Corpo COMPLETE

Page 1 of 28Section 121. Involuntary dissolution. – A corporation may be dissolved by the Securities and Exchange Commission upon filing of a verified complaint and after proper notice and hearing on the grounds provided by existing laws, rules and regulations. (n)

THE GOVERNMENT OF THE PHILIPPINE ISLANDS v. EL HOGAR FILIPINOG.R. No. L-26649 July 13, 1917, Street, J: The Philippine Commission enacted Act No. 1459, also known as the Corporation Law, on March 1, 1906. El Hogar Filipino, organized in 1911 under the laws of the Philippine Islands, was the first corporation organized under Sec. 171-190 Act No. 1459, devoted to the subject of building and loan associations, their organization and administration. In the said law, the capital of the corporation was not permitted to exceed three million pesos, but Act No. 2092 amended the statute, permitting capitalization to the amount of ten millions.El Hogar took advantage of the amendment of Act No. 1459 and amended its Articles of Incorporation as a result thereof, stating that the amount of capital must not exceed what has been stated in Act No. 2092. This resulted to El Hogar having 5,826 shareholders, 125,750 shares with paid-up value of P8,700,000. The corporation paid P7,160,000 to its withdrawing stockholders.The Government of the Philippine Islands filed an action against El Hogar due to the alleged illegal holding title to real property for a period exceeding five (5) years after the same was bought in a foreclosure sale. Sec. 13(5) of the Corporation Law states that corporations must dispose of real estate obtained within 5 years from receiving the title. The Philippine Government also prays that El Hogar be excluded from all corporate rights and privileges and effecting a final dissolution of said corporation.It appears from the records that El Hogar was the holder of a recorded mortgage on the San Clemente land as security for a P24,000 loan to El Hogar. However, shareholders and borrowers defaulted in payment so El Hogar foreclosed the mortgage and purchased the land during the auction sale. A deed of conveyance in favor of El Hogar was executed and sent to the Register of Deeds of Tralac with a request that the certificate of title be cancelled and a new one be issued in favor of El Hogar from the Register of Deeds of Tarlac. However, no reply was received. El Hogar filed a complaint with the Chief of the General Land Registration Office. The certificate of title to the San Clemente land was received by El Hogar and a board resolution authorizing Benzon to find a buyer was issued. Alcantara, the buyer of the land, was given extension of time to make payment but defaulted so the contract treated rescinded. Efforts were made to find another buyer. Respondent acquired title in December 1920 until the property was finally sold to Felipa Alberto in July 1926. The interval exceeded 5 years but the period did not commence to run until May 7, 1921 when the register of deeds delivered the new certificate of title. It has been held that a purchaser of land registered under the Torrens system cannot acquire the status of an innocent purchaser for value unless the vendor is able to place the owner’s duplicate in his hands showing the title to be in the vendor. During the period before May 1921, El Hogar was not in a position to pass an indefeasible title to any purchaser. Therefore, El Hogar cannot be held accountable for this delay which was not due to its fault. Likewise, the period from March 25, 1926 to April 20, 1926 must not be part of the five-year period because this was the period where respondent was under the obligation to sell the property to Alcantara prior to the contract’s rescission due to Alcantara’s non-payment.

CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 2 of 28Another circumstance causing the delay is the fact that El Hogar purchased the property in the full amount of the loan made by the former owner which is nearly P24,000 when it was subsequently found that the property was not salable and later sold for P6,000 notwithstanding El Hogar’s efforts to find a purchaser upon better terms.

ISSUE: Whether the acts of respondent corporation merit its dissolution or deprivation of its corporate franchise and to exclude it from all corporate rights and privilegesRULING: The High Court sustained the contention of Government of the Philippine Islands only as to administering of real property not owned by El Hogar Filipino. CAUSES OF ACTION:1) Alleged illegal holding of real property for a period exceeding five years from receipt of title. The High Court ruled that the cause of delay is not respondent’s fault.

2) That respondent is owning and holding a business lot with the structure thereon in excess of its reasonable requirements and in contravention of Sec. 13(5) of Corporation Law. The High Court ruled that it is without merit. Every corporation has the power to purchase, hold and lease such real property as the transaction would of the lawful business may reasonably and necessarily require.

3) That respondent is engaged in activities foreign to the purposes for which the corporation was created and not reasonably necessary to its legitimate ends. The High Court ruled that it is valid. The administration of property, payment of real estate taxes, causing necessary repairs, managing real properties of non-borrowing shareholders is more befitting to the business of a real estate agent or a trust company than a building and loan association.

4) That the by-laws of the association stating that, “the board of directors by the vote of an absolute majority of its members is empowered to cancel shares and to return the balance to the owner by reason of their conduct or any other motive or liquidation” is in direct conflict with Sec. 187 of the Corporation Law which provides that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation or forfeiture of stock for delinquency. The High Court ruled that it is without merit. There is no provision of law making it a misdemeanor to incorporate an invalid provision in the by-laws of a corporation; and if there were such, the hazards incident to corporate effort would be largely increased.


Page 3 of 285) Art. 61 of El Hogar’s by-laws which states that “ attendance in person or by proxy by shareholders owning one-half plus one of the shareholders shall be necessary to constitute a quorum for the election of directors” is contrary to Sec. 31 of the Corporation Law which provides that owners of the majority of the subscribed capital stock entitled to vote must be present either in person or by proxy at all elections of directors. The High Court ruled that it is without merit.

No fault can be imputed to the corporation on account of the failure of the shareholders to attend the annual meetings and their non-attendance in meetings is doubtless to be interpreted in part as expressing their satisfaction of the way in which things have been conducted. Mere failure of a corporation to elect officers does not terminate the terms of existing officers nor dissolve the corporation. The general rule is to allow the officer to holdover until his successor is duly qualified.6) That the directors of El Hogar, instead of receiving nominal pay or serving without pay, have been receiving large compensation, varying in amount from time to time, out of respondents’ profits. The High Court ruled that it is without merit.

With the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would probably be necessary is a matter that cannot be corrected in this action. Nor can it properly be made a basis for depriving respondent of its franchise or enjoining it from compliance with the provisions of its own by-laws. If a mistake has been made, the remedy is to lie rather in publicity and competition.7) That the promoter and organizer of El Hogar was Mr. Antonio Melian and that in the early stages of the organization of the association, the board of directors authorized the association to make a contract with him and that the royalty given to him as founder is “unconscionable, excessive and out of proportion to the services rendered.” The High Court ruled that it is without merit.

The mere fact that compensation is in excess of what may be considered appropriate is not a proper consideration for the court to resolve. That El Hogar is in contact with its promoter did not affect the association’s legal character. The court is of the opinion that the traditional respect for the sanctity of the contract obligation should prevail over the radical and innovating tendencies.8) That Art. 70 of El Hogar’s by-laws, requiring persons elected as board of directors to be holders of shares of the paid up value of P5,000 which shall be held as security, is objectionable since a poor member or wage earner cannot serve as a director irrespective of other qualifications. The High Court did not sustain this contention.

Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualification of its directors and the requirement of security from them for the proper discharge of the duties of their pffice in the manner prescribed in Art. 70 is highly prudent and in conformity with good practice.CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 4 of 289) That respondent abused its franchise in issuing “special” shares alleged to be illegal and inconsistent with the plan and purposes of building and loan associations. The High Court ruled that it is without merit.

The said special shares are generally known as advance payment shares which were evidently created for the purpose of meeting the condition caused by the prepayment of dues that is permitted. Sec. 178 of Corporation Law allows payment of dues or interest to be paid in advance but the corporation shall not allow interest on advance payment grater than 6% per annum nor for a period longer than one year. The amount is satisfied by applying a portion of the shareholder’s participation in the annual earnings. The mission of special shares does not involve any violation of the principle that the shares must be sold at par.10) That in making purchases at foreclosure sales constituting as security for 54 of the loans, El Hogar bids the full amount after deducting the withdrawal value, alleged to be pusuing a policy of depreciating at the rate of 10 percent per annum, the value of the real properties it acquired and that this rate is excessive. The High Court ruled that it is unsustainable.

The board of directors possesses discretion in this matter. There is no provision of law prohibiting the association from writing off a reasonable amount for depreciation on its assets for the purpose of determining its real profits. Art. 74 of its by-laws expressly authorizes the board of directors to determine each year the amount to be written down upon the expenses for the installation and the property of the corporation. The court cannot control the discretion of the board of directors about an administrative matter as to which they have no legitimate power of action.11) That respondent maintains excessive reserve funds. The High Court ruled that it is unfounded.

The function of this fund is to insure stockholders against losses. When the reserves become excessive, the remedy is in the hands of the Legislature.No prudent person would be inclined to take a policy in a company which had so improvidently conducted its affairs that it only retained a fund barely sufficient to pay its present liabilities and therefore was in a condition where any change by the reduction of interest upon or depreciation in the value of securities or increase of mortality would render it insolvent and subject to be placed in the hands of a receiver.

12) That the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 10 percent per centum regardless of losses suffered and profits made by the corporation, in contravention with the requirements of Sec. 188 of the Corpo law. The High Court ruled that it is unfounded. As provided in the previous cause of action, the profits and losses shall be determined by the board of directors and this means that they shall exercise the usual discretion of good businessmen in allocating a portion of the annual profits to purposes needful of the welfare of the association. The law


Page 5 of 28contemplates distribution of earnings and losses after legitimate obligations have been met.

13) That El Hogar has made loans to the knowledge of its officers which were intended to be used by the borrowers for other purposes than the building of homes and no attempt has been made to control the borrowers with respect to the use made of the borrowed funds. The High Court ruled that it is unfounded. There is no statute expressly declaring that loans may be made by these associations SOLELY for the purpose of building homes. The building of himes in Sec. 171 of Corporation Law is only one among several ends which building and loan associations are designed to promote and Sec. 181 authorizes the board of directors of the association to fix the premium to be charged.

14) That the loans made by defendant for purposes other than building or acquiring homes have been extended in extremely large amounts and to wealthy persons and large companies. The High Court ruled that it is without merit. The question of whether the making of large loans constitutes a misuse of the franchise as would justify the court in depriving the association of its corporate life is a matter confided to the discretion of the board of directors. The law states no limit as to the size of the loans to be made by the association. Resort should be had to the legislature because it is not a matter amenable to judicial control

15) That when the franchise expires, supposing the corporation is not reorganized, upon final liquidation of the corporation, a reserve fund may exist which is out of all proportion to the requirements that may fall upon it in the liquidation of the company. The High Court ruled that it is without merit. This matter may be left to the discretion of the board of directors or to legislative action if it should be deemed expedient to require the gradual suppression of reserve funds as the time for dissolution approaches. It is no matter for judicial interference and much less could the resumption of the franchise be justified on this ground.

16) That various outstanding loans have been made by the respondent to corporations and partnerships and such entities subscribed to respondents’ shares for the sole purpose of obtaining such loans. The High Court ruled that it is without merit.Sec. 173 of Corporation Law declares that “any person” may become a stockholder in building and loan associations. The phrase ANY PERSON does not prevent a finding that the phrase may not be taken in its proper and broad sense of either a natural or artificial person.

17) That in disposing real estate purchased by it, some of the properties were sold on credit and the persons and entities to which it was sold are not members nor shareholders nor were they made members or shareholders, contrary to the provision CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 6 of 28of Corporation Law requiring requiring loans to be stockholders only. The High Court did not sustain this cause of action.

The law does not prescribe that the property must be sold for cash or that the purchaser shall be a shareholder in the corporation. Such sales can be made upon the terms and conditions approved by the parties.In sum, the High Court enjoined El Hogar Filipino in the future from administering real property not owned by itself, except as may be permitted to it by contract when a borrowing shareholder defaults in his obligation.

REPUBLIC vs. SECURITY CREDIT & ACCEPTANCE CORPORATIONG.R. No. L-20583, January 23, 1967, 19 SCRA 58, Concepcion, CJ:The Solicitor General filed a petition for quo warranto to dissolve the Security and Acceptance Corporation, alleging that the latter was engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Pursuant to a search warrant issued by MTC Manila, members of Central Bank intelligence division and Manila police seized documents and records relative to the business operations of the corporation. After examination of the same, the intelligence division of the Central Bank submitted a memorandum to the then Acting Deputy Governor of Central Bank finding that the corporation is engaged in banking operations. It was found that Security and Acceptance Corporation established 74 branches in principal cities and towns throughout the Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; Accordingly, the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte, enjoining the corporation and its branches, as well as its officers and agents, from performing the banking operations complained of, and that a receiver be appointed pendente lite. Superintendent of Banks of the Central Bank was then appointed by the Supreme Court as receiver pendente lite of defendant corporation.In their defense, Security and Acceptance Corporation averred that the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors.

ISSUE: Whether defendant Corporation was engaged in banking operations.RULING:

An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. It is conceded that a total of 59,463 savings account deposits have been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefore. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Hence, defendant corporation has violated the law by CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 7 of 28engaging in banking without securing the administrative authority required in Republic Act No. 337.

That the illegal transactions thus undertaken by defendant corporation warrants its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of persons affected thereby.Section 122. Corporate liquidation. – Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.At any time during said three (3) years, the corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest.Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located.Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. (77a, 89a, 16a)

JAMES REBURIANO and URBANO REBURIANO v. COURT OF APPEALS, G.R. No. 102965. January 21, 1999In a civil case against Pepsi Cola Bottling Company of the Philippines (RESPONDENT), Reburiano (PETITIONERS) were orders to pay P55,000 to Pepsi Cola.Prior to the promulgation of the decision of the RTC, private respondent amended its articles of incorporation to shorten its term of existence to July 8, 1983. The amendment was approved by the SEC but the RTC was not notified of this fact.Petitioners then moved to quash the writ of execution alleging that the private respondent ceased to exist since July 8, 1983 therefore the decision rendered by the RTC are patent nullity for lack of jurisdiction and lack of capacity to sue and be sued. They alleged that private respondent was no longer in existence when the trial case was conducted therefore it had lost its juridical personality and as such losing its capacity to sue and be sued.


Page 8 of 28Private respondents opposed the motion alleging that the jurisdiction of the court as well as its capacity to sue had already been established during the initial stages of the case, and that when the complaint was filed in 1982, private respondent was still an existing corporation so that the mere fact that it was dissolved at the time the case was yet to be resolved did not warrant the dismissal of the case or oust the RTC of its jurisdiction. It further claimed that its dissolution was effected to transfer its assets to a new firm of almost the same name and was thus only for convenience.RTC denied petitioners motion to quash. Petitioners then appealed the decision to the CA but the same was dismissed. The reconsideration was likewise dismissed. Hence, this petition for review on certiorari.

ISSUE: Whether a dissolved and non-existing corporation could no longer be represented by a lawyer and concomitantly a lawyer could not appear as counsel for a non-existing judicial person.Petitioners argue that while private respondent Pepsi Cola Bottling Company of the Philippines, Inc. undertook a voluntary dissolution on July 3, 1983 and the process of liquidation for three (3) years thereafter, there is no showing that a trustee or receiver was ever appointed. They contend that 122 of the Corporation Code does not authorize a corporation, after the three-year liquidation period, to continue actions instituted by it within said period of three years.

RULING:Section 122 of the Corporation Code provides in part:

122. Corporate Liquidation. - Every Corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.At any time during said three (3) years, said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest.From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interests, all interests which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest.

In Gelano vs. Court of Appeals, a case having substantially similar facts as the instant case, this Court held:However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution is authorized under Sec. 78 [now 122] of the Corporation Law to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the three-year period. Although private respondent did not appoint any trustee, yet the counsel


Page 9 of 28who prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had been handling the case when the same was pending before the trial court until it was appealed before the Court of Appeals and finally to this Court. We therefore hold that there was substantial compliance with Sec. 78 [now 122] of the Corporation Law and such private respondent Insular Sawmill, Inc. could still continue prosecuting the present case even beyond the period of three (3) years from the time of dissolution....[T]he trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed to proceed to final judgment and execution thereof.

In the Gelano case, the counsel of the dissolved corporation was considered a trustee. In the latter case of Clemente v. Court of Appeals, we held that the board of directors may be permitted to complete the corporate liquidation by continuing as trustees by legal implication. For, indeed, as early as 1939, in the case of Sumera v. Valencia, this Court held:It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but there is no time limit within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 [now Sec. 122]) that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment.The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being sued (7 R.C.L., Corps., par. 750); but trustees to whom the corporate assets have been conveyed pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the liquidation. . .

Furthermore, the Corporation Law provides:145. Amendment or repeal. - No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof.

This provision safeguards the rights of a corporation which is dissolved pending litigation.There is, therefore, no reason why the suit filed by private respondent should not be allowed to proceed to execution. It is conceded by petitioners that the judgment against them and in favor of private respondent in C.A. G.R. No. 16070 had become final and executory. The only reason for their refusal to execute the same is that there is no existing corporation to which they are indebted. Such argument is fallacious. As previously mentioned, the law specifically allows a trustee to manage the affairs of the corporation in liquidation. Consequently, any supervening fact, such as the dissolution of CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 10 of 28the corporation, repeal of a law, or any other fact of similar nature would not serve as an effective bar to the enforcement of such right.

TITLE XVFOREIGN CORPORATIONSSection 123. Definition and rights of foreign corporations. – For the purposes of this Code, a foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency. (n)

CARGILL, INC. v. INTRA STRATA ASSURANCE CORPORATIONG.R. No. 168266, March 15, 2010Cargill, Inc. (PETITIONER) is a corporation organized and existing under the laws of the State of Delaware, United States of America. Petitioner then entered into a contract with Northern Mindanao Corporation (NMC) whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of molasses from January 1 to June 30, 1990 at the price of $44 per metric ton. The contract provides that petitioner would open a Letter of Credit with the BPI. Under the red clause of the Letter of Credit, NMC was permitted to draw up to $500,000 representing the minimum price of the contract upon presentation of some documents.The contract was amended three times: first, increasing the purchase price of the molasses to $47.50 per metric ton; second, reducing the quantity of the molasses to 10,500 metrin tons and increasing the price to $55 per metric ton; and third, providing for the shipment of 5,250 metric tons of molasses on the last half of December 1990 through the first half of January 1991 and the balance on the last half of January 1991 through first half of February 1991. The third amendment also required NMC to put up a performance bond intended to guarantee NMCs performance to deliver the molasses during the prescribed shipment periods according to the terms of the amended contract.In compliance with the third amendment, Intra Strata Assurance Corporation (RESPONDENT) issued a performance bond to guarantee NMCs delivery of the 10,500 tons of molasses, and a surety bond 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. Thus, petitioner sent demand letters to respondent claiming payment under the performance and surety bonds. When respondent refused to pay, petitioner filed a complaint for sum of money against NMC and respondent.Petitioner, NMC, and respondent entered into a compromise agreement. The compromise agreement provides that NMC would pay petitioner P3,000,000 upon signing


Page 11 of 28of the compromise agreement and would deliver to petitioner 6,991 metric tons of molasses from 16-31 December 1991. However, NMC still failed to comply with its obligation under the compromise agreement. Hence, trial proceeded against respondent.

The trial court rendered a decision in favour of petitioner. On appeal, the Court of Appeals reversed the trial court’s decision holding that petitioner does not have the capacity to file this suit since it is a foreign corporation doing business in the Philippines without the requisite license. The Court of Appeals held that petitioners purchases of molasses were in pursuance of its basic business and not just mere isolated and incidental transactions. Hence, this petition.ISSUE: Whether the petitioner is doing or transacting business in the Philippines in contemplation of the law and established jurisprudenceRULING:

Under Article 123 of the Corporation Code, a foreign corporation must first obtain a license and a certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign corporation does business in the Philippineswithout the proper license, it cannot maintain any action or proceeding beforePhilippine courts as provided under Section 133 of the Corporation Code.The threshold question in this case is whether petitioner was doing business in the Philippines. Section 1 of Republic Act No. 5455 (RA 5455), provides that:x x x 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 respondent is relying on Section 133 of the Corporation Code to bar petitioner from maintaining an action in Philippine courts, respondent bears the burden of proving that petitioners business activities in the Philippines were not just casual or occasional, but so systematic and regular as to manifest continuity and permanence of activity to constitute doing business in the Philippines. In this case, we find that respondent failed to prove that petitioners activities in the Philippines constitute doing business as would prevent it from bringing an action.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;CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 12 of 283) 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; and8) 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. Activities within Philippine jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing business in the Philippines.The contract between petitioner and NMC involved the purchase of molasses by petitioner from NMC. It was NMC, the domestic corporation, which derived income from the transaction and not petitioner. To constitute doing business, the activity undertaken in the Philippines should involve profit-making.Furthermore, petitioner does not have an office in the Philippines nor does petitioner imports products from the Philippines through its non-exclusive local broker, whose authority to act on behalf of petitioner is limited to soliciting purchases of products from suppliers engaged in the sugar trade in the Philippines and the local broker is an independent contractor and not an agent of petitioner.

To be doing or transacting business in the Philippines for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license.Petitioner is a foreign company merely importing molasses from a Philippine exporter. A foreign company that merely imports goods from a Philippine exporter, without opening an office or appointing an agent in the Philippines, is not doing business in the Philippines.

THE MENTHOLATUM CO., INC., ET AL. v. ANACLETO MANGALIMAN, ET AL.G.R. No. L-47701, June 27, 1941The Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an action in the Court of First Instance of Manila, against Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair competition. They 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, that the Mentholatum Co., Inc., is a Kansas corporation which


Page 13 of 28manufactures 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.

The Court of First Instance of Manila rendered judgment in favor of the complainants.In the Court of Appeals, the decision of the trial court was reversed 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

ISSUE: Whether Mentholatum Corporation is or is not transacting business in the Philippines.RULING:

The High Court ruled in the affirmative. It is doing 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. 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. 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 Philippines of the Mentholatum Co., Inc., in the sale and distribution of its product known as the Mentholatum." 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, it cannot now, to the advantage of its principal, claim an independent standing in court.

ALFRED HAHN v. COURT OF APPEALS CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 14 of 28 G.R. No. 113074, January 22, 1997

Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On the other hand, PRIVATE RESPONDENT Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany.On March 7, 1967 petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney.” Per the agreement, the parties "continued business relations as has been usual in the past without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed interest in acquiring the same. On February 24, 1993, petitioner received confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive BMW dealer. Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate petitioner's exclusive dealership effective June 30, 1993. Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June 30, 1993.On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars and parts. Hahn, finding the proposal unacceptable, filed a complaint for specific performance and damages against BMW to compel it to continue the exclusive dealership. Later he filed an amended complaint to include an application for temporary restraining order and for writs of preliminary, mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive dealership.BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction over it through the service of summons on the Department of Trade and Industry, because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn was not its agent because the latter undertook to assemble and sell BMW cars and products without the participation of BMW and sold other products; and that Hahn was an indentor or middleman transacting business in his own name and for his own account.Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically inspected standards of service rendered by him; and that he was described in service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines.


Page 15 of 28The trial court deferred resolution of the Motion to dismiss until after trial on the merits for the reason that the grounds advanced by BMW in its motion did not seem to be indubitable.Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with the Court of Appeals. The CA ruled in favour of BMW holding that the latter is not doing business in the Philippines. It also hold that petitioner is not an agent of BMW.

ISSUES:1) Whether BMW is doing business in the Philippines2) Whether petitioner is an agent of BMWRULING:

What acts are considered "doing business in the Philippines" are enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: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 eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having, a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not when the representative or distributor "transacts business in its name and for its own account."The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW cars and products, BMW, a foreign corporation, is not considered doing business in the Philippines within the meaning of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW).The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts with individuals or entities interested in acquiring


Page 16 of 28BMW vehicles. Independence characterizes Hahn's undertakings, for which reason he is to be considered, under governing statutes, as doing business."To the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the down payment and pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed the orders by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services, including, warranty services, for which he received reimbursement from BMW. All orders were on invoices and forms of BMW.

Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.As to the service centers and showrooms which he said he had put up at his own expense, Hahn said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to Hahn, BMW periodically inspected the service centers to see to it that BMW standards were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW standards that BMW was terminating Hahn's dealership.The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce compliance with BMW standards and specifications.The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. This finding is based entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition for certiorari before the Court of Appeals. But this allegation was denied by Hahn and therefore the Court of Appeals should not have cited it as if it were the fact.It is not true then that the question whether BMW is doing business could have been resolved simply by considering the parties' pleadings. There are genuine issues of facts which can only be determined on the basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it to go to trial would be to deny its right not to submit to the jurisdiction of the trial court which precisely it denies. Rule 16, 3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if the ground on which the motion is based does not appear to be indubitable. Here the record of the case bristles with factual issues and it is not at all clear whether some allegations correspond to the proof.As such, the SC held that the decision of the Court of Appeals is REVERSED and the case is REMANDED to the trial court for further proceedings.


Page 17 of 28N.V. REEDERIJ "AMSTERDAM" and ROYAL INTEROCEAN LINES v. COMMISSIONER OF INTERNAL REVENUEG.R. No. L-46029, June 23, 1988

M.V. Amstelmeer and MV "Amstelkroon," are vessels of petitioner N.B. Reederij "AMSTERDAM," called on Philippine ports to load cargoes for foreign destination. The freight fees for these transactions were paid abroad in the amount of US $98,175.00 in 1963 and US $137,193.00 in 1964. In these two instances, petitioner Royal Interocean Lines acted as husbanding agent for a fee or commission on said vessels. No income tax appears to have been paid by petitioner N.V. Reederij "AMSTERDAM" on the freight receipts.Respondent Commissioner of Internal Revenue, through his examiners, filed the corresponding income tax returns for and in behalf of the former. Respondent Commissioner assessed said petitioner in the amounts of P193,973.20 and P262,904.94 as deficiency income tax for 1963 and 1964, respectively, as "a non-resident foreign corporation not engaged in trade or business in the Philippines under Section 24 (b) (1) of the Tax Code.On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, on August 28, 1967, petitioner Royal Interocean Lines filed an income tax return of the aforementioned vessels. On the same two dates, petitioner Royal Interocean Lines as the husbanding agent of petitioner N.V. Reederij "AMSTERDAM" filed a written protest against the abovementioned assessment made by the respondent Commissioner which protest was denied by said respondent. Petitioners then filed a petition for review with the respondent Court of Tax Appeals praying for the cancellation of the subject assessment. After due hearing, the respondent court rendered a decision modifying said assessments by eliminating the 50% fraud compromise penalties imposed upon petitioners. Petitioners filed a motion for reconsideration of said decision but this was denied by the respondent court.

ISSUE: Whether N.V. Reederij "AMSTERDAM" not having any office or place of business in the Philippines, whose vessels called on the Philippine ports for the purpose of loading cargoes only twice-one in 1963 and another in 1964 — should be taxed as a foreign corporation not engaged in trade or business in the Philippines or should be taxed as a foreign corporation engaged in trade or business in the PhilippinesRULING:

N.V. Reederij "AMSTERDAM" is a foreign corporation not authorized or licensed to do business in the Philippines. It does not have a branch office in the Philippines and it made only two calls in Philippine ports, one in 1963 and the other in 1964. In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous. A casual business activity in the Philippines by a foreign corporation, as in the present case, does not amount to engaging in trade or business in the Philippines for income tax purposes.A foreign corporation doing business in the Philippines is taxable on income solely from sources within the Philippines, it is permitted to deductions from gross income but only to the extent connected with income earned in the Philippines. On the other hand,


Page 18 of 28foreign corporations not doing business in the Philippines are taxable on income from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities Compensations, remunerations, emoluments, or other fixed or determinable annual or periodical or casual gains, profits and income and capital gains" The tax is 30% (now 35%) of such gross income.

Petitioner N.V. Reederij "Amsterdam" is a non-resident foreign corporation, organized and existing under the laws of The Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines. As a non-resident foreign corporation, it is thus a foreign corporation, not engaged in trade or business within the Philippines and not having any office or place of business therein. As stated above, it is therefore taxable on income from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical or casual gains, profits and income and capital gains, and the tax is equal to thirty per centum of such amount, under Section 24(b) (1) of the Tax Code. The accent is on the words of--`such amount." Accordingly, petitioner N. V. Reederij "Amsterdam" being a non-resident foreign corporation, its taxable income for purposes of our income tax law consists of its gross income from all sources within the Philippines.FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION v. NANKAI KOGYO CO. LTD., ET AL. G.R. No. L-13525, November 30, 1962

The Far East International Import & Export Corporation (FAR EAST), organized under Philippine Laws, entered into a Contract of Sale of Steel Scrap with the Nankai Kogyo Co., Ltd. (NANKAI), a foreign corporation organized under Japanese Laws with address at Osaka, Japan. The buyer signed in Japan and the seller in Manila, Philippines.Upon perfection of the contract and after having been informed of the readiness to ship and that the Export License was to expire on March 18, 1957,Nankai opened a letter for credit with the China Banking Corporation, issued by the Nippon Kangyo, Ltd., Tokyo, Japan. Four (4) days before the expiration of the Far East licence, three (3) boats sent by Nankai arrived in the Philippines, one to load in Manila, the other two at Poro Point, San Fernando, La Union, and Tacloban, Leyte, respectively. Upon the expiration of the export license, only 1,058.6 metric tons of scrap steel was loaded on the SS Mina (loading in Manila). The loading was accordingly stopped. The boat at Poro Point was also unloaded of the 200 metric tons, for the same reason. An agreement was reached wherby the Far East would seek an extension of the license. However, the untimely death of President Magsaysay and the taking over by President Garcia changed the picture, for the latter and/or his agents refused to extend the license. The two boats sailed to Japan without any cargo, the third (SS Mina) only 1,058.6 metric tons.Nankai confirmed and acknowleged delivery of the 1,058.6 metric tons of steel scrap, but asked for damages consisting of dead freight charges, damages, bank charges, phone and cable expenses.Far East then wrote to Everett Steamship Corporation, requesting the issuance of a complete set of the Bill of Lading for the shipment, in order that payment thereof be effected against the Letter of Credit. Everett informed Far East that they were not in a


Page 19 of 28position to comply because the Bill of Lading was issued and signed in Tokyo by the Master of the boat, upon request of the Charterer (Nankai).

As repeated requests, both against the shipping agent and the buyers (Nankai), for the issuance of the of Bill Lading were ignored, Far East filed the present complaint for Specific Performance, damages, a writ of preliminary mandatory injunction directed against Nankai and the shipping company, to issue and deliver to the plaintiff, a complete set of the Bill of Lading for the 1,058.6 metric tons of scrap and a writ of preliminary injunction against the China Banking Corporation and the Nankai to maintain the Letter of Credit.A motion to file amended complaint was filed by Far East alleging that defendant is doing business in the Philippines with office address at R-517 Luneta Hotel, Manila, represented by Mr. Issei Ishida and Mr. Tominaga. The same was denied.The lower court rendered judgment absolving, defendants Everett Steamship Company and China Banking Corporation from liability and denied the claim for damages, both actual and moral, of the parties; found that the question of jurisdiction over the person of defendant and the subject matter has become moot and rendered judgment in favour of Far East.

ISSUE: Whether the trial court acquired jurisdiction over the subject matter and over the person of Nankai.Nankai contends that Philippine Courts have no jurisdiction to take cognizance of the case because it is not doing business in the Philippines; and that while it has entered into the transaction in question it does not constitute "doing business", so as to make it amenable to summons and subject it to the Court's jurisdiction. It bolstered this claim by a provision in the contract which provides that "In case of disputes, Board of Arbitration may be formed in Japan. Decision of the Board of Arbitration shall be final and binding on both BUYER and SELLER.RULING:

The High Court ruled in the afirmative. The trial court has jurisdiction over the subject matter and over the person of Nankai.SEC. 14. Service upon private foreign corporations. — If the defendant is a foreign corporation, or a non-resident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any officer or agent within the Philipines. (Rule 7)The plaintiff complied with the third stated above, for it has been shown that Mr. Ishida, who personally signed the contract for the purchase of the scrap in question in behalf of the Nankai Kogyo, the Trade Manager of said Company, Mr. Tominaga the Chief of the Petroleum Section of the same company and Mr. Yoshida was the man-in-charge of the Import Section of the company's Tokyo Branch. All these three, including the first two who were served with Summons, were officers of the defendant company.


Page 20 of 28Not only did appellant allege non-jurisdictional grounds in its pleadings to have the complaint dismissed, but it also went into trial on the merits and presented evidence destined to resist appellee's claim. Verily, there could not be a better situation of acquired jurisdiction based on consent. Consequently, the provision of the contract wherein it was agreed that disputes should be submitted to a Board of Arbitration which may be formed in Japan, seems to have been waived with appellant's voluntary submission. Apart from the fact that the clause employs the word "may".Appellant's defense of lack of jurisdiction because it was not doing business in the Philippines is NOT correct. The testimony of Atty. Pablo Ocampo that appellant was doing business in the Philippines corroborated by no less than Nabuo Yoshida, one of appellant's officers, that he was sent to the Philippines by his company to look into the operation of mines, thereby revealing the defendant's desire to continue engaging in business here, after receiving the shipment of the iron under consideration, making the Philippines a base thereof.

PACIFIC MICRONISIAN LINES vs. DEL ROSARIOG.R. No. L-7154, October 23, 1954Consonant with the general doctrine that the doing of business imports the engagement by a foreign corporation in some continuing activity in the state, or the transaction of some substantial part of its ordinary business there, it is a generally accepted rule that single or isolated acts, contracts, or transactions of such corporations in the state will not ordinarily be regarded as a doing or carrying on of business therein, even though they may be said to fall within the usual or customary business of the corporation.

On September 2, 1952, for the death of her husband, Luceno Pelingong, Alfonsa Pelingon filed a claim for compensation for herself and her two minor children, because of the death of her husband, with the Workmen's Compensation Commission against the Luzon Stevedoring Co., Inc. She resorted to the WCC because Luzon Stevedoring refused to entertain her claim on the ground that it was not the employer of the deceased.On September 17, 1952, the WCC, believing that the Pacific Far East Line, Inc., a foreign corporation licensed to do business in the Philippines, was an agent of Pacific Micronisian Lines, with authority to receive service of process, served notice of the claim on an official of said foreign corporation who in turn forwarded the notice to Pacific Micronisian Lines.On October 10, 1952, Pacific Micronisian Lines filed a special appearance with the WCC for the sole purpose of asking for the dismissal of the claim on the ground that the Commission had no jurisdiction over it because it is a foreign corporation not domiciled in this country, it is not licensed to engage and is not engaging in business therein, has no office in the Philippines, and is not represented by any agent authorized to receive summons or any other judicial process in its name and behalf.On October 25, 1952, the referee assigned to act on the claim by the Workmen's Compensation Commission entered an order holding that the WCC has acquired jurisdiction to hear and determine the compensation claim of the widow, Alfonsa Pelingon, against the Pacific Micronisian Lines.


Page 21 of 28The respondents contend that: Pacific Micronisian Lines, in entering into a contract of employment with the deceased through a local agent, has impliedly submitted itself to the jurisdiction of our courts; even granting that the two domestic corporations employed by Pacific Micronisian Lines in connection with the contract of employment were never authorized to act as its agents in the Philippines, the fact that it allowed them to act as though they had power to represent it makes petitioner liable under the contract of employment with the deceased; and Pacific Micronisian Lines may be considered as having engaged in business in the Philippines because the contract of employment entered into by it with the deceased was in furtherance of its ordinary business as common carrier.

ISSUE: Whether the WCC has jurisdiction over Pacific Micronisian Lines. RULING:

The WCC has no jurisdiction over Pacific Micronisian Lines.In arriving at this decision, the Court determined the meaning, extent and the scope of the words “doing business”.The authorities are to the effect that where the corporation enters into a single agreement, or engages in some other isolated business act or transaction within a particular state, with no intention to repeat the same or make such state a basis for the conduct of any part of its corporate business, such corporation cannot be said to be doing business or transacting business within the State, within the meaning of the actual statutory provisions regarding the transaction of business by foreign corporations.Consonant with the general doctrine that the doing of business imports the engagement by a foreign corporation in some continuing activity in the state, or the transaction of some substantial part of its ordinary business there, it is a generally accepted rule that single or isolated acts, contracts, or transactions of such corporations in the state will not ordinarily be regarded as a doing or carrying on of business therein, even though they may be said to fall within the usual or customary business of the corporation.In order that a foreign corporation may be regarded as doing business within s State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character.In this case, Pacific Micronisian Lines is a corporation exclusively engaged in the business of carrying goods and passengers by sea between the territory of Guam and the Trust Territories of the Pacific Islands and for that purpose it was operating a fleet of vessels plying between those ports or territories. It has no property or office in the Philippines, nor is it licensed to do business in the Philippines. And the only act it did here was to secure the services of Luceno Pelingon to act as cook and chief steward in one of its vessels, authorizing to that effect the Luzon Stevedoring Co., Inc. a domestic corporation, and the contract of employment was entered into on July 18, 1951.It further appears that Pacific Micronisian Lines has never sent its ships to the Philippines, nor has it transported nor even solicited the transportation or passengers or cargoes to and from the Philippines. In other words, petitioner engaged the services of


Page 22 of 28Pelingon not as part of the operation of its business but merely to employ him as member of the crew in one of its ships. That act apparently is an isolated one, incidental, or casual, and "not of a character to indicate a purpose to engage in business" within the meaning of the rule. It follows that, even if the Luzon Stevedoring Co., Inc. may be considered as an agent of petitioner for the purpose of the contract of employment, service or process upon it cannot confer jurisdiction upon the Workmen's Compensation Commission because of the fact that petitioner is not doing business in the Philippines. COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION, UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and WARNER BROTHERS, INC vs. COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIOG.R. No. 110318 August 28, 1996

The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. However, under the aforequoted provision, no foreign corporation shall be permitted to transact business in the Philippines, as this phrase is understood under the Corporation Code, unless it shall have the license required by law, and until it complies with the law in transacting business here, it shall not be permitted to maintain any suit in local courts.Petitioners lodged a formal complaint with the National Bureau of Investigation for violation of PD No. 49 (Decree on the Protection of Intellectual Property), and sought its assistance in their anti-film piracy drive.Agents of the NBI and private researchers made discreet surveillance on various video establishments in Metro Manila including Sunshine Home Video Inc., owned and operated by Danilo A. Pelindario.On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a search warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated video tapes of copyrighted films; and, television sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of videograms tapes in the premises above described.The search warrant was issued. It was served on December 14, 1987 and the NBI were able to seize the items indicated.A "Motion To Lift the Order of Search Warrant" was filed but was later denied for lack of merit. A Motion for reconsideration of the Order of denial was filed. The court granted the said motion for reconsideration.On appeal to the Court of Appeals by the Petitioners assailing the motion granted by the lower court, the Private Respondents challenged their legal standing in courts, they being foreign corporations not licensed to do business in the Philippines.According to the Private Respondents, since Petitioners are doing business in the Philippines in fact, they should have first acquired a license to do business in order for them to have legal standing in court. Private Respondents enumerated the following acts


Page 23 of 28of the Petitioners as tantamount to doing business in the Philippines: they are the copyright owners or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures or films, and also to the appointment of Atty. Rico V. Domingo as their attorney-in-fact in the case.

Petitioners, on the other hand, deny that they are doing business in the Philippines.The Court of Appeals denied the Petition. Hence, the Petitioners went to the Supreme Court.

ISSUE: Whether the petitioners have legal standing to maintain an action against private respondentsRULING:

Petitioners have legal standing to maintain an action against private respondents. They are not doing business in the Philippines therefore they do not need a license to do business before they can file an action in court.The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. However, under the aforequoted provision, no foreign corporation shall be permitted to transact business in the Philippines, as this phrase is understood under the Corporation Code, unless it shall have the license required by law, and until it complies with the law in transacting business here, it shall not be permitted to maintain any suit in local courts.As thus interpreted, any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action, provided that the subject matter and the defendant are within the jurisdiction of the court.It is not the absence of the prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation from access to our courts. In other words, although a foreign corporation is without license to transact business in the Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in business in the Philippines.It is recognized that a foreign corporation is "doing," "transacting," "engaging in," or "carrying on" business in the State when, and ordinarily only when, it has entered the State by its agents and is there engaged in carrying on and transacting through them some substantial part of its ordinary or customary business, usually continuous in the sense that it may be distinguished from merely casual, sporadic, or occasional transactions and isolated acts.Based on Article 133 of the Corporation Code and gauged by such statutory standards, petitioners are not barred from maintaining the present action. There is no showing that, under our statutory or case law, petitioners are doing, transacting, engaging in or carrying on business in the Philippines as would require obtention of a license before they can seek redress from our courts. No evidence has been offered to


Page 24 of 28show that petitioners have performed any of the enumerated acts or any other specific act indicative of an intention to conduct or transact business in the Philippines.

The fact that petitioners are admittedly copyright owners or owners of exclusive distribution rights in the Philippines of motion pictures or films does not convert such ownership into an indicium of doing business which would require them to obtain a license before they can sue upon a cause of action in local courts. Neither is the appointment of Atty. Rico V. Domingo as attorney-in-fact of petitioners, with express authority pursuant to a special power of attorney, tantamount to doing business in the Philippines. We fail to see how exercising one's legal and property rights and taking steps for the vigilant protection of said rights, particularly the appointment of an attorney-in-fact, can be deemed by and of themselves to be doing business here.The Court further noted that the ground available for barring recourse to our courts by an unlicensed foreign corporation doing or transacting business in the Philippines should properly be "lack of capacity to sue," not "lack of personality to sue."

B. VAN ZUIDEN BROS., LTD., v. GTVL MANUFACTURING INDUSTRIES, INC.,G.R. No. 147905, May 28, 2007, CARPIO, J.:Petitioner filed a complaint for sum of money against respondent. ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. ZUIDEN is not engaged in business in the Philippines, but is suing before the Philippine Courts, for the reasons hereinafter stated. ZUIDEN is engaged in the importation and exportation of several products, including lace products. On several occasions, GTVL purchased lace products from ZUIDEN. The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers the products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd. (KENZAR), and the products are then considered as sold, upon receipt by KENZAR of the goods purchased by GTVL. KENZAR had the obligation to deliver the products to the Philippines and/or to follow whatever instructions GTVL had on the matter. Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong Kong, the transaction is concluded; and GTVL became obligated to pay the agreed purchase price. However, commencing October 31, 1994 up to the present, GTVL has failed and refused to pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN, as above-mentioned. In spite demands and of promises to pay and/or admissions of liability, GTVL has failed and refused, and continues to fail and refuse, to pay the overdue amount of U.S.$32,088.02 inclusive of interest. Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines without securing the required license. Accordingly, petitioner cannot sue before Philippine courts.After an exchange of several pleadings between the parties, the trial court issued an Order dismissing the complaint. On appeal, the Court of Appeals sustained the trial court’s dismissal of the complaint.


Page 25 of 28ISSUES: 1) Whether petitioner is doing business in the Philippines.2) Whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts. RULING:

The High Court ruled in the negative. Under Section 3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign Investments Act of 1991," the phrase "doing business" includes: x x x soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.The series of transactions between petitioner and respondent cannot be classified as "doing business" in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as "doing business" in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. Here, there is no showing that petitioner performed within the Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and respondent entered into a series of transactions implying a continuity of commercial dealings, the perfection and consummation of these transactions were done outside the Philippines.The series of transactions between petitioner and respondent transpired and were consummated in Hong Kong. The High Court also finds no single activity which petitioner performed here in the Philippines pursuant to its purpose and object as a business organization. Moreover, petitioner’s desire to do business within the Philippines is not discernible from the allegations of the complaint or from its attachments. Therefore, there is no basis for ruling that petitioner is doing business in the Philippines.An exporter in one country may export its products to many foreign importing countries without performing in the importing countries specific commercial acts that would constitute doing business in the importing countries. The mere act of exporting from one’s own country, without doing any specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing country. The


Page 26 of 28importing country does not acquire jurisdiction over the foreign exporter who has not performed any specific commercial act within the territory of the importing country. Without jurisdiction over the foreign exporter, the importing country cannot compel the foreign exporter to secure a license to do business in the importing country.

Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by the importing countries to be doing business in those countries. This will require Philippine exporters to secure a business license in every foreign country where they usually export their products, even if they do not perform any specific commercial act within the territory of such importing countries. Such a legal concept will have a deleterious effect not only on Philippine exports, but also on global trade.To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license.The High Court ruled in the affirmative. The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the Philippines can sue before Philippine courts. Considering that petitioner is not doing business in the Philippines, it does not need a license in order to initiate and maintain a collection suit against respondent for the unpaid balance of respondent’s purchases.

MERRILL LYNCH FUTURES, INC., vs. COURT OF APPEALSG.R. No. 97816, July 24, 1992, NARVASA, C.J.:Merrill Lynch Futures, Inc. (ML FUTURES) filed a complaint with the Regional Trial Court at Quezon City against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and attorney's fees. 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: a) that on September 28, 1983 it entered into a Futures Customer Agreement with the defendant spouses, in virtue of which it agreed to act as the latter's broker for the purchase and sale of futures contracts in the U.S.;b) 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 plaintiffs customers;


Page 27 of 28c) that from the outset, the Lara Spouses "knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts," and that it "did not have a license from the Securities and Exchange Commission to operate as a commodity trading advisor (i.e., 'an entity which, not being a broker, furnishes advice on commodity futures to persons who trade in futures contracts');d) that in line with the above mentioned agreement and through said Merrill Lynch Philippines, Inc., the Lara Spouses actively traded in futures contracts, including "stock index futures" for four years or so, i.e., from 1983 to October, 1987, there being more or less regular accounting and corresponding remittances of money (or crediting or debiting) made between the spouses and ML FUTURES;e) that because of a loss amounting to US$160,749.69 incurred in respect of three (3) transactions involving "index futures," and after setting this off against an amount of US$75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses became indebted to ML FUTURES for the ensuing balance of US$84,836.27, which the latter asked them to pay;f) that the Lara Spouses however refused to pay this balance, "alleging that the transactions were null and void because Merrill Lynch Philippines, Inc., the Philippine company servicing accounts of plaintiff, . . had no license to operate as a 'commodity and/or financial futures broker.'"

On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment against defendant spouses' properties "up to the value of at least P2,267,139.50," and (2) for judgment, after trial, sentencing the spouses to pay ML FUTURES: (a) the Philippine peso equivalent of $84,836.27 at the applicable exchanged rate on date of payment, with legal interest from date of demand until full payment; (b) exemplary damages in the sum of at least P500,000.00; and( c) attorney's fees and expenses of litigation as may be proven at the trial.Preliminary attachment issued ex parte on, and the defendant spouses were duly served with summons. They then filed a motion to dismiss dated December 18, 1987 on the grounds that: (a) plaintiff ML FUTURES had "no legal capacity to sue" and (b) its "complaint states no cause of action since it is not the real party in interest."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. ML FUTURES appealed to the Court of Appeals. In its own decision, the Court of Appeals affirmed the Trial Court's judgment.

ISSUE: 1) Whether ML FUTURES was doing business in the Philippines without license. 2) Whether – in light of the fact that the Laras were fully aware of its lack of license to do business in the Philippines, and in relation to those transactions had made payments to, and received money from it for several years –the Lara Spouses are estopped to impugn ML FUTURES capacity to sue them in the courts of the forum. RULING:

The High Court ruled in the affirmative. The facts on record adequately establish that ML FUTURES, operating in the United States, had indeed done business with the CORPORATION LAW OF THE PHILIPPINES (Batas Pambansa Blg. 68)

Page 28 of 28Lara 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 High Court has cited no circumstance to warrant reversal of the Court of Appeal'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.

The High Court ruled in the affirmative. 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.-o0o-


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