149.
General Garments Corporation v Director of Patents
G.R. No. 24295 | Sept. 30, 1971
PETITIONER: GENERAL GARMENTS CORPORATION
RESPONDENT: THE DIRECTOR OF PATENTS and PURITAN SPORTSWEAR CORPORATION
PONENTE: Makalintal, J.
DOCTRINE: A foreign corporation which has never done...business in the Philippine Islands
and which is unlicensed and unregistered to do business here, but is widely and favorably
known in the Islands through the use therein of its products bearing its corporate and trade
name has a legal right to maintain an action in the Islands. (Western Equipment v Reyes)
FACTS:
1. GGC is the owner of the trademark “Puritan” for assorted men's wear. Thereafter,
Puritan Sportswear filed a petition with the PH Patent Office for the cancellation of
the trademark “Puritan” registered in the name of General Garments, alleging
ownership and prior use of the same trademark on the same kinds of goods. They
also alleged that GGC had obtained it fraudulently, in violation of Section 17(c) of
RA 166.
2. GGC moved to dismiss the petition. The director of patents denied the motion to
dismiss and the MR of GCC.
3. GCC contends that Puritan being a foreign corporation which is not licensed to do
and is not doing business in the Philippines, is not considered as a person under
Philippine laws and consequently is not comprehended within the term "any
person" who may apply for cancellation of a mark or trade-name under Section
17(c) of the Trademark Law.
4. Second argument: Section 21-A militates against respondent's capacity to maintain
a suit for cancellation, since it requires, before a foreign corporation may bring an
action, that its trademark or trade name has been registered under the Trademark
Law.
5. Third argument: Under Section 37 of the Trademark Law respondent is not entitled
to the benefits of said law because the Philippines is not a signatory to any
international treaty or convention relating to marks or tradenames or to the
repression of unfair competition.
ISSUE: Whether or not Puritan Sportswear Corporation, which is a foreign corporation not
licensed to do business and not doing business in the Philippines, has legal capacity to
maintain a suit in the Philippine Patent Office for cancellation of a trademark registered? YES
HELD:
1. The fact that Puritan may not transact business in the Philippines unless it has
obtained a license for that purpose, nor maintain a suit in Philippine courts for the
recovery of any debt, claim or demand without such license (Secs. 68 and 69,
Corporation Law) does not make Puritan any less a juridical person. Indeed an
exception to the license requirement has been recognized in this jurisdiction,
namely, where a foreign corporation sues on an isolated transaction.
2. Marshall-Wells v Elser: The object of the statute (Secs. 68 and 69, 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 ... the implication
of the law (being) that it was never the purpose of the legislature to exclude a
foreign corporation which happens to obtain an isolated order for business from
PH, from securing redress in the Philippine Courts.
3. To recognize Puritan as a juridical person will not resolve the issue. At this point,
Puritan is not suing for “the recovery of any debt, claim or demand” for which a
license to transact business in the Philippines is required by Section 69 of the
Corporation Law, subject only to the exception already noted. It just went to the
Philippine Patent Office on a petition for cancellation of a trademark registered by
petitioner, invoking Section 17(c) in relations to Section 4(d) of the Trademark Law.
4. The right to the use of the corporate or trade name is a property right, a right in
rem, which it may assert and protect in any of the courts of the world — even in
jurisdictions where it does not transact business — just the same as it may protect
its tangible property, real or personal against trespass or conversion.
5. As to GCC's second argument: argument misses the essential point in the said
provision, which is that the foreign corporation is allowed there under to sue
"whether or not it has been licensed to do business in the Philippines" pursuant to
the Corporation Law.
6. In any event, Puritan is not suing for infringement or unfair competition under
Section 21-A, but for cancellation under Section 17, on one of the grounds
enumerated in Section 4. The first kind of action, it maybe stated, is cognizable by
the CFI and the second partakes of an administrative proceeding before the Patent
Office.
7. While a suit under Section 21-A requires that the mark or tradename alleged to
have been infringed has been "registered or assigned" to the suing foreign
corporation, a suit for cancellation of the registration of a mark or tradename
under Section 17 has no such requirement. For such mark or tradename should not
have been registered in the first place (and consequently may be cancelled if so
registered) if it "consists of or comprises a mark or tradename which so resembles
a mark or tradename previously used in the Philippines by another and not
abandoned, as to be likely, when applied to or used in connection with goods,
business or services of the applicant, to cause confusion or mistake or to deceive
purchasers.
8. As to third argument: provision will be operative only when PH becomes a party to
such a convention or treaty. Regardless of Section 37, aliens or foreign corporations
are accorded benefits under the law. Thus, under Section 2, for instance, the
trademarks, tradenames and service-marks owned by persons, corporations,
partnerships or associations domiciled in any foreign country may be registered in
PH, provided that the country of which the applicant for registration is a citizen
grants bylaw substantially similar privileges to citizens of the Philippines.
NOTES:
SEC. 37.Rights of foreign registrants. — Persons who are nationals of, domiciled in, or have a
bona fide or effective business or commercial establishment in any foreign country which is a
party to any international convention or treaty relating to marks or tradenames, or the
repression of unfair competition to which the Philippines may be a party, shall be entitled to
the benefits and subject to the provisions of this Act to the extent and under the conditions
essential to give effect to any such convention and treaties so long as the Philippines shall
continue to be a party thereto, except as provided in the following paragraphs of this section.
151. Mentholatum v Mangaliman
72 Phil 524
FACTS:
Mentholatum Co Inc. and the Philippine-American Drug Co. instituted an action against
Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce
for infringement of trade mark and unfair competition.
The complaint stated that Mentholatum Co Inc. is a Kansas corporation which manufactures
Mentholatum;
that the Philippine-American Drug Co. is its exclusive distributing agent in the Philippines
authorized by it to look after and protect its interests;
that Mentholatum Co. 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”;
that the acts of defendants caused damages from the dimunition of plaintiff’s sales and loss
of goodwill and reputation of their product in the market.
CFI ruled in favor of complainants. CA reversed.
ISSUE:
W/N Mentholatum Co Inc. holds business transactions in the Philippines and may maintain
the present suit?
HELD:
No general rule or governing principle can be laid down as to what constitutes “engaging in”
business. Each case must be judged in the light of its peculiar circumstances. The true test
seems to be whether the foreign corporation is continuing the body or substance of the
business for which it was organized or whether it has substantially retired from it and turned
it over to another.
It follows that whatever transactions the Philippine-American Drug Co. had executed in view
of the law, the Mentholatum Co., did it itself. The Mentholatum Co., being a foreign
corporation doing business in the Philippines without the license required by the Corporation
Law, it may not prosecute this action for the reason that the distinguishing features of the
agent being his representative character and derivative authority. It cannot now claim an
independent standing in court to the advantage of the principal.
DISPOSITIVE PORTION
The writ prayed should be, as it hereby is, denied, with costs against the petitioners.
So ordered.
150. Lacoste v Fernandez
G.R. No. 63796-97
May 21, 1984
Topic: Foreign Corporations
Petitioner: La Chemise Lacoste
Respondent: Hon Oscar C. Fernandez
Ponente: Gutierrez, Jr. J
Facts:
 Before this Court is a petition for certiorari with preliminary injunction led by La
Chemise Lacoste
 The petitioner is a foreign corporation, organized and existing under the laws of
France and not doing business in the Philippines
 The actual owner of the abovementioned trademarks used on clothings and other
goods specifically sporting apparels sold in many parts of the world and which have
been marketed in the Philippines since 1964
 In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued
for the trademark "CHEMISE LACOSTE & CROCODILE DEVICE" by the Philippine
Patent Office for use on T-shirts, sportswear and other garment products of the
company
 Two years later, it applied for the registration of the same trademark under the
Principal Register
 Thereafter, Hemandas & Co. assigned to respondent Gobindram Hemandas all
rights, title, and interest in the trademark "CHEMISE LACOSTE & DEVICE
 On November 21, 1980, the petitioner led its application for registration of the
trademark "Crocodile Device and "Lacoste"
 The former was approved for publication while the latter was opposed by Games
and Garments in Inter Parties Case No. 1658
 On March 21, 1983, the petitioner led with the National Bureau of Investigation
(NBI) a letter-complaint alleging therein the acts of unfair competition being
committed by Hemandas and requesting their assistance in his apprehension and
prosecution
 The NBI agents executed the two search warrants and as a result of the search
found and seized various goods and articles described in the warrants
 Hemandas led a motion to quash the search warrants alleging that the trademark
used by him was different from petitioner's trademark and that pending the
resolution of IPC No. 1658 before the Patent Office
 The respondent court was, however, convinced that there was no probable cause
to justify the issuance of the search warrants
 Petitioner claims judge acted with grave abuse of discretion with the finding of
probable cause
 Respondent claims petitioner has no capacity to sue before the Philippine courts
 Present case involves a complaint for violation of Article 189 of the Revised Penal
Code
 Hemandas argued in his brief that the petitioner was doing business in the
 Philippines but was not licensed to do so
Issue: W/N Lacoste may sue in the Philippines? (YES)
Held:
 The argument has no merit
 In the present case, however, the petitioner is a foreign corporation not doing
business in the Philippines
 The marketing of its products in the Philippines is done through an exclusive
distributor, Rustan Commercial Corporation
 Rule I, Sec 1 (g) of Rules promulgated by Board of Investments pursuant to PD 1789
and regulations defines "doing business" as one which includes
o (1) . . . A foreign firm which does business through middlemen acting on their own names,
such as indentors, commercial brokers or commission merchants, shall not be deemed doing
business in the Philippines. But such indentors, commercial brokers or commission merchants
shall be the ones deemed to be doing business in the Philippines.
o "(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 account, and not in the name or for the account of a principal. Thus, where a
foreign firm is represented by a person or local company which does not act in its name but in
the name of the foreign firm, the latter is doing business in the Philippines
 We find and conclude that the petitioner is not doing business in the Philippines
 Our recognizing the capacity of the petitioner to sue is not by any means novel or
precedent setting
 We are obligated to assure to nationals of "countries of the Union" an effective
protection against unfair competition in the same way that they are obligated to
similarly protect Filipino citizens and firms
 Pursuant to this obligation from the Paris Convention, the Ministry of Trade on
November 20, 1980 issued a memorandum addressed to the Director of the
Patents Office directing the latter
o reject all pending applications for Philippine registration of signature and
other world famous trademarks by applicants other than its original
owners or users. The confliicting claims over internationally known
trademarks involve such name brands as Lacoste, Jordache, Gloria
Vanderbilt, Sasson, Fila, Pierre Cardin, Gucci, Christian Dior, Oscar de la
Renta, Calvin Klein, Givenchy, Ralph Lauren, Geoffrey Beene, Lanvin and
Ted Lapidus. It is further directed that, in cases where warranted,
Philippine registrants of such trademarks should be asked to surrender
their certificates of registration, if any, to avoid suits for damages and
other legal action by the trademarks' foreign or local owners or original
users
 A certificate of registration in the Supplemental Register is not prima facie evidence
of the validity of registration, of the registrant's exclusive right to use the same in
connection with the goods, business, or services specified in the certificate
 The reliance of the private respondent on the last sentence of the Patent o ce
action on application Serial No. 30954 that "registrant is presumed to be the owner
of the mark until after the registration is declared cancelled" is, therefore,
misplaced and grounded on shaky foundation
 We have carefully gone over the records of all the cases led in this Court and nd
more than enough evidence to sustain a nding that the petitioner is the owner of
the trademarks "LACOSTE", "CHEMISE LACOSTE", the crocodile or alligator device,
and the composite mark of LACOSTE and the representation of the crocodile or
alligator
 The issue of whether or not the trademark used by the private respondent is
different from the petitioner's trademark is a matter of defense and will be better
resolved in the criminal proceedings before a court of justice instead of raising it as
a preliminary matter in an administrative proceeding
 The legislature has enacted laws to regulate the use of trademarks and provide for
the protection thereof.
 Modern trade and commerce demands that depredations on legitimate trade
marks of non-nationals including those who have not shown prior registration
thereof should not be countenanced
 The records show that the goodwill and reputation of the petitioner's products
bearing the trademark LACOSTE date back even before 1964 when LACOSTE
clothing apparels were first marketed in the Philippines
 To allow Hemandas to continue using the trademark Lacoste for the simple reason
that he was the first registrant in the Supplemental Register of a trademark used in
international commerce and not belonging to him is to render nugatory the very
essence of the law on trademarks and tradenames
152. Agilent Technologies vs. Integrated Silicon
G.R. No. 154618
April 14, 2004
Topic: Foreign Corporations
Petitioners: AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD.
Respondents: INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG
HONG, TEOH KIANG SENG, ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M.
DELA CRUZ and ROLANDO T. NACILLA
Ponente: J. Ynares-Santiago
FACTS:
 Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to
do business in the Philippines. Respondent Integrated Silicon is a private domestic
corporation, 100% foreign owned, which is engaged in the business of manufacturing
and assembling electronics components.
 The juridical relation among the various parties in this case can be traced to a 5-year
Value Added Assembly Services Agreement (VAASA), between Integrated Silicon and HP-
Singapore. Under the terms of the VAASA, Integrated Silicon was to locally manufacture
and assemble fiber optics for export to HP-Singapore. HP-Singapore, for its part, was to
consign raw materials to Integrated Silicon. The VAASA had a five-year term with a
provision for annual renewal by mutual written consent. Later, with the consent of
Integrated Silicon, HP-Singapore assigned all its rights and obligations in the VAASA to
Agilent.
 Later, Integrated Silicon filed a complaint for “Specific Performance and Damages”
against Agilent and its officers. It alleged that Agilent breached the parties’ oral
agreement to extend the VAASA. Agilent filed a separate complaint against Integrated
 Silicon for “Specific Performance, Recovery of Possession, and Sum of Money with
Replevin, Preliminary Mandatory Injunction, and Damages”.
 Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal
capacity to sue; litis pendentia; forum shopping; and failure to state a cause of action.
 The trial court denied the MTD and granted petitioner Agilent’s application for a writ of
replevin. Without filing a MR, respondents filed a petition for certiorari with the CA. The
CA granted respondents’ petition for certiorari, set aside the assailed Order of the trial
court (denying the MTD) and ordered the dismissal of the 2nd case. Hence, the instant
petition.
ISSUE:
W/N an unlicensed foreign corporation not doing business in the Philippines lacks the legal
capacity to file suit.
HELD:
NO
 A foreign corporation without a license is not ipso facto incapacitated from bringing an
action in Philippine courts. Sec. 133 of the Old Corporation Code provides that a license
is necessary only if a foreign corporation is “transacting” or “doing business” in the
country.
 GR: unlicensed foreign corp doing business in the Philippines cannot maintain a suit;
Exception: when the action is against a Phil. Citizen or entity who had contracted with
and benefited from said corporation. This is by reason of estoppel. A party is estopped
from challenging the personality of a corporation after having acknowledged the same
by entering into a contract with it.
 The principles regarding the right of a foreign corporation to bring suit in Philippine
courts may thus be condensed in four statements:
o if a foreign corporation does business in the Philippines without a license, it
cannot sue before the Philippine courts;
o if a foreign corporation is not doing business in the Philippines, it needs no license
to sue before Philippine courts on an isolated transaction or on a cause of action
entirely independent of any business transaction;
o if a foreign corporation does business in the Philippines without a license, a
Philippine citizen or entity which has contracted with said corporation may be
estopped from challenging the foreign corporation’s corporate personality in a suit
brought before Philippine courts; and
o if a foreign corporation does business in the Philippines with the required license,
it can sue before Philippine courts on any transaction.
 In order to determine whether Agilent has legal capacity to sue, the Court will need to
determine whether it is “doing business” in the Philippines. However, the Corp code is
silent on what constitutes as doing business.
 According to the Mentholatum case: Two general tests to determine whether or not a
foreign corporation can be considered as “doing business” in the Philippines.
o The first of these is the substance test which determines whether the foreign
corporation is continuing the body of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another.
o The second test is the continuity test. It implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally incident to, and in
the progressive prosecution of, the purpose and object of its organization.
 Sec 1 of the IRR of the Foreign Investment Act (as amended by RA 8179), provides that
the following shall not be deemed “doing business”:
1) Mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor;
2) Having a nominee director or officer to represent its interest in such corporation;
3) Appointing a representative or distributor domiciled in the Philippines which
transacts business in the representative’s or distributor’s own name and account;
4) The publication of a general advertisement through any print or broadcast media;
5) Maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;
6) Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export;
7) Collecting information in the Philippines; and
8) Performing services auxiliary to an existing isolated contract of sale which are not on
a continuing basis, such as installing in the Philippines machinery it has manufactured
or exported to the Philippines, servicing the same, training domestic workers to
operate it, and similar incidental services.
 By and large, to constitute “doing business”, the activity to be undertaken in the
Philippines is one that is for profit-making.
 By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to
(1) maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by Integrated Silicon; and (2) consignment of equipment with
Integrated Silicon to be used in the processing of products for export. As such, we hold
that, based on the evidence presented thus far, Agilent cannot be deemed to be “doing
business” in the Philippines. Respondents’ contention that Agilent lacks the legal
capacity to file suit is therefore devoid of merit. As a foreign corporation not doing
business in the Philippines, it needed no license before it can sue before our courts.
153. ML Futures v CA
GR NO. 97816
July 24, 1992
Topic: Foreign Corporations
Petitioners: Merrill Lynch Futures
Respondents: Court of Appeals
Ponente:
FACTS:
 Merrill Lynch futures, Inc. (ML FUTURES) filed a complaint with the RTC at against
the Spouses Pedro Lara and Elisa Lara for the recovery of a debt and interest
thereon, damages, and attorney's fees.
 In its complaint ML FUTURES described itself as (a) "a non-resident foreign
corporation, not doing business in the Philippines, duly organized and existing
under and by virtue of the laws of the state of Delaware, U.S.A.;" as well as (b) a
'futures commission merchant' duly licensed to act as such in the futures markets
and exchanges in the United States, . . . essentially functioning as a broker
(executing) orders to buy and sell futures contracts received from its customers on
U.S. futures exchanges."
 In its complaint ML FUTURES alleged:
o (1) that on 28 September 1983 it entered into a Futures Customer
Agreement with the spouses (Account 138-12161), in virtue of which it
agreed to act as the latter's broker for the purchase and sale of futures
contracts in the U.S.;
o (2) that pursuant to the contract, orders to buy and sell futures contracts
were transmitted to ML FUTURES by the Lara Spouses "through the
facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a
company servicing ML Futures' customers;"
o (3) that from the outset, the Lara Spouses "knew and were duly advised
that Merrill Lynch Philippines, Inc. was not a broker in futures contracts,"
and that it "did not have a license from the Securities and Exchange
Commission to operate as a commodity trading advisor (i.e., "and entity
which, not being a broker, furnishes advice on commodity futures to
persons who trade in futures contracts");
o (4) that in line with the above mentioned agreement and through said
Merill Lynch Philippines, Inc., the Lara Spouses actively traded in futures
contracts, including "stock index futures" for four years or so, i.e., from
1983 to October, 1987, there being more or less regular accounting and
corresponding remittances of money (or crediting or debiting) made
between the spouses and ML FUTURES; (
o 5) that because of a loss amounting to US $160,749.69 incurred in respect
of 3 transactions involving "index futures," and after setting this off
against an amount of US $75,913.42 then owing by ML FUTURES to the
Lara Spouses, said spouses became indebted to ML FUTURES for the
ensuing balance of US $84,836.27, which the latter asked them to pay;
o (6) that the Lara Spouses however refused to pay this balance, "alleging
that the transactions were null and void because Merrill Lynch
Philippines, Inc., the Philippine company servicing accounts of ML
Futures, had no license to operate as a "commodity and/or financial
futures broker."
 ML FUTURES prayed:
o (1) for a preliminary attachment against the spouses' properties "up to
the value of at least P2,267,139.50," and
o (2) for judgment, after trial, sentencing the spouses to pay ML FUTURES:
(a) the Philippine peso equivalent of $84,836.27 at the applicable
exchange rate on date of payment, with legal interest from the date of
demand until full payment; (b) exemplary damages in the sum of at least
P500,000,00; and (c) attorney's fees and expenses of litigation as may be
proven at the trial.
 Preliminary attachment issued ex parte on 2 December 1987, and the spouses were
duly served with summons.
 The spouses filed a motion to dismiss dated 18 December 1987 on the grounds
that:
o (1) ML FUTURES had "no legal capacity to sue" and
o (2) its "complaint states no cause of action since it is not the real party in
interest."
 On 12 January 1988, the Trial Court promulgated an Order sustaining the motion to
dismiss, directing the dismissal of the case and discharging the writ of preliminary
attachment. It later denied ML FUTURES's motion for reconsideration, by Order
dated 29 February 1988.
 ML FUTURES appealed to the Court of Appeals.
 In its own decision promulgated on 27 November 1990, the Court of Appeals
affirmed the Trial Court's judgment. Its motion for reconsideration having been
denied, ML FUTURES appealed to the Supreme Court on certiorari.
ISSUE:
1. W/N ML FUTURES was doing business in the Philippines without license.
2. W/N the Lara Spouses are estopped to impugn ML FUTURES capacity to sue them in the
courts of the forum.
HELD/RATIO:
1. The facts on record adequately establish that ML FUTURES, operating in the United States,
had indeed done business with the Lara Spouses in the Philippines over several years, had
done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in
this country, and had executed all these transactions without ML FUTURES being licensed to
so transact business here, and without MLPI being authorized to operate as a commodity
futures trading advisor. These are the factual findings to both the Trial Court and the Court of
Appeals. These, too, are the conclusions of the Securities & Exchange Commission which
denied MLPI's application to operate as a commodity futures trading advisor, a denial
subsequently affirmed by the Court of Appeals. Prescinding from the proposition that factual
findings of the Court of Appeals are generally conclusive, the Supreme Court has been cited
to no circumstance of substance to warrant reversal of said Appellate Court's findings or
conclusions in this case. Further, the Laras did transact business with ML FUTURES through its
agent corporation organized in the Philippines, it being unnecessary to determine whether
this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner &
Smith (MLPI's alleged predecessor). The fact is that ML FUTURES did deal with futures
contracts in exchanges in the United States in behalf and for the account of the Lara Spouses,
and that on several occasions the latter received account documents and money in
connection with those transactions. Given these facts, if indeed the last transaction executed
by ML FUTURES in the Laras's behalf had resulted in a loss amounting to US $160,749.69;
that in relation to this loss, ML FUTURES had credited the Laras with the amount of US $
75,913.42 — which it (ML FUTURES) then admittedly owed the spouses — and thereafter
sought to collect the balance, US $84,836.27, but the Laras had refused to pay (for the
reasons already above stated).
2. The Laras received benefits generated by their business relations with ML FUTURES. Those
business relations, according to the Laras themselves, spanned a period of 7 years; and they
evidently found those relations to be of such profitability as warranted their maintaining
them for that not insignificant period of time; otherwise, it is reasonably certain that they
would have terminated their dealings with ML FUTURES much, much earlier. In fact, even as
regards their last transaction, in which the Laras allegedly suffered a loss in the sum of
US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML
FUTURES credited them with the amount of US $75,913.42 then due to them, thus reducing
their debt to US $84,836.27. Given these facts, and assuming that the Lara Spouses were
aware from the outset that ML FUTURES had no license to do business in this country and
MLPI, no authority to act as broker for it, it would appear quite inequitable for the Laras to
evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon
the plea that it should not have done business in this country in the first place, or that its
agent in this country, MLPI, had no license either to operate as a "commodity and/or
financial futures broker." Considerations of equity dictate that, at the very least, the issue of
whether the Laras are in truth liable to ML FUTURES and if so in what amount, and whether
they were so far aware of the absence of the requisite licenses on the part of ML FUTURES
and its Philippine correspondent, MLPI, as to be estopped from alleging that fact as a defense
to such liability, should be ventilated and adjudicated on the merits by the proper trial court.
154. ANTAM CONSOLIDATED v. CA
G.R. No. L-61523
Date: 31 July 1986
Topic:
Petitioners: ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and
AURORA CONSOLIDATED SECURITIES and INVESTMENT CORPORATION
Respondents: THE COURT OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court
of First Instance of Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC
Ponente: GUTIERREZ, JR
FACTS
Stokely filed a complaint against Banahaw, Antam, Tambunting, Aurora, and Unicom for a
collection of sum of money
Stokely is a US corporation organized and existing under the laws of the state of Indiana. One
of its subdivisions Capital City entered into 3 contracts with Comphil (later name changed to
Banahaw) regarding the sale of 500 long tons of crude coconut oil. Both Stokely and Capital
City are not engaged in business in the PH prior to the commencement of the suit, neither is
Stokely licensed to do business in the PH
First Contract (RBS 3655)
 Comphil (seller) undertook to sell and deliver 500 long tons of crude coconut oil to
be delivered in October/November 1978
 Capital City agreed to buy at the price of $0.30/lb
 Comphil failed to deliver
 Capital City covered its coconut oil needs in the open market at a price substantially
in excess of the contract and sustained a loss of $103,600
Second Contract (RB 3738)
 To settle Capital City’s loss under the first contract
 Comphil (buyer) undertook to buy 500 long tons of coconut crude oil under the
same terms and conditions but at an increased price of $0.3925/lb
 This contract states that “it was a wash out against RBS 3655/first contract
 Comphil was supposed to repurchase the undelivered coconut oil by paying Capital
City the sum of $103,600 which is the same amount of the loss that Capital City
sustained under the first contract
 Comphil failed again to pay the said amount
Third Contract
 Comphil (seller) undertook to sell and deliver the same quantity of crude coconut
oil to be delivered in April/May 1979 at the price of $0.3425/lb
 Said price was $103,600 (9.25 cents/lb) for 500 long tons below the then current
market price of 43.2 cents/lb
 Guess again! Comphil failed to deliver the coconut oil
 Capital City notified Comphil that it was in default
 Capital City sustained damages in the amount of $175,000
 After repeated demand, Comphil still refuses to pay
Stokely prayed that a writ of attachment be issued against any and all properties of the
petitioner, alleging:
 After demands were made, the Tambuntings ceased to be directors and officers of
Comphil and were replaced by ther 5 employees, who were managers of its
pawnshops. Said employees caused the change of name to Banahaw Milling
Corporation and authorized Antonio (neither a director nor officer of Banahaw) to
sell its oil mill
 Unicom has taken over the entire operations and assets of Banahaw because the
entire OCS of Banahaw was sold to Unucom
 All of the issued and OCS of Comphil are owned by the Tambuntings
 A devious scheme was perpetrated by replacing the Tambuntings in the
management of Banahaw and disposing of the oil mill or the entire interest to
Unicom
 There is reasonable cause to believe that the coconut oil mill, which is the only
substantial asset of Banahaw, is about to be sold or removed
Trial Court
 Ordered the issuance of a writ of attachment in favor of Stokely
CA
 Ruled that the judge did not commit any grave abuse of discretion in deferring the
motion to dismiss
ISSUE
Whether there is continuity of transactions which are in the pursuance of the normal
business of the corporation and that the transactions entered into by respondent
undoubtedly fall within this category.
HELD
No. The transaction entered by the respondent Stokely with the petitioner are not a series of
commercial dealings which signify an intent on the part of the respondent to do business in
the PH but constitute an isolated one which does not fall under the category of “doing
business”
RATIO
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
transaction 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. Thus, the trial court, and the
appellate court did not err in denying the petitioners' motion to dismiss not only because the
ground thereof does not appear to be indubitable but because the respondent, being a
foreign corporation not doing business in the Philippines, does not need to obtain a license to
do business in order to have the capacity to sue.
The doctrine of lack of capacity to sue based on failure to first acquire a local license is based
on considerations of sound public policy. It was never intended to favor domestic
corporations who enter into solitary transactions with unwary foreign firms and then
repudiate their obligations simply because the latter are not licensed to do business in this
country. The petitioners in this case are engaged in the exportation of coconut oil, an export
item so vital in our country's economy. They filed this petition on the ground that Stokely is
an unlicensed foreign corporation without a bare allegation or showing that their defenses in
the collection case are valid and meritorious. We cannot fault the two courts below for acting
as they did.
DISPOSITIVE PORTION
As to the merit of the attachment order itself, we find that the allegations in the
respondent's complaint satisfactorily justify the issuance of said order.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DISMISSED for lack of merit. The
Temporary Restraining Order dated February 2, 1983 is hereby DISSOLVED. Costs against the
petitioners.
SO ORDERED
155. Cargill, Inc. vs Intra Strata Assurance Corporation
G.R. No. 168266
March 05, 2010
Petitioner: Cargill, Inc.
Respondent: Intra Strata Assurance Corporation
Topic: Foreign Corporations contemplated under Philippine Law
PARTIES INVOLVED:
 Cargill Inc. (Cargill): A corporation organized and existing under the laws of the
State of Delaware, USA.
 Northern Mindanao Corporation (NMC): A corporation organized and existing
under the laws of the Philippines.
 Intra Strata Assurance Corporation (ISAC): Issued bonds to guarantee NMCs
delivery of the molasses.
FACTS:
Cargill and NMC entered into contract of sale
 NMC agreed to sell Cargill 20,000 to 24,000 metric tons of molasses.
o This was to be delivered from 1 January to 30 June 1990
o The price was $44 per metric ton.
o Also, the contract provides that Cargill would open a Letter of Credit with the
Bank of Philippine Islands
 NMC was permitted to draw up to $500,000 from the Letter of Credit representing
the minimum price of the contract upon presentation of some documents.
 The contract was then amended 3 times:
o First (January 1990): increasing the purchase price of the molasses to $47.50 per
metric ton
o Second (June 1990): reducing the quantity of the molasses to 10,500 metric tons
and increasing the price to $55 per metric ton
o Third (August 1990): providing for the schedule of shipments.
 This also required NMC to put up a performance bond equivalent to $451,500 to
guarantee NMCs performance to deliver
the molasses during the prescribed shipment periods.
 Pursuant to the 3rd amendment, ISAC issued on 10 October 1990:
o a performance bond in the sum of P11,287,500 to guarantee NMCs
delivery of the 10,500 tons of molasses
o a surety bond in the sum of P9,978,125 to guarantee the repayment of
down payment as provided in the contract NMC was only able to deliver
219.551 metric tons of molasses out of the agreed 10,500 metric tons
 Cargill then sent demand letters to ISAC claiming payment under the performance
and surety bonds.
o NMC, however, refused to pay. On April 12, 1991, Cargill filed a
complaint for sum of money against NMC and ISAC with the Trial Court
  The three then entered into a compromise agreement which was approved by the
trial court.
o It was agreed that NMC would pay Cargill P3,000,000 upon signing of
the compromise agreement and would deliver to petitioner 6,991 metric
tons of molasses.
o However, NMC still failed to comply with its obligation.
o Hence, the case proceeded.
 The Trial Court ruled in favor of Cargill. And ordered ISAC and NMC to solidarily pay
P16,993,200.00 and attorney’s fees amounting To P200,000.00
Upon appeal, the Court of Appeals reversed the decision of the Trial Court and dismissed the
complaint.
 It ruled that Cargill had no capacity to file the collection case against NMC and ISAC
since it was doing business in the Philippines without a license.
Hence, this petition.
ISSUE: WoN Cargill, an unlicensed foreign corporation, is not doing business in the
Philippines, therefore has legal capacity to sue before Philippine courts. –YES
RULING:
Doing Business in the Philippines and Capacity to Sue
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.
 Under Article 123 of the Corporation Code, a foreign corporation must first obtain a
license and a certificate from the appropriate government agency before it can
transact business in the Philippines.
 Thus, the main question to consider is whether Cargill was doing business in the
Philippines.
 The Corporation Code, however, provides no definition as to what is considered
doing business in the Philippines.
o Nevertheless, Section 1 of RA 545512 and RA 704213 provide for a definition.
“the phrase doing business shall include soliciting orders, purchases,
service contracts, opening offices, whether called liaison offices or
branches; appointing representatives or distributors who are domiciled in
the Philippines or who in any calendar year stay in the Philippines for a
period or periods totalling one hundred eighty days or more; participating
in the management, supervision or control of any domestic business firm,
entity or corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the
business organization.”
 Since it is NMC and ISAC who questions the capacity of Cargill, the burden of proof
lies with the to prove that Cargill has been doing business in the Philippines,
therefore, has no capacity to sue.
o In this case, the two failed to prove that Cargill’s activities in the
Philippines constitute doing business as would prevent it from bringing an
action.
 The determination of whether a foreign corporation is doing business in the
Philippines must be based on the facts of each case. It is important to establish the
element of continuity.
 In this case, there is no showing that the transactions between Cargill and NMC
signify the intent of Cargill to establish a continuous business or extend its
operations in the Philippines.
 The Implementing Rules and Regulations of RA 7042 provide under Section 1(f),
Rule I, that doing business does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of
rights as such investor;
2. Having a nominee director or officer to represent its interests in
such corporation
3. Appointing a representative or distributor domiciled in the
Philippines which transacts business in the representative's or
distributor's own name and account,
4. The publication f a general advertisement through any print or
broadcast media
5. Maintaining a stock of goods in the Philippines solely for the purpose
of having the same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company
to be used in the processing of products for export,
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale
which are not on a continuing basis, such as installing in the
Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to
operate it, and similar incidental services
 Most of these activities do not bring any direct receipts or profits to the foreign
corporation.
 In this case, the contract between Cargill and NMC involved the purchase of
molasses by Cargill from NMC. It was NMC, the domestic corporation, which
derived income from the transaction and not Cargill.
 Aside from continuity, to constitute doing business, the activity undertaken in the
Philippines should involve profit-making.
 Also, there are other factors which establishes that Cargill is not doing business in
the Philippines:
o Cargill does not have an office in the Philippines
 o Cargill imports products from the Philippines through its non-exclusive
local broker
o the local broker is an independent contractor and not an agent of
Cargill
NOT MENTIONED: Estoppel also probably be used as basis to reverse the decision of the CA.
NMC entered into the contract of sale with Cargill knowing that the latter is a foreign
corporation. Plus, NMC accepted the capacity of Cargill when it entered into a compromised
agreement which was even approved by the court.
Disposition:
WHEREFORE , we GRANT the petition. We REVERSE the Decision dated 26 May 2005 of the
Court of Appeals in CA-G.R. CV No. 48447. We REINSTATE the Decision dated 23 November
1994 of the trial court.
156. Expert Travel & Tours, Inc. v CA
G.R. No. 152392
MAY 26, 2005
Topic: Foreign Corporations
Petitioners: Expert Travel and Tours
Respondents: CA, Korean Airlines
Ponente: Callejo, J.
FACTS
 Korean Airlines (KAL) is a corporation established and registered in the Republic of
South Korea and licensed to do business in the Philippines.
 Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel
was Atty. Mario Aguinaldo and his law firm.
 On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint against ETI
with the Regional Trial Court (RTC) of Manila, for the collection of the principal
amount of P 260,150.00, plus attorney’s fees and exemplary damages.
 The verification and certification against forum shopping was signed by Atty.
Aguinaldo, who indicated therein that he was the resident agent and legal
counsel of KAL and had caused the preparation of the complaint.
 ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was
not authorized to execute the verification and certificate of non-forum shopping as
required by Section 5, Rule 7 of the Rules of Court.
 KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent
and was registered as such with the Securities and Exchange Commission (SEC) as
required by the Corporation Code of the Philippines.
 It was further alleged that Atty. Aguinaldo was also the corporate secretary of KAL.
 Appended to the said opposition was the identification card of Atty. Aguinaldo,
showing that he was the lawyer of KAL.
 During the hearing of January 28, 2000, Atty. Aguinaldo claimed that he had been
authorized to file the complaint through a resolution of the KAL Board of Directors
approved during a special meeting held on June 25, 1999.
o Upon his motion, KAL was given a period of 10 days within which to
submit a copy of the said resolution.
o The trial court granted the motion.
 Atty. Aguinaldo subsequently filed other similar motions, which the trial court
granted.
 Finally, KAL submitted on March 6, 2000 an Affidavit of even date, executed by its
general manager Suk Kyoo Kim, alleging that the board of directors conducted a
special teleconference on June 25, 1999, which he and Atty. Aguinaldo attended. It
was also averred that in that same teleconference, the board of directors approved
a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum
shopping and to file the complaint.
 Suk Kyoo Kim also alleged, however, that the corporation had no written copy of
the aforesaid resolution.
ISSUE: Whether or not Atty. Aguinaldo, as the resident agent of the respondent, is
authorized to executed the requisite certification against forum shopping.
HELD: No.
RATIO: While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this
does not mean that he is authorized to execute the requisite certification against forum
shopping.
Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the
resident agent of a foreign corporation with license to do business in the Philippines is to
receive, for and in behalf of the foreign corporation, services and other legal processes in all
actions and other legal proceedings against such corporation, thus:
SEC. 127. Who may be a resident agent. – A resident agent may either be an individual
residing in the Philippines or a domestic corporation lawfully transacting business in the
Philippines: Provided, That in the case of an individual, he must be of good moral character
and of sound financial standing.
SEC. 128. Resident agent; service of process. – The Securities and Exchange Commission shall
require as a condition precedent to the issuance of the license to transact business in the
Philippines by any foreign corporation that such corporation file with the Securities and
Exchange Commission a written power of attorney designating some persons who must be a
resident of the Philippines, on whom any summons and other legal processes may be served
in all actions or other legal proceedings against such corporation, and consenting that service
upon such resident agent shall be admitted and held as valid as if served upon the duly-
authorized officers of the foreign corporation as its home office.
Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-
forum shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a
resident agent may be aware of actions filed against his principal (a foreign corporation doing
business in the Philippines), such resident may not be aware of actions initiated by its
principal, whether in the Philippines against a domestic corporation or private individual, or
in the country where such corporation was organized and registered, against a Philippine
registered corporation or a Filipino citizen.
The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not
specifically authorized to execute the said certification. It attempted to show its compliance
with the rule subsequent to the filing of its complaint by submitting, on March 6, 2000, a
resolution purporting to have been approved by its Board of Directors during a
teleconference held on June 25, 1999, allegedly with Atty. Aguinaldo and Suk Kyoo Kim in
attendance. However, such attempt of the respondent casts veritable doubt not only on its
claim that such a teleconference was held, but also on the approval by the Board of Directors
of the resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum
shopping.
157 Citibank NA v Chua
G.R. No. 102300
March 17, 1993
Foreign Corporations
FACTS
-Citibank extended credit lines to Sps. Velez amounting to 5,000,000, secured with real estate
and chattel mortgages. Such credit accommodation can be availed of in the following
manner:
a. CITIBANK would purchase checks from Sps. Velez by exchanging it with CITIBANK’s
manager’s check on a regular daily basis as reflected in the CITIBANK’s own ledger furnished
to Sps. Velez
b. Further, CITIBANK would again purchase checks from Sps. Velez, to be exchanged with
CITIBANK’s manager’s check, which check, will be deposited by the Sps. Velez with other
banks to cover the checks previously issued by Sps. Velez
c. The same regular and agreed activity would be undertaken by Sps. Velez and CITIBANK
every banking day thereafter
-The dispute started when Citibank refused to comply with the above mentioned
arrangement despite repeated demands; thus, a restructuring agreement.
-Sps. Velez tried to exchange with CITIBANK’s checks amounting to 3,095,000 but CITIBANK
refused to comply with the arrangement
-Instead of complying with the arrangement, CITIBANK suggested to Sps. Velez that the total
amount covered be restructured to 30 months with prevailing interest rate on the
diminishing balance
-Sps. Velez, however, agreed to such restructuring proposed by CITIBANK. As a sign of good
faith, Sps. Velez issued and delivered a check for P75,000.00 in favor of CITIBANK which was
refused by the latter demanding instead full payment of entire amount.
-When Citibank failed to comply with the Restructuring Agreement, Sps. Velez sued CITIBANK
for specific performance and damages
-In return, CITIBANK filed a criminal complaint for BP 22 and
estafa against Sps. Velez
-Citibank presented an SPA executed by its officer Florencia Tarriela in favor of J.P. Garcia &
Associates, to represent and bind the bank at the
pre-trial conference
- Sps Velez Moved to declare CITIBANK in default despite the SPA executed above on the
ground that the SPA was not executed by the Board of Directors of Citibank
-RTC held CITIBANK in default and held that:
CITIBANK, although a FOREIGN CORPORATION, is bound by Philippine laws when doing and
conducting business in the Philippines, and its corporate powers could only be exercised by
its BOD
-As a recourse, Citibank filed a Petition for Certiorari, Prohibition, and Mandamus with
Preliminary Injunction.
-The 2 main arguments of CITIBANK are:
a. The authority to represent the bank in the pre-trial did not come from its BOD which has
the exclusive right to exercise corporate powers
b. The authority granted by the Executing Officer in the By-Laws was ineffective because such
By-Laws were not submitted to, nor approved by the SEC
ISSUE Whether the By-Laws of CITIBANK, as foreign corporation which
has previously been granted a license to do business in the Philippines, are binding and
effective in the Philippine jurisdiction
HELD
YES. Citibank’s by-laws, though originating from foreign jurisdiction, are valid and effective in
the Philippines
- Section 125 of Corporation Code provides that a foreign corporation applying for a license
to transact business in the Philippines must submit, among other documents, to the SEC, a
copy of its articles of incorporation and by-laws, certified in accordance with law. Unless
these documents are submitted, the application cannot be acted upon by the SEC
- Section 126 thereof, likewise provides that SEC will only grant license to applicants who has
complied with all requirements provided in Section 125
- In this case, since the SEC will grant a license only when the foreign corporation has
complied with all the requirements of law, it follows that when it decides to issue such
license, it is satisfied that the applicant's by-laws, among the other documents, meet the
legal requirements.
- This, in effect, is an approval of the foreign corporation's by-laws. It may not have been
made in express terms, still, it is clearly an approval.
DISPOSITIVE PORTION
WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The decision of the
Court of Appeals dated June 26, 1991 and its resolution denying the motion for
reconsideration of petitioner bank dated September 26, 1991 are both REVERSED and SET
ASIDE. The order of default issued on August 15, 1990 in Civil Case CEB-4751 of the Regional
Trial Court of Cebu is ANNULLED and SET ASIDE and the case is hereby REMANDED to the
court of origin for further proceedings.
159. Gamboa v. Teves
G.R. 176579
June 28, 2011
Topic: Foreign Corporations
Petitioners: WILSON P. GAMBOA
Respondents: FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN
P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY,
OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN
HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL
V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS
CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.
NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE
SECURITIES AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE
STOCK EXCHANGE
Ponente: Carpio, J.
FACTS
1. 28 November 1928, the Philippine Legislature enacted Act No. 3436 which
granted PLDT a franchise and the right to engage in telecommunications
business.
2. 1969, General Telephone and Electronics Corporation (GTE), an American
company and a major PLDT stockholder, sold 26 percent of the outstanding
common shares of PLDT to PTIC.
3. 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons,
including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the
owner of 111,415 shares of stock of PTIC by virtue of three Deeds of
Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso
Rivilla.
4. 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the
Presidential Commission on Good Government (PCGG). The 111,415 PTIC
shares, which represent about 46.125 percent of the outstanding capital stock
of PTIC, were later declared by this Court to be owned by the Republic of the
Philippines.
5. 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm,
acquired the remaining 54 percent of the outstanding capital stock of PTIC. On
20 November 2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the 111,415 PTIC shares,
or 46.125 percent of the outstanding capital stock of PTIC, through a public
bidding.Parallax won with a bid of ₱25.6 billion or US$510 million.
6. First Pacific announced that it would exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of
Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline
set by IPC and instead, yielded its right to PTIC itself which was then given by
IPC until 2 March 2007 to buy the PTIC shares.
7. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into
a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
 46.125 percent of the outstanding capital stock of PTIC, with the Philippine
Government for the price of ₱25,217,556,000 or US$510,580,189. The sale
was completed on 28 February 2007.
8. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of
46.125 percent of PTIC shares is actually an indirect sale of 12 million shares or
about 6.3 percent of the outstanding common shares of PLDT. With the sale,
First Pacific’s common shareholdings in PLDT increased from 30.7 percent to
37 percent, thereby increasing the common shareholdings of foreigners in
PLDT to about 81.47 percent.
9. PLDT do not dispute, that foreigners hold a majority of the common shares of
PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS) which is a
document required to be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas
Filipinos hold only 66,750,622 common shares.
However they stressed how that PLDT common shares is ₱5.00 per share, whereas the par
value of preferred shares is ₱10.00 per share. In other words, preferred shares have twice
the par value of common shares but cannot elect directors and have only 1/70 of the
dividends of common shares. Moreover, 99.44% of the preferred shares are owned by
Filipinos while foreigners own only a minuscule 0.56% of the preferred shares.
ISSUE
1. Does the term “capital” in Section 11, Article XII of the Constitution refer to
the total common shares only, or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of PLDT, a public
utility?
2. Whether the consummation of the then impending sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of
a public utility
RULING:
1. The term "capital" in Section 11, Article XII of the Constitution refers only to shares
of stock entitled to vote in the election of directors, and thus in the present case
only to common shares,41 and not to the total outstanding capital stock comprising
both common and non-voting preferred shares.
To construe broadly the term “capital” as the total outstanding capital stock,
including both common and non-voting preferred shares, grossly contravenes the
intent and letter of the Constitution that the “State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos.” A broad
definition unjustifiably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility.
2. After the judgement of June 28, 2011 PLDT filed a motion for reconsideration
to address the issue regarding the interpretation of the terms “capital”.
Basis:
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise
or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.
Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation. This is exercised through his vote in the election of directors
because it is the board of directors that controls or manages the corporation. Preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the
election of directors and on other matters. In fact, PLDT’s Articles of Incorporation expressly
state that "the holders of Serial Preferred Stock shall not be entitled to vote at any meeting
of the stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive notice of
any meeting of stockholders."
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in
the hands of Filipinos in accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is constitutionally required for the State’s grant of authority to operate a public
utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are
non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly
violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial
ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
percent of the dividends, of PLDT.
DISPOSITIVE PORTION:
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to the
total outstanding capital stock (common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition
of the term "capital" in determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article
XII of the Constitution, to impose the appropriate sanctions under the law.
NOTES:
The case has two stages: 161. Narra Nickel v. Redmont
1. June 28, 2011 – PETITION Filed by Mr. GAMBOA to complain about the alleged G.R. No. 195580 | April 21, 2014
unlawful sale of shares. PETITION PARTIALLY GRANTED.
2. October 09, 2012 – PETITION for reconsideration filed by Mr. Pangilinan, Mr.
Nazareno, SEC and PSE regarding the decision of June 28, 2011. SC resolved as follow: PETITIONERS: NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
“WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further DEVELOPMENT, INC., and MCARTHUR MINING, INC
pleadings shall be entertained.” RESPONDENT: REDMONT CONSOLIDATED MINES CORP
Facts:

1. December 2006, respondent REDMONT CONSOLIDATED MINES CORP. (Redmont),

a domestic corporation, took interest in assigned its rights and interest over the
said MPSA application to TESORO.
2. January 2, 2007: Redmont filed before the Panel of Arbitrators (POA) of the DENR
3 separate petitions for the denial of petitioners’ applications for MPSA

REDMONT PETITIONERS

Alleged that at least 60% of the capital stock Averred that they were qualified persons
of McArthur, Tesoro and Narra are owned under Section 3(aq) of REPUBLIC ACT NO.
and controlled by MBMI RESOURCES, INC. (RA) 7942 or the Philippine Mining Act of
(MBMI), a 100% Canadian corporation. 19951

Reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving
force behind petitioners’ filing of the MPSAs
over the areas covered by applications since
it knows that it can only participate in
mining activities through corporations
which are deemed Filipino citizens.
Argued that given that petitioners’ capital
stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in
mining activities through MPSAs, which are
reserved only for Filipino citizens.
Stated that their nationality as applicants is
immaterial because they also applied for
Financial or Technical Assistance
Agreements (FTAA) for McArthur, AFTA-IVB-
08 for Tesoro and Narra, which are granted
to foreign-owned corporations.
Claimed that the issue on nationality should
not be raised since McArthur, Tesoro and
Narra are in fact Philippine Nationals as 60%
of their capital is owned by citizens of the
Philippines.
They asserted that though MBMI owns 40%
of the shares of PLMC (which owns 5,997
shares of Narra), 40% of the shares of MMC
(which owns 5,997 shares of McArthur) and
40% of the shares of SLMC (which, in turn,

1 Sec. 3. Definition of Terms.—As used in and for purposes of this Act, the following terms, whether in singular or plural, shall mean:
xxxx
(aq) “Qualified person” means any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake mineral
resources development and duly registered in accordance with law at least sixty percent (60%) of the capital of which is owned by
citizens of the Philippines: Provided, That a legally organized foreign-owned corporation shall be deemed a qualified person for
purposes of granting an exploration
397permit, financial or technical assistance agreement or mineral processing permit.
 owns 5,997 shares of Tesoro), the shares of
MBMI will not make it the owner of at least
60% of the capital stock of each of
petitioners.
Added that the best tool used in
determining the nationality of a corporation
is the “control test,” embodied in Sec. 3 of
RA 7042 or the Foreign Investments Act of
1991.
Claimed that the POA of DENR did not have
jurisdiction over the issues in Redmont’s
petition since they are not enumerated in
Sec. 77 of RA 7942 and stressed that
Redmont has no personality to sue them
because it has no pending claim or
application over the areas applied for by
petitioners.
3. December 14, 2007, the POA issued a Resolution disqualifying petitioners from
gaining MPSAs. The POA considered petitioners as foreign corporations being
“EFFECTIVELY CONTROLLED” BY MBMI, a 100% Canadian company and declared
their MPSAs null and void.
4. McArthur, Tesoro and Narra filed a Notice of Appeal and Memorandum of Appeal
with the MINES ADJUDICATION BOARD (MAB). They basically emphasized that
they are qualified persons under the law and that they had their individual MPSA
applications converted to FTAAs.
5. Pending resplution of the appeal with MAB, Redmont filed a complaint with the
SEC seeking the revocation of the certificates for registration of petitioners on the
ground that they are foreign-owned or controlled corporations engaged in mining
in violation of Philippine laws.
6. Redmont filed before RTC-Quezon a Complaint for injunction with application for
issuance of a TRO and/or writ of preliminary injunction, praying for the deferral of
the MAB proceedings pending the resolution of the Complaint before the SEC but
before the RTC can resolve Redmont’s Complaint and applications for injunctive
reliefs, the MAB found the appeal meritorious.
7. A petition for review filed by Redmont before the CA, assailing the Orders issued by
the MAB. CA partially granted the petition and holding MAB’s orders reversed and
set aside. The findings of the Panel of Arbitrators of the Department of
Environment and Natural Resources that respondents McArthur, Tesoro and Narra
are foreign corporations is upheld and, therefore, the rejection of their
applications for Mineral Product Sharing Agreement should be recommended to
the Secretary of the DENR and holding that the conversion of their MPSA
applications to FTAA is left for determination by the Secretary of the DENR and the
President of the Republic of the Philippines. MR denied.
8. CA found that there was doubt as to the nationality of petitioners when it realized
that petitioners had a common major investor, MBMI, a corporation composed of
100% Canadians. The CA used the “grandfather rule” to determine the nationality
of petitioners. It provided that shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality.2
9. In determining the nationality of petitioners, the CA looked into their corporate
structures and their corresponding common shareholders. Using the grandfather
rule, it was discovered that MBMI in effect owned majority of the common stocks
of the petitioners as well as at least 60% equity interest of other majority
shareholders of petitioners through joint venture agreements. The CA found that
through a “web of corporate layering, it is clear that one common
controlling investor in all mining corporations involved x x x is MBMI.” Thus, it
concluded that petitioners McArthur, Tesoro and Narra are also in partnership
with, or privies-in-interest of, MBMI.
10. As for the FTAA applications, it was found to be suspicious in nature and, as a
consequence, it recommended the rejection of petitioners’ MPSA applications by
the Secretary of the DENR.
11. While the petition was pending with the CA, Redmont filed with the Office of the
President (OP) a petition seeking the cancellation of petitioners’ FTAAs. The OP
canceled and revoked petitioners’ FTAAs for violating and circumventing the
“Constitution x x x[,] the Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584.”
12. OP agreed with Redmont stating that petitioners committed violations against the
said laws and failed to submit evidence to negate them. OP agreed with the POA’s
estimation that the filing of the FTAA applications by petitioners is a clear
admission that they are “not capable of conducting a large scale mining operation
and that they need the financial and technical assistance of a foreign entity in their
operation, that is why they sought the participation of MBMI Resources, Inc.” MR
denied.
Issue: W/N CA’s ruling that Narra, Tesoro and McArthur are foreign corporations based on
the “Grandfather Rule” is contrary to law, particularly the express mandate of the Foreign
Investments Act of 1991, as amended, and the FIA Rules.
Ruling:
Basically, the Court was asked by the foreign-Filipino petitioner-corporations to rule on the
compliance of said corporations with the 60-40 ownership requirement mandated by the
1987 Constitution.
1. The Court ruled that the corporate structure employed by the petitioner-corporations
was evidently designed to circumvent the constitutional caveat allowing only Filipino
2 Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say,
50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall
be recorded as belonging to aliens
 citizens and corporations 60%-owned by Filipino citizens to explore, develop, and use
the country’s natural resources. Furthermore, the Court discussed the application of
the Grandfather Rule and the Control Test in relation to the determination of a
corporation’s compliance with the 60-40 ownership requirement.
First, the Court quoted Dean Cesar Villanueva’s definition of the Grandfather Rule:
…the Grandfather Rule is “the method by which the
percentage of Filipino equity in a corporation engaged
in nationalized and/or partly nationalized areas of
activities, provided for under the Constitution and other
nationalization laws, is computed, in cases where
corporate shareholders are present, by attributing the
nationality of the second or even subsequent tier of
ownership to determine the nationality of the
corporate shareholder.” Thus, to arrive at the actual
Filipino ownership and control in a corporation, both
the direct and indirect shareholdings in the corporation
are determined.
Furthermore, the Court concurred with BIR Ruling No. 148-10, where Commissioner Kim
Henares held that “in cases of multi-tiered corporations, the stock attribution rule must be
allowed to run continuously along the chain of ownership until it finally reaches the
individual stockholders.”
2. The Court explained that the Control Test, as explained in the discussion on Gamboa
and the old DOJ-SEC Rule (1989) and the Grandfather Rule may actually be used
cumulatively in determining the ownership and control of corporations engaged in
fully or partly nationalized activities. It is only when the Control Test is first complied
with that the Grandfather Rule may be applied.
3. Hence, if a corporation’s Filipino equity falls below the threshold of 60%, the
corporation is immediately considered foreign-owned and the need to use the
Grandfather Rule disappears. Also, if the corporation complies with the 60-40
Filipino provided in the DOJ-SEC 1989 Rule, where to foreign equity requirement and
there is no doubt as to who has the beneficial ownership and control, the
Grandfather Rule need not be applied. However, even if the 60-40 equity ratio is
apparently met, but doubt exists as to the beneficial ownership and control, the
Grandfather Rule will be applied. This is because several foreign companies create
“dummy” companies to circumvent the 60-40 Filipino Foreign equity rule.
4. Doubt, as used in the case, does not refer to the fact that the apparent Filipino
ownership of the corporation falls below the threshold, but rather, doubt refers to
various indicia that the beneficial ownership and control of the corporation do not in
fact reside in Filipino shareholders but in foreign shareholders.
The DOJ Opinion No. 165, Series of 1984 recognized significant indicators of the dummy
status, which the Court also referred to in its discussion of the case. These are:
1. That the foreign investors provide practically all the funds for the joint
investment undertaken by these Filipino businessmen and their
foreign partner;
2. That the foreign investors undertake to provide practically all the
technological support for the joint venture;
3. That the foreign investors, while being minority stockholders, manage
the company and prepare all economic viability studies.
5. Further, the Court observed that the Securities and Exchange Commission (SEC), in its
1977 internal memorandum, already suggested applying the Grandfather Rule in the
following manner:
 For publicly-held corporations or where the shares are traded in the stock
exchanges, the Grandfather Rule is applied on two (2) levels of corporate relations;
 On the other hand, if the corporation is closely held or the shares of which are not
traded in the stock exchange, the Grandfather Rule is applied up to three (3) levels
of corporate relations.
The Court gave a computation as to how to determine Filipino and Foreign participation in
multi-tiered companies. Let us take petitioner Narra as an example (Table provided in Annex
“B”):
PASRDC
PLMDC 65.96%
59.97%
MDMI 33.96%
Narra (Canadian)
MDMI
39.98%
(Canadian)
In Narra’s case, 59.97% of its shares belonged to Patricia
Louise Mining & Development Corporation (PLMDC),
while Canadian MBMI held 39.98% of its shares.
PLMDC’s shares, in turn, were held by Palawan Alpha
South Resources Development Corporation (PASRDC),
which subscribed to 65.96% of PLMDC’s shares, and the
Canadian MBMI, which subscribed to 33.96% ofPLMDC’s
shares.
PASRDC did not pay for any of its subscribed shares,
while MBMI contributed 99.75% of PLMDC’s paid-up
capital. This fact creates serious doubt as to the true
extent of MBMI’s control and ownership over both
 PLMDC and Narra since “a reasonable investor would MANUEL A. AGCAOILI FILIPINO 1 P1,000.00 P1,000.00
expect to have greater control and economic rights than BAYANI H. AGABIN FILIPINO 1 P1,000.00 P1,000.00
other investors who invested less capital than him.”
TOTAL 10,000 P10,000,000.00 P2,800,000.00
Thus, the application of the Grandfather Rule is justified.
And as will be shown, it is clear that the Filipino
ownership in petitioner Narra falls below the limit
prescribed in both the Constitution and the Philippine PLMDC’S SHARES:
Mining Act of 1995.
NAME NATIONALITY NUMBER OF AMOUNT AMOUNT PAID
SHARES SUBSCRIBED
COMPUTATION USED BY THE COURTS IN THE NARRA CASE PALAWAN ALPHA SOUTH FILIPINO 6,596 P6,596,000.00 P0
RESOURCE DEVELOPMENT CORP.
Filipino participation in petitioner Narra: 39.64% MBMI RESOURCES, INC.[21 CANADIAN 3,396 P3,396,000.00 P2,796,000.00
HIGINIO C. MENDOZA, JR. FILIPINO 1 P1,000.00 P1,000.00
66.02 (Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59%
FERNANDO B. ESGUERRA FILIPINO 1 P1,000.00 P1,000.00
100
HENRY E. FERNANDEZ FILIPINO 1 P1,000.00 P1,000.00
39.59% + .05% (shares of individual Filipino SHs in Narra) =39.64% MA. ELENA A. BOCALAN FILIPINO 1 P1,000.00 P1,000.00
MICHAEL T. MASON AMERICAN 1 P1,000.00 P1,000.00
Foreign participation in petitioner Narra: 60.36% ROBERT L. MCCURDY CANADIAN 1 P1,000.00 P1,000.00
MANUEL A. AGCAOILI FILIPINO 1 P1,000.00 P1,000.00
33.98 (Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38% BAYANI H. AGABIN FILIPINO 1 P1,000.00 P1,000.00
100
TOTAL 10,000 P10,000,000.00 P2,804,000.00
20.38% + 39.96% (MBMI’s direct participation in Narra) + .02% (shares of foreign individual
SHs in Narra)= 60.36%

As can be seen in this computation, even though it appears on the first level that Narra does
not violate the 60-40 equity rule, when the court applied the Grandfather Rule, it was
revealed that the foreign company actually had more control and owned more of Narra than
the Filipino stockholders.

ANNEX B: THE SHARES OF NARRA AND PLMDC

NARRA’S SHARES:

NAME NATIONALITY NUMBER OF AMOUNT AMOUNT PAID

SHARES SUBSCRIBED
PATRICIA LOUSIE MINING AND FILIPINO 5,997 P5,997,000.00 P1,677,000.00
DEVELOPMENT CORP.
MBMI RESOURCES, INC.[20 CANADIAN 3,996 P3,996,000.00 P1,116,000.00
HIGINIO C. MENDOZA, JR. FILIPINO 1 P1,000.00 P1,000.00
HENRY E. FERNANDEZ FILIPINO 1 P1,000.00 P1,000.00
MA. ELENA A. BOCALAN FILIPINO 1 P1,000.00 P1,000.00
MICHAEL T. MASON AMERICAN 1 P1,000.00 P1,000.00
ROBERT L. MCCURDY CANADIAN 1 P1,000.00 P1,000.00