging that the transactions were null and
void because Merrill Lynch Philippines, Inc., had no license to operate as a 'commodity and/or financial futures
broker.'"
ISSUE:
Whether or not a foreign corporation has a capacity to maintain an action in the Philippines against
residents thereof
HELD:
The Court is satisfied that the facts on record adequately establish that ML FUTURES, operating in the
United States, had indeed done business with the Lara Spouses in the Philippines over several years, had done so
at all times through Merrill Lynch Philippines, Inc, a corporation organized in this country, and had executed all
these transactions without ML FUTURES being licensed to so transact business here, and without MLPI being
authorized to operate as a commodity futures trading advisor.
The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the "doctrine of estoppel to deny corporate
existence applies to foreign as well as to domestic corporations;" "one who has dealt with a corporation of
foreign origin as a corporate entity is estopped to deny its corporate existence and capacity." The principle "will
be applied to prevent a person contracting with a foreign corporation from later taking advantage of its

noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract,
where such person has acted as agent for the corporation and has violated his fiduciary obligations as such, and
where the statute does not provide that the contract shall be void, but merely fixes a special penalty for violation
of the statute"

xlii

xliii

xliv

xlv

xlvi

xlvii

xlviii

xlix

li

lii

liii

liv

lv

Republic of the Philippines


SUPREME COURT
ManilaTHIRD DIVISION
G.R. No. 61950 September 28, 1990

MARUBENI NEDERLAND B.V., petitioner,


vs.
THE HONORABLE JUDGE RICARDO P. TENSUAN, Presiding Judge of the Court of First Instance of
Rizal, Branch IV, Quezon City and ARTEMIO GATCHALIAN, respondents.
Siquion Reyna, Montecillo & Ongsiako for petitioner.
Maximo Belmonte for private respondent.

FERNAN, C.J.:
On October 23, 1976, in Tokyo, Japan, petitioner Marubeni Nederland B.V. and D.B. Teodoro Development
Corporation (DBT for short) entered into a contract whereby petitioner agreed to supply all the necessary
equipment, machinery, materials, technical know-how and the general design of the construction of DBT's lime
plant at the Guimaras Islands in Iloilo for a total contract price of US$5,400,000.00 on a deferred payment basis.
Simultaneously with the supply contract, the parties entered into two financing contracts, namely a construction
loan agreement in the amount of US$1,600,000.00 and a cash loan agreement for US$1,500,000.00. The
obligation of DBT to pay the loan amortizations on their due dates under the three (3) contracts were absolutely
and unconditionally guaranteed by the National Investment and Development Corporation (NIDC).
Pursuant to the terms of the financing contracts, the loan amortizations of DBT fell due on January 7, 1980, July
7, 1980 and January 7, 1981. But before the first installment became due, DBT wrote a letter to the NIDC
interposing certain claims against the petitioner and at the same time requesting NIDC for a revision of the
repayment schedule and of the amounts due under the contracts on account of petitioner's delay in the
performance of its contractual commitments. 1 In due time, the problems regarding the lime plant were ironed
out and the parties signed a "Settlement Agreement" on July 2, 1981. 2
However, on May 14, 1982, DBT through counsel, informed petitioner that it was rejecting the lime plant on the
ground that it has not been constructed in accordance with their agreement. DBT made a formal demand for
indemnification in the total amount of P95,150,000. 3 In its letter dated June 1, 1982, petitioner refused to accept
DBT's unilateral rejection of the plant and reasoned that the alleged operation and technical problems were
"totally unrelated to the guaranteed capacity and specifications of the plant and definitely are not attributable to
any fault or omission on the part of Marubeni." 4
Before the first installment under the "Settlement Agreement" could be paid, private respondent Artemio
Gatchalian, a stockholder of DBT sued petitioner Marubeni for contractual breach before the then Court of First
Instance of Rizal, Branch 4, Quezon City. 5 In his complaint filed on June 22, 1982, Gatchalian impleaded DBT
as an "unwilling plaintiff . . . for whose primary benefit th(e) action (wa)s being prosecuted" together with NIDC
which, as pledgee of the voting shares in DBT has controlling interest in that corporation. 6 Gatchalian sought
indemnification in the amount of P95,150,000.00 and further prayed for a writ of preliminary injunction to
enjoin DBT and NIDC from making directly or indirectly any payment to Marubeni in connection with the
contracts they had entered into. On June 25, 1982, respondent judge issued a temporary restraining order
directed against DBT and NIDC and set the injunction for hearing. 7
On July 5, 1982, petitioner Marubeni entered a limited and special appearance and sought the dismissal of the
complaint on the ground that the court a quo had no jurisdiction over the person of petitioner since it is a foreign
corporation neither doing nor licensed to do business in the Philippines. Private respondent opposed that motion.
On September 22, 1982, the lower court denied petitioner's motion to dismiss for lack of merit and gave it ten

(10) days within which to file an answer. Petitioner opted to elevate the jurisdictional issue directly to the High
Court. 8 Hence, this petition for certiorari and prohibition with prayer for a temporary restraining order. On
October 6, 1982, we issued the restraining order and subsequently required the parties to file simultaneous
memoranda.
The pivotal issue in this case is whether or not petitioner Marubeni Nederland B.V. can be considered as "doing
business" in the Philippines and therefore subject to the jurisdiction of our courts.
Petitioner claims that it is a foreign corporation not doing business in the country and as an entity with its own
capitalization, it is separate and distinct from Marubeni Corporation, Japan which is doing business in the
Philippines through its Manila branch; that the three (3) contracts entered into with DBT were perfected and
consummated in Tokyo, Japan; that the sale and purchase of the machineries and equipment for the Guimaras
lime plant were isolated contracts and in no way indicated a purpose to engage in business; and that the services
performed by petitioner in the Philippines were merely auxillary to the aforesaid isolated transactions entered
into and perfected outside the Philippines.
On the other hand, private respondent Gatchalian contends that petitioner can be sued in Philippine courts on
liabilities arising from even a single transaction because in reality, it is already engaging in business in the
country through Marubeni Corporation, Manila branch and that they, together with Nihon Cement Company,
Ltd. of Japan are but "alter egos, adjuncts, conduits instruments or branch affiliates of Marubeni Corporation of
Japan", the parent company. 9
In resolving the issue at hand, we reiterate that there is no general rule or principle that can be laid down to
determine what constitutes doing or engaging in business. Each case must be judged in the light of its peculiar
factual milieu and upon the language of the statute applicable. 10
Contrary to petitioner's allegations, we hold that petitioner can be sued in the regular courts because it is doing
business in the Philippines. The applicable law is Republic Act No. 5455 as implemented by the following rules
and regulations of the Board of Investments which took effect on February 3, 1969. Thus:
xxx xxx xxx
(f) the performance within the Philippines of any act or combination of acts enumerated in
Section 1 (1) of the Act shall constitute "doing business" therein. In particular, "doing business"
includes:
1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by
a foreign firm amounting to negotiation or fixing of the terms and conditions of sales or service
contracts, regardless of whether the contracts are actually reduced to writing, shall constitute
doing business even if the enterprise has no office or fixed place of business in the
Philippines. . . .
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 the principal.
xxx xxx xxx
4) Opening offices whether called "liaison" offices, agencies or branches, unless proved
otherwise.

xxx xxx xxx


10) Any other act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, or in the progressive prosecution of, commercial gain or of the
purpose and objective of the business organization. 11
It cannot be denied that petitioner had solicited the lime plant business from DBT through the Marubeni Manila
branch. Records show that the "turn-key proposal for the . . . 300 T/D Lime Plant" was initiated by the Manila
office through its Mr. T. Hojo. In a follow-up letter dated August 3, 1976, Hojo committed the firm to a price
reduction of $200,000.00 and submitted the proposed contract forms. As reflected in the letterhead used, it was
Marubeni Corporation, Tokyo, Japan which assumed an active role in the initial stages of the negotiation.
Petitioner Marubeni Nederland B.V. had no visible participation until the actual signing of the October 28, 1976
agreement in Tokyo and even there, in the space reserved for petitioner, it was the signature. of "S. Adachi as
General Manager of Marubeni Corporation, Tokyo on behalf of Marubeni Nederland B.V." which appeared. 12
Even assuming for the sake of argument that Marubeni Nederland B.V. is a different and separate business entity
from Marubeni Japan and its Manila branch, in this particular transaction, at least, Marubeni Nederland B.V.
through the foregoing acts, had effectively solicited "orders, purchases (sales) or service contracts" as well as
constituted Marubeni Corporation, Tokyo, Japan and its Manila Branch as its representative in the Philippines to
transact business for its account as principal. These circumstances, taken singly or in combination, constitute
"doing business in the Philippines" within the contemplation of the law.
At this juncture it must be emphasized that a foreign corporation doing business in the Philippines with or
without license is subject to process and jurisdiction of the local courts. If such corporation is properly licensed,
well and good. But it shall not be allowed, under any circumstances, to invoke its lack of license to impugn the
jurisdiction of our courts. 13
Finally, petitioner contends that it was denied due process when respondent Judge Tensuan peremptorily denied
its motion to dismiss without giving petitioner any opportunity to present evidence at a hearing set for this
purpose. 14
The alleged denial of due process is more apparent than real. Under Section 13, Rule 16 of the Revised Rules of
Court, the court, when confronted with a motion to dismiss, is given two courses of action, to wit: (1) to deny or
grant the motion or allow amendment of the pleading or (2) to defer the hearing and determination of the motion
until the trial on the merits, if the ground alleged therein does not appear to be indubitable.
In the case at bar, assuming there was no formal hearing on the motion to dismiss prior to its rejection, such did
not unduly prejudice the rights of petitioner. Respondent court still had to conduct trial on the merits during
which time it could grant the motion after sufficient evidence has been presented showing without any question
the want of jurisdiction over the person of the movant. It would have been different had respondent court
sustained petitioner's motion to dismiss without the required hearing in which case, the corrective writ of
certiorari would have issued against said court. In the absence of a hearing, the appellate court, in an appeal
from an order of dismissal, would have had no means of determining or resolving the legality of the proceedings
and the sufficiency of the proofs on which the order was based.
WHEREFORE, the petition is DISMISSED for lack of merit. Respondent Court is hereby directed to proceed
with the hearing of Civil Case No. Q-35534 with dispatch. This decision is immediately executory. Costs against
the petitioner.

SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Corts, JJ., concur.

lvi

lvii

lviii

lix

lx

lxi

lxii

lxiii

lxiv

Republic of the Philippines


SUPREME COURT
ManilaTHIRD DIVISION

G.R. No. 73765 August 26, 1991


HANG LUNG BANK, LTD., petitioner,
vs.
HON. FELINTRIYE G. SAULOG, Presiding Judge, Regional Trial Court, National Capital Judicial
Region, Branch CXLII, Makati, Metro Manila, and CORDOVA CHIN SAN, respondents.
Belo, Abiera & Associates for petitioner.

Castelo Law Office for private respondent.

FERNAN, C.J.:p
Challenged in this petition for certiorari which is anchored on grave abuse of discretion, are two orders of the
Regional Trial Court, Branch CXLII of Makati, Metro Manila dismissing the complaint for collection of a sum
of money and denying the motion for reconsideration of the dismissal order on the ground that petitioner, a
Hongkong-based bank, is barred by the General Banking Act from maintaining a suit in this jurisdiction.
The records show that on July 18, 1979, petitioner Hang Lung Bank, Ltd., which was not doing business in the
Philippines, entered into two (2) continuing guarantee agreements with Cordova Chin San in Hongkong whereby
the latter agreed to pay on demand all sums of money which may be due the bank from Worlder Enterprises to
the extent of the total amount of two hundred fifty thousand Hongkong dollars (HK $250,000). 1
Worlder Enterprises having defaulted in its payment, petitioner filed in the Supreme Court of Hongkong a
collection suit against Worlder Enterprises and Chin San. Summonses were allegedly served upon Worlder
Enterprises and Chin San at their addresses in Hongkong but they failed to respond thereto. Consequently, the
Supreme Court of Hongkong issued the following:
JUDGMENT
THE 14th DAY OF JUNE, 1984
No notice of intention to defend having been given by the 1st and 2nd Defendants herein, IT IS
THIS DAY ADJUDGED that:
(1) the 1st Defendant (Ko Ching Chong Trading otherwise known as the Worlder Enterprises) do
pay the Plaintiff the sum of HK$1,117,968.36 together with interest on the respective principal
sums of HK$196,591.38, HK$200,216.29, HK$526,557.63, HK$49,350.00 and HK$3,965.50 at
the rates of 1.7% per month (or HK$111.40 per day), 18.5% per annum (or HK$101.48 per day),
1.85% per month (or HK$324.71 per day), 1.55% per month (or HK$25.50 per day) and 1.7%
per month (or HK$2.25 per day) respectively from 4th May 1984 up to the date of payment; and
(2) the 2nd Defendant (Cordova Chin San) do pay the Plaintiff the sum of HK$279,325.00
together with interest on the principal sum of HK$250,000.00 at the rate of 1.7% per month (or
HK$141.67 per day) from 4th May 1984 up to the date of payment.
AND IT IS ADJUDGED that the 1st and 2nd Defendants do pay the Plaintiff the sum of
HK$970.00 fixed costs.
N.J. BARNETT
Registrar
Thereafter, petitioner through counsel sent a demand letter to Chin San at his Philippine address but again, no
response was made thereto. Hence, on October 18, 1984, petitioner instituted in the court below an action
seeking "the enforcement of its just and valid claims against private respondent, who is a local resident, for a
sum of money based on a transaction which was perfected, executed and consummated abroad." 2

In his answer to the complaint, Chin San raised as affirmative defenses: lack of cause of action, incapacity to sue
and improper venue. 3
Pre-trial of the case was set for June 17, 1985 but it was postponed to July 12, 1985. However, a day before the
latter pre-trial date, Chin San filed a motion to dismiss the case and to set the same for hearing the next day. The
motion to dismiss was based on the grounds that petitioner had no legal capacity to sue and that venue was
improperly laid.
Acting on said motion to dismiss, on December 20, 1985, the lower court 4 issued the following order:
On defendant Chin San Cordova's motion to dismiss, dated July 10, 1985; plaintiff's opposition,
dated July 12, 1985; defendant's reply, dated July 22, 1985; plaintiff's supplemental opposition,
dated September 13, 1985, and defendant's rejoinder filed on September 23, 1985, said motion
to dismiss is granted.
Section 14, General Banking Act provides:
"No foreign bank or banking corporation formed, organized or existing under
any laws other than those of the Republic of the Philippines, shall be permitted
to transact business in the Philippines, or maintain by itself any suit for the
recovery of any debt, claims or demands whatsoever until after it shall have
obtained, upon order of the Monetary Board, a license for that purpose."
Plaintiff Hang Lung Bank, Ltd. with business and postal address at the 3rd Floor, United Centre,
95 Queensway, Hongkong, does not do business in the Philippines. The continuing guarantee,
Annexes "A" and "B" appeared to have been transacted in Hongkong. Plaintiff's Annex "C"
shows that it had already obtained judgment from the Supreme Court of Hongkong against
defendant involving the same claim on June 14, 1984.
The cases of Mentholatum Company, Inc. versus Mangaliman, 72 Phil. 524 and Eastern
Seaboard Navigation, Ltd. versus Juan Ysmael & Company, Inc., 102 Phil. 1-8, relied upon by
plaintiff, deal with isolated transaction in the Philippines of foreign corporation. Such
transaction though isolated is the one that conferred jurisdiction to Philippine courts, but in the
instant case, the transaction occurred in Hongkong.
Case dismissed. The instant complaint not the proper action.
SO ORDERED. 5
Petitioner filed a motion for the reconsideration of said order but it was denied for lack of merit. 6 Hence, the
instant petition for certiorari seeking the reversal of said orders "so as to allow petitioner to enforce through the
court below its claims against private respondent as recognized by the Supreme Court of Hongkong." 7
Petitioner asserts that the lower court gravely abused its discretion in: (a) holding that the complaint was not the
proper action for purposes of collecting the amount guaranteed by Chin San "as recognized and adjudged by the
Supreme Court of Hongkong;" (b) interpreting Section 14 of the General Banking Act as precluding petitioner
from maintaining a suit before Philippine courts because it is a foreign corporation not licensed to do business in
the Philippines despite the fact that it does not do business here; and (c) impliedly sustaining private respondent's
allegation of improper venue.

We need not detain ourselves on the issue of improper venue. Suffice it to state that private respondent waived
his right to invoke it when he forthwith filed his answer to the complaint thereby necessarily implying
submission to the jurisdiction of the court. 8
The resolution of this petition hinges on a determination of whether petitioner foreign banking corporation has
the capacity to file the action below.
Private respondent correctly contends that since petitioner is a bank, its capacity to file an action in this
jurisdiction is governed by the General Banking Act (Republic Act No. 337), particularly Section 14 thereof
which provides:
SEC. 14. No foreign bank or banking corporation formed, organized or existing under any laws
other than those of the Republic of the Philippines shall be permitted to transact business in the
Philippines, or maintain by itself or assignee any suit for the recovery of any debt, claims, or
demand whatsoever, until after it shall have obtained, upon order of the Monetary Board, a
license for that purpose from the Securities and Exchange Commissioner. Any officer, director
or agent of any such corporation who transacts business in the Philippines without the said
license shall be punished by imprisonment for not less than one year nor more than ten years and
by a fine of not less than one thousand pesos nor more than ten thousand pesos. (45 O.G. No. 4,
1647, 1649-1650)
In construing this provision, we adhere to the interpretation given by this Court to the almost identical Section 69
of the old Corporation Law (Act No. 1459) which reads:
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 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 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 a long line of cases, this Court has interpreted this last quoted provision as not altogether prohibiting a foreign
corporation not licensed to do business in the Philippines from suing or maintaining an action in Philippine
courts. 9 What it seeks to prevent is a foreign corporation doing business in the Philippines without a license
from gaining access to Philippine courts. As elucidated in Marshall-Wells Co. vs. Elser & Co., 46 Phil. 70:
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 it 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 from
Philippine courts, and thus, in effect, to permit persons to avoid their contract made with such
foreign corporation. 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.

The fairly recent case of Universal Shipping Lines vs. Intermediate Appellate Court, 10 although dealing with the
amended version of Section 69 of the old Corporation Law, Section 133 of the Corporation Code (Batas
Pambansa Blg. 68), but which is nonetheless apropos, states the rule succinctly: "it is not the lack of the
prescribed license (to do business in the Philippines) but doing business without license, which bars a foreign
corporation from access to our courts."
Thus, we have ruled that a foreign corporation not licensed to do business in the Philippines may file a suit in
this country due to the collision of two vessels at the harbor of Manila 11 and for the loss of goods bound for
Hongkong but erroneously discharged in Manila. 12
Indeed, the phraseologies of Section 14 of the General Banking Act and its almost identical counterpart Section
69 of the old Corporation Law are misleading in that they seem to require a foreign corporation, including a
foreign bank or banking corporation, not licensed to do business and not doing business in the Philippines to
secure a license from the Securities and Exchange Commission before it can bring or maintain an action in
Philippine courts. To avert such misimpression, Section 133 of the Corporation Code is now more plainly
worded thus:
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.
Under this provision, we have ruled that a foreign corporation may sue in this jurisdiction for infringement of
trademark and unfair competition although it is not doing business in the Philippines 13 because the Philippines
was a party to the Convention of the Union of Paris for the Protection of IndustrialProperty. 14
We even went further to say that a foreign corporation not licensed to do business in the Philippines may not be
denied the right to file an action in our courts for an isolated transaction in this country. 15
Since petitioner foreign banking corporation was not doing business in the Philippines, it may not be denied the
privilege of pursuing its claims against private respondent for a contract which was entered into and
consummated outside the Philippines. Otherwise we will be hampering the growth and development of business
relations between Filipino citizens and foreign nationals. Worse, we will be allowing the law to serve as a
protective shield for unscrupulous Filipino citizens who have business relationships abroad.
In its pleadings before the court, petitioner appears to be in a quandary as to whether the suit below is one for
enforcement or recognition of the Hongkong judgment. Its complaint states:
COMES NOW Plaintiff, by undersigned counsel, and to this Honorable Court, most respectfully
alleges that:
1. Plaintiff is a corporation duly organized and existing under and by virtue of the laws of
Hongkong with business and postal address at the 3rd Floor, United Centre, 95 Queensway,
Hongkong, not doing business in the Philippines, but is suing for this isolated transaction, but
for purposes of this complaint may be served with summons and legal processes of this
Honorable Court, at the 6th Floor, Cibeles Building, 6780 Ayala Avenue, Makati, Metro Manila,
while defendant Cordova Chin San, may be served with summons and other legal processes of
this Honorable Court at the Municipality of Moncada, Province of Tarlac, Philippines;
2. On July 18, 1979 and July 25, 1980, the defendant executed Continuing Guarantees, in
consideration of plaintiff's from time to time making advances, or coming to liability or

discounting bills or otherwise giving credit or granting banking facilities from time to time to, or
on account of the Wolder Enterprises (sic), photocopies of the Contract of Continuing
Guarantees are hereto attached as Annexes "A" and "B", respectively, and made parts hereof;
3. In June 1984, a complaint was filed by plaintiff against the Wolder Enterprises (sic) and
defendant Cordova Chin San, in The Supreme Court of Hongkong, under Case No. 3176, and
pursuant to which complaint, a judgment dated 14th day of July, 1984 was rendered by The
Supreme Court of Hongkong ordering to (sic) defendant Cordova Chin San to pay the plaintiff
the sum of HK$279,325.00 together with interest on the principal sum of HK$250,000.00 at the
rate of HK$1.7% per month or (HK$141.67) per day from 4th May, 1984 up to the date the said
amount is paid in full, and to pay the sum of HK$970.00 as fixed cost, a photocopy of the
Judgment rendered by The Supreme Court of Hongkong is hereto attached as Annex "C" and
made an integral part hereof.
4. Plaintiff has made demands upon the defendant in this case to pay the aforesaid amount the
last of which is by letter dated July 16, 1984 sent by undersigned counsel, a photocopy of the
letter of demand is hereto attached as Annex "D" and the Registry Return Card hereto attached
as Annex "E", respectively, and made parts hereof. However, this notwithstanding, defendant
failed and refused and still continue to fail and refuse to make any payment to plaintiff on the
aforesaid amount of HK$279,325.00 plus interest on the principal sum of HK$250,000.00 at the
rate of (HK$141.67) per day from May 4, 1984 up to the date of payment;
5. In order to protect and safeguard the rights and interests of herein plaintiff, it has engaged the
services of undersigned counsel, to file the suit at bar, and for whose services it has agreed to
pay an amount equivalent to 25% of the total amount due and owing, as of and by way of
attorney's fees plus costs of suit.
WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court that
judgment be rendered ordering the defendant:
a) To pay plaintiff the sum of HK$279,325.00 together with interest on the principal sum of
HK$260,000.00 at the rate of HK$1.7% (sic) per month (or HK$141.67 per day) from May 4,
1984 until the aforesaid amount is paid in full;
b) To pay an amount equivalent to 25% of the total amount due and demandable as of and by
way of attorney's fees; and
c) To pay costs of suit, and
Plaintiff prays for such other and further reliefs, to which it may by law and equity, be entitled. 16
The complaint therefore appears to be one of the enforcement of the Hongkong judgment because it prays for the
grant of the affirmative relief given by said foreign judgment. 17 Although petitioner asserts that it is merely
seeking the recognition of its claims based on the contract sued upon and not the enforcement of the Hongkong
judgment 18 it should be noted that in the prayer of the complaint, petitioner simply copied the Hongkong
judgment with respect to private respondent's liability.
However, a foreign judgment may not be enforced if it is not recognized in the jurisdiction where affirmative
relief is being sought. Hence, in the interest of justice, the complaint should be considered as a petition for the
recognition of the Hongkong judgment under Section 50 (b), Rule 39 of the Rules of Court in order that the

defendant, private respondent herein, may present evidence of lack of jurisdiction, notice, collusion, fraud or
clear mistake of fact and law, if applicable.
WHEREFORE, the questioned orders of the lower court are hereby set aside. Civil Case No. 8762 is reinstated
and the lower court is directed to proceed with dispatch in the disposition of said case. This decision is
immediately executory. No costs.
SO ORDERED.
Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
Feliciano, J., is on leave.

lxv

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 105141 August 31, 1993


SIGNETICS CORPORATION, petitioner,
vs.
COURT OF APPEALS and FRUEHAUF ELECTRONICS PHILS. INC., respondents.
Sycip, Salazar, Hernandez & Gatmaitan Law Office for petitioner.
Romulo P. Atiencia for private respondent.

RESOLUTION

VITUG, J.:

The crucial issue in this petition for review on certiorari is whether or not the lower court, given the factual
allegations in the complaint, had correctly assumed jurisdiction over the petitioner, a foreign corporation, on its
claim in a motion to dismiss, that it had since ceased to do business in the Philippines.
The petitioner, Signetics Corporation (Signetics), was organized under the laws of the United States of America.
Through Signetics Filipinas Corporation (SigFil), a wholly-owned subsidiary, Signetics entered into lease
contract over a piece of land with Fruehauf Electronics Phils., Inc. (Freuhauf).
In a complaint initiated on 15 March 1990, Freuhauf sued Signetics for damages, accounting or return of certain
machinery, equipment and accessories, as well as the transfer of title and surrender of possession of the
buildings, installations and improvements on the leased land, before the Regional Trial Court of Pasig, Metro
Manila (Civil Case No. 59264). Claiming that Signetics caused SigFil to insert in the lease contract the words
"machineries, equipment and accessories," the defendants were able to withdraw these assets from the cost-free
transfer provision of the contract.
On the basis of the allegation that Signetics is a "subsidiary of US PHILIPS CORPORATION, and may be
served summons at Philips Electrical Lamps, Inc., Las Pias, Metro Manila and/or c/o Technology Electronics
Assembly & Management (TEAM) Pacific Corporation, Electronics Avenue, FTI Complex, Taguig, Metro
Manila," service of summons was made on Signetics through TEAM Pacific Corporation.
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 Pelington 1 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 court 2 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. Mendoza 4 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.

LYCEUM OF THE PHILS. V. CA


219 SCRA 610
FACTS:
1. Petitioner had sometime commenced before in the SEC a complaint against Lyceum of Baguio, to require it to
change its corporate name and to adopt another name not similar or identical with that of petitioner. SEC decided
in favor of petitioner. Lyceum of Baguio filed petition for certiorari but was denied for
lack of merit.
2. Armed with the resolution of the Court, petitioner instituted before the SEC to compel private respondents,
which are also educational institutions, to delete word Lyceum from their corporate names and permanently to

enjoin them from using such as part of their respective names.


3. Hearing officer sustained the claim of petitioner and held that the word Lyceum was capable of
appropriation and that petitioner had acquired an enforceable right to the use of that word.
4. In an appeal, the decision was reversed by the SEC En Banc. They held that the word Lyceum to have
become identified with petitioner as to render use thereof of other institutions as productive of consfusion about
the identity of the schools concerned in the mind of the general public.
5. Petitioner went to appeal with the CA but the latter just affirmed the decision of the SEC En Banc.
HELD:
Under the corporation code, no corporate name may be allowed by the SEC if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any other name already protected by
law or is patently deceptive, confusing or contrary to existing laws. The policy behind this provision is to avoid
fraud upon the public, which would have the occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision over corporations.
The corporate names of private respondents are not identical or deceptively or confusingly similar to that of
petitioners. Confusion and deception has been precluded by the appending of geographic names to the word
Lyceum. Furthermore, the word Lyceum has become associated in time with schools and other institutions
providing public lectures, concerts, and public discussions. Thus, it generally refers to a school or an institution
of learning.
Petitioner claims that the word has acquired a secondary meaning in relation to petitioner with the result that the
word, although originally generic, has become appropriable by petitioner to the exclusion of other institutions.
The doctrine of secondary meaning is a principle used in trademark law but has been extended to corporate
names since the right to use a corporate name to the exclusion of others is based upon the same principle, which
underlies the right to use a particular trademark or tradename. Under this doctrine, a word or phrase originally
incapable of exclusive appropriation with reference to an article in the market, because geographical or
otherwise descriptive might nevertheless have been used for so long and so exclusively by one producer with
reference to this article that, in that trade and to that group of purchasing public, the word or phrase has come to
mean that the article was his produce. The doctrine cannot be made to apply where the evidence didn't prove that
the business has continued for so long a time that it has become of consequence and acquired good will of
considerable value such that its articles and produce have acquired a well known reputation, and confusion will
result by the use of the disputed name.
Petitioner didn't present evidence, which provided that the word Lyceum acquired secondary meaning. The
petitioner failed to adduce evidence that it had exclusive use of the word. Even if petitioner used the word for a
long period of time, it hadnt acquired any secondary meaning in its favor because the appellant failed to prove
that it had been using the same word all by itself to the exclusion of others

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. L-62082 February 26, 1992


PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE HON. TEODORO N. FLORENDO, Judge of the Court of Agrarian Relations, 12th Regional
Disctrict, Branch IV, Dumaguete City, VIVIENNE B. VILORIA, SOCORRO MISA, GERMELIN
ESTORCO, PABLO BENDOLO, REWEL CABUAL, BONIFACIO VALEROSO, ET. AL., respondents.
Juan J. Diaz, Benjamin C. Del Rosarion and Pedro L. Lazo for petitioner.
Maria Corazon C. Locsin and Edwin E. Torres for private respondents.

BIDIN, J.:
This is a petition for certiorari with preliminary injunction seeking to annul and set aside the: (a) order of the
respondent judge dated May 21, 1982 admitting private respondents' "First Amended Complaint" in CAR Case
No. 532 entitled "Vivienne B. Viloria, et al. vs. Philippine National Bank, et al." for declaration of nullity of the
foreclosure proceedings in violation of P.D. Nos. 27 and 946; (b) order dated June 3, 1982 denying PNB's
opposition to the first amended complaint; and (c) order dated June 28, 1982 denying PNB's motion for
reconsideration.
The undisputed facts are as follows:
Plaintiffs are tenants of four (4) parcels of land located in the municipality of Mabinay, Negros Oriental, whose
previous owner Ricardo Valeroso, mortgaged the same to the Philippine National Bank (PNB, for short). In
1971, said parcels of land were bought by spouses Agripino and Soledad Viloria who assumed the mortgage with
PNB (Rollo, Comment, p. 90).
In 1974, defendant PNB requested defendant Provincial Sheriff of Negros Oriental to foreclose the mortgage on
the aforesaid parcels of land after the failure of the owners thereof to pay certain amortization and the same was
sold at public auction to the defendant bank as the highest bidder (Rollo, Brief for Private Respondents, p. 147;
Annex "2", p. 3). Notwithstanding the fact that said lands were already brought under the Land Reform Program
of the government, the PNB caused the titles to said parcels of land transferred in its name to the prejudice of
plaintiffs (Rollo, Ibid.).

On September 8, 1981, plaintiffs Vivienne B. Viloria, et al. filed a complaint for "Declaration of Nullity of the
Foreclosure Proceedings in Violation of P.D. Nos. 27 and 946" against the defendants PNB, et al. in the Court of
Agrarian Relations, 12th Judicial District, Branch IV, Dumaguete City.
On October 7, 1981, defendant PNB answered the complaint with counterclaim for damages. Plaintiffs, in turn,
filed their reply to the counterclaim dated October 10, 1981. Defendant PNB then moved for leave of court to
file third party complaint dated October 20, 1981 against the registered owners-mortgagors of the subject parcels
of land.
Plaintiffs Vivienne Viloria, et al. moved for the amendment of their complaint to implead the heirs of the
deceased plaintiff-Agripino Viloria which respondent Judge admitted in an order dated February 26, 1982.
On May 28, 1982, private respondents Vivienne Viloria, et al. moved to further amend their amended complaint.
Notable amendment introduced in the First Amended Complaint is the inclusion of another parcel of land as
subject matter thereof, described as follows:
E Transfer Certificate of Title No. 42836, a parcel of land (Lot 787-B-2-A of the subdivision
plan, Psd-54375, being a portion of Lot 7887-B-2 described on plan Psd-956, L.R.C. Record No.
9465), with all improvements thereon situated at Cebu City. Bounded on NE., along line 1-2 by
lot 785, Cebu Cadastre; on the SE., along line 2-3, by lot 787-A, Cebu Cadastre; on the SW.,
along line 3-4, by Lot 787-B-2-B of the subdivision plan; and on the NW., along line 4-1 by lots
788-A-1 and 788-A-2 of plan Psd-17436. Containing an area of TWO HUNDRED NINETYFOUR square meters (294) more or less.
Said property belongs to the spouses Agripino and Soledad Viloria and mortgaged also with PNB. It is further
alleged that:
While letter "E" is the property located in Cebu City and mortgaged with defendant Bank should
be considered as one and indivisible with the mortgage executed upon the four (4) parcels of
land situated at Mabinay (Negros Oriental) and were put under Land Reform by virtue of the
real estate mortgage executed and signed by the spouses land owner Agripino and Soledad
Viloria which portion of the Real Estate Mortgage document specifically paragraph No. 2 which
states "That for and in consideration of certain loans, overdrafts and other credit
accommodations obtained from the mortgage, which is hereby fixed at P115,449.61 Philippine
Currency, and to secure the payment of the same and those others that the mortgage may extend
to the mortgagor including interest and expenses and other obligations owing by the mortgagor
to the mortgagee whether direct or indirect or secondary. . . (Rollo, Petition, p. 5).
PNB opposed the admission of the aforesaid private respondent's First Amended Complaint on the grounds that
there was no proper notice of hearing as required by the Uniform CAR Rules of procedure, the impropriety of
including TCT No. 42836 a residential land situated in Cebu City as subject matter of the complaint, and the
failure of private respondents to attach a copy of the real estate mortgage contract upon which the action was
based (Rollo, Annex "I", pp. 37-38).
In an order dated May 31, 1982, respondent Judge Florendo granted private respondents' Viloria, et al. motion
and thus, admitted the First Amended Complaint. Said order states among others:
Acting on the "Motion to Amend Amended Complaint" dated May 28, 1982, filed by Ma.
Corazon C. Locsin, counsel for plaintiffs, wherein the First Amended Complaint (pp. 285 to 290
inclusive) of the records, was attached thereto, and it appearing that Atty. Norberto Denura,

counsel for the defendant PNB, has received a copy of aforestated motion and also a copy of the
First Amended Complaint thereto attached, the "Motion To Amend Amended Complaint" is
hereby GRANTED and the First Amended Complaint is likewise hereby ADMITTED.
Petitioner PNB's motion for reconsideration of the above order was denied by respondent Judge Florendo in an
order dated June 28, 1981.
Hence, the petition.
As prayed for in the petition, a temporary restraining order was issued by this Court pursuant to its resolution
dated October 25, 1982 enjoining the respondent Judge from proceeding with the hearing of the case.
The First Division of this Court resolved to give due course to the petition in the resolution of March 16, 1983.
The principal issue in the instant case is whether or not the respondent Judge exceeded his jurisdiction in
admitting the First Amended Complaint which adds another parcel of land not within the coverage of Operation
Land Transfer pursuant to P.D. 27.
The petition is impressed with merit.
Upon the abolition of the Court of Agrarian Relations by BP 129 enacted on August 10, 1981 and fully
implemented on February 14, 1983, jurisdiction over agrarian disputes is now vested in the appropriate Regional
Trial Court pursuant to the provisions of Sec. 19(7) of the said law (Locsin v. Valenzuela, 173 SCRA 454 [1989];
Enrique v. Fortuna Mariculture Corporation, 158 SCRA 651 [1988]);
In view of such supervening event, it is now the appropriate Branch of the Regional Trial Court of Negros
Oriental that has jurisdiction over the case. Be that as it may, the same law provides that whenever a Regional
Trial Court takes cognizance of agrarian cases, the special rules of procedures applicable under the present laws
to such cases shall continue to be applied, unless amended by law or by rules of court promulgated by the
Supreme Court (Sec. 24, BP 129).
Coming back to the case at bar, petitioner contends that Lot No. 787-B-2-A (formerly covered by TCT No.
42836, now TCT No. 75805-PNB) being a residential/commercial and non-agricultural land situated at Cebu
City is not within the coverage of the Operation Land Transfer, thus not within the jurisdiction of the Court of
Agrarian Relations.
Jurisdiction, in general, is either one over the nature of the action, over the subject matter, over the person of the
defendants or over the issue framed in the pleadings (Balais v. Balais, 159 SCRA 37 [1988]). Jurisdiction over
the subject matter, on the other hand, is conferred by law and does not depend on the consent or objection or the
acts or omissions of the parties or any one of them (Republic v. Sangalang, 159 SCRA 515 [1988]). The law
which conferred jurisdiction on the Court of Agrarian Relations, now transferred to the appropriate Branch of the
Regional Trial Court, concerning agricultural lands, is P.D. 946 which provides, among others:
Sec. 12. Jurisdiction Over Subject Matter The Court of Agrarian Relations shall have original
and exclusive jurisdiction over:
a) Cases involving the rights and obligations of persons in the cultivation and
use of agricultural land . . .;

b) Questions involving rights granted and obligations imposed by laws,


presidential decrees, Orders, Instructions, Rules and Regulations issued and
promulgated in relation to the agrarian reform program;
xxx xxx xxx
e) Cases involving the sale, alienation, mortgage, foreclosure, pre-emption and
redemption of tenanted agricultural land; . . . (emphasis supplied)
xxx xxx xxx
Accordingly, the Court of Agrarian Relations (now RTC sitting as an agrarian court) could only entertain
disputes over lands that are the subject of agrarian cases. Corollarily, lands that are not the subject of agrarian
disputes should not be brought before it as an agrarian court. It has been the legislative policy to confine to the
CAR exclusive jurisdiction over agrarian cases as well as their incidents (Depositario v. Hervias, 121 SCRA 756
[1983]).
The following factors indisputably established questioned land is beyond CAR's jurisdiction:
First, private respondents Viloria, et al. admission in their Comment dated November 19, 1982 (Rollo, pp. 90-97)
that Lot No. 787-B-2-A is a residential lot located at Cebu City.
Second, the certification by the Agrarian Reform Team No. 215 to the effect that subject lot is not within the
coverage of the Operation Land Transfer pursuant to P.D. 27 (Annex Rollo, p. 54). Such ''official certification
can be considered as correct, if only because of the presumption of regularity that is stamped on it as an official
document" (San Mauricio Mining Co. v. Ancheta, 105 SCRA 371 [1981]).
Indeed, amendments to pleadings are generally favored and should be liberally construed (PNB v. CA, 159
SCRA 433 [1988]), however, where the court has no jurisdiction over the subject matter of the case (Lot 387-B2-A being a residential lot not covered by Operation Land Transfer under PD 27), it is evident that the
amendment of the complaint could not be allowed so as to confer jurisdiction upon the court over said property.
It being apparent that the Court of Agrarian Relations has no jurisdiction over Lot No. 787-B-2-A aside from the
fact that said court has already been abolished by BP 129, the issue as to its territorial jurisdiction has become
moot and academic.
The propriety of the petition for certiorari is beyond question.
The order of the respondent Judge admitting the First Amended Complaint including therein said questioned Lot
787-B-2-A which is a residential lot not falling within the ambit of PD 27, hence, beyond CAR's jurisdiction,
was issued in excess of jurisdiction. The term excess of jurisdiction signifies that the court, board or officer has
jurisdiction over a case but oversteps such jurisdiction while acting thereon (Alhambra Cigar and Cigarette
Manufacturing Co., Inc. v. Caleda., et al., 122 Phil. 355 [1965]). Verily, the writ of certiorari is granted "to keep
an inferior court within the bounds of its jurisdiction . . ." (Aguilar v. Tan, 31 SCRA 205.[1970]. It is the proper
remedy "where it clearly appears that the trial court is proceeding in excess or outside of its jurisdiction . . ."
(Baloria v. Abalos, 32 SCRA 368 [1970]; Time, Inc. v. Reyes, 39 SCRA 303 [1971]; Ablan, Sr. v. Madarang, 41
SCRA 213 [1971]). Since the "office of the writ of certiorari has been reduced to the correction of defects of
jurisdiction solely and cannot be legally used for any other purpose" (Albert v. CFI of Manila, Br. VI, 23 SCRA
948 [1968]), said remedy is available in the instant case to keep the trial court from proceeding in the case in
excess of its jurisdiction.

The private respondents Viloria, et al.'s contention that the petition for certiorari is premature since the order of
the respondent judge could have simply been assigned as an error in the appeal by the petitioner in case of
adverse judgment is not persuasive. Even when appeal is available and is the proper remedy, this court has
allowed a writ of certiorari when the orders of the lower court were issued either in excess of or without
jurisdiction (Aguilar v. Tan, supra).
WHEREFORE, the petition for certiorari is GRANTED and the orders dated May 31, June 3, and June 28, 1982
are hereby ANNULLED and SET ASIDE. The trial of CAR Case No. 532 on the merits is hereby ordered to be
conducted in the appropriate Branch of the Regional Trial Court of Negros Oriental in view of the abolition of
the Court of Agrarian Relations by BP 129 and the temporary restraining order issued by this Court dated
October 25, 1982 enjoining the hearing of CAR Case No. 532 with respect to Lot No. 787-B-2-A (formerly
covered by T.C.T. No. 43836 covering a parcel of land situated in Cebu City ) is made PERMANENT.
SO ORDERED.
Gutierrez, Jr., Feliciano, Davide, Jr. and Romero, JJ., concur.