Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-14441

December 17, 1966

PEDRO R. PALTING, petitioner,

vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.
BARRERA, J.:
This is a petition for review of the order of August 29, 1958, later supplemented and amplified by another
dated September 9, 1958, of the Securities and Exchange Commission denying the opposition to, and
instead, granting the registration, and licensing the sale in the Philippines, of 5,000,000 shares of the capital
stock of the respondent-appellee San Jose Petroleum, Inc. (hereafter referred to as SAN JOSE
PETROLEUM), a corporation organized and existing in the Republic of Panama.
On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange
Commission a sworn registration statement, for the registration and licensing for sale in the Philippines
Voting Trust Certificates representing 2,000,000 shares of its capital stock of a par value of $0.35 a share, at
P1.00 per share. It was alleged that the entire proceeds of the sale of said securities will be devoted or used
exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic mining corporation
hereafter to be referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions covering an
area of a little less than 1,000,000 hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La
Union, Iloilo, Cotabato, Davao and Agusan. It was the express condition of the sale that every purchaser of
the securities shall not receive a stock certificate, but a registered or bearer-voting-trust certificate from the
voting trustees named therein James L. Buckley and Austin G.E. Taylor, the first residing in Connecticut,
U.S.A., and the second in New York City. While this application for registration was pending consideration by
the Securities and Exchange Commission, SAN JOSE PETROLEUM filed an amended Statement on June
20, 1958, for registration of the sale in the Philippines of its shares of capital stock, which was increased
from 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share. At this time the
par value of the shares has also been reduced from $.35 to $.01 per share. 1
Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed
with the Securities and Exchange Commission an opposition to registration and licensing of the securities on
the grounds that (1) the tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation
and SAN JOSE OIL, a domestic corporation, violates the Constitution of the Philippines, the Corporation
Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the
Philippines; (3) the sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon
Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is based upon unsound
business principles. Answering the foregoing opposition of Palting, et al., the registrant SAN JOSE
PETROLEUM claimed that it was a "business enterprise" enjoying parity rights under the Ordinance
appended to the Constitution, which parity right, with respect to mineral resources in the Philippines, may be
exercised, pursuant to the Laurel-Langley Agreement, only through the medium of a corporation organized
under the laws of the Philippines. Thus, registrant which is allegedly qualified to exercise rights under the
Parity Amendment, had to do so through the medium of a domestic corporation, which is the SAN JOSE
OIL. It refused the contention that the Corporation Law was being violated, by alleging that Section 13
thereof applies only to foreign corporations doing business in the Philippines, and registrant was not doing
business here. The mere fact that it was a holding company of SAN JOSE OIL and that registrant undertook
the financing of and giving technical assistance to said corporation did not constitute transaction of business
in the Philippines. Registrant also denied that the offering for sale in the Philippines of its shares of capital
stock was fraudulent or would work or tend to work fraud on the investors. On August 29, 1958, and on
September 9, 1958 the Securities and Exchange Commissioner issued the orders object of the present
appeal.
The issues raised by the parties in this appeal are as follows:

1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's securities,

has personality to file the present petition for review of the order of the Securities and Exchange
Commission;
2. Whether or not the issue raised herein is already moot and academic;
3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign
corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the
Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation Law;
and
4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work
fraud to purchasers of such securities in the Philippines.
1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2
newspapers of general circulation in the Philippines, for "any person who is opposed" to the petition for
registration and licensing of respondent's securities, to file his opposition in 7 days, herein petitioner so filed
an opposition. And, the Commissioner, having denied his opposition and instead, directed the registration of
the securities to be offered for sale, oppositor Palting instituted the present proceeding for review of said
order.
Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a
mere "prospective investor", he is not an "Aggrieved" or "interested" person who may properly maintain the
suit. Citing a 1931 ruling of Utah State Supreme Court 2 it is claimed that the phrase "party aggrieved" used
in the Securities Act3 and the Rules of Court4 as having the right to appeal should refer only to issuers,
dealers and salesmen of securities.
It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the
judgment or decree where it operates on his rights of property or bears directly upon his interest", that the
word "aggrieved" refers to "a substantial grievance, a denial of some personal property right or the
imposition upon a party of a burden or obligation." But a careful reading of the case would show that the
appeal therein was dismissed because the court held that an order of registration was not final and therefore
not appealable. The foregoing pronouncement relied upon by herein respondent was made in construing the
provision regarding an order of revocation which the court held was the one appealable. And since the law
provides that in revoking the registration of any security, only the issuer and every registered dealer of the
security are notified, excluding any person or group of persons having no such interest in the securities, said
court concluded that the phrase "interested person" refers only to issuers, dealers or salesmen of securities.
We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our
Securities Act in Section 7(c) thereof, requires the publication and notice of the registration statement.
Pursuant thereto, the Securities and Exchange Commissioner caused the publication of an order in part
reading as follows:
. . . Any person who is opposed with this petition must file his written opposition with this
Commission within said period (2 weeks). . . .
In other words, as construed by the administrative office entrusted with the enforcement of the Securities
Act, any person (who may not be "aggrieved" or "interested" within the legal acceptation of the word) is
allowed or permitted to file an opposition to the registration of securities for sale in the Philippines. And this
is in consonance with the generally accepted principle that Blue Sky Laws are enacted to protect investors
and prospective purchasers and to prevent fraud and preclude the sale of securities which are in fact
worthless or worth substantially less than the asking price. It is for this purpose that herein petitioner duly
filed his opposition giving grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to
the opposition. Subsequently both the petition and the opposition were set for hearing during which the
petitioner was allowed to actively participate and did so by cross-examining the respondent's witnesses and
filing his memorandum in support of his opposition. He therefore to all intents and purposes became a party
to the proceedings. And under the New Rules of Court, 5 such a party can appeal from a final order, ruling or
decision of the Securities and Exchange Commission. This new Rule eliminating the word "aggrieved"
appearing in the old Rule, being procedural in nature,6 and in view of the express provision of Rule 144 that
the new rules made effective on January 1, 1964 shall govern not only cases brought after they took effect
but all further proceedings in cases then pending, except to the extent that in the opinion of the Court their

application would not be feasible or would work injustice, in which event the former procedure shall apply,
we hold that the present appeal is properly within the appellate jurisdiction of this Court.
The order allowing the registration and sale of respondent's securities is clearly a final order that is
appealable. The mere fact that such authority may be later suspended or revoked, depending on future
developments, does not give it the character of an interlocutory or provisional ruling. And the fact that seven
days after the publication of the order, the securities are deemed registered (Sec. 7, Com. Act 83, as
amended), points to the finality of the order. Rights and obligations necessarily arise therefrom if not
reviewed on appeal.
Our position on this procedural matter that the order is appealable and the appeal taken here is proper
is strengthened by the intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court,
as the constitutional issues herein presented affect the validity of Section 13 of the Corporation Law, which,
according to the respondent, conflicts with the Parity Ordinance and the Laurel-Langley Agreement
recognizing, it is claimed, its right to exploit our petroleum resources notwithstanding said provisions of the
Corporation Law.
2. Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958
took effect 30 days from September 3, 1958, and since no stay order has been issued by the Supreme
Court, respondent's shares became registered and licensed under the law as of October 3, 1958.
Consequently, it is asserted, the present appeal has become academic. Frankly we are unable to follow
respondent's argumentation. First it claims that the order of August 29 and that of September 9, 1958 are
not final orders and therefor are not appealable. Then when these orders, according to its theory became
final and were implemented, it argues that the orders can no longer be appealed as the question of
registration and licensing became moot and academic.
But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in
the open market. Consequently the issue is much alive as to whether respondent's securities should
continue to be the subject of sale. The purpose of the inquiry on this matter is not fully served just because
the securities had passed out of the hands of the issuer and its dealers. Obviously, so long as the securities
are outstanding and are placed in the channels of trade and commerce, members of the investing public are
entitled to have the question of the worth or legality of the securities resolved one way or another.
But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who
appeared asamicus curiae in this case, that while apparently the immediate issue in this appeal is the right
of respondent SAN JOSE PETROLEUM to dispose of and sell its securities to the Filipino public, the real
and ultimate controversy here would actually call for the construction of the constitutional provisions
governing the disposition, utilization, exploitation and development of our natural resources. And certainly
this is neither moot nor academic.
3. We now come to the meat of the controversy the "tie-up" between SAN JOSE OIL on the one hand,
and the respondent SAN JOSE PETROLEUM and its associates, on the other. The relationship of these
corporations involved or affected in this case is admitted and established through the papers and documents
which are parts of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding
capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian)
corporation, the majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign
(Panamanian) company. This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL
COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the
laws of Venezuela. As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL
PETROLEUM found in 49 American states and U.S. territories, holding 3,476,988 shares of stock; whereas,
as of November 30, 1956, PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373
stockholders scattered in 49 American state. In the two lists of stockholders, there is no indication of the
citizenship of these stockholders,7 or of the total number of authorized stocks of each corporation, for the
purpose of determining the corresponding percentage of these listed stockholders in relation to the
respective capital stock of said corporation.
Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between
herein respondent SAN JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law
of 1949, the Philippine Constitution, and Section 13 of the Corporation Law, which inhibits a mining
corporation from acquiring an interest in another mining corporation. It is respondent's theory, on the other
hand, that far from violating the Constitution; such relationship between the two corporations is in
accordance with the Laurel-Langley Agreement which implemented the Ordinance Appended to the

Constitution, and that Section 13 of the Corporation Law is not applicable because respondent is not
licensed to do business, as it is not doing business, in the Philippines.
Article XIII, Section 1 of the Philippine Constitution provides:
SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall
be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of
the capital of which is owned by such citizens, subject to any existing right, grant, lease or
concession at the time of the inauguration of this Government established under this
Constitution. . . . (Emphasis supplied)
In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources)
was extended to citizens of the United States, thus:
Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen, of
the foregoing Constitution, during the effectivity of the Executive Agreement entered into by the
President of the Philippines with the President of the United States on the fourth of July, nineteen
hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred
and thirty-three, but in no case to extend beyond the third of July, nineteen hundred and seventyfour, the disposition, exploitation, development, and utilization of all agricultural, timber, and mineral
lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines, and the operation of public utilities
shall, if open to any person, be open to citizens of the United States, and to all forms of business
enterprises owned or controlled, directly or indirectly, by citizens of the United States in the same
manner as to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines (Emphasis supplied.)
In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known
as the Laurel-Langley Agreement, embodied in Republic Act 1355, the following provisions appear:
ARTICLE VI
1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral
lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces and
sources of potential energy, and other natural resources of either Party, and the operation of public
utilities, shall, if open to any person, be open to citizens of the other Party and to all forms of
business enterprise owned or controlled, directly or indirectly, by citizens of such other Party in the
same manner as to and under the same conditions imposed upon citizens or corporations or
associations owned or controlled by citizens of the Party granting the right.
2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the United
States, with respect to natural resources in the public domain in the Philippines, only through the
medium of a corporation organized under the laws of the Philippines and at least 60% of the capital
stock of which is owned or controlled by citizens of the United States. . . .
3. The United States of America reserves the rights of the several States of the United States to limit
the extent to which citizens or corporations or associations owned or controlled by citizens of the
Philippines may engage in the activities specified in this Article. The Republic of the Philippines
reserves the power to deny any of the rights specified in this Article to citizens of the United States
who are citizens of States, or to corporations or associations at least 60% of whose capital stock or
capital is owned or controlled by citizens of States, which deny like rights to citizens of the
Philippines, or to corporations or associations which are owned or controlled by citizens of the
Philippines. . . . (Emphasis supplied.)
Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by
Article XIII of the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of
which is owned by such citizens. With the Parity Amendment to the Constitution, the same right was
extended to citizens of the United States and business enterprises owned or controlled directly or indirectly,
by citizens of the United States.

There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned
provisions of the Constitution. The right was granted to 2 types of persons: natural persons (Filipino or
American citizens) and juridical persons (corporations 60% of which capital is owned by Filipinos and
business enterprises owned or controlled directly or indirectly, by citizens of the United States). In American
law, "citizen" has been defined as "one who, under the constitution and laws of the United States, has a right
to vote for representatives in congress and other public officers, and who is qualified to fill offices in the gift
of the people. (1 Bouvier's Law Dictionary, p. 490.) A citizen is
One of the sovereign people. A constituent member of the sovereignty, synonymous with the
people." (Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)
A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v.
Cruikshank 92 U.S. 542, 23 L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.)
These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise
entitled to parity rights in the Philippines? The answer must be in the negative, for the following reasons:
Firstly It is not owned or controlled directly by citizens of the United States, because it is owned and
controlled by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.
Secondly Neither can it be said that it is indirectly owned and controlled by American citizens through the
OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United
States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and
PANCOASTAL PETROLEUM.
Thirdly Although it is claimed that these two last corporations are owned and controlled respectively by
12,373 and 9,979 stockholders residing in the different American states, there is no showing in the
certification furnished by respondent that the stockholders of PANCOASTAL or those of them holding the
controlling stock, are citizens of the United States.
Fourthly Granting that these individual stockholders are American citizens, it is yet necessary to establish
that the different states of which they are citizens, allow Filipino citizens or corporations or associations
owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural resources of these
states (see paragraph 3, Article VI of the Laurel-Langley Agreement, supra). Respondent has presented no
proof to this effect.
Fifthly But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied,
nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign
corporations, comes within the purview of the Parity Amendment regarding business enterprises indirectly
owned or controlled by citizens of the United States, is to unduly stretch and strain the language and intent
of the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or control
of these various corporationsad infinitum for the purpose of determining whether the American ownershipcontrol-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and
PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are traded in
the stock exchange in New York, and you have a situation where it becomes a practical impossibility to
determine at any given time, the citizenship of the controlling stock required by the law. In the
circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is
not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the
Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE
PETROLEUM? This is a query which we need not resolve in this case as SAN JOSE OIL is not a party and
it is not necessary to do so to dispose of the present controversy. But it is a matter that probably the Solicitor
General would want to look into.
There is another issue which has been discussed extensively by the parties. This is whether or not an
American mining corporation may lawfully "be in anywise interested in any other corporation (domestic or
foreign) organized for the purpose of engaging in agriculture or in mining," in the Philippines or whether an
American citizen owning stock in more than one corporation organized for the purpose of engaging in
agriculture or in mining, may own more than 15% of the capital stock then outstanding and entitled to vote,
of each of such corporations, in view of the express prohibition contained in Section 13 of the Philippine
Corporation Law. The petitioner in this case contends that the provisions of the Corporation Law must be

applied to American citizens and business enterprise otherwise entitled to exercise the parity privileges,
because both the Laurel-Langley Agreement (Art. VI, par. 1) and the Petroleum Act of 1948 (Art. 31),
specifically provide that the enjoyment by them of the same rights and obligations granted under the
provisions of both laws shall be "in the same manner as to, and under the same conditions imposed upon,
citizens of the Philippines or corporations or associations owned or controlled by citizens of the Philippines."
The petitioner further contends that, as the enjoyment of the privilege of exploiting mineral resources in the
Philippines by Filipino citizens or corporations owned or controlled by citizens of the Philippines (which
corporation must necessarily be organized under the Corporation Law), is made subject to the limitations
provided in Section 13 of the Corporation Law, so necessarily the exercise of the parity rights by citizens of
the United States or business enterprise owned or controlled, directly or indirectly, by citizens of the United
States, must equally be subject to the same limitations contained in the aforesaid Section 13 of the
Corporation Law.
In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this
legal question, especially taking into account the statement of the respondent (SAN JOSE PETROLEUM)
that it is essentially a holding company, and as found by the Securities and Exchange Commissioner, its
principal activity is limited to the financing and giving technical assistance to SAN JOSE OIL.
4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the
Philippines, was incorporated under the laws of Panama in April, 1956 with an authorized capital stock of
$500,000.00, American currency, divided into 50,000,000 shares at par value of $0.01 per share. By virtue of
a 3-party Agreement of June 14, 1956, respondent was supposed to have received from OIL
INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at par value of $0.01 per share),
plus a note for $250,000.00 due in 6 months, for which respondent issued in favor of OIL INVESTMENTS
16,000,000 shares of its capital stock, at $0.01 per share or with a value of $160,000.00, plus a note for
$230,297.97 maturing in 2 years at 6% per annum interest, 9 and the assumption of payment of the unpaid
price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).
On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to
$17,500,000.00 by increasing the par value of the same 50,000,000 shares, from $0.01 to $0.35. Without
any additional consideration, the 16,000,000 shares of $0.01 previously issued to OIL INVESTMENTS with a
total value of $160,000.00 were changed with 16,000,000 shares of the recapitalized stock at $0.35 per
share, or valued at $5,600,000.00. And, to make it appear that cash was received for these re-issued
16,000,000 shares, the board of directors of respondent corporation placed a valuation of $5,900,000.00 on
the 8,000,000 shares of SAN JOSE OIL (still having par value of $0.10 per share) which were received from
OIL INVESTMENTS as part-consideration for the 16,000,000 shares at $0.01 per share.
In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of
the 8,000,000 shares of SAN JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the
alleged difference between the "value" of the said shares and the subscription price thereof which is
$800,000.00 (at $0.10 per share). From this $800,000.00, the subscription price of the SAN JOSE OIL
shares, the amount of $319,702.03 was deducted, as allegedly unpaid subscription price, thereby giving a
difference of $480,297.97, which was placed as the amount allegedly paid in on the subscription price of the
8,000,000 SAN JOSE OIL shares. Then, by adding thereto the note receivable from OIL INVESTMENTS, for
$250,000.00 (part-consideration for the 16,000,000 SAN JOSE PETROLEUM shares), and the sum of
$6,516.21, as deferred expenses, SAN JOSE PETROLEUM appeared to have assets in the sum of
$736,814.18.
These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000
shares of SAN JOSE OIL. There appears no basis for such valuation other than belief by the board of
directors of respondent that "should San Jose Oil Company be granted the bulk of the concessions applied
for upon reasonable terms, that it would have a reasonable value of approximately $10,000,000." 10 Then, of
this amount, the subscription price of $800,000.00 was deducted and called it "difference between the
(above) valuation and the subscription price for the 8,000,000 shares." Of this $800,000.00 subscription
price, they deducted the sum of $480,297.97 and the difference was placed as the unpaid portion of the
subscription price. In other words, it was made to appear that they paid in $480,297.97 for the 8,000,000
shares of SAN JOSE OIL. This amount ($480,297.97) was supposedly that $250,000.00 paid by OIL
INVESMENTS for 7,500,000 shares of SAN JOSE OIL, embodied in the June 14 Agreement, and a sum of
$230,297.97 the amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there is
still an item among respondent's liabilities, for $230,297.97 appearing as note payable to Oil Investments,
maturing in two (2) years at six percent (6%) per annum. 11 As far as it appears from the records, for the
16,000,000 shares at $0.35 per share issued to OIL INVESTMENTS, respondent SAN JOSE PETROLEUM

received from OIL INVESTMENTS only the note for $250,000.00 plus the 8,000,000 shares of SAN JOSE
OIL, with par value of $0.10 per share or a total of $1,050,000.00 the only assets of the corporation. In
other words, respondent actually lost $4,550,000.00, which was received by OIL INVESTMENTS.
But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE
PETROLEUM are noteworthy; viz:
(1) the directors of the Company need not be shareholders;
(2) that in the meetings of the board of directors, any director may be represented and may vote
through a proxy who also need not be a director or stockholder; and
(3) that no contract or transaction between the corporation and any other association or partnership
will be affected, except in case of fraud, by the fact that any of the directors or officers of the
corporation is interested in, or is a director or officer of, such other association or partnership, and
that no such contract or transaction of the corporation with any other person or persons, firm,
association or partnership shall be affected by the fact that any director or officer of the corporation is
a party to or has an interest in, such contract or transaction, or has in anyway connected with such
other person or persons, firm, association or partnership; and finally, that all and any of the persons
who may become director or officer of the corporation shall be relieved from all responsibility for
which they may otherwise be liable by reason of any contract entered into with the corporation,
whether it be for his benefit or for the benefit of any other person, firm, association or partnership in
which he may be interested.
These provisions are in direct opposition to our corporation law and corporate practices in this country.
These provisions alone would outlaw any corporation locally organized or doing business in this jurisdiction.
Consider the unique and unusual provision that no contract or transaction between the company and any
other association or corporation shall be affected except in case of fraud, by the fact that any of the directors
or officers of the company may be interested in or are directors or officers of such other association or
corporation; and that none of such contracts or transactions of this company with any person or persons,
firms, associations or corporations shall be affected by the fact that any director or officer of this company is
a party to or has an interest in such contract or transaction or has any connection with such person or
persons, firms associations or corporations; and that any and all persons who may become directors or
officers of this company are hereby relieved of all responsibility which they would otherwise incur by reason
of any contract entered into which this company either for their own benefit, or for the benefit of any person,
firm, association or corporation in which they may be interested.
The impact of these provisions upon the traditional judiciary relationship between the directors and the
stockholders of a corporation is too obvious to escape notice by those who are called upon to protect the
interest of investors. The directors and officers of the company can do anything, short of actual fraud, with
the affairs of the corporation even to benefit themselves directly or other persons or entities in which they
are interested, and with immunity because of the advance condonation or relief from responsibility by reason
of such acts. This and the other provision which authorizes the election of non-stockholders as directors,
completely disassociate the stockholders from the government and management of the business in which
they have invested.
To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE
PETROLEUM, OIL INVESTMENTS, as holder of the only subscribed stock of the former corporation and
acting "on behalf of all future holders of voting trust certificates," entered into a voting trust agreement 12 with
James L. Buckley and Austin E. Taylor, whereby said Trustees were given authority to vote the shares
represented by the outstanding trust certificates (including those that may henceforth be issued) in the
following manner:
(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for the
election of directors designated by the Trustees in their own discretion, having in mind the best
interests of the holders of the voting trust certificates, it being understood that any and all of the
Trustees shall be eligible for election as directors;
(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy or
proxies to vote for or against such proposition as the Trustees in their own discretion may
determine, having in mind the best interest of the holders of the voting trust certificates;

(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will instruct
such proxy or proxies attending such meetings to vote the shares of stock held by the Trustees in
accordance with the written instructions of each holder of voting trust certificates. (Emphasis
supplied.)
It was also therein provided that the said Agreement shall be binding upon the parties thereto, their
successors, and upon all holders of voting trust certificates.
And these are the voting trust certificates that are offered to investors as authorized by Security and
Exchange Commissioner. It can not be doubted that the sale of respondent's securities would, to say the
least, work or tend to work fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied
and the orders of the Securities and Exchange Commissioner, allowing the registration of Respondent's
securities and licensing their sale in the Philippines are hereby set aside. The case is remanded to the
Securities and Exchange Commission for appropriate action in consonance with this decision. With costs.
Let a copy of this decision be furnished the Solicitor General for whatever action he may deem advisable to
take in the premises. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez,
JJ., concur.
Castro, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-47701

June 27, 1941

THE MENTHOLATUM CO., INC., ET AL., petitioners,

vs.
ANACLETO MANGALIMAN, ET AL., respondents.
Araneta, Zaragoza, Araneta & Bautista for petitioners.
Benito Soliven for respondents.
LAUREL, J.:
This is a petition for a writ of certiorari to review the decision of the Court of Appeals dated June 29, 1940,
reversing the judgment of the Court of First Instance of Manila and dismissing petitioners' complaint.
On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an
action in the Court of First Instance of Manila, civil case No. 48855, against Anacleto Mangaliman, Florencio
Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair
competition. Plaintiffs prayed for the issuance of an order restraining Anacleto and Florencio Mangaliman
from selling their product "Mentholiman," and directing them to render an accounting of their sales and
profits and to pay damages. The complaint stated, among other particulars, that the Mentholatum Co., Inc.,
is a Kansas corporation which manufactures Mentholatum," a medicament and salve adapted for the
treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and other external ailments of
the body; that the Philippine-American Drug co., Inc., is its exclusive distributing agent in the Philippines
authorized by it to look after and protect its interests; that on June 26, 1919 and on January 21, 1921, the
Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the word, "Mentholatum," as
trade mark for its products; that the Mangaliman brothers prepared a medicament and salve named
"Mentholiman" which they sold to the public packed in a container of the same size, color and shape as
"Mentholatum"; and that, as a consequence of these acts of the defendants, plaintiffs suffered damages
from the dimunition of their sales and the loss of goodwill and reputation of their product in the market.
After a protracted trial, featured by the dismissal of the case on March 9, 1936 for failure of plaintiff's counsel
to attend, and its subsequent reinstatement on April 4, 1936, the Court of First Instance of Manila, on
October 29, 1937, rendered judgment in favor of the complainants, the dispositive part of its decision
reading thus:
En meritos de todo lo expuesto, este Juzgado dicta sentencia:
(a) Haciendo que sea perpetuo y permanente el iterdicto prohibitorio preliminar expedido contra
Anacleto Mangaliman, sus agentes y empleados, prohibiendoles vender su producto en la forma en
que se vendia al incoarse la demanda de autos, o de alguna otra manera competir injustamente
contra el producto de las demandantes, y de usar la marca industrial "MENTHOLIMAN" en sus
productos;
(b) Ordenando al demandado Anacleto Mangaliman, que rinda exacta cuenta de sus ganancias por
la venta de su producto desde el dia 10 de marzo de 1934, hasta la fecha de esta decision, y que
pague a las demandantes, en concepto de daos y perjuicios, lo que resulte ser la ganancia de
dicho demandado;
(c) Condenando a dicho demandado, Anacleto Mangaliman, a pagar un multa de cincuenta pesos
(P50) por desacato al Juzgado, y las costas del juicio; y
(d) Sobreseyendo la contra-reclamacion del demandado, Anacleto Mangaliman, contra las
demandantes.
In the Court of Appeals, where the cause was docketed as CA-G. R. No. 46067, the decision of the trial
court was, on June 29, 1940, reversed, said tribunal holding that the activities of the Mentholatum Co., Inc.,
were business transactions in the Philippines, and that, by section 69 of the Corporation Law, it may not
maintain the present suit. Hence, this petition for certiorari.
In seeking a reversal of the decision appealed from, petitioners assign the following errors:
1. The Court of Appeals erred in declaring that the transactions of the Mentholatum Co., Inc., in the
Philippines constitute "transacting business" in this country as this term is used in section 69 of the

Corporation Law. The aforesaid conclusion of the Court of Appeals is a conclusion of law and not of
fact.
2. The Court of Appeals erred in not holding that whether or not the Mentholatum Co., Inc., has
transacted business in the Philippines is an issue foreign to the case at bar.
3. The Court of Appeals erred in not considering the fact that the complaint was filed not only by the
Mentholatum Co., Inc., but also by the Philippine-American Drug Co., Inc., and that even if the
Mentholatum Co., Inc., has no legal standing in this jurisdiction, the complaint filed should be
decided on its merits since the Philippine-American Drug Co., Inc., has sufficient interest and
standing to maintain the complaint.
Categorically stated, this appeal simmers down to an interpretation of section 69 of the Corporation Law,
and incidentally turns upon a substantial consideration of two fundamental propositions, to wit: (1) whether
or not the petitioners could prosecute the instant action without having secured the license required in
section 69 of the Corporation Law; and (2) whether or not the Philippine-American Drug Co., Inc., could by
itself maintain this proceeding.
Petitioners maintain that the Mentholatum Co., Inc., has not sold personally any of its products in the
Philippines; that the Philippine-American Drug Co., Inc., like fifteen or twenty other local entities, was merely
an importer of the products of the Mentholatum Co., Inc., and that the sales of the Philippine-American Drug
Co., Inc., were its own and not for the account of the Mentholatum Co., Inc. Upon the other hand, the
defendants contend that the Philippine-American Drug Co., Inc., is the exclusive distributing agent in the
Philippines of the Mentholatum Co., Inc., in the sale and distribution of its product known as "Mentholatum";
that, because of this arrangement, the acts of the latter; and that the Mentholatum Co., Inc., being thus
engaged in business in the Philippines, and not having acquired the license required by section 68 of the
Corporation Law, neither it nor the Philippine-American Drug co., Inc., could prosecute the present action.
Section 69 of Act No. 1459 reads:
SEC. 69. No foreign corporation or corporation formed, organized, or existing under any laws other
than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands
or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever,
unless it shall have the license prescribed in the section immediately preceding. Any officer, or agent
of the corporation or any person transacting business for any foreign corporation not having the
license prescribed shall be punished by imprisonment for not less than six months nor more than two
years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both
such imprisonment and fine, in the discretion of the court.
In the present case, no dispute exists as to facts: (1) that the plaintiff, the Mentholatum Co., Inc., is a foreign
corporation; (2) that it is not licensed to do business in the Philippines. The controversy, in reality, hinges on
the question of whether the said corporation is or is not transacting business in the Philippines.
No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in" or
"transacting" business. Indeed, each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body
or substance of the business or enterprise for which it was organized or whether it has substantially retired
from it and turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [C. C. A. Ohio], 223 F. 984,
987.) The term implies a continuity of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization. (Griffin v. Implement Dealers' Mut.
Fire Ins. Co., 241 N. W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl.
111; Automotive Material Co. v. American Standard Metal Products Corp., 158 N. E. 698, 703, 327 III. 367.)
In its decision of June 29, 1940, the Court of Appeals concluded that "it is undeniable that the Mentholatum
Co., through its agent, the Philippine-American Drug Co., Inc., has been doing business in the Philippines by
selling its products here since the year 1929, at least." This is assailed by petitioners as a pure conclusion of
law. This finding is predicated upon the testimony of Mr. Roy Springer of the Philippine-American Drug Co.,
Inc., and the pleadings filed by petitioners. The complaint filed in the Court of First Instance of Manila on
October 1, 1935, clearly stated that the Philippine-American Drug Co., Inc., is the exclusive distributing
agent in the Philippine Islands of the Mentholatum Co., Inc., in the sale and distribution of its product known
as the Mentholatum." The object of the pleadings being to draw the lines of battle between litigants and to

indicate fairly the nature of the claims or defenses of both parties (1 Sutherland's Code Pleading, Practice &
Forms, sec. 83; Milliken v. Western Union Tel. Co., 110 N. Y. 403, 18 N. E. 251; Eckrom v. Swenseld, 46 N.
D. 561, 563, 179 N. W. 920), a party cannot subsequently take a position contradictory to, or inconsistent
with, his pleadings, as the facts therein admitted are to be taken as true for the purpose of the action. (46 C.
J., sec. 121, pp. 122-124.) It follows that whatever transactions the Philippine-American Drug Co., Inc., had
executed in view of the law, the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., being a
foreign corporation doing business in the Philippines without the license required by section 68 of the
Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition. Neither
may the Philippine-American Drug Co., Inc., maintain the action here for the reason that the distinguishing
features of the agent being his representative character and derivative authority (Mechem on Agency, sec. 1;
Sory on Agency, sec. 3; Sternaman v. Metropolitan Life Ins. Co., 170 N. Y. 21), it cannot now, to the
advantage of its principal, claim an independent standing in court.
The appellees below, petitioners here, invoke the case of Western Equipment and Supply Co. vs. Reyes (51
Phil., 115). The Court of Appeals, however, properly distinguished that case from the one at bar in that in the
former "the decision expressly says that the Western Equipment and Supply Co. was not engaged in
business in the Philippines, and significantly added that if the plaintiff had been doing business in the
Philippine Islands without first obtaining a license, 'another and a very different question would be
presented'. " It is almost unnecessary to remark in this connection that the recognition of the legal status of a
foreign corporation is a matter affecting the policy of the forum, and the distinction drawn in our Corporation
Law is an expression of that policy. The general statement made in Western Equipment and Supply Co. vs.
Reyes regarding the character of the right involved should not be construed in derogation of the policydetermining authority of the State.
The right of the petitioner conditioned upon compliance with the requirements of section 69 of the
Corporation Law to protect its rights, is hereby reserved.
The writ prayed for should be, as it hereby is, denied, with costs against the petitioners.
So ordered.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 118843 February 6, 1997

ERIKS PTE. LTD., petitioner,
vs.
COURT OF APPEALS, and DELFIN F. ENRIQUEZ, JR., respondents.

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"
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 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 court's 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 equipment
used for industrial fluid control and PVC pipes and fittings for industrial uses. In its complaint, it alleged that: 2
(I)t is a corporation duly organized and existing under the laws of the Republic of Singapore
with address at 18 Pasir Panjang Road #09-01, PSA Multi-Storey Complex, Singapore 0511.
It is not licensed to do business in the Philippines and i(s) not so engaged and is suing on an
isolated transaction for which it has capacity to sue . . . (par. 1, Complaint; p. 1, Record)
On various dates covering the period January 17 August 16, 1989, private respondent Delfin Enriquez,
Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine
Commercial, ordered and received from petitioner various elements used in sealing pumps, valves, pipes
and control equipment, PVC pipes and fittings. The ordered materials were delivered via airfreight under the
following invoices: 3
Date Invoice No. AWB No. Amount

17 Jan 89 27065 618-7496-2941 S$ 5,010.59
24 Feb 89 27738 618-7553-6672 14,402.13
02 Mar 89 27855 (freight & hand- 1,164.18
ling charges per

Inv. 27738)
03 Mar 89 27876 618-7553-7501 1,394.32
03 Mar 89 27877 618-7553-7501 1,641.57
10 Mar 89 28046 618-7578-3256/ 7,854.60
618-7578-3481
21 Mar 89 28258 618-7578-4634 27.72
14 Apr 89 28901 618-7741-7631 2,756.53
19 Apr 89 29001 Self-collect 458.80
16 Aug 89 31669 (handcarried by 1,862.00
buyer)

S$36,392.44
21 Mar 89 28257 618-7578-4634 415.50
04 Apr 89 28601 618-7741-7605 884.09
14 Apr 89 28900 618-7741-7631 1,269.50
25 Apr 89 29127 618-7741-9720 883.80
02 May 89 29232 (By seafreight) 120.00
05 May 89 29332 618-7796-3255 1,198.40
15 May 89 29497 (Freight & hand- 111.94
ling charges per
Inv. 29127
S$ 4,989.29
31 May 89 29844 618-7796-5646 545.70
S$ 545.70

Total S$ 41,927.43
The transfers of goods were perfected in Singapore, for private respondent's account, F.O.B. Singapore,
with a 90-day credit term. Subsequently, demands were made by petitioner upon private respondent to settle
his account, but the latter failed/refused to do so.
On August 28, 1991, petitioner corporation filed with the Regional Trial Court of Makati, Branch 138, 4 Civil
Case No. 91-2373 entitled "Eriks Pte. Ltd. vs. Delfin Enriquez, Jr." for the recovery of S$41,939.63 or its
equivalent in Philippine currency, plus interest thereon and damages. Private respondent responded with a Motion
to Dismiss, contending that petitioner corporation had no legal capacity to sue. In an Order dated March 8,
1993, 5 the trial court dismissed the action on the ground that petitioner is a foreign corporation doing business in
the Philippines without a license. The dispositive portion of said order reads: 6
WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTED and
accordingly, the above-entitled case is hereby DISMISSED.
SO ORDERED.
On appeal, respondent Court affirmed said order as it deemed the series of transactions between petitioner,
corporation and private respondent not to be an "isolated or casual transaction." Thus, respondent Court
likewise found petitioner to be without legal capacity to sue, and disposed of the appeal as follows: 7
WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED. The complaint is
dismissed. No costs.
SO ORDERED.
Hence, this petition.
The Issue
The main issue in this petition is whether petitioner corporation may maintain an action in Philippine courts
considering that it has no license to do business in the country. The resolution of this issue depends on
whether petitioner's business with private respondent may be treated as isolated transactions.
Petitioner insists that the series of sales made to private respondent would still constitute isolated
transactions despite the number of invoices covering several separate and distinct items sold and shipped

over a span of four to five months, and that an affirmation of respondent Court's ruling would result in
injustice and unjust enrichment.
Private respondent counters that to declare petitioner as possessing capacity to sue will render nugatory the
provisions of the Corporation Code and constitute a gross violation of our laws. Thus, he argues, petitioner
is undeserving of legal protection.
The Court's Ruling
The petition has no merit.
The Concept of Doing Business
The Corporation Code provides:
Sec. 133. Doing business without a license. No foreign corporation transacting business
in the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative agency
of the Philippines; but such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized under Philippine
laws.
The aforementioned provision prohibits, not merely absence of the prescribed license, but it also bars a
foreign corporation "doing business" in the Philippines without such license access to our courts. 8 A foreign
corporation without such license is not ipso facto incapacitated from bringing an action. A license is necessary
only if it is "transacting or doing business in the country.
However, there is no definitive rule on what constitutes "doing," "engaging in," or "transacting" business. The
Corporation Code itself does not define such terms. To fill the gap, the evolution of its statutory definition has
produced a rather all-encompassing concept in Republic Act No. 7042 9 in this wise:
Sec. 3. Definitions. As used in this Act:
xxx xxx xxx
(d) the phrase "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in the country for a period or
periods totalling one hundred eight(y) (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation in the Philippines;
and any other act or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works,or the exercise of some of
the functions normally incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided, however, That the phrase
"doing business" shall not be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do business, and/or the exercise of
rights as such investor; nor having a nominee director or officer to represent its interests in
such corporation; nor appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account. (emphasis supplied)
In the durable case of The Mentholatum Co. vs. Mangaliman, this Court discoursed on the test to determine
whether a foreign company is "doing business" in the Philippines, thus: 10
. . . The true test, however, seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int.
Revenue [C.C.A., Ohio], 223 F. 984, 987.] The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization.] (sic) (Griffin v. Implement Dealer's
Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P.

851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp.,
158 N.E. 698, 703, 327 III. 367.)
The accepted rule in jurisprudence is that each case must be judged in the light of its own environmental
circumstances. 11 It should be kept in mind that the purpose of the law is to subject the foreign corporation doing
business in the Philippines to the jurisdiction of our courts. It is not to prevent the foreign corporation from
performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business without first
taking the steps necessary to render it amenable to suits in the local courts.
The trial court held that petitioner-corporation was doing business without a license, finding that: 12
The invoices and delivery receipts covering the period of (sic) from January 17, 1989 to
August 16, 1989 cannot be treated to a mean singular and isolated business transaction that
is temporary in character. Granting that there is no distributorship agreement between herein
parties, yet by the mere fact that plaintiff, each time that the defendant posts an order
delivers the items as evidenced by the several invoices and receipts of various dates only
indicates that plaintiff has the intention and desire to repeat the (sic) said transaction in the
future in pursuit of its ordinary business. Furthermore, "and if the corporation is doing that for
which it was created, the amount or volume of the business done is immaterial and a single
act of that character may constitute doing business". (See p. 603, Corp. Code, De Leon
1986 Ed.).
Respondent Court affirmed this finding in its assailed Decision with this explanation:

13

. . . Considering the factual background as laid out above, the transaction cannot be
considered as an isolated one. Note that there were 17 orders and deliveries (only sixteen
per our count) over a four-month period. The appellee (private respondent) made separate
orders at various dates. The transactions did not consist of separate deliveries for one single
order. In the case at bar, the transactions entered into by the appellant with the appellee are
a series of commercial dealings which would signify an intent on the part of the appellant
(petitioner) to do business in the Philippines and could not by any stretch of the imagination
be considered an isolated one, thus would fall under the category of'doing business.
Even if We were to view, as contended by the appellant, that the transactions which occurred
between January to August 1989, constitute a single act or isolated business transaction,
this being the ordinary business of appellant corporation, it can be said to be illegally doing
or transacting business without a license. . . . Here it can be clearly gleaned from the fourmonth period of transactions between appellant and appellee that it was a continuing
business relationship, which would, without doubt, constitute doing business without a
license. For all intents and purposes, appellant corporation is doing or transacting business
in the Philippines without a license and that, therefore in accordance with the specific
mandate of section 144 of the Corporation Code, it has no capacity to sue. (emphasis ours)
We find no reason to disagree with both lower courts. More than the sheer number of transactions entered
into, a clear and unmistakable intention on the part of petitioner to continue the body of its business in the
Philippines is more than apparent. As alleged in its complaint, it is engaged in the manufacture and sale of
elements used in sealing pumps, valves, and pipes for industrial purposes, valves and control equipment
used for industrial fluid control and PVC pipes and fittings for industrial use. Thus, the sale by petitioner of
the items covered by the receipts, which are part and parcel of its main product line, was actually carried out
in the progressive prosecution of commercial gain and the pursuit of the purpose and object of its business,
pure and simple. Further, its grant and extension of 90-day credit terms to private respondent for every
purchase made, unarguably shows an intention to continue transacting with private respondent, since in the
usual course of commercial transactions, credit is extended only to customers in good standing or to those
on whom there is an intention to maintain long-term relationship. This being so, the existence of a
distributorship agreement between the parties, as alleged but not proven by private respondent, would, if
duly established by competent evidence, be merely corroborative, and failure to sufficiently prove said
allegation will not significantly affect the finding of the courts below. Nor our own ruling. It is precisely upon
the set of facts above detailed that we concur with respondent Court that petitioner corporation was doing
business in the country.
Equally important is the absence of any fact or circumstance which might tend even remotely to negate such
intention to continue the progressive prosecution of petitioner's business activities in this country. Had

private respondent not turned out to be a bad risk, in all likelihood petitioner would have indefinitely
continued its commercial transactions with him, and not surprisingly, in ever increasing volumes.
Thus, we hold that the series of transactions in question could not have been isolated or casual transactions.
What is determinative of "doing business" is not really the number or the quantity of the transactions, but
more importantly, the intention of an entity to continue the body of its business in the country. The number
and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and
fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign
enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object
of the business organization. Whether a foreign corporation is "doing business" does not necessarily depend
upon the frequency of its transactions, but more upon the nature and character of the transactions. 14
Given the facts of this case, we cannot see how petitioner's business dealings will fit the category of
"isolated transactions" considering that its intention to continue and pursue the corpus of its business in the
country had been clearly established. It has not presented any convincing argument with equally convincing
evidence for us to rule otherwise.
Incapacitated to Maintain Suit
Accordingly and ineluctably, petitioner must be held to be incapacitated to maintain the action a quo against
private respondent.
It was never the intent of the legislature to bar court access to a foreign corporation or entity which happens
to obtain an isolated order for business in the Philippines. Neither, did it intend to shield debtors from their
legitimate liabilities or obligations. 15 But it cannot allow foreign corporations or entities which conduct regular
business any access to courts without the fulfillment by such corporations of the necessary requisites to be
subjected to our government's regulation and authority. By securing a license, the foreign entity would be giving
assurance that it will abide by the decisions of our courts, even if adverse to it.
Other Remedy Still Available
By this judgment, we are not foreclosing petitioner's right to collect payment. Res judicata does not set in a
case dismissed for lack of capacity to sue, because there has been no determination on the
merits. 16Moreover, this Court has ruled that subsequent acquisition of the license will cure the lack of capacity at
the time of the execution of the contract. 17
The requirement of a license is not meant to put foreign corporations at a disadvantage. Rather, the doctrine
of lack of capacity to sue is based on considerations of sound public policy. 18 Thus, it has been ruled in Home
Insurance that: 19
. . . The primary purpose of our statute is to compel a foreign corporation desiring to do
business within the state to submit itself to the jurisdiction of the courts of this state. The
statute was not intended to exclude foreign corporations from the state. . . . The better
reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold
that where, as here, there is a prohibition with a penalty, with no express or implied
declarations respecting the validity of enforceability of contracts made by qualified foreign
corporations, the contracts . . . are enforceable . . . upon compliance with the law. (Peter &,
Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)
While we agree with petitioner that the county needs to develop trade relations and foster friendly
commercial relations with other states, we also need to enforce our laws that regulate the conduct of
foreigners who desire to do business here. Such strangers must follow our laws and must subject
themselves to reasonable regulation by our government.
WHEREFORE, premises considered, the instant petition is hereby DENIED and the assailed Decision is
AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 79986 September 14, 1990

GRANGER ASSOCIATES, petitioner,
vs.
MICROWAVE SYSTEMS, INC., LORETO F. STEWARD, MENARDO R. JIMENEZ and JOHN
PALMER,respondents.
Castillo, Laman, Tan & Pantaleon for petitioner.
Fernando Ma. Alberto for respondents.

CRUZ, J.:

The Court is once again asked to interpret the phrase "doing business in the Philippines" as applied to an
unlicensed foreign corporation that has filed a complaint against a domestic corporation.
The foreign corporation is Granger Associates, the herein petitioner, which was organized in the United
States and has no license to do business in this country. The domestic corporation is Microwave Systems,
Inc., one of the herein private respondents, which has been sued for recovery of a sum equivalent to
US$900,633.30 allegedly due from it to the petitioner.
The claim arose from a series of agreements concluded between the two parties, principally the contract
dated March 28, 1977, under which Granger licensed MSI to manufacture and sell its products in the
Philippines and extended to the latter certain loans, equipment and parts; the contract dated May 17, 1979,
for the sale by Granger of its Model 7100/7200 Multiplex Equipment to MSI and the Supplemental and
Amendatory Agreement concluded in December 1979.
Payment of these contracts not having been made as agreed upon, Granger filed a complaint against MSI
and the other private respondents on June 29, 1984, in the Regional Trial Court of Pasay City. This was
docketed as Civil Case No. 1982-P. In its answer, MSI alleged the affirmative defense that the plaintiff had
no capacity to sue, being an unlicensed foreign corporation, and moved to dismiss.
The law invoked by the defendants was Section 133 of the Corporation Code reading as follows:
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; ...
The trial court, after considering the evidence of the parties in light of their respective memoranda, sustained
the defendants and granted the motion to dismiss. 1 On appeal, the order of dismissal was affirmed by the
respondent court2 prompting the present petition under Rule 45 of the Rules of Court.
In this petition, Granger seeks the reversal of the respondent court on the ground that MSI has failed to
prove its affirmative allegation that Granger was transacting business in the Philippines. It insists that it has
dealt only with MSI and not the general public and contends that dealing with the public itself is an
indispensable ingredient of transacting business. It also argues that its agreements with MSI covered only
one isolated transaction for which it did not have to secure a license to be able to file its complaint.
According to Section 1 of Rep. Act No. 5455
...the phrase "doing business" shall include soliciting orders, purchases, 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 Philippines for a period or periods totalling one hundred
eighty days or more; participating in the management, supervision or control of any domestic business firm,
entity or corporation in the Philippines; any other act or acts that imply a continuity of commercial dealings or
arrangements and contemplates to that extent the performance of acts or works, or the exercise of some of
these functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose
and object of the business organization.
This Court interpreted the same phrase in the old case of Mentholatum v. Mangaliman 3 as follows:
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 Go. 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, I11. 367.)
We have amplified one that discussion in subsequent cases, among them Top-Weld Manufacturing, Inc. v.
ECED, S.A., 4 where we said:

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 circumstance Thus, a foreign corporation with a settling agent in the
Philippines which issued twelve marine policies covering different shipments to the
Philippines and a foreign corporation which had been collecting premiums on outstanding
policies 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.
The petitioner contends that its various transactions with the private respondent were mere facets of the
basic agreement licensing MSI to manufacture and sell Granger's products in the Philippines. All subsequent
agreements were merely auxiliary to that first contract and should not be considered separate transactions
coming 'within the concept of "doing business in the Philippines."
The Supplemental and Amendatory Agreement concluded by Granger and MSI in December 1979
enumerates the various agreements between them thus:
1. Agreement dated March 28, 1977,under which MSI acquired from GRANGER the right to
manufacture, assemble, test, rent and sell, or otherwise deal in certain electronic
communications equipment designed and manufactured by GRANGER;
2. Agreement to Purchase Shares dated March 28, 1977 under which GRANGER was
granted the option to purchase thirty (30%) percent equity of MSI;
3. Amendatory Agreement dated May l2, 1978, adopting certain amendments to the
Agreement dated March 28, 1977 for the purpose of complying with the requirements
imposed by the Board of Investments and the Central Bank of the Philippines;
4. Exclusive Distributorship and Marketing Agreement dated May 16,1978, appointing MSI to
handle sale, distribution and promotion of products of GRANGER outside of the Republic of
the Philippines;
5. Sales Agency Agreement, dated May 16, 1978, under which MSI was appointed by
GRANGER as the latter's exclusive sales representative outside the Philippines to market
GRANGER products;
6. Agreement for Purchase of Shares dated May 17,1978, manifesting the intention of
GRANGER to exercise its option to purchase thirty (30%) percent of the issued and
outstanding shares of stock of MSI equivalent to a total of 9,000 issued shares of MSI;
7. Model 7l00/7200 Multiplex Agreement dated May l7, 1979, prescribing the terms and
conditions for the sale by GRANGER of Model 7100/7200 Multiplex Equipment to MSI;
8. Technology Transfer Agreement dated May 17, 1979, transferring to and/or providing MSI
by virtue of the Model 7100/7200 Multiplex Agreement, the necessary technical services,
assistance, manuals, catalogues, sales, literature, etc. for the operation of the Model
7100/7200 Multiplex Equipment;
9. Deed of Assignment of Receivables dated October 20, 1979, under which MSI assigned to
GRANGER a certain percentage of its receivables from the Philippine Electronics, Inc. in
favor of GRANGER to secure payment and performance of MSI's obligations to GRANGER
under previous agreements.
In the Model 7100/7200 Multiplex Equipment Agreement entered into on May 17, 1979, the following
stipulations appear:
4. GRANGER shall assign in favor of MSI all orders for the Model 7100/7200 Multiplex
Equipment, which have not been filled by GRANGER at the date of the ratification of this
Agreement as per paragraph 9 hereof, as described in a list hereto attached and made a

part hereof as Annex "C". All proceeds under said orders shall be assigned to and received
by MSI and MSI shall take over and assume all obligations which GRANGER may have
pursuant to the orders of equipment within a reasonable time following receipt of the
shipment of the Products by MSI but not to exceed one hundred eighty (180) days from date
of said receipt. Any orders GRANGER may receive following the date on which this
Agreement becomes effective as provided herein will be forwarded to MSI by GRANGER.
xxx xxx xxx
6. As an additional consideration for the purchase of the products, MSI binds itself to render
all equipment support service and maintain reasonable amount of spares inventory for the
equipment in the field previously having been sold by GRANGER or by RCA Corporation to
their customers for a period of ten (10) years from the date the last sale of GRANGER is
recorded. Any amount earned in providing such equipment support shall be billed and
received by MSI. Additionally, MSI binds itself to assume the warranty obligations and
advance the necessary funds to perform such obligations associated with Model 7l00/7200
Multiplex Equipment already sold by GRANGER. However, GRANGER shall reimburse MSI
the out-of-pocket cost for the services rendered by MSI in connection with the warranty for
the equipment assumed from GRANGER but only to the extent authorized in advance by
GRANGER.
A study of the enumeration does support the contention that many of the agreements concluded by the
petitioner and the private respondent were intended merely to supplement the basic contract dated March
28, 1977. However, this is not true of the Multiplex agreement dated May 17, 1979, which dealt with a
different subject matter and had a different consideration to be paid under a different method from that
specified in the first agreement of the parties in 1977. It is also noted that in the supplemental and
Amendatory Agreement, Granger sold to MSI certain materials/parts for 80 radios and granted it the right to
exploit the designs of Model 6015, Series of radio equipment (1.5 Ghz.) and the Plug-In Order Wire, and the
6002 Series and Power Amplifiers. The subject matter of this transaction is also different from those covered
by the previous agreements.
Even if it be assumed for the sake of argument that the subject matter of the first contract is of the same kind
as that of the subsequent agreements, that fact alone would not necessarily signify that all such agreements
are merely auxiliary to the first. As long as it can be shown that the parties entered into a series of
agreements, as in successive sales of the foreign company's regular products, that company shall be
deemed as doing business in the Philippines.
The quoted stipulations show that Granger had extended its personality in the Philippines and would receive
orders for its products and discharge its warranty obligations through the agency of MSI It would even
appear that Granger intended to transact business in the Philippines through the instrumentality of MSI not
only for the sale and warranty of its products in this country. The 'agent, was expected to extend also in
mainland China and other ASEAN countries, where MSI was to act as its representative in the development
of possible markets for Granger products. Thus it was provided in the Agreement:
6. OFF-SHORE MANUFACTURING.
GRANGER undertakes to utilize MSI's manufacturing facilities in the Philippines in
preference to any other manufacturer for offshore manufacture, assembly, fabrication and
testing of equipment, sub-assemblies, printed circuit boards and related or allied activities,
subject to MSI's demonstrated technical capability and its capacity to comply with normal
quality and delivery requirement for such components and as long as such off-shore
manufacturing would be to GRANGER's economic advantage.
7. MAINLAND CHINA AND ASEAN
Toward maximizing exploitation of export opportunities for the sale of MSI manufactured
equipment under license from GRANGER, MSI undertakes to do or perform the following:
a) MSI, independently or in concert with GRANGER shall develop a marketing strategy
towards Mainland China market at its cost or on the basis of shared expense arrangement
with GRANGER, agreed between both parties in advance, and shall pursue sales
opportunities in that market as it deems warranted. This includes establishing local sales

office to manage and monitor direct sales effort as well as appointments of non-exclusive
manufacturer's Sales Representatives or non-exclusive Distributors as the case may be;
b) MSI, always in close cooperation with GRANGER, shall develop and pursue direct sales
opportunities in the ASEAN market for its own account, always reaching agreement with
GRANGER in advance on a case-to-case basis as to the extent of reimbursing GRANGER
for its direct or indirect expenses that it might be incurring while acting as an Exclusive
Distributor or a Manufacturer's Representative for the licensed equipment in the ASEAN
market.
We also note that in the Supplemented and Amendatory Agreement of December 1979, Granger saw to it
that it was assured of at least one seat in the board of directors of MSI; without prejudice to the right of
Granger to request additional seats as its interest may require". Granger actually purchased 9,000 shares of
MSI, representing 30% of the latter's issued and outstanding shares of stock. 5 The fact that it was directly
involved in the business of MSI was also manifestation stipulation where Granger "acknowledged and confirmed"
the transfer of a block of stocks from one shareholder to another group of investors. Such approval is not normally
given except by a stockholder enjoying substantial participation in the management of the business of the
company. The said stipulations read as follows.
4. BOARD OF DIRECTORS.
GRANGER shall be entitled to one (1) seat in the Board of Directors, with the option to fill
said seat at its discretion and instance. GRANGER further interposes no objection to MSI's
increasing the number of its Board of Directors without a corresponding entitlement to an
additional seat, without prejudice however to the right of GRANGER to request additional
seat as its interest may require.
xxx xxx xxx
8. CONFIRMATION OF SALE OF SHARES OF STOCK.
The parties hereto take cognizance of the sale of shares of stock in MSI owned by Vicente
C. Sayaon, in his personal capacity and as controlling stockholder of authorized
representative of Cosmopolitan Realty Corporation and Visayas Realty and Investment
Corporation, in favor of a new group of Filipino entrepreneurs represented in the transaction
by Mrs. Remedios Porcuna. The Deed of Sale covering this transaction is incorporated
hereto by reference and made an integral part of this Agreement.
Pursuant to the provision embodied in the said Deed of Sale, GRANGER hereby
acknowledges and confirms this transaction.
The petitioner cites the regulations of the Board of Investments stating that mere investment in a local
company by a foreign corporation should not be construed as doing business in the Philippines. 6 It cannot be
denied, however, that the investment of Granger in MSI is quite substantial, enabling it to participate in the actual
management and control of MSI In fact, it appointed a representative in the board of directors to protect its
interests, and this director was so influential that, at his request, the regular board meeting was converted into an
annual stockholder's meeting to take advantage of his presence. 7
At any rate, the administrative regulation, which is intended only to supplement the law, cannot prevail
against the law itself as the Court has interpreted it. It is axiomatic that the delegate, in exercising the power
to promulgate implementing regulations, cannot contradict the law from which the regulations derive their
very existence. The courts, for their part, interpret the administrative regulations in harmony with the law that
authorized them in the first place and avoid as much as possible any construction that would annul them as
an invalid exercise of legislative power.
On the question of whether the foreign corporation must be shown to have dealt with the public in general to
be considered as transacting business in the Philippines, the following observations are instructive:
On the other hand, if a corporation performs acts for which it was created or exercises some
of the functions for which it was organized, the amount or volume of the business is
immaterial and a single act of that character may constitute doing business. Thus, an
engineering consulting firm that had entered into a single contract with a Philippine

government agency for the purpose of rendering services for a period of three years as a
technical consultant in engineering will be required to obtain a license to do business.
Similarly, a foreign company invited to bid for IBRD and ADB international projects in the
Philippines will be considered as doing business in the Philippines for which a license is
required. In this regard, it is the performance by a foreign corporation of the acts for which it
was created, regardless of volume of business, that determines whether a foreign
corporation needs a license or not. (Emphasis supplied.) 8
Finally, this case must be distinguished from Antam Consolidated, Inc. v. Court of Appeals, 9 where this Court
declared:
In the case at bar, the transactions entered into by the respondent with the petitioners are
not a series of commercial dealings which signify an intent on the part of the respondent to
do business in the Philippines but constitute an isolated one which does not fall under the
category of "doing business". The records show that the only reason why the respondent
entered into the second and third transactions with the petitioners was because it wanted to
recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil
under the first transaction and in order to give the latter a chance to make good on their
obligation. Instead of making an outright demand on the petitioners, the respondent opted to
try to push through with the transactions to recover the amount of US$103,600.00 it lost. This
explains why in the second transaction, the petitioners were supposed to buy back the crude
coconut oil they should have delivered to the respondent in an amount which will earn the
latter a profit of US$103,600.00. When this failed the third transaction was entered into by
the parties whereby the petitioners were supposed to sell crude coconut oil to the
respondent at a discounted rate, the total amount of such discount being US$103,600.00.
Unfortunately, the petitioners failed to deliver again, prompting the respondent to file the suit
below.
From these facts alone, it can be deduced that in reality, there was only one agreement
between the petitioners and the respondent 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 no way indicate an intent on the part of the
respondent to engage in a continuity of transactions with petitioners which will categorize it
as a foreign corporation doing business in the Philippines.
We are convinced from an examination of the terms and conditions of the contracts and agreements entered
into between petitioner and private respondents indicate that they established within our country a
continuous business, and not merely one of a temporary character. Such agreements did not constitute only
one isolated transaction, as the petitioner contends, but a succession of acts signifying the intent of Granger
to extend its operations in the Philippines.
In any event, it is now settled that even one single transaction may be construed as transacting business in
the Philippines under certain circumstances, as we observed in Far East International Import and Export
Corporation v. Nankai Kogyo Co., Ltd., 10 thus:
The rule stated in the preceding section that the doing of a single act does not constitute business within the
meaning of statutes prescribing the conditions to be complied with by foreign corporations must be qualified
to this extent, that a single act may bring the corporation within the purview of the statute where it is an act
of the ordinary business of the corporation. In such a case, the single act or transaction 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, and to make the state a base of operations for the conduct of a
part of the corporations' ordinary business. (17 Fletchers Cyc. of Corporations, sec. 8470, pp. 572, 573, and
authorities cited therein.)
The petitioner stresses that whoever makes affirmative averments has the obligation to prove such
averments and points out that the private respondent has not established its allegation that the petitioner is
doing business in the Philippines. On the other hand, it is also the rule that the factual findings of the lower
court are binding on this Court in the absence of any of those exceptional circumstances we have
enumerated in many cases that warrant a different conclusion. Having assailed the finding of the respondent
court that the petitioner is doing business in the Philippines, the petitioner had the burden of showing that

such finding fell under the exception rather than the rule and so should be reviewed and reversed. The
petitioner has not done this.
The purpose of the rule requiring foreign corporations to secure a license to do business in the Philippines is
to enable us to exercise jurisdiction over them for the regulation of their activities in this country, If a foreign
corporation operates in the Philippines without submitting to our laws, it is only just that it not be allowed to
invoke them in our courts when it should need them later for its own protection. While foreign investors are
always welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an
indispensable condition to respect and be bound by Philippine law in proper cases, as in the one at bar.
WHEREFORE the petition is DENIED, with costs against the petitioner. It is ordered.
Narvasa ( Chairman), Gancayco, Grio-Aquino and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26809 December 29, 1977
AETNA CASUALTY & SURETY COMPANY, plaintiff-appellant,
vs.
PACIFIC STAR LINE, THE BRADMAN CO. INC., MANILA PORT SERVICE and/or MANILA RAILROAD
COMPANY, INC., defendants-appellees.
Domingo E. de Lara & Associates for appellant.
Salcedo, Del Rosario, Bito & Mesa for appellee Pacific Star Line.
D. F. Macaranas for appellee Manila Port Service, etc.

FERNANDEZ, J.:
This is an appeal from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No.
53074 entitled Aetna Casualty & Surety Company vs. Pacific Star Line, The Bradman Co. Inc., Manila Port
Service and/or Manila Railroad Company, Inc." dismissing the complaint on the ground that the plaintiff has
no legal capacity to bring this suit and making no finding as to the liability of the defendants. 1
On February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc., as
subrogee, instituted Civil Case No. 53074 in the Court of First Instance of Manila against Pacific Star Line,
The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the amount of
US $2,300.00 representing the value of the stolen and damaged cargo plus litigation expenses and
exemplary damages in the amounts of P1,000.00 and P2,000.00, respectively, with legal interest thereon
from the filing of the suit and costs.
The complaint stated that during the time material to the action, the defendant Pacific Star Line, as a
common carrier, was operating the vessel SS Ampal on a commercial run between United States and
Philippine Ports including Manila; that the defendant, The Bradman Co. Inc., was the ship agent in the
Philippines for the SS Ampal and/or Pacific Star Line; that the Manila Railroad Co. Inc. and Manila Port
Service were the arrastre operators in the port of Manila and were authorized to delivery cargoes discharged
into their custody on presentation of release papers from the Bureau of Customs and the steamship carrier
and/or its agents; that on December 2, 1961, the SS Ampal took on board at New York, N.Y., U.S.A., a
consignment or cargo including 33 packages of Linen & Cotton Piece Goods for shipment to Manila for
which defendant Pacific Star Line issued Bill of Lading No. 18 in the name of I. Shalom & Co., Inc., as
shipper, consigned to the order of Judy Philippines, Inc., Manila; that the SS Ampal arrived in Manila on
February 10, 1962 and in due course, discharged her cargo into the custody of Manila Port Service; that due
to the negligence of the defendants, the shipment sustained damages valued at US $2,300.00 representing
pilferage and seawater damage; that I. Shalom & Co., Inc. immediately filed claim for the undelivered land

damaged cargo with defendant Pacific Star Line in New York, N.Y., but said defendant refused and still
refuses to pay the said claim; that the cargo was insured by I. Shalom & Co., Inc. with plaintiff Aetna
Casualty & Surety Company for loss and/or damage; that upon demand, plaintiff Aetna Casualty & Surety
Company indemnified I. Shalom & Co., Inc. the amount of US $2,300.00; that in addition to this, the plaintiffs
had obligated themselves to pay attorney's fees and they further anticipated incurring litigation expenses
which may be assessed at P1,000.00; that plaintiffs and/or their predecessor-in-interest sustained losses
due to the negligence of Pacific Star Line prior to delivery of the cargo to Manila or, in the alternative, due to
the negligence of Manila Port Service after delivery of the cargo to it by the SS Ampal; that despite repeated
demands, none of the defendants has been willing to accept liability for the claim of the plaintiffs and/or I.
Shalom & Co., Inc.; and that by reason of defendants' evident bad faith, they should consequently be liable
to pay exemplary damages in the amount of P2,000.00. 2
On motion of the defendants Pacific Star Line and The Bradman Co. Inc. and with the conformity of the
plaintiff Aetna Casualty & Surety Company, the plaintiff Smith Bell & Co. (Philippines), Inc. was dropped and
the complaint was dismiss as to said plaintiff. 3
In their answer filed on February 28, 1963, the defendants Manila Port Service and Manila Railroad
Company, Inc. alleged that they have exercised due care and diligence in handling and delivering the
cargoes consigned to Judy Philippines, Inc.; that, in fact, they had delivered the merchandise to the
consignee thereof in the same quantity, order and condition as when the same was actually received from
the carrying vessel; that a portion of the shipment in question was discharged from the carrying vessel in
bad order and condition and consequently, any loss or shortage incurred thereto, is the sole responsibility of
the said carrying vessel and not that of the arrastre operator; that they have delivered to the consignee
thereof the same quantity of merchandise and in the same order or condition as when received from the
carrying vessel; that since no claim of the value of the goods in question was filed by the plaintiff or any of its
representative within 15 days from the discharge of the last package from the carrying vessel, the claim has
become time-barred and/or prescribed pursuant to the management contract under which said defendants
were appointed as arrastre operator at the Port of Manila; that consequently, they are completely relieved or
released from any or all liability therefor and that they do not in any manner act as agent of the carrying
vessel in the discharge of the goods at the piers. 4
The Pacific Star Line and The Bradman Co. Inc. alleged in their answer as special defenses that the
plaintiff's cause of action, if any, against the answering defendants had prescribed under the provisions of
the Carriage of Goods by Sea Act and/or the terms of the covering bill of lading that the entire shipment
covered by the bill of lading issued by answering defendant Pacific Star Line was discharged complete and
in good order condition into the custody of the other defendant, Manila Port Service, which was the operator
of the arrastre service at the Port of Manila; that any damage which may have occurred to the cargo while it
was in the custody of the other defendant, Manila Port Service was caused solely by the negligence of said
arrastre operator and is, therefore, its sole responsibility, the defendant Manila Port Service is not the vessel
agent in the receiving, handling, custody and/or delivery of the cargo purchased: that the vessel
responsibility ceased upon removal of the cargo from the ship's tackle; that defendant Manila Port Service is
not the vessel's or answering defendant's agent in the receiving, handling, custody and/or delivery of the
cargo consignee; that the vessel's responsibility ceased upon removal of the cargo from the ship's tackles;
that the vessel's liability, if any, for one case cannot exceed the sum of P 500.00 under the Carriage of
Goods by Sea Act. 5
The defendants Manila Port Service and Manila Railroad Company, Inc. amended their answer to allege that
the plaintiff, Aetna casualty & Surety Company, is a foreign corporation not duly licensed to do business in
the Philippines and, therefore. without capacity to sue and be sued. 6 The parties submitted on November 23,
1965 the following partial stipulation of facts-.
PARTIAL STIPULATION OF FACTS
COME NOW the parties, through their undersigned counsel, and to this Honorable Court
respectfully submit the following Partial Stipulation of Facts:
A. - On their part, defendants admit:
1. - Paragraphs 2, 3, and 4 of the complaint;
2. - That the S/S Ampal arrived in Manila, on February 10, 1962 and in due course
discharged her cargoes into the custody of the defendant Manila Port Service, including the

subject shipment complete and in good order, except two (2) cases Nos. 5804 and 16705
which were discharged under B.O. Tally Sheets Nos. 2721 and 2722 and turned over to the
custody of the defendant Manila Port Service by the vessel S/S Ampal. The shipping
Documents covering the cargo were indorsed and sent to Judy's Philippines, Inc. for
processing and eventual return thereof to the owner, and which cleared the documents with
the defendants and the Bureau of Customs;
3 - That the I. Shalom & Co., Inc. filed claim for undelivered and damaged portion of subject
cargo with defendant Pacific Star Line in New York, New York, but said defendant refused
and still refuses to pay the said claim, for the reason stated in said defendant's letter to
Smith, Bell & Co. (Philippines, Inc. dated June 1, 1962, copy of which letter is hereto
attached and marked Annex A;
4 - That Judy's Philippines, Inc. through its customs broker filed provisional claims with
defendant The Bradman Co., Inc. and defendant Manila Port Service on February 13, 1962.
B. - Defendants admit the genuineness and due execution of the following documents:
1 - Bill of Lading No. 18 dated December 22, 1961, ex S/S Ampal, attached hereto and
marked as Annex B;
2 - Invoice dated December 26, 1961 of I. Shalom & Co., Inc. attached hereto and marked
as Annex B;
3 - Provisional Claim filed with The Bradman Co., Inc. on February 13, 1962, attached hereto
and marked as Annex E;
4 - Provisional Claim filed with the Manila Port Service on February 13, 1962, attached
hereto and marked as Annex E;
5 - Request for Bad Order Examination No. 1073 dated march 6, 1962 covering Cases Nos.
16705 and 5804, attached hereto and marked as Annex F;
6 - Request for Bad Order Examination No. 1177 dated March 5, 1962 covering Cases Nos.
14913 and 15043, attached 'hereto and marked as Annex G;
7 - Formal Claim dated April 10,1962 addressed to defendant Pacific Star Line filed by I.
Shalom & co. Inc. attached hereto and marked as Annex H;
8 - Letter dated May 3, 1962 addressed to defendant Manila Port Service by Smith, Bell &
co. (Philippines) Inc., attached hereto and marked as Annex I;
9 - Letter dated August 8, 1962 addressed to the defendant Manila Port Service by Smith
Bell & Co. (Philippines) Inc., attached hereto and marked as Annex J;
10 - Certification of Insurance, authenticated by the Philippine Consul, New York, U.S.A.
attached hereto and marked as Annex K;
11. Subrogation Receipt dated June 1, 1962, attached hereto and marked as Annex L;
C. - On their part, plaintiff and defendant Pacific Star Line and The Bradman Company, Inc.
admit:
1. - Having knowledge and being bound by the provisions of the Management Contract
entered into by and between the Manila Port Service and the Bureau of customs on
February 29, 1956, covering the operation of the arrastre service in the Port of Manila, a
copy of which is attached hereto and marked as Annex M;
2. - The genuineness and due execution of Gate Pass No. 34582 which, aiming others,
covers Case NO. 14915, attached hereto and marked as Annex N;

3. - The genuineness and due execution of Gate Pass No. 34837, which, among others,
cover Cases No. 16706 and 16707, attached hereto and marked as Annex O;
4. - The genuineness and due execution of a Certification issued by the Office of the
Insurance Commissioner dated December 19, 1964, a photostat copy of which is attached
hereto and marked as Annex P;
5. - The genuineness and due execution of a Certification issued by the Securities and
Exchange Commission dated November 10, 1964, a photostat copy of which is attached
hereto and marked as Annex Q;
6. - That the value of the shipment in question was not specified or manifested in the bill of
lading and that the arrastre charges thereon were paid on the basis of weight and/or
measurement and not on the value thereof.
D. On other part, plaintiff and defendant Manila Port Service admit:
1. - That the shipment in question was discharged complete and in good order condition into
the custody of the Manila Port Service except Cases Nos. 5804 and 16705 covered by Tally
Sheets Nos. 2721 and 2722;
2. - That as per signed copies of Survey Report and Turnover Receipt both dated February
26, 1962, all goods contained in Case No. 5804 were received in good order condition by the
consignee who waived all claims thereon and that the contents of Case No. 16705 were
turned over to the defendant Manila Port Service in the condition shown in said Turnover
Receipt;
3. - The genuineness and due execution of the following documents:
(a) Tally Sheet No. 2721 dated November 2, 1962 attached hereto and
marked as Annex R;
(b) Tally Sheet No. 2722, dated November 2, 1962, attached thereto and
marked as Annex S;
mark as Annex T;
(d) Turnover Receipt dated February 26, 1962, attached hereto and marked
as Annex U.
WHEREFORE, it is respectfully prayed that the following Partial Stipulation of Facts be
approved, and the parties be allowed to present evidence on the remaining controverted
issues.
Manila, Philippines, September, 1965.
ROSS, SELPH, SALCEDO, DEL ROSARIO,
BITO AND MISA
By:
(Sgd.) MARIANO LOZADA
( T. ) MARIANO LOZADA
Counsel for the defendants
PACIFIC STAR LINE and
THE BRADMAN COMPANY, INC.

405 FNCB Building Manila

OZAETA, GIBBS & OZAETA
By:
(Sgd.) JESUS S. J. SAYOC
( T. ) JESUS S. J. SAYOC
Counsel for the Plaintiffs
7th Floor, Magsaysay Bldg.
520 T. M. Kalaw Street
Ermita, Manila
D. F. MACARANAS &
A. M. ABRENICA
By:
(Sgd.) ALIPIO M. ABRENICA
( T. ) ALIPIO M. ABRENICA
Counsel for the Defendants
MANILA PORT SERVICE and
MANILA RAILROAD COMPANY, INC.
Terminal Bldg., Port Area Manila. 7
The case was submitted for decision on the basis of the partial stipulation of facts and three (3) documents
submitted in evidence by the defendants consisting of (a) a certification issued by the Office of the Insurance
Commission to the effect that there is no record in said office showing that Aetna Casualty & Surety
Company has been licensed to transact insurance business in the Philippines; (b) a certification issued by
the Securities and Exchange Commission that its records do not show the registration of the Aetna Casualty
& Surety Company either as a corporation or a partnership nor that it has been used to transact business in
the Philippines as a foreign corporation; (c) a certification of the Clerk of Court of the Court of First Instance
of Manila issued on August 5, 1965 to the effect that thirteen (13) civil cases appear to have been filed by
and/or against the Aetna Casualty & Surety Company in said court. 8
The trial court dismissed the complaint because:
There has been a ruling that foreign corporation may file a suit in the Philippines in isolated
cases. But the case of the plaintiff here is not that. The evidence shows that the plaintiff has
been filing actions in the Philippines not just in isolated instances, but in numerous cases
and therefore, has been doing business in this country, contrary to Philippine laws. 9
The plaintiff Aetna Casualty & Surety Company appealed to this Court assigning the following errors:
I
THE LOWER COURT ERRED IN RULING THAT APPELLANT INSURANCE COMPANY IS
SUBJECT TO THE REQUIREMENTS OF SECTIONS 68 AND 69 OF ACT 1459, AS
AMENDED, AND FAILING TO COMPLY THEREWITH, HAS NO LEGAL CAPACITY TO
BRING SUIT IN THIS JURISDICTION.

II
THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT. 10
The main issue involved in this appeal is whether or not the appellant, Aetna Casualty & Surety Company,
has been doing business in the Philippines. It is a fact that said appellant has no license to transact business
in the Philippines as a foreign corporation.
Section 68 of the Corporation Law provides that "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 until after it shall have obtained a license for that purpose from the Securities and Exchange
Commissioners . . . ." And according to Section 69 of said Corporation Law "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 ..."
It is settled that if a foreign corporation is not engaged in business in the Philippines, it may not be denied
the right to file an action in Philippine courts for isolated transactions. 11
The object of Sections 68 and 69 of the Corporation Law 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. 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. 12
In Mentholatum Co., Inc. et al. vs. Mangaliman, et al., this Court ruled that:
No general rule or governing principle can be laid down as to what constitutes 'doing' or
'engaging in' or 'transacting' business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the business or enterprise. for
which it was organized or whether it has substantially retired from it and turned it over to
another. (Traction Cos. 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. vs.
Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. vs, American
Standard Metal Products Corp., 158 N. E. 698, 703, 327 I11. 367.) 13
And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held that:
(d) While plaintiff is a foreign corporation without license to transact business in the
Philippines, it does not follow that it has no to bring the present action. Such license is not
necessary because it is not engaged in business in the Philippines. In fact, the transaction
herein involved is the first business undertaken by plaintiff the Philippines, although on a
previous occasion plaintiff's vessel was chartered by the National Rice and Corn Corporation
to carry cargo from abroad to the Philippines. These two isolated transactions do not
constitute engaging in business in the Philippines within the Purview of Sections 68 and 69
of the Corporation Law so as to plaintiff from seeking redress in our courts. (Marshall-Wells
Co. vs. Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs. Angle O.
Singson, G.R. No. L-7917, April 29,1955.) 14
Based on the rulings laid down in the foregoing cases, it cannot be said that the Aetna Casualty & Surety
Company is transacting business of insurance in the P ' Philippines for which it must have a license. The
contract of insurance was entered into in New York, U.S.A., and payment was made to the consignee in its
New York branch. It appears from the list of cases issued by the Clerk of Court of the Court of First Instance
of Manila that all the actions, except two (2) cases filed by Smith, Bell & Co., Inc. against the Aetna Casualty
& Surety Company, are claims against the shipper and the arrastre operators just like the case at bar.

Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in the business of
insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it is not barred
from filing the instant case although it has not secured a license to transact insurance business in the
Philippines.
WHEREFORE, the decision appealed from is hereby set aside and the case is remanded to the trial court
for further proceedings to determine the liability of the defendants-appellees, without pronouncements as to
costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Muoz Palma and Guerrero, JJ., concur.
Martin, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 73722 February 26, 1990
THE COMMISSIONER OF CUSTOMS, petitioner,
vs.
K.M.K. GANI, INDRAPAL & CO., and the HONORABLE COURT OF TAX APPEALS, respondents.

Armando S. Padilla for private respondent.

SARMIENTO, J.:
This is a review of the decision of the Court of Tax Appeals disposing as follows:
WHEREFORE. the subject ten (10) cartons of articles are hereby released to the carrying
airline for immediate transshipment to the country of destination under the terms of the
contract of carriage. No costs.
SO ORDERED. 1
The pertinent facts may be summarized thus:
On September 11, 1982, two (2,) containers loaded with 103 cartons of merchandise covered by eleven (11)
airway bills of several supposedly Singapore-based consignees arrived at the Manila International Airport on
board Philippine Air Lines (PAL) Flight PR 311 from Hongkong. The cargoes were consigned to these
different entities: K.M.K. Gani (hereafter referred to as K.M.K.) and Indrapal and Company (hereafter
referred to as INDRAPAL), the private respondents in the petition before us; and Sin Hong Lee Trading Co.,
Ltd., AAR TEE Enterprises, and C. Ratilal all purportedly based in Singapore.
While the cargoes were at the Manila International Airport, a "reliable source" tipped off the Bureau of
customs that the said cargoes were going to be unloaded in Manila. Forthwith, the Bureau's agency on such
matters, the Suspected Cargo and Anti-Narcotics (SCAN), dispatched an agent to verify the information.
Upon arriving at the airport, the SCAN agent saw an empty PAL van parked directly alongside the plane's
belly from which cargoes were being unloaded. When the SCAN agent asked the van's driver why he was at
the site, the driver drove away in his vehicle. The SCAN agent then sequestered the unloaded cargoes.
The seized cargoes consisted of 103 cartons "containing Mogadon and Mandrax tablets, Sony T.V. sets
1546R/176R kw, Sony Betamax SL5800, and SL5000, Cassette Stereos with Headphone (ala walkman),
Casio Calculators, Pioneer Car Stereos, Yamaha Watches, Eyeglass Frames, Sunglasses, Plastic Utility
Bags, Perfumes, etc." These goods were transferred to the International Cargo Terminal under Warrant of
Seizure and Detention and thereafter subjected to Seizure and Forfeiture proceedings for "technical
smuggling."
At the hearing, Atty. Armando S. Padilla entered his appearance for the consignees K.M.K. and INDRAPAL.
The records of the case do not show any appearance of the consignees in person. Atty. Padilla moved for
the transshipment of the cargoes consigned to his clients. On the other hand, the Solicitor General avers
that K.M.K. and INDRAPAL did not present any testimonial or documentary evidence. The, collector of
Customs at the then Manila International Airport (MIA), now Ninoy Aquino International Airport (NAIA), ruled
for the forfeiture of all the cargoes in the said containers (Seizure Identification No. 4993-82, dated July 14,
1983). Consequently, Atty. Padilla, ostensibly on behalf of his two clients, K.M.K. and INDRAPAL, appealed
the order to the Commissioner. of Customs. 2
The Commissioner of Customs affirmed the finding of the Collector of Customs (Customs Case No. 83-85,
January, 1984), of the presence of the intention to import the said goods in violation of the Dangerous Drugs
Act 3and Central Bank Circular No. 808 in relation to the Tariff and Customs Code. 4
The Commissioner added the following findings of fact:

1. There is a direct flight from Hongkong to Singapore, thus making the transit through
Manila more expensive, tedious, and circuitous.
2. The articles were grossly misdeclared, considering that Singapore is a free port.
3. The television sets and betamax units seized were of the American standard which is
popularly used in Manila, and not of the European standard which is used in Singapore.
4. One of the shippers is a Filipino national with no business connection with her alleged
consignee in Singapore.

5. The alleged consignee of the prohibited drugs confiscated has no authority to import
Mogadon or Mandrax.
Upon these findings, the Commissioner concluded that there was an "intent to unlade" in Manila, thus, an
attempt to smuggle goods into the country.
Taking exception to these findings, Atty. Armando S. Padilla, again as counsel of the consignees K.M.K. and
Indrapal, appealed to the respondent Court of Tax Appeals (CTA). He argued in the CTA that K.M.K. and
INDRAPAL were "entitled to the release of their cargoes for transshipment to Singapore so manifested and
covered by the Airway bills as in transit, ... contending that the goods were never intended importations into
the Philippines and the same suffer none of any affiliating breaches allegedly found attributable to the other
shipments under the Customs and related laws." 6
The CTA reversed the decision of the Commissioner of Customs. Hence this petition.
The petitioner raises the following errors:
1. THE COURT OF TAX APPEALS ERRED IN ENTERTAINING THE
PETITION FOR REVIEW NOTWITHSTANDING HEREIN PRIVATE
RESPONDENTS' FAILURE TO ESTABLISH THEIR PERSONALITY TO SUE
IN A REPRESENTATIVE CAPACITY.
2. THE COURT OF TAX APPEALS ERRED IN RULING THAT THE
SUBJECT GOODS WERE IMPORTATIONS NOT INTENDED FOR THE
PHILIPPINES BUT FOR SINGAPORE, THUS, NOT VIOLATING THE LAW
ON TECHNICAL SMUGGLING UNDER THE TARIFF AND CUSTOMS
CODE.
The issues before us are therefore: (1) whether or not the private respondents failed to establish their
personality to sue in a representative capacity, hence making their action dismissable, and (2) whether or
not the subject goods were importations intended for the Philippines in violation of the Tariff and Customs
Code.
We answer both questions in the affirmative.
The law is clear: "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." 7
However, the Court in a long line of cases has held that a foreign corporation not engaged in business in the
Philippines may not be denied the right to file an action in the Philippine courts for an isolated transaction. 8
Therefore, the issue on whether or not a foreign corporation which does not have a license to engage in
business in this country can seek redress in Philippine courts boils down as to whether it is doing business
or merely entered into an isolated transaction in the Philippines.
The fact that a foreign corporation is not doing business in the Philippines must be disclosed if it desires to
sue in Philippine courts under the "isolated transaction rule." Without this disclosure, the court may choose
to deny it the right to sue. 9
In the case at bar, the private respondents K.M.K. and INDRAPAL aver that they are "suing upon a singular
and isolated transaction." But they failed to prove their legal existence or juridical personality as foreign
corporations. Their unverified petition before the respondent Court of Tax Appeals merely stated:
1. That petitioner "K.M.K. Gani" is a single proprietorship doing business in
accordance with the laws of Singapore with address at 99 Greenfield Drive,
Singapore, Rep. of Singapore, while Petitioner INDRAPAL and COMPANY" is
a firm doing business in accordance with the laws of Singapore with office
address at 97 High Street, Singapore 0641, Republic of Singapore, and

summons as well as other Court process may be served to the undersigned

lawyer;
2. That the Petitioner's (sic) are sueing (sic) upon a singular and isolated
transaction. 10
We are cognizant of the fact that under the "isolated transaction rule," only foreign corporations and not just
any business organization or entity can avail themselves of the privilege of suing before Philippine courts
even without a license. Counsel Armando S. Padilla stated before the respondent Court of Tax Appeals that
his clients are "suing upon a singular and isolated transaction." But there is no proof to show that K.M.K. and
INDRAPAL are indeed what they are represented to be. It has been simply stated by Attorney Padilla that
K.M.K. Gani is "a single proprietorship," while INDRAPAL is "a firm," and both are "doing business in
accordance with the laws of Singapore ... ," with specified addresses in Singapore. In cases of this nature,
these allegations are not sufficient to clothe a claimant of suspected smuggled goods of juridical personality
and existence. The "isolated transaction rule" refers only to foreign corporations. Here the petitioners are not
foreign corporations. They do not even pretend to be so. The first paragraph of their petition before the
Court, containing the allegation of their identities, does not even aver their corporate character. On the
contrary, K.M.K. alleges that it is a "single proprietorship" while INDRAPAL hides under the vague
identification as a "firm," although both describe themselves with the phrase "doing business in accordance
with the laws of Singapore."
Absent such proof that the private respondents are corporations (foreign or not), the respondent Court of Tax
Appeals should have barred their invocation of the right to sue within Philippine jurisdiction under the
"isolated transaction rule" since they do not qualify for the availment of such right.
As we had stated before:
But merely to say that a foreign corporation not doing business in the Philippines does not
need a license in order to sue in our courts does not completely resolve the issue in the
present case. The proposition as stated, refers to the right to sue; the question here refers to
pleading and procedure. It should be noted that insofar as the allegations in the complaint
have a bearing on appellant's capacity to sue, all that is averred is that they are both foreign
corporations existing under the laws of the United States. This averment conjures two
alternative possibilities: either they are engaged in business in the Philippines or they are not
so engaged. If the first, they must have been duly licensed in order to maintain this suit; if the
second, if (sic) the transaction sued upon is singular and isolated, no such license is
required. In either case, the qualifying circumstance is an essential part of the element of
plaintiffs capacity to sue and must be affirmatively pleaded. 11
In this connection, we note also a fatal defect in the pleadings of the private respondents. There is no
allegation as to who is the duly authorized representative or resident agent in our jurisdiction. All we have on
record are the pleadings filed by Attorney Armando S. Padilla who represents himself as the counsel for the
private respondents.
xxx xxx xxx
It is incumbent on plaintiff to allege sufficient facts to show that he is concerned with the
cause of action averred, and is the party who has suffered injury by reason of the acts of
defendant; in other words, it is not enough that he alleges a cause of action existing in favor
of someone, but he must show that it exists in favor of himself. The burden should not be
placed on defendant to show that plaintiff is not the aggrieved person and that he has
sustained no damages. It is also necessary for plaintiff to allege facts showing that the
causes of action alleged accrued to him in the capacity in which he sues, and for this
purpose it is necessary for someone for one who sues otherwise than in his individual
capacity to allege his authority.
xxx xxx xxx
The plaintiff must show, in his pleading, his right and interest in the subject matter of the suit;
and a complaint which does not show that plaintiff has the requisite interest to enable him to
maintain his action should be dismissed for insufficiency ... 12

xxx xxx xxx

The appearance of Atty, Armando S. Padilla as counsel for the two claimants would not suffice. Generally, a
"lawyer is presumed to be properly authorized to represent any cause in which he appears, and no written
power of attorney is required to authorize him to appear in court for his client." 13 Nevertheless, although the
authority of an attorney to appear for and on behalf of a party may be assumed, it can still be questioned or
challenged by the adverse party concerned. 14
The presumption established under the provision of Section 21, Rule 138 of the Revised Rules of Court is
disputable. 15 The requirement for the production of authority is essential because the client will be bound by his
acquiescence resulting from his knowledge that he was being represented by said attorney. 16
The Solicitor General, representing the petitioner-appellant, not only questions the authority of Atty. Armando
S. Padilla to represent the private respondents but also the latter's capacity to sue:
... While it is alleged that the summons and court processes may be served to herein private
respondents' counsel who filed the unverified petition before the Court of Tax Appeals, the
allegation would be insufficient for the purpose of binding foreign corporations as in the
instant case. To be sure, the admitted absence of special power of attorney in favor of their
counsel, the relationship with the latter, if at all, is merely that of a lawyer-client relationship
and definitely not one of a principal agent. Such being the case, said counsel cannot bind
nor compromise the interest of private respondents as it is possible that the latter may
disown the former's representation to avoid civil or criminal liability. In this respect, the Court
cannot assume jurisdiction over the person of private respondents, notwithstanding the filing
of the unverified petition in question.
Apart from the foregoing, Section 4, Rule 8, Revised Rules of Court mandates that facts
showing the capacity of a party to sue or be sued; or the authority of a party to sue or be
sued in a representative capacity; or the legal existence of an organized association of
person (sic) that is made a party, must be averred. In like manner, the rule is settled that in
case where the law denies a foreign corporation to maintain a suit unless it has previously
complied with certain requirements, then such compliance or exemption therefrom, becomes
a necessary averment in the complaint (Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co.,
Inc. 17 SCRA 1037; vide; Sec. 4, Rule 8, Revised Rules of Court). In the case at bar, apart
from merely alleging that private respondents are foreign corporation (sic) and that summons
may be served to their counsel, their petition in the Court of Tax Appeals is bereft of any
other factual allegation to show their capacity to sue or be sued in a representative capacity
in his jurisdiction. 17
The representation and the extent of the authority of Atty. Padilla have thus been expressly challenged. But
he ignored such challenge which leads us to the only conclusion that he has no authority to appear for such
clients if they exist, which we even doubt. In cases like this, it is the duty of the government officials
concerned to require competent proof of the representation and authority of any claimant of any goods
coming from abroad and seized by our customs authorities or otherwise appearing to be illegally imported.
This desired meticulousness, strictness if you may, should extend to their representatives and counsel. Our
government has lost considerable sums of money due to such dubious claims or claimants.
Apropos the second issue, suffice it to state that we agree with the findings, already enumerated and
discussed at the outset, made by the Collector of Customs in his decision, dated July 14, 1983, which was
affirmed and amplified by the decision of the Commissioner of Customs, that those constitute sufficient
evidence to support the conclusion that there was an intention to unlade the seized goods in the Philippines
instead of its supposed destination, Singapore. There is no need of belaboring them anymore.
WHEREFORE, the petition is GRANTED; the decision of the Court of Tax Appeals is SET ASIDE, and the
decision of the petitioner is hereby REINSTATED.
No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD 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. 8Hence, 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.