REPUBLIC OF THE PHILIPPINES vs.

SECURITY upon the public, owing to the number of persons

CREDIT AND ACCEPTANCE CORPORATION, affected thereby.
ROSENDO T. RESUELLO, PABLO TANJUTCO,
ARTURO SORIANO, RUBEN BELTRAN, Wherefore, the writ prayed for should be, as it is hereby
BIENVENIDO V. ZAPA, PILAR G. RESUELLO, granted and defendant-corporation is, accordingly, ordered
RICARDO D. BALATBAT, JOSE SEBASTIAN and dissolved. The appointment of receiver herein issued pendente
VITO TANJUTCO JR. lite is hereby made permanent, and the receiver is,
accordingly, directed to administer the properties, deposits,
Facts: and other assets of defendant-corporation and wind up the
affairs thereof conformably to Rules 59 and 66 of the Rules of
The Superintendent of Banks of the Central Bank of the Court. It is so ordered.
Philippines asked its legal counsel an opinion on whether or
not Security Credit and Acceptance is a banking institution
wherein said legal counsel opined in the affirmative.

A search warrant was issued to search the premises of the

corporation and seized its documents and records relative to
its business operations. Upon examination and evaluation of
said documents and records, it was found that the corporation
was performing banking functions without complying with the
Central Bank Act.

The Monetary Board promulgated a Resolution declaring that

the corporation is performing banking operations, without
having first complied with the law.

Accordingly, the Solicitor General filed a petition for quo

warranto for the dissolution of the corporation, with a prayer
that, meanwhile, a writ of preliminary injunction be issued ex
parte, enjoining the corporation and its branches, as well as its
officers and agents, from performing the banking operations
complained of, and that a receiver be appointed pendente lite.

Upon joint motion of both parties, the Superintendent of

Banks of the Central Bank of the Philippines was appointed by
this Court receiver pendente lite of Defendant Corporation.

ISSUE: WON the dissolution is warranted.

HELD:

Although, admittedly, Defendant Corporation has not secured

the requisite authority to engage in banking, defendants deny
that its transactions partake of the nature of banking
operations. It is conceded, however, that, in consequence of a
propaganda campaign therefor, a total of 59,463 savings
account deposits have been made by the public with the
corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the
corporation deemed suitable therefor. It is clear that these
transactions partake of the nature of banking. Accordingly,
Defendant Corporation has violated the law by engaging in
banking without securing the administrative authority
required in Republic Act No. 337.

That the illegal transactions thus undertaken by

Defendant Corporation warrant its dissolution is
apparent from the fact that the foregoing misuser of
the corporate funds and franchise affects the essence
of its business, that it is willful and has been repeated
59,463 times, and that its continuance inflicts injury
SECTION 122
JAMES REBURIANO and URBANO REBURIANO vs.
HONORABLE COURT OF APPEALS AND PEPSI COLA
BOTTLING COMPANY OF THE PHILIPPINES INC.,
Facts:
RTC rendered judgment in favor of Pepsi Cola Bottling Co.
ordering Reburiano to pay P55,000 with interest for the
unpaid bottles of softdrinks it received from the company.
RTC issued a writ of execution.
However, it appears that prior to the promulgation of the
decision of the trial court, private respondent amended its
articles of incorporation to shorten its term of existence to July
8, 1983. The amended articles of incorporation was approved
by the SEC on March 2, 1984. The trial court was not notified.
Reburiano moved to quash the writ of execution on the
grounds that when the Court of Appeals rendered its decision,
the private respondent was no longer in existence and had no
more juridical personality and so, as such, it no longer had the
capacity to sue and be sued; and that after Pepsi lost its
existence and juridical personality, Atty. Romualdo M. Jubay
had no more client in this case and so his appearance in this
case was no longer possible and tenable.
Private respondent opposed petitioners' motion. It argued that
the jurisdiction of the court as well as the respective parties
capacity to sue had already been established during the initial
stages of the case; and that when the complaint was filed
in1982, private respondent was still an existing corporation so
that the mere fact that it was dissolved at the time the case was
yet to be resolved did not warrant the dismissal of the case or
oust the trial court of its jurisdiction. Private respondent
further claimed that its dissolution was effected in order to
transfer its assets to a new firm of almost the same name and
was thus only for convenience.
Private respondent argues that petitioners knew that it had
ceased to exist during the course of the trial of the case but did
not act upon this information until the judgment was about to
be enforced against them; hence, the filing of a Motion to
Quash and the present petition are mere dilatory tactics
resorted to by petitioners. Private respondent likewise cites
the ruling of this Court in Gelano v. Court of Appeals that the
counsel of a dissolved corporation is deemed a trustee of the
same for purposes of continuing such action or actions as may
be pending at the time of the dissolution to counter
petitioners' contention that private respondent lost its capacity
to sue and be sued long before the trial court rendered
judgment and hence execution of such judgment could not be
complied with as the judgment creditor has ceased to exist.
RTC denied Reburiano’s petition to quash the writ of
execution. An appeal was made which was dismissed by CA.
Issue: Whether or not Pepsi still had juridical personality to
pursue its case against Reburiano after a shortening of its
corporate existence.
Held: YES. Petitioners are in error in contending that "a
dissolved and non-existing corporation could no longer be
represented by a lawyer and concomitantly a lawyer could not
appear as counsel for a non-existing judicial person.”
The only reason for their refusal to execute the same is that
there is no existing corporation to which they are indebted.
Such argument is fallacious. The law specifically allows a
trustee to manage the affairs of the corporation in liquidation.
Consequently, any supervening fact, such as the dissolution of
the corporation, repeal of a law, or any other fact of similar
nature would not serve as an effective bar to the enforcement
of such right.
Ratio: Sec. 122 of the Corporation Code provides in part:
§122. Corporate Liquidation. — Every Corporation whose
charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three (3)
years after the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or against it
and enabling it to settle and close its affairs, to dispose of and
convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was
established.
At any time during said three (3) years, said corporation is
authorized the empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors,
and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in
interests, all interests which the corporation had in the
property in terminates, the legal interest vests in the trustees,
and the beneficial interest in the stockholders, members,
creditors or other persons in interest.
Petitioners argue that while private respondent Pepsi Cola
Bottling Company of the Philippines, Inc. undertook a
voluntary dissolution on July 3, 1983 and the process of
liquidation for three (3) years thereafter, there is no showing
that a trustee or receiver was ever appointed. They contend
that §122 of the Corporation Code does not authorize a
corporation, after the three-year liquidation period, to
continue actions instituted by it within said period of three
years. Petitioners cite the case of National Abaca and Other
Fibers Corporation v. Pore wherein this court stated:
It is generally held, that where a statue continues the existence
of a corporation for a certain period after its dissolution for the
purpose of prosecuting and defending suits, etc., the
corporation becomes defunct upon the expiration of such
period, at least in the absence of a provision to the contrary, so
that no action can afterwards be brought by or against it, and
must be dismissed. Actions pending by or against the
corporate when the period allowed by the statue expires,
ordinarily abate.
This ruling, however, has been modified by subsequent cases.
In Board of Liquidators v. Kalaw, this Court stated: . . . The
legal interest became vested in the trustee — the Board of
Liquidators. The beneficial interest remained with the sole
stockholder — the government. At no time had the
government withdrawn the property, or the authority to
continue the present suit, from the Board of Liquidators. If for
this reason alone, we cannot stay the hand of the Board of
Liquidators from prosecuting this case to its final conclusion.
The provision of Section 78 (now Section 122) of the
Corporation Law — the third method of winding up corporate
affairs — finds application.
Indeed, in Gelano vs. Court of Appeals, a case having
substantially similar facts as the instant case, this Court held:
However, a corporation that has a pending action and which
cannot be terminated within the three-year period after its
dissolution is authorized under Sec. 78 [now §122] of the
Corporation Law to convey all its property to trustees to
enable it to prosecute and defend suits by or against the
corporation beyond the three-year period. Although private
respondent did not appoint any trustee, yet the counsel who
prosecuted and defended the interest of the corporation in the
instant case and who in fact appeared in behalf of the may be
considered a trustee of the corporation at least with respect to
the matter in litigation only. Said counsel had been handling
the case when the same was pending before the trial court
until it was appealed before the Court of Appeals and finally to
this Court. We therefore hold that there was substantial
compliance with Sec. 78 [now §122] of the Corporation Law
and such private respondent Insular Sawmill, Inc. could still
continue prosecuting the present case even beyond the period
of three (3) years from the time of dissolution.
. . . [T]he trustee may commence a suit which can proceed to
final judgment even beyond the three-year period. No reason
can be conceived why a suit already commenced by the
corporation itself during its existence, not by a mere trustee
who, by fiction, merely continues the legal personality of the
dissolved corporation should not be accorded similar
treatment allowed — to proceed to final judgment and
execution thereof.
In the Gelano case, the counsel of the dissolved corporation
was considered a trustee. In the later case of Clemente v. Court
of Appeals, we held that the board of directors may be
permitted to complete the corporate liquidation by continuing
as "trustees" by legal implication. For, indeed, as early as 1939,
in the case of Sumera v. Valencia, this Court held:
It is to be noted that the time during which the corporation,
through its own officers, may conduct the liquidation of its
assets and sue and be sued as a corporation is limited to three
years from the time the period of dissolution commences: but
there is no time limit within which the trustees must complete
a liquidation placed in their hands. It is provided only (Corp.
Law, Sec. 78 [now Sec. 122]) that the conveyance to the
trustees must be made within the three-year period. It may be
found impossible to complete the work of liquidation within
the three-year period or to reduce disputed claims to
judgment. The authorities are to the effect that suits by or
against a corporation abate when it ceased to be an entity
capable of suing or being sued (7 R.C.L., Corps., par. 750); but
trustees to whom the corporate assets have been conveyed
pursuant to the authority of Sec. 78 [now Sec. 122] may sue
and be sued as such in all matters connected with the
liquidation. . . .
Furthermore, the Corporation Law provides:
§145. Amendment or repeal. — No right or remedy in favor of
or against any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability incurred by any
such corporation, stockholders, members, directors, trustees,
or officers, shall be removed or impaired either by the
subsequent dissolution of said corporation or by any
subsequent amendment or repeal of this Code or of any part
thereof.
This provision safeguards the rights of a corporation which is
dissolved pending litigation.
Other issues:
Petitioners anchored their Motion to Quash on the claim that
there was a change in the situation of the parties. However, a
perusal of the cases which have recognized such a ground as
an exception to the general rule shows that the change
contemplated by such exception is one which occurred
subsequent to the judgment of the trial court. Here, the change
in the status of private respondent took place in 1983, when it
was dissolved, during the pendecy of its case in the trial court.
The change occurred prior to the rendition of judgment by the
trial court.
Rules of fair play, justice, and due process dictate that parties
cannot raise for the first time on appeal from a denial of a
Motion to Quash a Writ of Execution issues which they could
have raised but never did during the trial and even on appeal
from the decision of the trial court.
SECTION 123
CARGILL, INC., vs. INTRA STRATA ASSURANCE
CORPORATION
Petitioner Cargill, Inc. (petitioner) is a corporation organized
and existing under the laws of the State of Delaware, United
States of America. Petitioner and Northern Mindanao
Corporation (NMC) executed a contract whereby NMC agreed
to sell to petitioner 20,000 to 24,000 metric tons of molasses,
to be delivered from 1 January to 30 June 1990 at the price of
$44 per metric ton. The contract provides that petitioner
would open a Letter of Credit with the Bank of Philippine
Islands.
The contract was amended three times: first, on 11 January
1990, increasing the purchase price of the molasses to $47.50
per metric ton;[3] second, on 18 June 1990, reducing the
quantity of the molasses to 10,500 metric tons and increasing
the price to $55 per metric ton; and third, on 22 August 1990,
providing for the shipment of 5,250 metric tons of molasses on
the last half of December 1990 through the first half of
January 1991, and the balance of 5,250 metric tons on the last
half of January 1991 through the first half of February 1991.
The third amendment also required NMC to put up a
performance bond. The performance bond was intended to
guarantee NMC’s performance to deliver the molasses during
the prescribed shipment periods according to the terms of the
amended contract.
In compliance with the terms of the third amendment of the
contract, respondent Intra Strata Assurance Corporation
(respondent) issued a performance bond to guarantee
NMC’s delivery of the 10,500 tons of molasses, and a surety to
guarantee the repayment of downpayment as provided in the
contract.
NMC was only able to deliver 219.551 metric tons of molasses
out of the agreed 10,500 metric tons. Thus, petitioner sent
demand letters to respondent claiming payment under the
performance and surety bonds. When respondent refused to
pay, petitioner filed a complaint for sum of money against
NMC and respondent.
Petitioner, NMC, and respondent entered into a compromise
agreementHowever, NMC still failed to comply with its
obligation under the compromise agreement. Hence, trial
proceeded against respondent.
The trial court ruled in favour of petitioner. The Court of
Appeals held that petitioner does not have the capacity to file
this suit since it is a foreign corporation doing business in the
Philippines without the requisite license. The Court of Appeals
held that petitioner’s purchases of molasses were in pursuance
of its basic business and not just mere isolated and incidental
transactions.
Issue:
Whether petitioner, an unlicensed foreign corporation, has
legal capacity to sue before Philippine courts. What constitutes
“doing business in the Philippines”?
(Under Article 123 of the Corporation Code, a foreign
corporation must first obtain a license and a certificate from
the appropriate government agency before it can transact
business in the Philippines. Where a foreign corporation does
business in the Philippines without the proper license, it
cannot maintain any action or proceeding before Philippine
courts as provided under Section 133 of the Corporation Code)
Held:
Activities within Philippine jurisdiction that do not create
earnings or profits to the foreign corporation do not constitute
doing business in the Philippines. In this case, the contract
between petitioner and NMC involved the purchase of
molasses by petitioner from NMC. It was NMC, the domestic
corporation, which derived income from the transaction and
not petitioner. To constitute “doing business,” the activity
undertaken in the Philippines should involve profit-making.
Other factors which support the finding that petitioner is not
doing business in the Philippines are: (1) petitioner does not
have an office in the Philippines; (2) petitioner imports
products from the Philippines through its non-exclusive local
broker, whose authority to act on behalf of petitioner is limited
to soliciting purchases of products from suppliers engaged in
the sugar trade in the Philippines; and (3) the local broker is
an independent contractor and not an agent of petitioner.
As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL
Marketing Industries, Inc.:
An exporter in one country may export its products to
many foreign importing countries without performing in the
importing countries specific commercial acts that would
constitute doing business in the importing countries. The mere
act of exporting from one’s own country, without doing any
specific commercial act within the territory of the importing
country, cannot be deemed as doing business in the importing
country. The importing country does not require jurisdiction
over the foreign exporter who has not yet performed any
specific commercial act within the territory of the importing
country. Without jurisdiction over the foreign exporter, the
importing country cannot compel the foreign exporter to
secure a license to do business in the importing country.
Otherwise, Philippine exporters, by the mere act alone of
exporting their products, could be considered by the
importing countries to be doing business in those countries.
This will require Philippine exporters to secure a business
license in every foreign country where they usually export
their products, even if they do not perform any specific
commercial act within the territory of such importing
countries. Such a legal concept will have deleterious effect not
only on Philippine exports, but also on global trade.
To be doing or “transacting business in the Philippines”
for purposes of Section 133 of the Corporation Code, the
foreign corporation must actually transact business in the
Philippines, that is, perform specific business transactions
within the Philippine territory on a continuing basis in its own
name and for its own account. Actual transaction of business
within the Philippine territory is an essential requisite for the
Philippines to acquire jurisdiction over a foreign corporation
and thus require the foreign corporation to secure a Philippine
business license. If a foreign corporation does not transact
such kind of business in the Philippines, even if it exports its
products to the Philippines, the Philippines has no jurisdiction
to require such foreign corporation to secure a Philippine
business license.

In the present case, petitioner is a foreign company merely

importing molasses from a Philipine exporter. A foreign
company that merely imports goods from a Philippine
exporter, without opening an office or appointing an agent in
the Philippines, is not doing business in the Philippines.
THE MENTHOLATUM CO. INC. VS. MANGALIMAN
[GR 47701, June 27, 1941]
Facts:
The Mentholatum Co., Inc., is a Kansas corporation which
manufactures "Mentholatum," a medicament and salve
adapted for the treatment of colds, nasal irritations, chapped
skin, insect bites, rectal irritation and other external ailments
of the body. The Philippine-American Drug Co., Inc., is its
exclusive distributing agent in the Philippines authorized by it
to look after and protect its interests. On 26 June 1919 and on
21 January 1921, the Mentholatum Co., Inc., registered with
the Bureau of Commerce and Industry the word,
"Mentholatum", as trade mark for its products. The
Mangaliman brothers prepared a medicament and salve
named "Mentholiman" which they sold to the public packed in
a container of the same size, color and shape as
"Mentholatum." As a consequence of these acts of the
Mangalimans, Mentholatum, etc. suffered damages from the
diminution of their sales and the loss of goodwill and
reputation of their product in the market. On 1 October 1935,
the Mentholatum Co., Inc., and the Philippine-American Drug,
Co., Inc. instituted an action in the Court of First Instance of
Manila against Anacleto Mangaliman, Florencio Mangaliman
and the Director of the Bureau of Commerce for infringement
of trade mark and unfair competition (Civil case 48855).
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.
Herein, Mentholatum Co., through its agent, the Philippine-
American Drug Co., Inc., has been doing business in the
Philippines by selling its products here since the year 1929, at
least. Whatever transactions the Philippine-American Drug
Co., Inc., had executed in view of the law, the Mentholatum
Co., Inc., being a foreign corporation doing business in the
Philippines without the license required by section 68 of the
Corporation Law, it may not prosecute this action for violation
of trade mark and unfair competition. Neither may the
Philippine-American Drug Co., Inc., maintain the action here
for the reason that the distinguishing features of the agent
being his representative character and derivative authority, it
cannot now, to the advantage of its principal, claim an
independent standing in court. Further, the recognition of the
legal status of a foreign corporation is a matter affecting the
policy of the forum, and the distinction drawn in Philippine
Corporation Law is an expression of the policy. The general
statement made in Western Equipment and Supply Co. vs.
Reyes regarding the character of the right involved should not
be construed in the derogation of the policy-determining
authority of the State. The right of Mentholatum conditioned
upon compliance with the requirement of section 69 of the
Corporation Law to protect its rights, is reserved.

Mentholatum, etc. prayed for the issuance of an order

restraining Anacleto and Florencio Mangaliman from selling
their product "Mentholiman," and directing them to render an
accounting of their sales and profits and to pay damages. After
a protracted trial, featured by the dismissal of the case on 9
March 1936 for failure of plaintiff's counsel to attend, and its
subsequent reinstatement on April 4, 1936, the Court of First
Instance of Manila, on 29 October 1937, rendered judgment in
favor of Mentholatum, etc. In the Court of Appeals (CA-GR
46067), the decision of the trial court was, on 29 June 1940,
reversed, said tribunal holding that the activities of the
Mentholatum Co., Inc., were business transactions in the
Philippines, and that by section 69 of the Corporation Law, it
may not maintain the suit. Mentholatum, etc. filed the petition
for certiorari.

Issue:

Whether Mentholatum Co. could prosecute the instant action

without having secured the license required in section 69 of
the Corporation Law.

Held:

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

what constitutes "doing" or "engaging in" or "transacting"
business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however,
seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it
was organized or whether it has substantially retired from it
and turned it over to another. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to
 The Supreme Court held that agency is shown when Hahn
claimed he took orders for BMW cars and transmits them to
HAHN v. CA BMW. Then BMW fixes the down payment and pricing
charges and will notify Hahn of the scheduled production
G.R. No. 113074; January 22, 1997 month for the orders, and reconfirm the orders by signing and
returning to Hahn the acceptance sheets.
FACTS:
The payment is made by the buyer directly to BMW. Title to
Petitioner Alfred Hahn is a Filipino citizen doing business
cars purchased passed directly to the buyer and Hahn never
under the name and style "Hahn-Manila". On the other hand,
paid for the purchase price of BMW cars sold in the
private respondent (BMW) is a nonresident foreign
Philippines. Hahn was credited with a commission equal to
corporation existing under the laws of the former Federal
14% of the purchase price upon the invoicing of a vehicle order
Republic of Germany, with principal office at Munich,
by BMW. Upon confirmation in writing that the vehicles had
Germany.
been registered in the Philippines and serviced by him, Hahn
received an additional 3% of the full purchase price. Hahn
On March 7, 1967, petitioner executed in favor of private
performed after-sale services, including, warranty services. for
respondent a "Deed of Assignment with Special Power of
which he received reimbursement from BMW. All orders were
Attorney. Per the agreement, the parties "continue[d] business
on invoices and forms of BMW.
relations as has been usual in the past without a formal
contract."
Moreover, the Court distinguished an agent from a broker. The
court ruled that an agent receives a commission upon the
But on February 16, 1993, in a meeting with a BMW
successful conclusion of a sale. On the other hand, a broker
representative and the president of Columbia Motors
earns his pay merely by bringing the buyer and the seller
Corporation (CMC), Jose Alvarez, petitioner was informed
together, even if no sale is eventually made.
that BMW was arranging to grant the exclusive dealership of
BMW cars and products to CMC, which had expressed interest
in acquiring the same.

On February 24, 1993, petitioner received confirmation of the

information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's business,
mentioning among other things, decline in sales, deteriorating
services, and inadequate showroom and warehouse facilities,
and petitioner's alleged failure to comply with the standards
for an exclusive BMW dealer.

Nonetheless, BMW expressed willingness to continue business

relations with the petitioner on the basis of a "standard BMW
importer" contract, otherwise, it said, if this was not
acceptable to petitioner, BMW would have no alternative but
to terminate petitioner's exclusive dealership effective June
30, 1993.

Because of Hahn's insistence on the former business relations,

BMW withdrew on March 26, 1993 its offer of a "standard
importer contract" and terminated the exclusive dealer
relationship effective June 30, 1993.

On April 29, 1993, BMW proposed that Hahn and CMC jointly
import and distribute BMW cars and parts.

Hahn found the proposal unacceptable. On May 14, 1993, he

filed a complaint for specific performance and damages
against BMW to compel it to continue the exclusive dealership.

ISSUE:
Whether petitioner Alfred Hahn is the agent or distributor in
the Philippines of private respondent BMW

HELD:

Alfred Hahn is an agent of BMW.

NV Reederij Amsterdam vs. CIR

165 SCRA 487 (June 23, 1988) GR No. L-46029

Facts:

MV Amstelmeer and, MV Amstelkroon, both of which are

vessels of petitioner NV Reederij Amsterdam, called on
Philippine ports to load cargoes for foreign destination on two
separate occasions. The freight fees for these transactions were
paid abroad in two payments. No income tax appears to have
been paid by petitioner NV Reederij Amsterdam on the freight
receipts.

Respondent Commissioner assessed said petitioner in the

amounts of P193,973.20 and P262,904.94 as deficiency
income tax for 1963 and 1964, respectively, as "a non-resident
foreign corporation not engaged in trade or business in the
Philippines” under Section 24 (b) (1) of the Tax Code.
Petitioner Royal Interocean Lines as the husbanding agent of
petitioner NV Reederij Amsterdam filed a written protest
against the abovementioned assessment made by the
respondent Commissioner which protest.

Isuue:

WON petitioner should be taxed as a foreign corporation not

engaged in trade or business in the Philippines?

Held:

YES. Petitioner NV Reederij Amsterdam is a foreign

corporation not authorized or licensed to do business in the
Philippines. It does not have a branch office in the Philippines
and it made only two calls in Philippine ports, one in 1963 and
the other in 1964. In order that a foreign corporation may be
considered engaged in trade or business, its business
transactions must be continuous. A casual business activity in
the Philippines by a foreign corporation, as in the present case,
does not amount to engaging in trade or business in the
Philippines for income tax purposes.

A foreign corporation engaged in trade or business within the

Philippines, or which has an office or place of business therein,
is taxed on its total net income received from all sources
within the Philippines at the rate of 25% upon the amount but
which taxable net income does not exceed P100,000.00, and
35% upon the amount but which taxable net income exceeds
P100,000.00. On the other hand, a foreign corporation not
engaged in trade or business within the Philippines and which
does not have any office or place of business therein is taxed
on income received from all sources within the Philippines at
the rate of 35% of the gross income.
FAR EAST INTERNATIONAL IMPORT and EXPORT
CORPORATION vs. NANKAI KOGYO CO. LTD., ET
AL., defendants, NANKAI KOGYO CO., LTD
Facts: 
Far East organized under Philippine Laws, entered into a
Contract of Sale of Steel Scrap with Nankai, a foreign
corporation organized under Japanese Laws with address at
Osaka, Japan. The buyer sign in Japan and the seller in
Manila, Philippines. 
Upon perfection of the contract and after having been
informed of the readiness to ship and that the Export License
was to expire, Nankai opened a letter of credit with the China
BankingCorporation. only four (4) daysbefore the expiration of
the Far East licence, three (3) boats sent by Nankai arrived in
the Philippines, on the expiration of the export license, only
1,058.6 metric tonsof scrap steel was loaded in Manila). The
loading wasaccordingly stopped.
An agreement was reached wherby the Far East would seek an
extension of the license. However, the untimely death of
President Magsaysay and the taking over by President Garcia
changed the picture, for the latter and/or his agents refused to
extend the license. Far East wrote the Everett Steamship
Corporation, requesting the issuance of a complete set of the
Bill of Lading for the shipment, in order that payment thereof
be effected against the Letter of Credit. As repeated requests,
both against the shipping agent and the buyers (Nankai), for
the issuance of the of Bill Lading were ignored, Far East filed
on May 16, 1957, the present complaint for Specific
Performance and damages.
By Special Apperance, defendant Nankai filed a Motion to
Dismiss the complaint and dissolve the preliminary
mandatory injunction on the followinggrounds: lack of
jurisdiction over the person of the defendant. Plaintiff filed a
motion to amend the complaint. The most important
amendments introduced are the allegation that defendant is
doing business in the Philippines with office address at R-517
Luneta Hotel, Manila,  situation of acquired jurisdiction based on consent.
At the trial, plaintiff Far East, showed that the transaction in
question was intended to be the beginning of business to be
undertaken by Nankai, as in fact, the representatives of the
company had made inquiries as to the operation of mines and
mining rights in this jurisdiction
Trial court renders judgment in favor of the plaintiff and
against defendant Nankai Kogyo Co., Ltd., sentencing said
defendant to pay plaintiff. 
Defendant contends that Philippine Courts have no
jurisdiction to take cognizance of the case because the Nankai
is not doing business in the islands; and that while it has
entered into the transaction in question, same, however, does
not constitute "doing business", so as to make it amenable to
summons and subject it to the Court's jurisdiction.
The rule pertinent to the questions in issue provides —
SEC. 14. Service upon private foreign corporations. — (xxx)
The above rule indicates three modes of effecting service of
summons upon a private, foreign corporation, (3) by serving
on any officer or agent of said corporation with Philippines.
The plaintiff complied with the third stated above,
Issue: 
(1) Whether or not the trial court acquired jurisdiction over
the subject matter and over the person of the defendant-
appellant;
Held: 
The appellant's defense of lack of jurisdiction appears
unavailing. 
In the instant case, the testimony of Atty. Pablo Ocampo that
appellant was doing business in the Philippines corroborated
by no less than Nabuo Yoshida, one of appellant's officers, that
he was sent to the Philippines by his company to look into the
operation of mines, thereby revealing the defendant's desire to
continue engaging in business here, after receiving the
shipment of the iron under consideration, making the
Philippines a base thereof.
the doing of a single act doesnot constitute business within the
meaning of statutes prescribing the conditions to be complied
with the foreign corporations must be qualified to this extent,
that a single act may bring the corporation. In such a case, the
single act of transaction is not merly incidental or casual, but
is of such character as distinctly to indicate a purpose on the
part of the foreign corporation to do other business in the
state, and to make the state a basis of operations for the
conduct of a part of corporation's ordinary business.
In the present case, the defendant, while entering a Special
Appearance to contest the jurisdiction of the Court, pursued
its defense further by filing its Answer and going into trial.
Not only did appellant allege non-jurisdictional grounds in its
pleadings to have the complaint dismissed, but it also went
into trial on the merits and presented evidence destined to
resist appellee's claim. Verily, there could not be a better
WHEREFORE, the judgment appealed from is hereby
affirmed,
PACIFIC MICRONISIAN LINE, INC., petitioner,   confer jurisdiction upon the Commission over petitioner
vs. N. BAENS DEL ROSARIO, Acting Commissioner of
the Workmen's Compensation Commission and
ALFONSA PELINGON, respondents.
Facts:
Alfonsa Pelingon filed a claim for compensation with the
Workmen's Compensation Commission (WCC) against the
Luzon Stevedoring Co., Inc., who refused to entertain on the
ground that said company was not the employer of the
deceased husband (as cook and chief steward) of the claimant.
The WCC, believing that the Pacific Far East Line, Inc., a
foreign corporation licensed to do business in the Philippines,
was an agent of petitioner with authority to receive service of
process, served notice of the claim on an official of said foreign
corporation who in turn forwarded the notice to petitioner
even if the latter was not an agent of, nor was it authorized to
accept service of process in behalf of, said petitioner.
Petitioner asked for the dismissal on the ground that the
Commission had no jurisdiction because it is a foreign
corporation not domiciled in this country, it is not licensed to
engage and is not engaging in business therein, has no office in
the Philippines, and is not represented by any agent
authorized to receive summons or any other judicial process in
its name and behalf. Counsel petitioner filed a memorandum
in support of their contention that the WCC has jurisdiction.
The referee assigned to act on the claim by the WCC entered
an order holding that considering "the failure of the Pacific
Micronisian Lines, Ltd., to contest or disauthorize the acts of
the Luzon Stevedoring Company, Inc., when the latter signed
as agent of the said shipping company in employing the
deceased, Luceno Pelingon, there remains no other alternative
for this Commission but to hold that it has acquired
jurisdiction to hear and determine the compensation claim of
the widow against the Pacific Micronisian Lines, Ltd.
Respondents set up the following special defenses: (1) Under
the law, the Workmen's Compensation Commission has
jurisdiction to hear and determine compensation cases even if
the injury or death occurs outside the Philippines; (2)
petitioner, in entering into a contract of employment with the
deceased through a local agent, has impliedly submitted itself
to the jurisdiction of our courts; (3) even granting that the two
domestic corporations employed by petitioner in connection
with the contract of employment were never authorized to act
as its agents in the Philippines, the fact that petitioner allowed
them to act as though they had power to represent it makes
petitioner liable under the contract of employment with the
deceased; and (4) petitioner may be considered as having
engaged in business in the Philippines because the contract of
employment entered into by it with the deceased was in
furtherance of its ordinary business as common carrier.
Issue/s:
1. Whether the service of process made by the Workmen's
Compensation Commission on the Pacific Far East Line,
Inc., an agent of petitioner, is sufficient under our rules to
in passing upon the claim of respondent Alfonsa Pelingon.
Under the Rules of Court, it can be done (1) by
serving upon the agent designated in accordance with
law to accept service of 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. 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. 
2. Since petitioner is a private foreign corporation not doing
business in the Philippines, can it be brought within the
jurisdiction of our courts by serving the summons upon
the agent who represented it in entering into the contract
of employment with the deceased Luceno Pelingon? 
Held:
Petitioner is a corporation exclusively engaged in the
business of carrying goods and passengers by sea
between the territory of Guam and the Trust
Territories of the Pacific Islands and for that purpose
it was operating a fleet of vessels plying between
those ports or territories. Petitioner has no property or
office in the Philippines, nor is it licensed to do business in the
Philippines. And the only act it did here was to secure the
services of Luceno Pelingon to act as cook and chief steward in
one of its vessels authorizing to that effect the Luzon
Stevedoring Co., Inc. a domestic corporation, and the contract
of employment was entered into on July 18, 1951. It further
appears that petitioner has never sent its ships to the
Philippines, nor has it transported nor even solicited the
transportation or passengers or cargoes to and from the
Philippines.
In other words, petitioner engaged the services of Pelingon not
as part of the operation of its business but merely to employ
him as member of the crew in one of its ships. That act
apparently is an isolated one, incidental, or casual, and "not of
a character to indicate a purpose to engage in business" within
the meaning of the rule. It follows that, even if the Luzon
Stevedoring Co., Inc. may be considered as an agent
of petitioner for the purpose of the contract of
employment, service or process upon it cannot confer
jurisdiction upon the Workmen's Compensation
Commission because of the fact that petitioner is not
doing business in the Philippines in contemplation of
section 14, Rule 7, of our Rules of Court.
The SC ruled that much as they sympathize with the claim of
the widow, that the Commission has no jurisdiction
over the petitioner and, therefore, the present proceedings
cannot continue and should be dismissed.
Summary of the case

This case concerns a petition for prohibition seeking to

restrain respondent Acting Commissioner of the Workmen's
Compensation Commission from exercising jurisdiction over
petitioner, a foreign corporation, and from further proceeding
with the action taken by claimant Alfonsa Pelingon on the
ground that it is beyond its jurisdiction.
COLUMBIA PICTURES ENTERTAINMENT, INC., vs.
HONORABLE COURT OF APPEALS,
Facts:
Complainants thru counsel lodged a formal complaint with the
National Bureau of Investigation for violation of PD No. 49, as
amended, and sought its assistance in their anti-film piracy
drive. Agents of the NBI and private researchers made discreet
surveillance on various video establishments in Metro Manila
including Sunshine Home Video Inc. (Sunshine for brevity),
owned and operated by Danilo A. Pelindario.
On November 14, 1987, NBI Senior Agent Lauro C. Reyes
applied for a search warrant with the court a quo against
Sunshine seeking the seizure, among others, of pirated video
tapes of copyrighted films.
The search warrant was served at about 1:45 p.m. on
December 14, 1987 to Sunshine and/or their representatives.
In the course of the search of the premises indicated in the
search warrant, the NBI Agents found and seized various video
tapes of duly copyrighted motion pictures/films owned or
exclusively distributed by private complainant. Copy of the
receipt was furnished and/or tendered to Mr. Danilo A.
Pelindario, registered owner-proprietor of Sunshine Home
Video.
A "Motion To Lift the Order of Search Warrant" was filed but
was later denied for lack of merit.
A Motion for reconsideration of the Order of denial was filed.
The court a quo granted the said motion for reconsideration.
(The alleged copies, were never presented in the proceedings
for the issuance of the search warrants in question)
Petitioners thereafter appealed the order of the trial court
granting private respondents' motion for reconsideration.
Private respondents aver that being foreign corporations,
petitioners should have such license to be able to maintain an
action in Philippine courts. In so challenging petitioners'
personality to sue, private respondents point to the fact that
petitioners are the copyright owners or owners of exclusive
rights of distribution in the Philippines of copyrighted motion
pictures or films, and also to the appointment of Atty. Rico V.
Domingo as their attorney-in-fact, as being constitutive of
"doing business in the Philippines" under Section 1 (f)(1) and
(2), Rule 1 of the Rules of the Board of Investments. As foreign
corporations doing business in the Philippines, denies them
the right to maintain a suit in Philippine courts in the absence
of a license to do business. Consequently, they have no right to
ask for the issuance of a search warrant.
Petitioners flatly deny that they are doing business in the
Philippines, and contend that private respondents have not
adduced evidence to prove that petitioners are doing such
business here.
Issue:
Whether or not the petitioners have legal standing in our
courts, they being foreign corporations not licensed to do
business in the Philippines.
Ruling:
Any foreign corporation not doing business in the Philippines
may maintain an action in our courts upon any cause of action,
provided that the subject matter and the defendant are within
the jurisdiction of the court. It is not the absence of the
prescribed license but "doing business" in the Philippines
without such license which debars the foreign corporation
from access to our courts. In other words, although a foreign
corporation is without license to transact business in the
Philippines, it does not follow that it has no capacity to bring
an action. Such license is not necessary if it is not engaged in
business in the Philippines.
No general rule or governing principles can be laid down as to
what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its own
peculiar environmental circumstances.
We fail to see how exercising one's legal and property rights
and taking steps for the vigilant protection of said rights,
particularly the appointment of an attorney-in-fact, can be
deemed by and of themselves to be doing business here.
As a general rule, a foreign corporation will not be regarded as
doing business in the State simply because it enters into
contracts with residents of the State, where such contracts are
consummated outside the State. In fact, a view is taken that a
foreign corporation is not doing business in the State merely
because sales of its product are made there or other business
furthering its interests is transacted there by an alleged agent
Based on Article 133 of the Corporation Code and gauged by
such statutory standards, petitioners are not barred from
maintaining the present action. There is no showing that,
under our statutory or case law, petitioners are doing,
transacting, engaging in or carrying on business in the
Philippines as would require obtaining of a license before they
can seek redress from our courts. No evidence has been
offered to show that petitioners have performed any of the
enumerated acts or any other specific act indicative of an
intention to conduct or transact business in the Philippines.
The retroactive application to the present controversy of the
ruling in 20th Century Fox Film Corporation vs. Court of
Appeals, et al, that for the determination of probable cause to
support the issuance of a search warrant in copyright
infringement cases involving videograms, the production of
the master tape for comparison with the allegedly pirate copies
is necessary.
It is evidently incorrect to suggest, as the ruling in 20th
Century Fox may appear to do, that in copyright infringement
cases, the presentation of master tapes of the copyrighted
films is always necessary to meet the requirement of probable
cause and that, in the absence thereof, there can be no finding
of probable cause for the issuance of a search warrant. It is
true that such master tapes are object evidence, with the merit
that in this class of evidence the ascertainment of the
controverted fact is made through demonstrations involving
the direct use of the senses of the presiding magistrate. Such
auxiliary procedure, however, does not rule out the use of
testimonial or documentary evidence, depositions, admissions
or other classes of evidence tending to prove the factum
probandum, especially where the production in court of object
evidence would result in delay, inconvenience or expenses out
of proportion to its evidentiary value.
B. VAN ZUIDEN BROS., LTD. vs. GTVL
MANUFACTURING INDUSTRIES, INC.
G.R. No. 147905, May 28, 2007
 
Facts:
 
B. VAN ZUIDEN BROS., LTD (ZUIDEN) filed a
complaint for sum of money against GTVL
MANUFACTURING INDUSTRIES, INC (GTVL).
Plaintiff ZUIDEN is a corporation, incorporated under the
laws of Hong Kong. ZUIDEN is not engaged in business in
the Philippines, but is suing before the Philippine Courts, for
the reasons hereinafter stated. It is engaged in the importation
and exportation of several products, including lace products.
On several occasions, GTVL purchased lace products from
ZUIDEN. The procedure for these purchases, as per the
instructions of GTVL, was that ZUIDEN delivers the products
purchased by GTVL, to a certain Hong Kong corporation,
known as Kenzar Ltd. (KENZAR), and the products are then
considered as sold, upon receipt by KENZAR of the goods
purchased by GTVL. KENZAR had the obligation to deliver the
products to the Philippines and/or to follow whatever
instructions GTVL had on the matter.
 
Insofar as ZUIDEN is concerned, upon delivery of the goods to
KENZAR in Hong Kong, the transaction is concluded; and
GTVL became obligated to pay the agreed purchase price.
However, GTVL has failed and refused to pay the agreed
purchase price for several deliveries ordered by it and
delivered by ZUIDEN, as above-mentioned. In spite of said
demands and in spite of promises to pay and/or admissions of
liability, GTVL has failed and refused, and continues to fail
and refuse, to pay the overdue amount of U.S.$32,088.02
inclusive of interest.
GTVL filed a Motion to Dismiss instead on the ground that
petitioner has no legal capacity to sue. GTVL alleged that
ZUIDEN is doing business in the Philippines without securing
the required license. Accordingly, ZUIDEN cannot sue before
Philippine courts.
 
RTC: dismissed the complaint
 
CA: It sustained the trial courts dismissal of the complaint. CA
found that the parties entered into a contract of sale whereby
ZUIDEN sold lace products to GTVL in a series of
transactions. While ZUIDEN delivered the goods in Hong
Kong to Kenzar, Ltd. (Kenzar), another Hong Kong company,
the party with whom ZUIDEN transacted was actually GTVL, a
Philippine corporation, and not Kenzar. It believed Kenzar is
merely a shipping company and concluded that the delivery of
the goods in Hong Kong did not exempt petitioner from being
considered as doing business in the Philippines.
 Hence, this petition.
 
Issue:
 
Whether petitioner ZUIDEN, an unlicensed foreign
corporation, has legal capacity to sue before Philippine courts.
(The resolution of this issue depends on whether petitioner is
doing business in the Philippines.)
Ruling:
 
The petition is meritorious. ZUIDEN is not doing
business in the Philippines, it does not need a license in
order to initiate and maintain a collection suit against
respondent for the unpaid balance of GTVL’s purchases.
 
Section 133 of the Corporation Code provides:
 
Doing business without license. No foreign
corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any
court or administrative agency of the
Philippines; but such corporation may be sued
or proceeded against before Philippine courts or
administrative tribunals on any valid cause of
action recognized under Philippine laws.
 
The law is clear. An unlicensed foreign corporation doing
business in the Philippines cannot sue before Philippine
courts. On the other hand, an unlicensed foreign corporation
not doing business in the Philippines can sue before
Philippine courts.
 
In the present controversy, ZUIDEN is a foreign corporation
which claims that it is not doing business in the
Philippines. As such, it needs no license to institute a
collection suit against respondent before Philippine courts.
 
GTVL argues otherwise. It insists that ZUIDEN is doing
business in the Philippines without the required
license. Hence, ZUIDEN has no legal capacity to sue before
Philippine courts.
 
Under Section 3(d) of Republic Act No. 7042 (RA 7042) or
The Foreign Investments Act of 1991, the phrase doing
business includes:
x x x soliciting orders, service contracts, opening
offices, whether called liaison offices or
branches; appointing representatives or
distributors domiciled in the Philippines or who
in any calendar year stay in the country for a
period or periods totalling one hundred eighty
(180) days or more; participating in the
management, supervision or control of any
domestic business, firm, entity or corporation in
the Philippines; and any other act or acts that
imply a continuity of commercial dealings or
arrangements, and contemplate to that extent
the performance of acts or works, or the exercise
of some of the functions normally incident to,
and in progressive prosecution of, commercial
gain or of the purpose and object of the business
organization: Provided, however, That the
phrase doing business shall not be deemed to
include mere investment as a shareholder by a
foreign entity in domestic corporations duly
registered to do business, and/or the exercise of
rights as such investor; nor having a nominee
director or officer to represent its interests in
such corporation; nor appointing a
representative or distributor domiciled in the
Philippines which transacts business in its own
name and for its own account.
The series of transactions between ZUIDEN and
GTVL cannot be classified as doing business in the
Philippines under Section 3(d) of RA 7042. An essential
condition to be considered as doing business in the Philippines
is the actual performance of specific commercial acts within
the territory of the Philippines for the plain reason that the the Philippines, even if it exports its products to the
Philippines has no jurisdiction over commercial acts Philippines, the Philippines has no jurisdiction to require such
performed in foreign territories. Here, there is no showing foreign corporation to secure a Philippine business license.
that ZUIDEN performed within the Philippine
territory the specific acts of doing business  
mentioned in Section 3(d) of RA 7042. ZUIDEN did not
also open an office here in the Philippines, appoint a
representative or distributor, or manage, supervise or control
a local business. While ZUIDEN and GTVL entered into a
series of transactions implying a continuity of commercial
dealings, the perfection and consummation of these
transactions were done outside the Philippines.
 
In its complaint, ZUIDEN alleged that it is engaged in the
importation and exportation of several products, including
lace products. ZUIDEN asserted that on several occasions,
GTVL purchased lace products from it. ZUIDEN also claimed
that respondent instructed it to deliver the purchased goods
to Kenzar, which is a Hong Kong company based in Hong
Kong. Upon Kenzars receipt of the goods, the products were
considered sold. Kenzar, in turn, had the obligation to deliver
the lace products to the Philippines. In other words, the sale of
lace products was consummated in Hong Kong.
 
As earlier stated, the series of transactions between ZUIDEN
and GTVL transpired and were consummated in Hong
Kong. We also find no single activity which petitioner
performed here in the Philippines pursuant to its purpose and
object as a business organization. Moreover, petitioners desire
to do business within the Philippines is not discernible from
the allegations of the complaint or from its
attachments. Therefore, there is no basis for ruling that
petitioner is doing business in the Philippines.
 
SC disagrees with the CA’s ruling that the proponents to the
transaction determine whether a foreign corporation is doing
business in the Philippines, regardless of the place of delivery
or place where the transaction took place. To accede to such
theory makes it possible to classify, for instance, a series of
transactions between a Filipino in the United States and an
American company based in the United States as doing
business in the Philippines, even when these transactions are
negotiated and consummated only within the United States.
 
An exporter in one country may export its products to many
foreign importing countries without performing in the
importing countries specific commercial acts that would
constitute doing business in the importing countries. The mere
act of exporting from ones own country, without doing any
specific commercial act within the territory of the importing
country, cannot be deemed as doing business in the importing
country. The importing country does not acquire jurisdiction
over the foreign exporter who has not performed any specific
commercial act within the territory of the importing
country. Without jurisdiction over the foreign exporter, the
importing country cannot compel the foreign exporter to
secure a license to do business in the importing country.
 
To be doing or transacting business in the Philippines for
purposes of Section 133 of the Corporation Code, the foreign
corporation must actually transact business in the
Philippines, that is, perform specific business
transactions within the Philippine territory on a
continuing basis in its own name and for its own
account. Actual transaction of business within the Philippine
territory is an essential requisite for the Philippines to acquire
jurisdiction over a foreign corporation and thus require the
foreign corporation to secure a Philippine business license. If a
foreign corporation does not transact such kind of business in

Merrill Lynch Futures, Inc. vs. CA
Facts:
Merrill Lynch Futures, Inc. (ML FUTURES) filed a complaint
in the RTC against the Spouses Pedro M. Lara and Elisa G.
Lara for the recovery of a debt and interest, damages, and
attorney's fees.
ML FUTURES alleged in its complaint 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;  fiduciary obligations as such, and where the statute does not
 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 Court is satisfied, too, that the Laras did transact business
with ML FUTURES through its agent corporation organized in
the Philippines, it being unnecessary to determine whether
this domestic firm was MLPI (Merrill Lynch Philippines, Inc.)
or Merrill Lynch Pierce Fenner & Smith (MLPI's alleged
predecessor). The fact is that ML FUTURES did deal with
futures contracts in exchanges in the United States in behalf
and for the account of the Lara Spouses, and that on several
occasions the latter received account documents and money in
connection with those transactions.
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
provide that the contract shall be void, but merely fixes a
special penalty for violation of the statute" 

 That 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

Held:

The SC is held 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 HOME INSURANCE COMPANY, vs. EASTERN
SHIPPING LINES and/or ANGEL JOSE
TRANSPORTATION, INC. and HON. A. MELENCIO-
HERRERA, Presiding Judge CFI MANILA
HOME INSURANCE COMPANY, vs. N. V. NEDLLOYD
LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or
GUACODS, INC., and HON. A. MELENCIO-HERRERA
[July 20, 1983]
In L-34382, S. Kajita & Co., shipped on board the SS "Eastern
Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot Rolled
Copper Wire Rods." The said VESSEL is owned and operated
by defendant Eastern Shipping Lines. The shipment was
covered by Bill of Lading No. O-MA-9, with arrival notice to
Phelps Dodge Copper Products Corporation of the Philippines
(CONSIGNEE) at Manila. The shipment was insured with
petitioner against all risks. The coils discharged from the
VESSEL numbered 2,361, of which 53 were in bad order. For
the loss/damage suffered by the cargo, petitioner paid the
consignee under its insurance policy, by virtue of which
petitioner became subrogated to the rights and actions of the
CONSIGNEE. Petitioner made demands for payment against
the CARRIER and the TRANSPORTATION COMPANY for
reimbursement of the aforesaid amount but each refused to
pay the same.
In another case or L-34383, it was found that the Hansa
Transport Kontor shipped from Germany, 30 packages of
Service Parts of Farm Equipment and Implements on board
the VESSEL, SS "NEDER RIJN" owned by the defendant, N.
V. Nedlloyd Lijnen, and represented in the Philippines by its
local agent, the defendant Columbian Philippines, Inc. The
shipment was covered by Bill of Lading No. 22 for
transportation to, and delivery at, Manila, in favor of the
consignee, international Harvester Macleod, Inc. The
shipment was insured with petitioner. Seven packages
discharged from the VESSEL were found to be in bad order.
Because of this, petitioner paid the CONSIGNEE under its
Insurance Cargo Policy by virtue of which plaintiff became
subrogated to the rights and actions of the CONSIGNEE.
Demands were made on defendants CARRIER and
CONSIGNEE for reimbursement thereof but they failed and
refused to pay the same.
The petitioner averred that it is a foreign insurance company
duly authorized to do business in the Philippines through its
agent, Mr. VICTOR H. BELLO, of legal age and with office
address at Oledan Building, Ayala Avenue, Makati, Rizal.
Respondent court (CFI of Manila) dismissed the complaints in
the two cases on the ground that the plaintiff failed to prove its
capacity to sue.
When the complaints were filed, the petitioner had already
secured the necessary license to conduct its insurance business
in the Philippines. It could already file suits. Petitioner was,
therefore, telling the truth when it averred in its complaints
that it was a foreign insurance company duly authorized to do
business in the Philippines through its agent Mr. Victor H.
Bello. However, when the insurance contracts which formed
the basis of these cases were executed, the petitioner had not
yet secured the necessary licenses and authority. The lower
court, therefore, declared that pursuant to the basic public
policy reflected in the Corporation Law, the insurance
contracts executed before a license was secured must be held
null and void. The court ruled that the contracts could not be
validated by the subsequent procurement of the license.
ISSUE: WON the contracts entered into by a foreign
corporation doing business in the Philippines without the
requisite license valid and enforceable.
HELD: YES. The Court ruled in the leading case of Marshall
Wells Co. v. Henry W. Elser & Co. that the object of Sections
68 and 69 of the Corporation Law was to subject the foreign
corporation doing business in the Philippines to the
jurisdiction of our courts. The object of the statute was not to
prevent the foreign corporation from performing single acts,
but to prevent it from acquiring a domicile for the purpose of
business without taking the steps necessary to render it
amenable to suit in the local courts. The implication of the law
is that it was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order
for business from the Philippines, from securing redress in the
Philippine courts, and thus, in effect, to permit persons to
avoid their contracts made with such foreign corporations. The
effect of the statute preventing foreign corporations from
doing business and from bringing actions in the local courts,
except on compliance with elaborate requirements, must not
be unduly extended or improperly applied. It should not be
construed to extend beyond the plain meaning of its terms,
considered in connection with its object, and in connection
with the spirit of the entire law.
To repeat, the objective of the law was to subject the foreign
corporation to the jurisdiction of our courts. The Corporation
Law must be given a reasonable, not an unduly harsh,
interpretation which does not hamper the development of
trade relations and which fosters friendly commercial
intercourse among countries.
We distinguish between the denial of a right to take remedial
action and the penal sanction for non-registration.
Insofar as transacting business without a license is concerned,
Section 69 of the Corporation Law imposed a penal sanction-
imprisonment. There is a penalty for transacting business
without registration. And insofar as litigation is concerned, the
foreign corporation or its assignee may not maintain any suit
for the recovery of any debt, claim, or demand whatever.
The Corporation Law is silent on whether or not the contract
executed by a foreign corporation with no capacity to sue is
null and void ab initio.
However, it has long been the rule that a foreign corporation
actually doing business in the Philippines without license to do
so may be sued in our courts. The defendant American
corporation in General Corporation of the Philippines v.
Union Insurance Society of Canton Ltd et al.  (87 Phil. 313)
entered into insurance contracts without the necessary license
or authority. When summons was served on the agent, the
defendant had not yet been registered and authorized to do
business. Section 14, Rule 7 of the Rules of Court makes no
distinction as to corporations with or without authority to do
business in the Philippines. The test is whether a foreign
corporation was actually doing business here. Otherwise, a
foreign corporation illegally doing business here because of its
refusal or neglect to obtain the corresponding license and
authority to do business may successfully though unfairly
plead such neglect or illegal act so as to avoid service and
thereby impugn the jurisdiction of the local courts. It would
indeed be anomalous and quite prejudicial, even disastrous, to
the citizens in this jurisdiction who in all good faith and in the
regular course of business accept and pay for shipments of
goods from abroad, relying for their protection on duly
executed foreign marine insurance policies made payable in
the Philippines and duly endorsed and delivered to them, that
when they go to court to enforce said policies, the insurer who
all along has been engaging in this business of issuing similar
marine policies, serenely pleads immunity to local jurisdiction
because of its refusal or neglect to obtain the corresponding
license to do business here thereby compelling the consignees
or purchasers of the goods insured to go to America and sue in
its courts for redress.
WHEREFORE, the petitions are hereby granted. The decisions
of the respondent court are reversed and set aside.
The Supreme Court held that contracts entered into
by a foreign corporation doing business in the Philippines
without the requisite license remain valid and enforceable and
that the requirement of registration affects only the remedy.
The purpose of requiring a license was to subject the foreign
corporation doing business in the Philippines to the
jurisdiction of the courts, and not to prevent the foreign
corporation from performing single acts, but to prevent it from
acquiring domicile for the purpose of business without taking
the necessary steps to render it amenable to suit in the local
courts. More so, where there is a prohibition with a penalty,
with no express or implied declarations respecting the validity
of contracts made by qualified foreign corporations, the
contract are enforceable upon compliance with the law. It
seems clearly implied from the language of Sections 133 and
134, that the failure of a foreign corporation to obtain a license
to do business when one is required, does not affect the
validity of the transactions of such foreign corporation, but
simply removes the legal standing of such foreign corporation
to sue.

There is no question that the contracts are

enforceable. The requirement of registration affects
only the remedy.

Significantly, Batas Pambansa Blg. 68, the Corporation Code

of the Philippines has corrected the ambiguity caused by the
wording of Section 69 of the old Corporation Law.

Section 133 of the Corporation Code provides that no foreign

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

The old Section 69 has been reworded in terms of non-access

to courts and administrative agencies in order to maintain or
intervene in any action or proceeding.

The prohibition against doing business without first

securing a license is now given penal sanction which
is also applicable to other violations of the
Corporation Code under the general provisions of
Section 144 of the Code. It is, therefore, not necessary
to declare the contract null and void even as against
the erring foreign corporation. The penal sanction for
the violation and the denial of access to our courts
and administrative bodies are sufficient from the
viewpoint of legislative policy. Our ruling that the lack of
capacity at the time of the execution of the contracts was cured
by the subsequent registration is also strengthened by the
procedural aspects of these cases.
TUNA PROCESSING, INC. vs. PHILIPPINE
KINGFORD INC.
G.R. No. 185582 (February 29, 2012)
FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine
Letters Patent, and an Indonesian Patent, entered into a
Memorandum of Agreement (MOA) with 5 Philippine tuna
processors including Respondent Philippine Kingford, Inc.
(KINGFORD). The MOA provides for the enforcing of the
abovementioned patents, granting licenses under the same,
and collecting royalties, and for the establishment of herein
Petitioner Tuna Processors, Inc. (TPI).
Due to a series of events, the tuna processors, including
Respondent KINGFORD, withdrew from Petitioner TPI and
correspondingly reneged on their obligations. Petitioner TPI
submitted the dispute for arbitration before the International
Centre for Dispute Resolution in the State of California,
United States and won the case against Respondent
KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for
Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award before the RTC of Makati City. Respondent
KINGFORD filed a Motion to Dismiss, which the RTC denied
for lack of merit. Respondent KINGFORD then sought for the
inhibition of the RTC judge, Judge Alameda, and moved for
the reconsideration of the order denying the Motion. Judge
Alameda inhibited himself notwithstanding “[t]he unfounded
allegations and unsubstantiated assertions in the motion.”
Judge Ruiz, to which the case was re-raffled, in turn, granted
Respondent KINGFORDS’s Motion for Reconsideration and
dismissed the Petition on the ground that Petitioner TPI
lacked legal capacity to sue in the Philippines. Petitioner TPI is
a corporation established in the State of California and not
licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under
Rule 45.
Petitioner TPI contends that it is entitled to seek for the
recognition and enforcement of the subject foreign arbitral
award in accordance with RA No. 9285 (Alternative Dispute
Resolution Act of 2004), the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards drafted during
the United Nations Conference on International Commercial
Arbitration in 1958 (New York Convention), and the
UNCITRAL Model Law on International Commercial
Arbitration (Model Law), as none of these specifically requires
that the party seeking for the enforcement should have legal
capacity to sue.
ISSUE:
WON a foreign corporation not licensed to do business in the
Philippines, but which collects royalties from entities in the
Philippines, sue here to enforce a foreign arbitral award.
HELD:
YES. Petitioner TPI, although not licensed to do business in
the Philippines, may seek recognition and enforcement of the
foreign arbitral award in accordance with the provisions of the
ADR Act of 2004. A foreign corporation’s capacity to
sue in the Philippines is not material insofar as the
recognition and enforcement of a foreign arbitral
award is concerned.
Sec. 45 of the Alternative Dispute Resolution Act of 2004
provides that the opposing party in an application for
recognition and enforcement of the arbitral award may raise
only those grounds that were enumerated under Article V of
the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused,
at the request of the party against whom it is invoked, only if
that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:
a. The parties to the agreement referred to in Article II
were, under the law applicable to them, under some
incapacity, or the said agreement is not valid under the
law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the
award was made;
b. The party against whom the award is invoked was not
given proper notice of the appointment of the arbitrator
or of the arbitration proceedings or was otherwise unable
to present his case;
c. The award deals with a difference not contemplated by
or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration, provided that, if
the decisions on matters submitted to arbitration can be
separated from those not so submitted, that part of the
award which contains decisions on matters submitted to
arbitration may be recognized and enforced;
d. The composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of
the parties, or, failing such agreement, was not in
accordance with the law of the country where the
arbitration took place; or
e. The award has not yet become binding on the parties,
or has been set aside or suspended by a competent
authority of the country in which, or under the law of
which, that award was made.
2. Recognition and enforcement of an arbitral award may also
be refused if the competent authority in the country where
recognition and enforcement is sought finds that:
a. The subject matter of the difference is not capable of
settlement by arbitration under the law of that country; or
b. The recognition or enforcement of the award would be
contrary to the public policy of that country.
Not one of the abovementioned exclusive grounds touched on
the capacity to sue of the party seeking the recognition and
enforcement of the award.
Pertinent provisions of the Special Rules of Court on ADR,
which was promulgated by the Supreme Court, likewise
support this position.
Rule 13.1 of the Special Rules provides that “[a]ny
party to a foreign arbitration may petition the court
to recognize and enforce a foreign arbitral award.”
The contents of such petition are enumerated in Rule 13.5.
Capacity to sue is not included. Oppositely, in the rule on local
arbitral awards or arbitrations in instances where “the place
of arbitration is in the Philippines,” it is specifically
required that a petition “to determine any question concerning
the existence, validity and enforceability of such arbitration
agreement” available to the parties before the commencement
of arbitration and/or a petition for “judicial relief from the
ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction” after arbitration has
already commenced should state “[t]he facts showing that the
persons named as petitioner or respondent have legal capacity
to sue or be sued.”

Indeed, it is in the best interest of justice that in the

enforcement of a foreign arbitral award, the Court deny
availment by the losing party of the rule that bars foreign
corporations not licensed to do business in the Philippines
from maintaining a suit in Philippine courts. When a party
enters into a contract containing a foreign arbitration
clause and, as in this case, in fact submits itself to
arbitration, it becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby
the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of
the result.