HUTCHISON PORTS PHILIPPINES LIMITED, petitioner, vs.

SUBIC BAY METROPOLITAN AUTHORITY,

INTERNATIONAL CONTAINER TERMINAL SERVICES INC., ROYAL PORT SERVICES INC. and the EXECUTIVE
SECRETARY, respondents.

DECISION

YNARES-SANTIAGO, J.:

On February 12, 1996, the Subic Bay Metropolitan Authority (or SBMA) advertised in leading national
daily newspapers and in one international publication, [1] an invitation offering to the private sector the
opportunity to develop and operate a modern marine container terminal within the Subic Bay Freeport
Zone. Out of seven bidders who responded to the published invitation, three were declared by the
SBMA as qualified bidders after passing the pre-qualification evaluation conducted by the SBMAs
Technical Evaluation Committee (or SBMA-TEC).These are: (1) International Container Terminal
Services, Inc. (or ICTSI); (2) a consortium consisting of Royal Port Services, Inc. and HPC Hamburg Port
Consulting GMBH (or RPSI); and (3) Hutchison Ports Philippines Limited (or HPPL), representing a
consortium composed of HPPL, Guoco Holdings (Phils.), Inc. and Unicol Management Services, Inc. All
three qualified bidders were required to submit their respective formal bid package on or before July 1,
1996 by the SBMAs Pre-qualification, Bids and Awards Committee (or SBMA-PBAC).

Thereafter, the services of three (3) international consultants [2] recommended by the World Bank for
their expertise were hired by SBMA to evaluate the business plans submitted by each of the bidders,
and to ensure that there would be a transparent and comprehensive review of the submitted bids. The
SBMA also hired the firm of Davis, Langdon and Seah Philippines, Inc. to assist in the evaluation of the
bids and in the negotiation process after the winning bidder is chosen. All the consultants, after such
review and evaluation unanimously concluded that HPPLs Business Plan was far superior to that of the
two other bidders.[3]

However, even before the sealed envelopes containing the bidders proposed royalty fees could be
opened at the appointed time and place, RPSI formally protested that ICTSI is legally barred from
operating a second port in the Philippines based on Executive Order No. 212 and Department of
Transportation and Communication (DOTC) Order 95-863. RPSI thus requested that the financial bid of
ICTSI should be set aside.[4]

Nevertheless, the opening of the sealed financial bids proceeded under advisement relative to the
protest signified by RPSI. The financial bids, more particularly the proposed royalty fee of each bidder,
was as follows:

ICTSI ------------US$57.80 TEU

HPPL ------------US$20.50 TEU

RPSI -------------US$15.08 TEU

The SBMA-PBAC decided to suspend the announcement of the winning bid, however, and instead gave
ICTSI seven (7) days within which to respond to the letter-protest lodged by RPSI. The HPPL joined in
RPSIs protest, stating that ICTSI should be disqualified because it was already operating the Manila
International Container Port (or MICP), which would give rise to inevitable conflict of interest between
the MICP and the Subic Bay Container Terminal facility. [5]

On August 15, 1996, the SBMA-PBAC issued a resolution rejecting the bid of ICTSI because said bid
does not comply with the requirements of the tender documents and the laws of the Philippines. The
said resolution also declared that:

RESOLVED FURTHER, that the winning bid be awarded to HUTCHISON PORTS PHILIPPINES
LIMITED (HPPL) and that negotiations commence immediately with HPPL (HUTCHISON) with a view to
concluding an acceptable agreement within 45 days of this date failing which negotiations with RPSI
(ROYAL) will commence with a view to concluding an acceptable agreement within 45 days thereafter
failing which there will be declared a failure of bids. [6] (Underscoring supplied)

The following day, ICTSI filed a letter-appeal with SBMAs Board of Directors requesting the nullification
and reversal of the above-quoted resolution rejecting ICTSIs bid while awarding the same to HPPL. But
even before the SBMA Board could act on the appeal, ICTSI filed a similar appeal before the Office of
the President.[7] On August 30, 1996, then Chief Presidential Legal Counsel (CPLC) Renato L. Cayetano
submitted a memorandum to then President Fidel V. Ramos, containing the following
recommendations:

We therefore suggest that the President direct SBMA Chairman Gordon to consider option number 4
that is to re-evaluate the financial bids submitted by the parties, taking into consideration all the
following factors:

1. Reinstate ICTSIs bid;

2. Disregard all arguments relating to monopoly;

3. The re-evaluation must be limited to the parties financial bids.

3.1 Considering that the parties business have been accepted (passed), strictly follow the criteria for
bid evaluation provided for in pars. (c) and (d), Part B (1) of the Tender Document.

4. In the re-evaluation, the COA should actively participate to determine which of the financial bids is
more advantageous.

5. In addition, all the parties should be given ample opportunity to elucidate or clarify the
components/justification for their respective financial bids in order to ensure fair play and transparency
in the proceedings.

6. The Presidents authority to review the final award shall remain. [8] (Underscoring supplied)

The recommendation of CPLC Cayetano was approved by President Ramos, and a copy of President
Ramos handwritten approval was sent to the SBMA Board of Directors. Accordingly, the SBMA Board,
with the concurrence of representatives of the Commission on Audit, agreed to focus the reevaluation
of the bids in accordance with the evaluation criteria and the detailed components contained in the
Tender Document, including all relevant information gleaned from the bidding documents, as well as
the reports of the three international experts and the consultancy firm hired by the SBMA.

On September 19, 1996, the SBMA Board issued a Resolution, declaring:

NOW, THEREFORE, IT IS HEREBY RESOLVED that the bid that conforms to the Invitation to Tender, that
has a realistic Business Plan offering the greatest financial return to SBMA, the best possible offer and
the most advantageous to the government is that of HPPL and HPPL is accordingly selected as the
winning bidder and is hereby awarded the concession for the operation and development of the Subic
Bay Container Terminal.[9] (Underscoring supplied)

In a letter dated September 24, 1996, the SBMA Board of Directors submitted to the Office of the
President the results of the re-evaluation of the bid proposals, to wit:

SBMA, through the unanimous vote of all the Board Members, excluding the Chairman of the Board
who voluntarily inhibited himself from participating in the re-evaluation, selected the HPPL bid as the
winning bid, being: the conforming bid with a realistic Business Plan offering the greatest financial
return to the SBMA; the best possible offer in the market, and the most advantageous to the
government in accordance with the Tender Document. [10]

Notwithstanding the SBMA Boards recommendations and action awarding the project to HPPL, then
Executive Secretary Ruben Torres submitted a memorandum to the Office of the President
recommending that another rebidding be conducted.[11] Consequently, the Office of the President
issued a Memorandum directing the SBMA Board of Directors to refrain from signing the Concession
Contract with HPPL and to conduct a rebidding of the project. [12]

In the meantime, the Resident Ombudsman for the DOTC filed a complaint against members of the
SBMA-PBAC before the Office of the Ombudsman for alleged violation of Section 3(e) of Republic Act
No. 3019 for awarding the contract to HPPL. On April 16, 1997, the Evaluation and Preliminary
Investigation Bureau of the Office of the Ombudsman issued a Resolution absolving the members of
the SBMA-PBAC of any liability and dismissing the complaint against them, ruling thus:

After an assiduous study of the respective contentions of both parties, we are inclined to hold, as it is
hereby held, that there is no proof on record pinpointing respondents to have acted in excess of their
discretion when they awarded the bid to HPPL. Records revealed that respondents, in the exercise of
their discretion in determining the financial packages offered by the applicants, were guided by the
expert report of Davis, Langdon and Seah (DLS) that fairly evaluated which of the bidders tender the
greatest financial return to the government. There is no showing that respondents had abused their
prerogatives. As succinctly set forth in the DLS report it stated, among others, that, in assessing the
full financial return to SBMA offered by the bidders, it is necessary to consider the following critical
matters:

1. Royalty fees

2. Volume of TEUs as affected by:

a. Tariff rates;

b. Marketing strategy;

c. Port facilities; and

d. Efficient reliable services.

With the preceding parameters for the evaluation of bidders business plan, the respondents were fairly
guided by, as they aligned their judgment in congruence with, the opinion of the panel of experts and
the SBMAs Technical Evaluation Committee to the effect that HPPLs business is superior while that of
ICTSIs appeared to be unrealistically high which may eventually hinder the competitiveness of the
SBMA port with the rest of the world. Respondents averred that the panel of World Bank experts noted
that ICTSIs high tariff rates at U.S. $119.00 per TEU is already higher by 37% through HPPL, which
could further increase by 20% in the first two (2) years and by 5% hike thereafter. In short, high tariffs
would discourage potential customers which may be translated into low cargo volume that will
eventually reduce financial return to SBMA. Respondents asserted that HPPLs business plan offers the
greatest financial return which could be equated that over the five years, HPPL offers 1.25 billion pesos
while ICTSI offers P0.859 billion, and RPSI offers P.420 billion. Over the first ten years HPPL gives
P2.430 billion, ICTSI tenders P2.197 billion and RPSI has P1.632 billion.

Viewed from this perspective alongside with the evidence on record, the undersigned panel does not
find respondents to have exceeded their discretion in awarding the bid to HPPL. Consequently, it could
not be said that respondents act had placed the government at a grossly disadvantageous plight that
could have jeopardized the interest of the Republic of the Philippines. [13]

On July 7, 1997, the HPPL, feeling aggrieved by the SBMAs failure and refusal to commence
negotiations and to execute the Concession Agreement despite its earlier pronouncements that HPPL
was the winning bidder, filed a complaint [14] against SBMA before the Regional Trial Court (RTC) of
Olongapo City, Branch 75, for specific performance, mandatory injunction and damages. In due time,
ICTSI, RPSI and the Office of the President filed separate Answers-in-Intervention [15] to the complaint
opposing the reliefs sought by complainant HPPL.

Complainant HPPL alleged and argued therein that a binding and legally enforceable contract had been
established between HPPL and defendant SBMA under Article 1305 of the Civil Code, considering that
SBMA had repeatedly declared and confirmed that HPPL was the winning bidder. Having accepted
HPPLs offer to operate and develop the proposed container terminal, defendant SBMA is duty-bound to
comply with its obligation by commencing negotiations and drawing up a Concession Agreement with
plaintiff HPPL. HPPL also pointed out that the bidding procedure followed by the SBMA faithfully
complied with existing laws and rules established by SBMA itself; thus, when HPPL was declared the
winning bidder it acquired the exclusive right to negotiate with the SBMA. Consequently, plaintiff HPPL
posited that SBMA should be: (1) barred from conducting a re-bidding of the proposed project and/or
performing any such acts relating thereto; and (2) prohibited from negotiating with any party other
than plaintiff HPPL until negotiations between HPPL and SBMA have been concluded or in the event
that no acceptable agreement could be arrived at. Plaintiff HPPL also alleged that SBMAs continued
refusal to negotiate the Concession Contract is a substantial infringement of its proprietary rights, and
caused damage and prejudice to plaintiff HPPL.

Hence, HPPL prayed that:

(1) Upon the filing of this complaint, hearings be scheduled to determine the propriety of plaintiffs
mandatory injunction application which seeks to order defendant or any of its appropriate officers or
committees to forthwith specify the date as well as to perform any and all such acts (e.g. laying the
ground rules for discussion) for the commencement of negotiations with plaintiff with the view to
signing at the earliest possible time a Concession Agreement for the development and operation of the
Subic Bay Container Terminal.

(2) Thereafter, judgment be rendered in favor of plaintiff and against defendant:

2.1. Making permanent the preliminary mandatory injunction it had issued;

2.2. Ordering defendant to implement the Concession Agreement it had executed with plaintiff in
respect of the development and operation of the proposed Subic Bay Container Terminal;

2.3. Ordering defendant to pay for the cost of plaintiffs attorneys fees in the amount of P500,000.00, or
as otherwise proven during the trial.

Plaintiff prays for other equitable reliefs.[16]

During the pre-trial hearing, one of the issues raised and submitted for resolution was whether or not
the Office of the President can set aside the award made by SBMA in favor of plaintiff HPPL and if so,
can the Office of the President direct the SBMA to conduct a re-bidding of the proposed project.

While the case before the trial court was pending litigation, on August 4, 1997, the SBMA sent notices
to plaintiff HPPL, ICTSI and RPSI requesting them to declare their interest in participating in a rebidding
of the proposed project.[17] On October 20, 1997, plaintiff HPPL received a copy of the minutes of the
pre-bid conference which stated that the winning bidder would be announced on December 5, 1997.
[18]
Then on November 4, 1997, plaintiff HPPL learned that the SBMA had accepted the bids of ICTSI and
RPSI who were the only bidders who qualified.

In order to enjoin the rebidding while the case was still pending, plaintiff HPPL filed a motion for
maintenance of the status quo[19] on October 28, 1997. The said motion was denied by the court a
quo in an Order dated November 3, 1997, to wit:
Plaintiff maintains that by voluntarily participating in this proceedings, the defendant and the
intervenors have unqualifiedly agreed to submit the issue of the propriety, legality and validity of the
Office of the Presidents directive that the SBMA effect a rebidding of its concession contract or the
operation of the Subic Bay Container Terminal. As such, the status quo must be maintained in order not
to thwart the courts ability to resolve the issues presented. Further, the ethics of the profession require
that counsel should discontinue any act which tends to render the issues academic.

The Opposition is anchored on lack of jurisdiction since the issuance of a cease-and-desist order would
be tantamount to the issuance of a Temporary Restraining Order or a Writ of Injunction which this Court
cannot do in light of the provision of Section 21 of R.A. 7227 which states:

Section 21. Injunction and Restraining Order. The implementation of the projects for the conversion
into alternative productive uses of the military reservations are urgent and necessary and shall not be
restrained or enjoined except by an order issued by the Supreme Court of the Philippines.

During the hearing on October 30, 1997, SBMAs counsel revealed that there is no law or administrative
rule or regulation which requires that a bidding be accomplished within a definite time frame.

Truly, the matter of the deferment of the re-bidding on November 4, 1997 rests on the sound discretion
of the SBMA. For this Court to issue a cease-and-desist order would be tantamount to an issuance of a
Temporary Restraining Order or a Writ of Preliminary Injunction. (Prado v. Veridiano II, G.R. No. 98118,
December 6, 1991).

The Court notes that the Office of the President has not been heard fully on the issues. Moreover, one
of the intervenors is of the view that the issue of jurisdiction must be resolved first, ahead of all the
other issues.

WHEREFORE, and viewed from the foregoing considerations, plaintiffs motion is DENIED.

SO ORDERED.[20] (Underscoring supplied)

Hence, this petition filed by petitioner (plaintiff below) HPPL against respondents SBMA, ICTSI, RPSI and
the Executive Secretary seeking to obtain a prohibitory injunction. The grounds relied upon by
petitioner HPPL to justify the filing of the instant petition are summed up as follows:

29. It is respectfully submitted that to allow or for this Honorable Court to otherwise refrain from
restraining SBMA, during the pendency of this suit, from committing the aforementioned act(s) which
will certainly occur on 5 December 1997 such action (or inaction) will work an injustice upon petitioner
which has validly been announced as the winning bidder for the operation of the Subic Bay Container
Terminal.

30. To allow or for this Honorable Court to otherwise refrain from restraining SBMA, during the
pendency of this suit, from committing the aforementioned threatened acts would be in violation of
petitioners rights in respect of the action it had filed before the RTC of Olongapo City in Civil Case No.
243-O-97, and could render any judgment which may be reached by said Court moot and
ineffectual. As stated, the legal issues raised by the parties in that proceedings are of far reaching
importance to the national pride and prestige, and they impact on the integrity of government
agencies engaged in international bidding of privatization projects. Its resolution on the merits by the
trial court below and, thereafter, any further action to be taken by the parties before the appellate
courts will certainly benefit respondents and the entire Filipino people. [21]

WHEREFORE, petitioner HPPL sought relief praying that:

a) Upon the filing of this petition, the same be given due course and a temporary restraining order
and/or writ of preliminary injunction be issuedex parte, restraining SBMA or any of its committees, or
other persons acting under its control or direction or upon its instruction, from declaring any winner
on 5 December 1997 or at any other date thereafter, in connection with the rebidding for the
privatization of the Subic Bay Container Terminal and/or for any, some or all of the respondents to
perform any such act(s) in pursuance thereof, until further orders from this Honorable Court;

b) After appropriate proceedings, judgment be rendered in favor of petitioner and against respondents
--

(1) Ordering SBMA to desist from conducting any rebidding or in declaring the winner of any such
rebidding in respect of the development and operation of the Subic Bay Container Terminal until the
judgment which the RTC of Olongapo City may render in Civil Case No. 243-O-97 is resolved with
finality;

(2) Declaring null and void any award which SBMA may announce or issue on 5 December 1997; and

(3) Ordering respondents to pay for the cost of suit.

Petitioner prays for other equitable reliefs.[22]

The instant petition seeks the issuance of an injunctive writ for the sole purpose of holding in abeyance
the conduct by respondent SBMA of a rebidding of the proposed SBICT project until the case for
specific performance is resolved by the trial court. In other words, petitioner HPPL prays that the status
quo be preserved until the issues raised in the main case are litigated and finally
determined. Petitioner was constrained to invoke this Courts exclusive jurisdiction and authority by
virtue of the above-quoted Republic Act 7227, Section 21.

On December 3, 1997, this Court granted petitioner HPPLs application for a temporary restraining
order enjoining the respondent SBMA or any of its committees, or other persons acting under its
control or direction or upon its instruction, from declaring any winner on December 5, 1997 or at any
other date thereafter, in connection with the rebidding for the privatization of the Subic Bay Container
Terminal and/or for any, some or all of the respondents to perform any such act or acts in pursuance
thereof.[23]

There is no doubt that since this controversy arose, precious time has been lost and a vital
infrastructure project has in essense been mothballed to the detriment of all parties involved, not the
least of which is the Philippine Government, through its officials and agencies, who serve the interest
of the nation. It is, therefore, imperative that the issues raised herein and in the court a quo be
resolved without further delay so as not to exacerbate an already untenable situation.

At the outset, the application for the injunctive writ is only a provisional remedy, a mere adjunct to the
main suit.[24] Thus, it is not uncommon that the issues in the main action are closely intertwined, if not
identical, to the allegations and counter allegations propounded by the opposing parties in support of
their contrary positions concerning the propriety or impropriety of the injunctive writ. While it is not our
intention to preempt the trial courts determination of the issues in the main action for specific
performance, this Court has a bounden duty to perform; that is, to resolve the matters before this
Court in a manner that gives essence to justice, equity and good conscience.

While our pronouncements are for the purpose only of determining whether or not the circumstances
warrant the issuance of the writ of injunction, it is inevitable that it may have some impact on the main
action pending before the trial court. Nevertheless, without delving into the merits of the main case,
our findings herein shall be confined to the necessary issues attendant to the application for an
injunctive writ.

For an injunctive writ to be issued, the following requisites must be proven:

First. That the petitioner/applicant must have a clear and unmistakable right.

Second. That there is a material and substantial invasion of such right.

Third. That there is an urgent and permanent necessity for the writ to prevent serious damage. [25]

To our mind, petitioner HPPL has not sufficiently shown that it has a clear and unmistakable right to be
declared the winning bidder with finality, such that the SBMA can be compelled to negotiate a
Concession Contract. Though the SBMA Board of Directors, by resolution, may have declared HPPL as
the winning bidder, said award cannot be said to be final and unassailable. The SBMA Board of
Directors and other officers are subject to the control and supervision of the Office of the President. All
projects undertaken by SBMA require the approval of the President of the Philippines under Letter of
Instruction No. 620, which places the SBMA under its ambit as an instrumentality, defined in Section 10
thereof as an agency of the national government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers,administering special funds, and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and government owned and
controlled corporations.[26] (Underscoring supplied)

As a chartered institution, the SBMA is always under the direct control of the Office of the President,
particularly when contracts and/or projects undertaken by the SBMA entail substantial amounts of
money. Specifically, Letter of Instruction No. 620 dated October 27, 1997 mandates that the approval
of the President is required in all contracts of the national government offices, agencies and
instrumentalities, including government-owned or controlled corporations involving two million pesos
(P2,000,000.00) and above, awarded through public bidding or negotiation. The President may, within
his authority, overturn or reverse any award made by the SBMA Board of Directors for justifiable
reasons. It is well-established that the discretion to accept or reject any bid, or even recall the award
thereof, is of such wide latitude that the courts will not generally interfere with the exercise thereof by
the executive department, unless it is apparent that such exercise of discretion is used to shield
unfairness or injustice. When the President issued the memorandum setting aside the award previously
declared by the SBMA in favor of HPPL and directing that a rebidding be conducted, the same was,
within the authority of the President and was a valid exercise of his prerogative. Consequently,
petitioner HPPL acquired no clear and unmistakable right as the award announced by the SBMA prior to
the Presidents revocation thereof was not final and binding.

There being no clear and unmistakable right on the part of petitioner HPPL, the rebidding of the
proposed project can no longer be enjoined as there is no material and substantial invasion to speak
of. Thus, there is no longer any urgent or permanent necessity for the writ to prevent any perceived
serious damage. In fine, since the requisites for the issuance of the writ of injunction are not present in
the instant case, petitioners application must be denied for lack of merit. [27]

Finally, we focus on the matter of whether or not petitioner HPPL has the legal capacity to even seek
redress from this Court. Admittedly, petitioner HPPL is a foreign corporation, organized and existing
under the laws of the British Virgin Islands. While the actual bidder was a consortium composed of
petitioner, and two other corporations, namely, Guoco Holdings (Phils.) Inc. and Unicol Management
Servises, Inc., it is only petitioner HPPL that has brought the controversy before the Court, arguing that
it is suing only on an isolated transaction to evade the legal requirement that foreign corporations
must be licensed to do business in the Philippines to be able to file and prosecute an action before
Philippines courts.

The maelstrom of this issue is whether participating in the bidding is a mere isolated transaction, or
did it constitute engaging in or transacting business in the Philippines such that petitioner HPPL
needed a license to do business in the Philippines before it could come to court.

There is no general rule or governing principle laid down as to what constitutes doing or engaging in or
transacting business in the Philippines. Each case must be judged in the light of its peculiar
circumstances.[28] Thus, it has often been held that a single act or transaction may be considered as
doing business when a corporation performs acts for which it was created or exercises some of the
functions for which it was organized. The amount or volume of the business is of no moment, for even
a singular act cannot be merely incidental or casual if it indicates the foreign corporations intention to
do business.[29]

Participating in the bidding process constitutes doing business because it shows the foreign
corporations intention to engage in business here. The bidding for the concession contract is but an
exercise of the corporations reason for creation or existence. Thus, it has been held that a foreign
company invited to bid for IBRD and ADB international projects in the Philippines will be considered as
doing business in the Philippines for which a license is required. In this regard, it is the performance by
a foreign corporation of the acts for which it was created, regardless of volume of business, that
determines whether a foreign corporation needs a license or not. [30]

The primary purpose of the license requirement is to compel a foreign corporation desiring to do
business within the Philippines to submit itself to the jurisdiction of the courts of the state and to
enable the government to exercise jurisdiction over them for the regulation of their activities in this
country.[31] If a foreign corporation operates a business in the Philippines without a license, and thus
does not submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to
invoke them in our courts when the need arises. While foreign investors are always welcome in this
land to collaborate with us for our mutual benefit, they must be prepared as an indispensable condition
to respect and be bound by Philippine law in proper cases, as in the one at bar. [32] The requirement of a
license is not intended to put foreign corporations at a disadvantage, for the doctrine of lack of
capacity to sue is based on considerations of sound public policy. [33] Accordingly, petitioner HPPL must
be held to be incapacitated to bring this petition for injunction before this Court for it is a foreign
corporation doing business in the Philippines without the requisite license.

WHEREFORE, in view of all the foregoing, the instant petition is hereby DISMISSED for lack of
merit. Further, the temporary restraining order issued on December 3, 1997 is LIFTED and SET
ASIDE. No costs.

SO ORDERED.

[G.R. No. 154618. April 14, 2004]

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner, vs. 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, respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review assails the Decision dated August 12, 2002 of the Court of Appeals in CA-G.R.
SP No. 66574, which dismissed Civil Case No. 3123-2001-C and annulled and set aside the Order
dated September 4, 2001 issued by the Regional Trial Court of Calamba, Laguna, Branch 92.

Petitioner Agilent Technologies Singapore (Pte.), Ltd. (Agilent) is a foreign corporation, which, by its
own admission, is not licensed to do business in the Philippines.[1] Respondent Integrated Silicon
Technology Philippines Corporation (Integrated Silicon) is a private domestic corporation, 100% foreign
owned, which is engaged in the business of manufacturing and assembling electronics components.
 RespondentsTeoh Kiang Hong, Teoh Kiang Seng and Anthony Choo, Malaysian nationals, are current
[2]

members of Integrated Silicons board of directors, while Joanne Kate M. dela Cruz, Jean Kay
M. dela Cruz, and Rolando T. Nacilla are its former members.[3]

The juridical relation among the various parties in this case can be traced to a 5-year Value Added
Assembly Services Agreement (VAASA), entered into on April 2, 1996 between Integrated Silicon and
the Hewlett-Packard Singapore (Pte.) Ltd., Singapore Components Operation (HP-Singapore).[4] 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;
transport machinery to the plant of Integrated Silicon; and pay Integrated Silicon the purchase price of
the finished products.[5] The VAASA had a five-year term, beginning on April 2, 1996, with a provision
for annual renewal by mutual written consent.[6] On September 19, 1999, with the consent of
Integrated Silicon,[7] HP-Singapore assigned all its rights and obligations in the VAASA to Agilent.[8]

On May 25, 2001, Integrated Silicon filed a complaint for Specific Performance and Damages
against Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor, docketed
as Civil Case No. 3110-01-C. It alleged that Agilent breached the parties oral agreement to extend
the VAASA. Integrated Silicon thus prayed that defendant be ordered to execute a written extension of
the VAASA for a period of five years as earlier assured and promised; to comply with the
extended VAASA; and to pay actual, moral, exemplary damages and attorneys fees. [9]

On June 1, 2001, summons and a copy of the complaint were served on Atty. Ramon Quisumbing, who
returned these processes on the claim that he was not the registered agent of Agilent. Later, he
entered a special appearance to assail the courts jurisdiction over the person ofAgilent.

On July 2, 2001, Agilent filed a separate complaint against Integrated

Silicon, Teoh Kang Seng, Teoh Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay
M. dela Cruz and Rolando T. Nacilla,[10] for Specific Performance, Recovery of Possession, and Sum of
Money withReplevin, Preliminary Mandatory Injunction, and Damages, before the Regional Trial
Court, Calamba, Laguna, Branch 92, docketed as Civil Case No. 3123-2001-C. Agilent prayed that a
writ of replevin or, in the alternative, a writ of preliminary mandatory injunction, be issued ordering
defendants to immediately return and deliver to plaintiff its equipment, machineries and the materials
to be used for fiber-optic components which were left in the plant of Integrated Silicon. It further
prayed that defendants be ordered to pay actual and exemplary damages and attorneys fees. [11]

Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C, [12] on the grounds of lack
of Agilents legal capacity to sue;[13] litispendentia;[14] forum shopping;[15] and failure to state a cause of
action.[16]

On September 4, 2001, the trial court denied the Motion to Dismiss and granted
petitioner Agilents application for a writ of replevin.[17]

Without filing a motion for reconsideration, respondents filed a petition for certiorari with the Court of
Appeals.[18]

In the meantime, upon motion filed by respondents, Judge Antonio S. Pozas of Branch 92 voluntarily
inhibited himself in Civil Case No. 3123-2001-C. The case was re-raffled and assigned to Branch 35, the
same branch where Civil Case No. 3110-2001-C is pending.

On August 12, 2002, the Court of Appeals granted respondents petition for certiorari, set aside the
assailed Order of the trial court datedSeptember 4, 2001, and ordered the dismissal of Civil Case No.
3123-2001-C.

Hence, the instant petition raising the following errors:

I.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT DISMISSING RESPONDENTS PETITION
FOR CERTIORARI FOR RESPONDENTS FAILURE TO FILE A MOTION FOR RECONSIDERATION BEFORE
RESORTING TO THE REMEDY OF CERTIORARI.

II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE
TRIAL COURTS ORDER DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE NO.
3123-2001-C BELOW ON THE GROUND OF LITIS PENDENTIA, ON ACCOUNT OF THE PENDENCY OF CIVIL
CASE NO. 3110-2001-C.

III.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE
TRIAL COURTS ORDER DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE NO.
3123-2001-C BELOW ON THE GROUND OF FORUM SHOPPING, ON ACCOUNT OF THE PENDENCY OF
CIVIL CASE NO. 3110-2001-C.
IV.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING THE DISMISSAL OF CIVIL CASE
NO. 323-2001-C BELOW INSTEAD OF ORDERING IT CONSOLIDATED WITH CIVIL CASE NO. 3110-2001-C.
[19]

The two primary issues raised in this petition: (1) whether or not the Court of Appeals committed
reversible error in giving due course to respondents petition, notwithstanding the failure to file a
Motion for Reconsideration of the September 4, 2001 Order; and (2) whether or not the Court of
Appeals committed reversible error in dismissing Civil Case No. 3123-2001-C.

We find merit in the petition.

The Court of Appeals, citing the case of Malayang Manggagawa sa ESSO v. ESSO Standard Eastern,
Inc.,[20] held that the lower court had no jurisdiction over Civil Case No. 3123-2001-C because of
the pendency of Civil Case No. 3110-2001-C and, therefore, a motion for reconsideration was not
necessary before resort to a petition for certiorari. This was error.

Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests jurisdiction over the subject matter of Civil
Case No. 3123-2001-C in the RTC.[21]

The Court of Appeals ruling that the assailed Order issued by the RTC of Calamba, Branch 92, was a
nullity for lack of jurisdiction due to litispendentia and forum shopping, has no legal
basis. The pendency of another action does not strip a court of the jurisdiction granted by law.

The Court of Appeals further ruled that a Motion for Reconsideration was not necessary in view of the
urgent necessity in this case. We are not convinced. In the case of Bache and Co. (Phils.), Inc. v. Ruiz,
[22]
relied on by the Court of Appeals, it was held that time is of the essence in view of the tax
assessments sought to be enforced by respondent officers of the Bureau of Internal Revenue against
petitioner corporation, on account of which immediate and more direct action becomes necessary. Tax
assessments in that case were based on documents seized by virtue of an illegal search, and the
deprivation of the right to due process tainted the entire proceedings with illegality. Hence, the urgent
necessity of preventing the enforcement of the tax assessments was patent. Respondents, on the
other hand, cite the case of Geronimo v. Commission on Elections,[23] where the urgent necessity of
resolving a disqualification case for a position in local government warranted the expeditious resort to
certiorari. In the case at bar, there is no analogously urgent circumstance which would necessitate the
relaxation of the rule on a Motion for Reconsideration.

Indeed, none of the exceptions for dispensing with a Motion for Reconsideration is present here. None
of the following cases cited by respondents serves as adequate basis for their procedural lapse.

In Vigan Electric Light Co., Inc. v. Public Service Commission,[24] the questioned order was null and void
for failure of respondent tribunal to comply with due process requirements; in Matanguihan v. Tengco,
[25]
the questioned order was a patent nullity for failure to acquire jurisdiction over the defendants,
which fact the records plainly disclosed; and in National Electrification Administration v. Court of
Appeals,[26] the questioned orders were void for vagueness. No such patent nullity is evident in the
Order issued by the trial court in this case. Finally, while urgency may be a ground for dispensing with
a Motion for Reconsideration, in the case of Vivo v. Cloribel,[27] cited by respondents, the slow progress
of the case would have rendered the issues moot had a motion for reconsideration been availed of. We
find no such urgent circumstance in the case at bar.

Respondents, therefore, availed of a premature remedy when they immediately raised the matter to
the Court of Appeals on certiorari; and the appellate court committed reversible error when it took
cognizance of respondents petition instead of dismissing the same outright.

We come now to the substantive issues of the petition.

Litis pendentia is a Latin term which literally means a pending suit. It is variously referred to in some
decisions as lis pendens and auteraction pendant. While it is normally connected with the control
which the court has on a property involved in a suit during the continuance proceedings, it is more
interposed as a ground for the dismissal of a civil action pending in court.

Litis pendentia as a ground for the dismissal of a civil action refers to that situation wherein another
action is pending between the same parties for the same cause of action, such that the second action
becomes unnecessary and vexatious. For litis pendentia to be invoked, the concurrence of the
following requisites is necessary:

(a) identity of parties or at least such as represent the same interest in both actions;

(b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and

(c) the identity in the two cases should be such that the judgment that may be rendered in one would,
regardless of which party is successful, amount to res judicata in the other.[28]
The Court of Appeals correctly appreciated the identity of parties in Civil Cases No. 3123-2001-C and
3110-2001-C. Well-settled is the rule that lis pendens requires only substantial, and not absolute,
identity of parties.[29] There is substantial identity of parties when there is a community of interest
between a party in the first case and a party in the second case, even if the latter was
not impleaded in the first case.[30]The parties in these cases are vying over the interests of the two
opposing corporations; the individuals are only incidentally impleaded, being the natural persons
purportedly accused of violating these corporations rights.

Likewise, the fact that the positions of the parties are reversed, i.e., the plaintiffs in the first case are
the defendants in the second case or vice versa, does not negate the identity of parties for purposes of
determining whether the case is dismissible on the ground of litis pendentia.[31]

The identity of parties notwithstanding, litis pendentia does not obtain in this case because of the
absence of the second and third requisites. The rights asserted in each of the cases involved are
separate and distinct; there are two subjects of controversy presented for adjudication; and two causes
of action are clearly involved. The fact that respondents instituted a prior action for Specific
Performance and Damages is not a ground for defeating the petitioners action for Specific
Performance, Recovery of Possession, and Sum of Money withReplevin, Preliminary Mandatory
Injunction, and Damages.

In Civil Case No. 3110-2001-C filed by respondents, the issue is whether or not there was a breach of
an oral promise to renew of theVAASA. The issue in Civil Case No. 3123-2001-C, filed by petitioner, is
whether petitioner has the right to take possession of the subject properties. Petitioners right of
possession is founded on the ownership of the subject goods, which ownership is not disputed and is
not contingent on the extension or non-extension of the VAASA. Hence, the replevin suit can validly be
tried even while the prior suit is being litigated in the Regional Trial Court.

Possession of the subject properties is not an issue in Civil Case No. 3110-2001-C. The reliefs sought by
respondent Integrated Silicon therein are as follows: (1) execution of a written extension or renewal of
the VAASA; (2) compliance with the extended VAASA; and (3) payment of overdue accounts, damages,
and attorneys fees. The reliefs sought by petitioner Agilent in Civil Case No. 3123-2001-C, on the other
hand, are as follows: (1) issuance of a Writ of Replevin or Writ of Preliminary Mandatory Injunction; (2)
recovery of possession of the subject properties; (3) damages and attorneys fees.

Concededly, some items or pieces of evidence may be admissible in both actions. It cannot be said,
however, that exactly the same evidence will support the decisions in both, since the legally significant
and controlling facts in each case are entirely different. Although theVAASA figures prominently in both
suits, Civil Case No. 3110-2001-C is premised on a purported breach of an oral obligation
to extend theVAASA, and damages arising out of Agilents alleged failure to comply with such purported
extension. Civil Case No. 3123-2001-C, on the other hand, is premised on a breach of the VAASA itself,
and damages arising to Agilent out of that purported breach.

It necessarily follows that the third requisite for litis pendentia is also absent. The following are the
elements of res judicata:

(a) The former judgment must be final;

(b) The court which rendered judgment must have jurisdiction over the parties and the subject matter;

(c) It must be a judgment on the merits; and

(d) There must be between the first and second actions identity of parties, subject matter, and cause
of action.[32]

In this case, any judgment rendered in one of the actions will not amount to res judicata in the other
action. There being different causes of action, the decision in one case will not
constitute res judicata as to the other.

Of course, a decision in one case may, to a certain extent, affect the other case. This, however, is not
the test to determine the identity of the causes of action. Whatever difficulties or inconvenience may
be entailed if both causes of action are pursued on separate remedies, the proper solution is not the
dismissal order of the Court of Appeals. The possible consolidation of said cases, as well as stipulations
and appropriate modes of discovery, may well be considered by the court below to subserve not only
procedural expedience but, more important, the ends of justice. [33]

We now proceed to the issue of forum shopping.

The test for determining whether a party violated the rule against forum-shopping was laid down in the
case of Buan v. Lopez.[34] Forum shopping exists where the elements of litis pendentia are present, or
where a final judgment in one case will amount to res judicata in the final other. There being
no litis pendentia in this case, a judgment in the said case will not amount to res judicata in Civil Case
No. 3110-2001-C, and respondents contention on forum shopping must likewise fail.
We are not unmindful of the afflictive consequences that may be suffered by both petitioner and
respondents if replevin is granted by the trial court in Civil Case No. 3123-2001-C. If respondent
Integrated Silicon eventually wins Civil Case No. 3110-2001-C, and the VAASAs terms are extended,
petitioner corporation will have to comply with its obligations thereunder, which would include the
consignment of properties similar to those it may recover by way of replevin in Civil Case No. 3123-
2001-C. However, petitioner will also suffer an injustice if denied the remedy ofreplevin, resort to which
is not only allowed but encouraged by law.

Respondents argue that since Agilent is an unlicensed foreign corporation doing business in
the Philippines, it lacks the legal capacity to file suit. [35] The assailed acts of petitioner Agilent,
purportedly in the nature of doing business in the Philippines, are the following: (1) mere entering into
the VAASA, which is a service contract; [36] (2) appointment of a full-time representative in Integrated
Silicon, to oversee and supervise the production of Agilents products;[37] (3) the appointment
by Agilent of six full-time staff members, who were permanently stationed at Integrated Silicons
facilities in order to inspect the finished goods for Agilent;[38] and (4) Agilents participation in the
management, supervision and control of Integrated Silicon, [39] including instructing Integrated Silicon to
hire more employees to meet Agilents increasing production needs,[40] regularly performing quality
audit, evaluation and supervision of Integrated Silicons employees, [41] regularly performing inventory
audit of raw materials to be used by Integrated Silicon, which was also required to provide weekly
inventory updates to Agilent,[42] and providing and dictating Integrated Silicon on the daily production
schedule, volume and models of the products to manufacture and ship for Agilent.[43]

A foreign corporation without a license is not ipso facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign corporation is transacting or doing business in
the country. The Corporation Code provides:

Sec. 133. Doing business without a license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.

The aforementioned provision prevents an unlicensed foreign corporation doing business in

the Philippines from accessing our courts.

In a number of cases, however, we have held that an unlicensed foreign corporation doing business in
the Philippines may bring suit in Philippine courts against a Philippine citizen or entity who had
contracted with and benefited from said corporation. [44] Such a suit is premised on the doctrine
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. This doctrine of estoppel to deny corporate
existence and capacity applies to foreign as well as domestic corporations. [45] The application of this
principle prevents a person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases where such person has received the benefits of the
contract.[46]

The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be
condensed in four statements: (1) if a foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts;[47] (2) if a foreign corporation isnot 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 [48]; (3) 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 corporations corporate personality in a
suit brought before Philippine courts;[49] and (4) if a foreign corporation does business in the
Philippines with the required license, it can sue before Philippine courts on any transaction.

The challenge to Agilents legal capacity to file suit hinges on whether or not it is doing business in
the Philippines. However, there is no definitive rule on what constitutes doing, engaging in, or
transacting business in the Philippines, as this Court observed in the case
ofMentholatum v. Mangaliman.[50] The Corporation Code itself is silent as to what acts constitute doing
or transacting business in the Philippines.

Jurisprudence has it, however, that 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 or in progressive prosecution of the purpose and subject of
its organization.[51]

In Mentholatum,[52] this Court discoursed on the two general tests to determine whether or not a
foreign corporation can be considered as doing business in the Philippines. The first of these is
the substance test, thus:[53]

The true test [for doing business], however, seems to be 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.
The second test is the continuity test, expressed thus:[54]

The term [doing business] 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.

Although each case must be judged in light of its attendant circumstances, jurisprudence has evolved
several guiding principles for the application of these tests. For instance, considering that it transacted
with its Philippine counterpart for seven years, engaging in futures contracts, this Court concluded that
the foreign corporation in Merrill Lynch Futures, Inc. v. Court of Appeals and Spouses Lara,[55] was doing
business in the Philippines. In Commissioner of Internal Revenue v. Japan Airlines (JAL),[56] the Court
held that JAL was doing business in the Philippines, i.e., its commercial dealings in the country were
continuous despite the fact that no JAL aircraft landed in the country as it sold tickets in the Philippines
through a general sales agent, and opened a promotions office here as well.

In General Corp. of the Phils. v. Union Insurance Society of Canton and Firemans Fund Insurance,[57] a
foreign insurance corporation was held to be doing business in the Philippines, as it appointed a
settling agent here, and issued 12 marine insurance policies. We held that these transactions were not
isolated or casual, but manifested the continuity of the foreign corporations conduct and its intent to
establish a continuous business in the country. In Eriks PTE Ltd. v. Court of Appeals and Enriquez,[58] the
foreign corporation sold its products to a Filipino buyer who ordered the goods 16 times within an
eight-month period. Accordingly, this Court ruled that the corporation was doing business in
thePhilippines, as there was a clear intention on its part to continue the body of its business here,
despite the relatively short span of time involved.Communication Materials and Design, Inc., et al. v.
Court of Appeals, ITEC, et al.[59] and Top-Weld Manufacturing v. ECED, IRTI, et al.[60]both involved the
License and Technical Agreement and Distributor Agreement of foreign corporations with their
respective local counterparts that were the primary bases for the Courts ruling that the foreign
corporations were doing business in the Philippines. [61] In particular, the Court cited the highly
restrictive nature of certain provisions in the agreements involved, such that, as stated
in Communication Materials, the Philippine entity is reduced to a mere extension or instrument of the
foreign corporation. For example, in Communication Materials, the Court deemed the No Competing
Product provision of the Representative Agreement therein restrictive.[62]

The case law definition has evolved into a statutory definition, having been adopted with some
qualifications in various pieces of legislation.The Foreign Investments Act of 1991 (the FIA; Republic Act
No. 7042, as amended), defines doing business as follows:

Sec. 3, par. (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 totaling 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 the progressive
prosecution of, commercial gain or of the purpose and object of the business organization.

An analysis of the relevant case law, in conjunction with Section 1 of the Implementing Rules and
Regulations of the FIA (as amended by Republic Act No. 8179), would demonstrate that the acts
enumerated in the VAASA do not constitute doing business in the Philippines.

Section 1 of the Implementing Rules and Regulations of the FIA (as amended by Republic Act No. 8179)
provides that the following shall notbe 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 representatives or distributors 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.[63]

By the clear terms of the VAASA, Agilents 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.

Finally, as to Agilents purported failure to state a cause of action against the individual respondents,
we likewise rule in favor of petitioner. A Motion to Dismiss hypothetically admits all the allegations in
the Complaint, which plainly alleges that these individual respondents had committed or permitted the
commission of acts prejudicial to Agilent. Whether or not these individuals had divested themselves of
their interests in Integrated Silicon, or are no longer members of Integrated Silicons Board of Directors,
is a matter of defense best threshed out during trial.

WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Decision of the Court of Appeals in
CA-G.R. SP No. 66574 dated August 12, 2002, which dismissed Civil Case No. 3123-2001-C, is
REVERSED and SET ASIDE. The Order dated September 4, 2001issued by the Regional Trial Court
of Calamba, Laguna, Branch 92, in Civil Case No. 3123-2001-C, is REINSTATED. Agilents application for
a Writ of Replevin is GRANTED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 180416 June 2, 2014

ADERITO Z. YUJUICO and BONIFACIO C. SUMBILLA, Petitioners,

vs.
CEZAR T. QUIAMBAO and ERIC C. PILAPIL, Respondents.

DECISION

PEREZ, J.:

This case is a Petition for Review on Certiorari1 from the Orders2 dated 4 June 2007 and 5 November
2007 of the Regional Trial Court (RTC), Branch 154, of Pasig City in S.C.A. No. 3047.

The facts:

Background

Strategic Alliance Development Corporation (STRADEC) is a domestic corporation operating as a

business development and investment company.

On 1 March 2004, during the annual stockholder's meeting of STRADEC, petitioner Aderito Z. Yujuico
(Yujuico) was elected as president and chairman of the company. 3 Yujuico replaced respondent Cezar T.
Quiambao (Quiambao), who had been the president and chairman of STRADEC since 1994. 4

With Yujuico at the helm, STRADEC appointed petitioner Bonifacio C. Sumbilla (Sumbilla) as treasurer
and one Joselito John G. Blando (Blando) as corporate secretary. 5 Blando replaced respondent Eric C.
Pilapil (Pilapil), the previous corporate secretary of STRADEC. 6

The Criminal Complaint

On 12 August 2005, petitioners filed a criminal complaint7 against respondents and one Giovanni T.
Casanova (Casanova) before the Office of the City Prosecutor (OCP) of Pasig City. The complaint was
docketed in the OCP as LS. No. PSG 05-08-07465.

The complaint accuses respondents and Casanova of violating Section 74 in relation to Section 144 of
Batas Pambansa Blg. 68 or the Corporation Code. The petitioners premise such accusation on the
following factual allegations:8

1. During the stockholders' meeting on 1 March 2004, Yujuico-as newly elected president and chairman
of STRADEC-demanded Quiambao for the turnover of the corporate records of the company,
particularly the accounting files, ledgers, journals and other records of the corporation's business.
Quiambao refused.
2. As it turns out, the corporate records of STRADEC were in the possession of Casanova-the
accountant of STRADEC. Casanova was keeping custody of the said records on behalf of Quiambao,
who allegedly needed the same as part of his defense in a pending case in court.

3. After the 1 March 2004 stockholders' meeting, Quiambao and Casanova caused the removal of the
corporate records of STRADEC from the company's offices in Pasig City.

4. Upon his appointment as corporate secretary on 21 June 2004, Blando likewise demanded Pilapil for
the turnover of the stock and transfer book of STRADEC. Pilapil refused.

5. Instead, on 25 June 2004, Pilapil proposed to Blando to have the stock and transfer book deposited
in a safety deposit box with Equitable PCI Bank, Kamias Road, Quezon City. Blando acceded to the
proposal and the stock and transfer book was deposited in a safety deposit box with the bank
identified. It was agreed that the safety deposit box may only be opened in the presence of both
Quiambao and Blando.

6. On 30 June 2004, however, Quiambao and Pilapil withdrew the stock and transfer book from the
safety deposit box and brought it to the offices of the Stradcom Corporation (STRADCOM) in Quezon
City. Quiambao thereafter asked Blando to proceed to the STRADCOM offices. Upon arriving thereat,
Quiambao pressured Blando to make certain entries in the stock and transfer books. After making such
entries, Blando again demanded that he be given possession of the stock and transfer book. Quiambao
refused.

7. On 1 July 2004, Blando received an order dated 30 June 2004 issued by the RTC, Branch 71, of Pasig
City in Civil Case No. 70027, which directed him to cancel the entries he made in the stock and
transfer book. Hence, on even date, Blando wrote letters to Quiambao and Pilapil once again
demanding for the turnover of the stock and transfer book. Pilapil replied thru a letter dated 2 July
2004 where he appeared to agree to Blando's demand.

8. However, upon meeting with Pilapil and Quiambao, the latter still refused to turnover the stock and
transfer book to Blando. Instead, Blando was once again constrained to agree to a proposal by Pilapil
to have the stock and transfer book deposited with the RTC, Branch 155, of Pasig City. The said court,
however, refused to accept such deposit on the ground that it had no place for safekeeping.

9. Since Quiambao and Pilapil still refused to turnover the stock and transfer book, Blando again
acceded to have the book deposited in a safety deposit box, this time, with the Export and Industry
Bank in San Miguel A venue, Pasig City.

Petitioners theorize that the refusal by the respondents and Casanova to turnover STRADEC's
corporate records and stock and transfer book violates their right, as stockholders, directors and
officers of the corporation, to inspect such records and book under Section 7 4 of the Corporation
Code. For such violation, petitioners conclude, respondents may be held criminally liable pursuant to
Section 144 of the Corporation Code.

Preliminary investigation thereafter ensued.

Resolution of the OCP and the Informations

After receiving the counter-affidavits of the respondents and Casanova, as well as the other
documentary submissions9 by the parties, the OCP issued a Resolution 10 dated 6 January 2006 in I.S.
No. PSG 05-08-07465. In the said resolution, the OCP absolved Casanova but found probable cause to
hail respondents to court on two (2) offenses: (1) for removing the stock and transfer book of STRADEC
from its principal office, and (2) for refusing access to, and examination of, the corporate records and
the stock and transfer book of STRADEC at its principal office.

Pursuant to the resolution, two (2) informations11 were filed against the respondents before the
Metropolitan Trial Court (MeTC) of Pasig City. The informations were docketed as Criminal Case No.
89723 and Criminal Case No. 89724 and were raffled to Branch 69.

Criminal Case No. 89723 is for the offense of removing the stock and transfer book of STRADEC from
its principal office. The information reads: 12

On and/or about the period between March 1 and June 25, 2004, inclusive, in Pasig City and within the
jurisdiction of this Honorable Court, the above accused, being then members of the Board of Directors
and/or officers, as the case maybe, of Strategic Alliance Development Corporation (STRADEC, for
short), conspiring and confederating together and mutually helping and aiding one another, did then
and there willfully, unlawfully and feloniously, remove the stock and transfer book of the said STRADEC
at its principal office at the 24th Floor, One Magnificent Mile-CITRA City Bldg., San Miguel A venue,
Ortigas Center, Pasig City, where they should all be kept, in violation of the aforesaid law, and to the
prejudice of the said complainants.

Criminal Case No. 89724, on the other hand, covers the offense of refusing access to, and examination
of, the corporate records and the stock and transfer book of STRADEC at its principal office. The
information reads:13
On and/or about the period between March 1 and June 25, 2004, inclusive, in Pasig City, and within the
jurisdiction of this Honorable Court, the above accused, being then members of the Board of Directors
and/or officers, as the case maybe, of Strategic Alliance Development Corporation (STRADEC, for
short), conspiring and confederating together and mutually helping and aiding one another, did then
and there willfully, unlawfully and feloniously, refuse to allow complainants Bonifacio C. Sumbilla and
Aderito Z. Yujuico, being then stockholders and/or directors of STRADEC, access to, and examination of,
the corporate records, including the stock and transfer book, of STRADEC at its principal office at the
24th Floor, One Magnificent Mile-CITRA Bldg., San Miguel Avenue, Ortigas Center, Pasig City, where
they should all be kept, in violation of the aforesaid law, and to the prejudice of the said complainants.

Urgent Omnibus Motion and the Dismissal of Criminal Case No. 89723

On 18 January 2006, respondents filed before the MeTC an Urgent Omnibus Motion for Judicial
Determination of Probable Cause and To Defer Issuance of Warrants of Arrest (Urgent Omnibus
Motion).14

On 8 May 2006, the MeTC issued an order 15 partially granting the Urgent Omnibus Motion. The MeTC
dismissed Criminal Case No. 89723 but ordered the issuance of a warrant of arrest against respondents
in Criminal Case No. 89724.

In dismissing Criminal Case No. 89723, the MeTC held that Section 74, in relation to Section 144, of the
Corporation Code only penalizes the act of "refus[ing] to allow any director, trustee, stockholder or
member of the corporation to examine and copy excerpts from the records or minutes of the
corporation"16 and that act is already the subject matter of Criminal Case No. 89724. Hence, the MeTC
opined, Criminal Case No. 89723-which seeks to try respondents for merely removing the stock and
transfer book of STRADEC from its principal office-actually charges no offense and, therefore, cannot
be sustained.17

Anent directing the issuance of a warrant of arrest in Criminal Case No. 89724, the MeTC found
probable cause to do so; given the failure of the respondents to present any evidence during the
preliminary investigation showing that they do not have possession of the corporate records of
STRADEC or that they allowed petitioners to inspect the corporate records and the stock and transfer
book of STRADEC.18

Unsatisfied, the respondents filed a motion for partial Reconsideration 19 of the 8 May 2006 order of the
MeTC insofar as the disposition in Criminal Case No. 89724 is concerned. The MeTC, however, denied
such motion on 16 August 2006.20

Certiorari Petition and the Dismissal of Criminal Case No. 89724 After their motion for partial
reconsideration was denied, respondents filed a certiorari petition, 21 with prayer for the issuance of a
temporary restraining order (TRO), before the RTC of Pasig City on 27 September 2006. The petition
was docketed as S.C.A. No. 3047.

On 16 November 2006, the RTC issued a TRO enjoining the MeTC from conducting further proceedings
in Criminal Case No. 89724 for twenty (20) days.22

On 4 June 2007, the R TC issued an Order23 granting respondents' certiorari petition and directing the
dismissal of Criminal Case No. 89724. According to the RTC, the MeTC committed grave abuse of
discretion in issuing a warrant of arrest against respondents in Criminal Case No. 89724.

The RTC found that the finding of probable cause against the respondents in Criminal Case No. 89724
was not supported by the evidence presented during the preliminary investigation but was, in fact,
contradicted by them:24

1. The R TC noted that, aside from the complaint itself, no evidence was ever submitted by petitioners
to prove that they demanded and was refused access to the corporate records of STRADEC between 1
March to 25 June 2004. What petitioners merely submitted is their letter dated 6 September 2004
demanding from respondents access to the corporate records of STRADEC.

2. The allegations of petitioners in their complaint, as well as 6 September 2004 letter above-
mentioned, however, are contradicted by the sworn statement dated 1 July 2004 of Blando 25 wherein
he attested that as early as 25 June 2004, Pilapil already turned over to him "two binders containing
the minutes, board resolutions, articles of incorporation, copies of contracts, correspondences and
other papers of the corporation, except the stock certificate book and the stock and transfer book."

3. The RTC also took exception to the reason provided by the MeTC in supporting its finding of probable
cause against the respondents. The R TC held that it was not incumbent upon the respondents to
provide evidence proving their innocence. Hence, the failure of the respondents to submit evidence
showing that they do not have possession of the corporate records of STRADEC or that they have
allowed inspection of the same cannot be taken against them much less support a finding of probable
cause against them.

The RTC further pointed out that, at most, the evidence on record only supports probable cause that
the respondents were withholding the stock and transfer book of STRADEC. The RTC, however, opined
that refusing to allow inspection of the stock and transfer book, as opposed to refusing examination of
other corporate records, is not punishable as an offense under the Corporation Code. 26 Hence, the
directive of the RTC dismissing Criminal Case No. 89724.

The petitioners moved for reconsideration,27 but the R TC remained steadfast.28

Hence, this petition by petitioners.

The Instant Petition

In their petition, petitioners claim that Criminal Case No. 89724 may still be sustained against the
respondents insofar as the charge of refusing to allow access to the stock and transfer book of
STRADEC is concerned. They argue that the R TC made a legal blunder when it held that the refusal to
allow inspection of the stock and transfer book of a corporation is not a punishable offense under the
Corporation Code. Petitioners contend that such a refusal still amounts to a violation of Section 74 of
the Corporation Code, for which Section 144 of the same code prescribes a penalty.

OUR RULING

The RTC indeed made an inaccurate pronouncement when it held that the act of refusing to allow
inspection of the stock and transfer book of a corporation is not a punishable offense under the
Corporation Code. Such refusal, when done in violation of Section 74(4) of the Corporation Code,
properly falls within the purview of Section 144 of the same code and thus may be penalized as an
offense.

The foregoing gaffe nonetheless, We still sustain the dismissal of Criminal Case No. 89724 as against
the respondents.

A criminal action based on the violation of a stockholder's right to examine or inspect the corporate
records and the stock and transfer book of a corporation under the second and fourth paragraphs of
Section 74 of the Corporation Code-such as Criminal Case No. 89724--can only be maintained against
corporate officers or any other persons acting on behalf of such corporation. The submissions of the
petitioners during the preliminary investigation, however, clearly suggest that respondents are neither
in relation to STRADEC.

Hence, we deny the petition.

The act of ref using to allow inspection of the

stock and transfer book of a corporation,
when done in violation of Section 74(4) of
the Corporation Code, is punishable as an
offense under Section 144 of the same code.

We first address the inaccurate pronouncement of the RTC.

Section 74 is the provision of the Corporation Code that deals with the books a corporation is required
to keep. It reads:

Section 74. Books to be kept; stock transfer agent. - Every corporation shall keep and carefully
preserve at its principal office a record of all business transactions and minutes of all meetings of
stockholders or members, or of the board of directors or trustees, in which shall be set forth in detail
the time and place of holding the meeting, how authorized, the notice given, whether the meeting was
regular or special, if special its object, those present and absent, and every act done or ordered done
at the meeting. Upon the demand of any director, trustee, stockholder or member, the time when any
director, trustee, stockholder or member entered or left the meeting must be noted in the minutes;
and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record
thereof carefully made. The protest of any director, trustee, stockholder or member on any action or
proposed action must be recorded in full on his demand.

The records of all business transactions of the corporation and the minutes of any meetings shall be
open to inspection by any director, trustee, stockholder or member of the corporation at reasonable
hours on business days and he may demand, in writing, for a copy of excerpts from said records or
minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or
member of the corporation to examine and copy excerpts from its records or minutes, in accordance
with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of
this Code: Provided, That if such refusal is made pursuant to a resolution or order of the board of
directors or trustees, the liability under this section for such action shall be imposed upon the directors
or trustees who voted for such refusal: and Provided, further, That it shall be a defense to any action
under this section that the person demanding to examine and copy excerpts from the corporation's
records and minutes has improperly used any information secured through any prior examination of
the records or minutes of such corporation or of any other corporation, or was not acting in good faith
or for a legitimate purpose in making his demand.

Stock corporations must also keep a book to be known as the "stock and transfer book'', in which must
be kept a record of all stocks in the names of the stockholders alphabetically arranged; the
installments paid and unpaid on all stock for which subscription has been made, and the date of
payment of any installment; a statement of every alienation, sale or transfer of stock made, the date
thereof, and by and to whom made; and such other entries as the by-laws may prescribe. The stock
and transfer book shall be kept in the principal office of the corporation or in the office of its stock
transfer agent and shall be open for inspection by any director or stockholder of the corporation at
reasonable hours on business days.

No stock transfer agent or one engaged principally in the business of registering transfers of stocks in
behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license
from the Securities and Exchange Commission and pays a fee as may be fixed by the Commission,
which shall be renewable annually: Provided, That a stock corporation is not precluded from performing
or making transfer of its own stocks, in which case all the rules and regulations imposed on stock
transfer agents, except the payment of a license fee herein provided, shall be applicable. (5 la and
32a; P.B. No. 268.) (Emphasis supplied)

Section 144 of the Corporation Code, on the other hand, is the general penal provision of the
Corporation Code. It reads:

Section 144. Violations of the Code. - Violations of any of the provisions of this Code or its amendments
not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand
(P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less
than thirty (30) days but not more than five (5) years, or both, in the discretion of the court. If the
violation is committed by a corporation, the same may, after notice and hearing, be dissolved in
appropriate proceedings before the Securities and Exchange Commission: Provided, That such
dissolution shall not preclude the institution of appropriate action against the director, trustee or officer
of the corporation responsible for said violation: Provided, further, That nothing in this section shall be
construed to repeal the other causes for dissolution of a corporation provided in this Code. (190 112 a)
(Emphasis supplied)

In the assailed Orders, the RTC expressed its opinion that the act of refusing to allow inspection of the
stock and transfer book, even though it may be a violation of Section 74(4), is not punishable as an
offense under the Corporation Code. 29 In justifying this conclusion, the RTC seemingly relied on the fact
that, under Section 7 4 of the Corporation Code, the application of Section 144 is expressly mentioned
only in relation to the act of "refus[ing] to allow any director, trustees, stockholder or member of the
corporation to examine and copy excerpts from [the corporation's] records or minutes" that excludes
its stock and transfer book.

We do not agree.

While Section 74 of the Corporation Code expressly mentions the application of Section 144 only in
relation to the act of "refus[ing] to allow any director, trustees, stockholder or member of the
corporation to examine and copy excerpts from [the corporation's] records or minutes," the same does
not mean that the latter section no longer applies to any other possible violations of the former
section.

It must be emphasized that Section 144 already purports to penalize "[v]iolations" of "any provision" of
the Corporation Code "not otherwise specifically penalized therein." Hence, we find inconsequential the
fact that that Section 74 expressly mentions the application of Section 144 only to a specific act, but
not with respect to the other possible violations of the former section.

Indeed, we find no cogent reason why Section 144 of the Corporation Code cannot be made to apply to
violations of the right of a stockholder to inspect the stock and transfer book of a corporation under
Section 74(4) given the already unequivocal intent of the legislature to penalize violations of a parallel
right, i.e., the right of a stockholder or member to examine the other records and minutes of a
corporation under Section 74(2). Certainly, all the rights guaranteed to corporators under Section 7 4
of the Corporation Code are mandatory for the corporation to respect. All such rights are just the same
underpinned by the same policy consideration of keeping public confidence in the corporate vehicle
thru an assurance of transparency in the corporation's operations.

Verily, we find inaccurate the pronouncement of the RTC that the act of refusing to allow inspection of
the stock and transfer book is not a punishable offense under the Corporation Code. Such refusal,
when done in violation of Section 74(4) of the Corporation Code, properly falls within the purview of
Section 144 of the same code and thus may be penalized as an offense.

A criminal action based on the violation of a

stockholder's right to examine or inspect the
corporate records and the stock and transfer
book of a corporation under the second and
fourth paragraphs of Section 74 of the
Corporation Code can only be maintained
against corporate officers or any other persons
acting on behalf of such corporation.

The foregoing notwithstanding, and independently of the reasons provided therefor by the RTC, we
sustain the dismissal of Criminal Case No. 89724.

Criminal Case No. 89724 accuses respondents of denying petitioners' right to examine or inspect the
corporate records and the stock and transfer book of STRADEC. It is thus a criminal action that is based
on the violation of the second and fourth paragraphs of Section 7 4 of the Corporation Code.

A perusal of the second and fourth paragraphs of Section 74, as well as the first paragraph of the same
section, reveal that they are provisions that obligates a corporation: they prescribe what books or
records a corporation is required to keep; where the corporation shall keep them;

and what are the other obligations of the corporation to its stockholders or members in relation to such
books and records.1wphi1 Hence, by parity of reasoning, the second and fourth paragraphs of Section
74, including the first paragraph of the same section, can only be violated by a corporation.

It is clear then that a criminal action based on the violation of the second or fourth paragraphs of
Section 74 can only be maintained against corporate officers or such other persons that are acting on
behalf of the corporation. Violations of the second and fourth paragraphs of Section 74 contemplates a
situation wherein a corporation, acting thru one of its officers or agents, denies the right of any of its
stockholders to inspect the records, minutes and the stock and transfer book of such corporation.

The problem with the petitioners' complaint and the evidence that they submitted during preliminary
investigation is that they do not establish that respondents were acting on behalf of STRADEC. Quite
the contrary, the scenario painted by the complaint is that the respondents are merely outgoing
officers of STRADEC who, for some reason, withheld and refused to turn-over the company records of
STRADEC; that it is the petitioners who are actually acting on behalf of STRADEC; and that STRADEC is
actually merely trying to recover custody of the withheld records.

In other words, petitioners are not actually invoking their right to inspect the records and the stock and
transfer book of STRADEC under the second and fourth paragraphs of Section 74. What they seek to
enforce is the proprietary right of STRADEC to be in possession of such records and book. Such right,
though certainly legally enforceable by other means, cannot be enforced by a criminal prosecution
based on a violation of the second and fourth paragraphs of Section 74. That is simply not the situation
contemplated by the second and fourth paragraphs of Section 74 of the Corporation Code.

For this reason, we affirm the dismissal of Criminal Case No. 89724 for lack of probable cause.

WHEREFORE, premises considered, the petlt10n is hereby DENIED. The Orders dated 4 June 2007 and
5 November 2007 of the Regional Trial Court, Branch 154, of Pasig City in S.C.A. No. 3047, insofar as
said orders effectively dismissed Criminal Case No. 89724 pending before Metropolitan Trial Court,
Branch 69, of Pasig City, are hereby AFFIRMED.

SO ORDERED.

B. VAN ZUIDEN BROS., LTD., G.R. No. 147905

Petitioner,

Present:

QUISUMBING, J.,

Chairperson,

-versus- CARPIO,

CARPIO MORALES,

TINGA, and

VELASCO, JR., JJ.

GTVL MANUFACTURING Promulgated:

INDUSTRIES, INC.,

Respondent. May 28, 2007

x-----------------------------------------------------------------------------------------x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review[1] of the 18 April 2001 Decision[2] of the Court of Appeals in CA-
G.R. CV No. 66236. The Court of Appeals affirmed the Order[3] of the Regional Trial Court, Branch
258, Paraaque City (trial court) dismissing the complaint for sum of money filed by B. Van Zuiden Bros.,
Ltd. (petitioner) against GTVL Manufacturing Industries, Inc. (respondent).

The Facts

On 13 July 1999, petitioner filed a complaint for sum of money against respondent, docketed as Civil
Case No. 99-0249. The pertinent portions of the complaint read:

1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. x x x ZUIDEN is not
engaged in business in the Philippines, but is suing before the Philippine Courts, for the reasons
hereinafter stated.

xxxx

3. ZUIDEN is engaged in the importation and exportation of several products, including lace products.

4. On several occasions, GTVL purchased lace products from [ZUIDEN].

5. 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),
x x x 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.

xxxx

7. 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.

xxxx

9. In spite [sic] of said demands and in spite [sic] 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].[4]

Instead of filing an answer, respondent filed a Motion to Dismiss[5] 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[6] between the parties, the trial court issued an Order on 10
November 1999 dismissing the complaint.

On appeal, the Court of Appeals sustained the trial courts dismissal of the complaint.

Hence, this petition.

The Court of Appeals Ruling

In affirming the dismissal of the complaint, the Court of Appeals relied on Eriks Pte., Ltd. v. Court of
Appeals.[7] In that case, Eriks, an unlicensed foreign corporation, sought to collect US$41,939.63 from a
Filipino businessman for goods which he purchased and received on several occasions from January to
May 1989. The transfers of goods took place in Singapore, for the Filipinos account, F.O.B. Singapore,
with a 90-day credit term. Since the transactions involved were not isolated, this Court found Eriks to
be doing business in the Philippines. Hence, this Court upheld the dismissal of the complaint on the
ground that Eriks has no capacity to sue.

The Court of Appeals noted that in Eriks, while the deliveries of the goods were perfected in Singapore,
this Court still found Eriksto be engaged in business in the Philippines. Thus, the Court of Appeals
concluded that the place of delivery of the goods (or the place where the transaction took place) is not
material in determining whether a foreign corporation is doing business in the Philippines. The Court of
Appeals held that what is material are the proponents to the transaction, as well as the parties to be
benefited and obligated by the transaction.

In this case, the Court of Appeals found that the parties entered into a contract of sale whereby
petitioner sold lace products to respondent in a series of transactions. While petitioner delivered the
goods in Hong Kong to Kenzar, Ltd. (Kenzar), another Hong Kong company, the party with whom
petitioner transacted was actually respondent, a Philippine corporation, and not Kenzar. The Court of
Appeals believed Kenzar is merely a shipping company. The Court of Appeals concluded that the
delivery of the goods in Hong Kong did not exempt petitioner from being considered as doing business
in the Philippines.

The Issue
The sole issue in this case is whether petitioner, an unlicensed foreign corporation, has legal capacity
to sue before Philippine courts. The resolution of this issue depends on whether petitioner is doing
business in the Philippines.

The Ruling of the Court

The petition is meritorious.

Section 133 of the Corporation Code provides:

Doing business without license. No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may be sued
or proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.

The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before
Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the
Philippines can sue before Philippine courts.

In the present controversy, petitioner is a foreign corporation which claims that it is not doing business
in the Philippines. As such, it needs no license to institute a collection suit against respondent before
Philippine courts.

Respondent argues otherwise. Respondent insists that petitioner is doing business in the Philippines
without the required license.Hence, petitioner has no legal capacity to sue before Philippine courts.

Under Section 3(d) of Republic Act No. 7042 (RA 7042) or The Foreign Investments Act of 1991, the
phrase doing business includes:

x x x soliciting orders, service contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totalling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose
and object of the business organization: Provided, however, That the phrase doing business shall not
be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts business in its own name and for its own
account.

The series of transactions between 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.[8]

In its complaint, petitioner alleged that it is engaged in the importation and exportation of several
products, including lace products.Petitioner asserted that on several occasions, respondent purchased
lace products from it. Petitioner also claimed that respondent instructed it to deliver the purchased
goods to Kenzar, which is a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the
goods, the products were considered sold. Kenzar, in turn, had the obligation to deliver the lace
products to the Philippines. In other words, the sale of lace products was consummated in Hong Kong.

As earlier stated, the series of transactions between petitioner and respondent transpired and were
consummated in Hong Kong.[9]We also find no single activity which petitioner performed here in the
Philippines pursuant to its purpose and object as a business organization. [10] Moreover, petitioners
desire to do business within the Philippines is not discernible from the allegations of the complaint or
from its attachments. Therefore, there is no basis for ruling that petitioner is doing business in the
Philippines.

In Eriks, respondent therein alleged the existence of a distributorship agreement between him and the
foreign corporation. If duly established, such distributorship agreement could support respondents
claim that petitioner was indeed doing business in the Philippines. Here, there is no such or similar
agreement between petitioner and respondent.

We disagree with the Court of Appeals ruling that the proponents to the transaction determine whether
a foreign corporation is doing business in the Philippines, regardless of the place of delivery or place
where the transaction took place. To accede to such theory makes it possible to classify, for instance, a
series of transactions between a Filipino in the United States and an American company based in the
United States as doing business in the Philippines, even when these transactions are negotiated and
consummated only within the United States.

An exporter in one country may export its products to many foreign importing countries without
performing in the importing countries specific commercial acts that would constitute doing business in
the importing countries. The mere act of exporting from ones own country, without doing any specific
commercial act within the territory of the importing country, cannot be deemed as doing business in
the importing country. The importing country does not acquire jurisdiction over the foreign exporter
who has not performed any specific commercial act within the territory of the importing
country. Without jurisdiction over the foreign exporter, the importing country cannot compel the
foreign exporter to secure a license to do business in the importing country.

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.
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 respondents
purchases.

WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 18 April 2001 of the Court of
Appeals in CA-G.R. CV No. 66236. No costs.

SO ORDERED.

IONEER INTERNATIONAL, LTD., G.R. No. 156848

Petitioner,

Present:

QUISUMBING, J.,

Chairperson,

CARPIO,

CARPIO MORALES,

- versus - TINGA, and

VELASCO, JR., JJ.

HON. TEOFILO GUADIZ, JR., Promulgated:

in his capacity as Presiding Judge of Regional Trial

Court, Branch 147,Makati City, and ANTONIO D.
TODARO, October 11, 2007

Respondents.

x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case
This is a petition for review on certiorari[1] of the Decision[2] dated 27 September 2001 and of the
Resolution[3] dated 14 January 2003 of the Court of Appeals (appellate court) in CA-G.R. SP No.
54062. The Decision affirmed the Orders[4] dated 4 January 1999[5] and 3 June 1999[6] of Branch 147 of
the Regional Trial Court of Makati City (trial court) in Civil Case No. 98-124. The trial court denied the
motion to dismiss filed by Pioneer International, Ltd. (PIL)[7] in its special appearance.

The Facts

On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for sum of money and damages with
preliminary attachment against PIL, Pioneer Concrete Philippines, Inc. (PCPI), Pioneer Philippines
Holdings, Inc. (PPHI), John G. McDonald (McDonald), and Philip J. Klepzig (Klepzig). PIL and its co-
defendants were served copies of the summons and of the complaint at PPHI andPCPIs office
in Alabang, Muntinlupa, through Cecille L. De Leon (De Leon), who was Klepzigs Executive Assistant.

Todaro alleged that PIL is a corporation duly organized under Australian laws, while PCPI and PPHI are
corporations duly organized under Philippine laws. PIL is engaged in the ready-mix and concrete
aggregates business and has established a presence worldwide.PIL established PPHI as the holding
company of the stocks of its operating company in the Philippines, PCPI. McDonald is the Chief
Executive Officer of PILs Hong Kong office while Klepzig is the President and Managing Director of PPHI
and PCPI. For his part, Todaro further alleged that he was the managing director
of Betonval Readyconcrete, Inc. (Betonval) from June 1975 up to his resignation in February 1996.

Before Todaro filed his complaint, there were several meetings and exchanges of letters
between Todaro and the officers of Pioneer Concrete (Hong Kong) Limited, Pioneer Concrete Group HK,
PPHI, and PIL. According to Todaro, PIL contacted him in May 1996 and asked if he could join it in
establishing a pre-mixed concrete plant and in overseeing its operations in
the Philippines.Todaro confirmed his availability and expressed interest in joining PIL. Todaro met with
several of PILs representatives and even gave PIL the names of three of his subordinates
in Betonval whom he would like to join him in PIL.

Todaro attached nine letters, marked as Annexes A to I,

to his complaint. Annex A[8] shows that on 15 July 1996, Todaro, under the letterhead of Ital Tech
Distributors, Inc., sent a letter to Max Lindsay (Lindsay) of Pioneer Concrete (Hong Kong)
Limited. Todaro wrote that [m]y aim is to run again a ready-mix concrete company in
the Philippines and not to be a part-time consultant. Otherwise, I could have charged your company
with a much higher fee.

Annex B[9] shows that on 4 September 1996, Lindsay, under the letterhead of Pioneer Concrete (Hong
Kong) Limited, responded by fax to Todaros faxed letter to McDonald and proposed that Todaro join
Pioneer on a retainer basis for 2 to 3 months on the understanding that [Todaro] would become a
permanent employee if as we expect, our entry proceeds. The faxed letter to McDonald referred to by
Lindsay is not found in the rollo and was not attached to Todaros complaint.

Annex C[10] shows that on the same date as that of Annex B, Todaro, under the letterhead of Ital Tech
Distributors, Inc., faxed another letter to Lindsay of Pioneer Concrete (Hong Kong)
Limited. Todaro asked for a formal letter addressed to him about the proposed
retainer. Todaro requested that the letter contain a statement on his remuneration package and on his
permanent employment with PIONEER once it has established itself on a permanent basis in
the Philippines.

Annex D[11] shows that Todaro, under the letterhead of Ital Tech Distributors, Inc., sent a letter to
McDonald of PIL. Todaroconfirmed the following to McDonald:

1. That I am accepting the proposal of PIONEER INTL. as a consultant for three (3) months,
starting October 1, 1996, with a retainer fee of U.S. $15,000.00 per month;
2. That after three (3) months consultancy, I should be employed by PIONEER INTL., on a
permanent basis, as its Managing Director or CEO in the Philippines. Remuneration package will be
mutually agreed upon by PIONEER and the undersigned;

3. That Gino Martinel and the Sales Manager Jun Ong, will be hired as well, on a permanent
basis, by PIONEER as soon as the company is established. Salary, likewise, will be accepted by both
PIONEER and the respective parties.

Annex E[12] is a faxed letter dated 18 November 1996 of McDonald, under the letterhead of Pioneer
Concrete Group HK, to Todaroof Ital Tech Distributors, Inc. The first three paragraphs of McDonalds
letter read:

Further to our recent meeting in Hong Kong, I am now able to confirm my offer to engage you as a
consultant to Pioneer International Ltd. Should Pioneer proceed with an investment in the Philippines,
then Pioneer would offer you a position to manage the premixed concrete operations.

Pioneer will probably be in a position to make a decision on proceeding with an investment by mid
January 97.

The basis for your consultancy would be:

n Monthly fee USD 15,000 per month billed on monthly basis and payable 15 days from
billing date.

n Additional pre-approved expenses to be reimbursed.

n Driver and secretarial support-basis for reimbursement of this to be agreed.

n Arrangement to commence from 1st November 96, reflecting your contributions so far
and to continue until Pioneer makes a decision.

Annex F[13] shows Todaros faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald
of Pioneer Concrete Group HK dated 19 November 1996. Todaro confirmed McDonalds package
concerning the consultancy and reiterated his desire to be the manager of Pioneers Philippine business
venture.

Annex G[14] shows Todaros faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald
of PIL dated 8 April 1997. Todaro informed McDonald that he was willing to extend assistance to the
Pioneer representative from Queensland. The tenor of the letter revealed that Todaro had not yet
occupied his expected position.

Annex H[15] shows Klepzigs letter, under the letterhead of PPHI, to Todaro dated 18 September
1997. Klepzigs message reads:

It has not proven possible for this company to meet with your expectations regarding the conditions of
your providing Pioneer with consultancy services. This, and your refusal to consider my terms of offer
of permanent employment, leave me no alternative but to withdraw these offers of employment with
this company.

As you provided services under your previous agreement with our Pioneer Hong Kong office during the
month of August, I will see that they pay you at the previous rates until the end of August. They have
authorized me on behalf of Pioneer International Ltd. to formally advise you that the agreement will
cease from August 31st as per our previous discussions.

Annex I[16] shows the letter dated 20 October 1997 of K.M. Folwell (Folwell), PILs Executive General
Manager of Australia and Asia, to Todaro. Folwell confirmed the contents of Klepzigs 18 September
1997 letter. Folwells message reads:
Thank you for your letter to Dr. Schubert dated 29th September 1997 regarding the alleged breach of
contract with you. Dr. Schubert has asked me to investigate this matter.

I have discussed and examined the material regarding your association with Pioneer over the period
from mid 1996 through to September 1997.

Clearly your consultancy services to Pioneer Hong Kong are well documented and have been
appropriately rewarded. However, in regard to your request and expectation to be given permanent
employment with Pioneer Philippines Holdings, Inc. I am informed that negotiations to reach
agreement on appropriate terms and conditions have not been successful.

The employment conditions you specified in your letter to John McDonald dated 11 th September are
well beyond our expectations.

Mr. Todaro, I regret that we do not wish to pursue our association with you any further. Mr. Klepzig was
authorized to terminate this association and the letter he sent to you dated 18 th September has my
support.

Thank you for your involvement with Pioneer. I wish you all the best for the future. (Emphasis added)

PIL filed, by special appearance, a motion to dismiss Todaros complaint. PILs co-defendants, PCPI, PPHI,
and Klepzig, filed a separate motion to dismiss.[17] PIL asserted that the trial court has no jurisdiction
over PIL because PIL is a foreign corporation not doing business in the Philippines. PIL also questioned
the service of summons on it. Assuming arguendo that Klepzig is PILs agent in the Philippines, it was
not Klepzig but De Leon who received the summons for PIL. PIL further stated that the National Labor
Relations Commission (NLRC), and not the trial court, has jurisdiction over the subject matter of the
action. It claimed that assuming that the trial court has jurisdiction over the subject matter of the
action, the complaint should be dismissed on the ground of forum non-conveniens. Finally, PIL
maintained that the complaint does not state a cause of action because there was no perfected
contract, and no personal judgment could be rendered by the trial court against PIL because PIL is a
foreign corporation not doing business in the Philippines and there was improper service of summons
on PIL.

Todaro filed a Consolidated Opposition dated 26 August 1998 to refute PILs assertions. PIL filed, still by
special appearance, a Reply on 2 October 1998.

The Ruling of the Trial Court

On 4 January 1999, the trial court issued an order[18] which ruled in favor of Todaro. The trial court
denied the motions to dismiss filed by PIL, PCPI, PPHI, and Klepzig.

The trial court stated that the merits of a motion to dismiss a complaint for lack of cause of action are
tested on the strength of the allegation of facts in the complaint. The trial court found that the
allegations in the complaint sufficiently establish a cause of action.The trial court declared
that Todaros cause of action is based on an alleged breach of a contractual obligation and an alleged
violation of Articles 19 and 21 of the Civil Code. Therefore, the cause of action does not lie within the
jurisdiction of the NLRC but with the trial court.

The trial court also asserted its jurisdiction over PIL, holding that PIL did business in
the Philippines when it entered into a contract with Todaro. Although PIL questions the service of
summons on Klepzig, whom PIL claims is not its agent, the trial court ruled that PIL failed to adduce
evidence to prove its contention. Finally, on the issue of forum non-conveniens, the trial court found
that it is more convenient to hear and decide the case in the Philippines because Todaro resides in
the Philippines and the contract allegedly breached involves employment in the Philippines.

PIL filed an urgent omnibus motion for the reconsideration of the trial courts 4 January 1999 order and
for the deferment of filing its answer. PCPI, PPHI, and Klepzig likewise filed an urgent omnibus
motion. Todaro filed a consolidated opposition, to which PIL, PCPI, PPHI, and Klepzig filed a joint
reply. The trial court issued an order[19] on 3 June 1999 denying the motions of PIL, PCPI, PPHI,
and Klepzig. The trial court gave PIL, PCPI, PPHI, and Klepzig 15 days within which to file their
respective answers.
PIL did not file an answer before the trial court and instead filed a petition for certiorari before the
appellate court.

The Ruling of the Appellate Court

The appellate court denied PILs petition and affirmed the trial courts
ruling in toto. The dispositive portion of the appellate courts decision reads:

WHEREFORE, premises considered, the present petition for certiorari is hereby DENIED DUE COURSE
and accordingly DISMISSED. The assailed Orders dated January 4, 1999 and June 3, 1999 of
the Regional Trial Court of Makati City, Branch 147, in Civil Case No, 98-124 are hereby AFFIRMED
in toto.

SO ORDERED.[20]

On 14 January 2003, the appellate court dismissed [21] PILs motion for reconsideration for lack of
merit. The appellate court stated that PILs motion raised no new substantial or weighty arguments that
could impel the appellate court from departing or overturning its previous decision. PIL then filed a
petition for review on certiorari before this Court.

The Issues

PIL raised the following issues before this Court:

A. [The trial court] did not and cannot acquire jurisdiction over the person of [PIL] considering that:

A.1. [PIL] is a foreign corporation not doing business in the Philippines.

A.2. Moreover, the complaint does not contain appropriate allegations of ultimate facts showing that
[PIL] is doing or transacting business in the Philippines.

A.3. Assuming arguendo that jurisdiction may be acquired over the person of [PIL], [the trial court] still
failed to acquire jurisdiction since summons was improperly served on [PIL].

B. [Todaro] does not have a cause of action and the complaint fails to state a cause of
action. Jurisprudence is settled in that in resolving a motion to dismiss, a court can consider all the
pleadings filed in the case, including annexes, motions and all evidence on record.

C. [The trial court] did not and cannot acquire jurisdiction over the subject matter of the complaint
since the allegations contained therein indubitably show that [Todaro] bases his claims on an alleged
breach of an employment contract. Thus, exclusive jurisdiction is vested with the [NLRC].

D. Pursuant to the principle of forum non-conveniens, [the trial court] committed grave abuse of
discretion when it took cognizance of the case.[22]
The Ruling of the Court

The petition has partial merit. We affirm with modification the rulings of the trial and appellate
courts. Apart from the issue on service of summons, the rulings of the trial and appellate courts on the
issues raised by PIL are correct.

Cause of Action

Section 2, Rule 2 of the 1997 Rules of Civil Procedure states that a cause of action is the act or
omission by which a party violates a right of another.

The general rule is that the allegations in a complaint are sufficient to constitute a cause of action
against the defendants if, admitting the facts alleged, the court can render a valid judgment upon the
same in accordance with the prayer therein. A cause of action exists if the following elements are
present, namely: (1) a right in favor of the plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate
such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff
or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may
maintain an action for recovery of damages.[23]

In the present case, the summary of Todaros allegations states that PIL, PCPI, PPHI, McDonald,
and Klepzig did not fulfill their contractual obligation to employ Todaro on a permanent basis
in PILs Philippine office. Todaros allegations are thus sufficient to establish a cause of action. We quote
with approval the trial courts ruling on this matter:

On the issue of lack of cause of action It is well-settled that the merits of a motion to dismiss a
complaint for lack of cause of action is tested on the strength of the allegations of fact contained in the
complaint and no other (De Jesus, et al. vs. Belarmino, et al., 95 Phil. 366 [1954]). This Court finds that
the allegations of the complaint, specifically paragraphs 13-33 thereof, paragraphs 30-33 alleging as
follows:

30. All of the acts set forth in the foregoing have been done with the knowledge, consent and/or
approval of the defendants who acted in concert and/or in conspiracy with one another.

31. Under the circumstances, there is a valid contract entered into between [Todaro] and the Pioneer
Group, whereby, among others, the Pioneer Group would employ [Todaro], on a permanent basis, to
manage and operate the ready-mix concrete operations, if the Pioneer Group decides to invest in the
Philippines.

32. The Pioneer Group has decided to invest in the Philippines. The refusal of the defendants to comply
with the Pioneer Groups undertaking to employ [Todaro] to manage their Philippine ready-mix
operations, on a permanent basis, is a direct breach of an obligation under a valid and perfected
contract.

33. Alternatively, assuming without conceding, that there was no contractual obligation on the part of
the Pioneer Group to employ [Todaro] on a permanent basis, in their Philippine operations, the Pioneer
Group and the other defendants did not act with justice, give [Todaro] his due and observe honesty
and good faith and/or they have willfully caused injury to [Todaro] in a manner that is contrary to
morals, good customs, and public policy, as mandated under Arts. 19 and 21 of the New Civil Code.

sufficiently establish a cause of action for breach of contract and/or violation of Articles 19 and 21 of
the New Civil Code. Whether or not these allegations are true is immaterial for the court cannot inquire
into the truth thereof, the test being whether, given the allegations of fact in the complaint, a valid
judgment could be rendered in accordance with the prayer in the complaint. [24]

It should be emphasized that the presence of a cause of action rests on the sufficiency, and not on the
veracity, of the allegations in the complaint. The veracity of the allegations will have to be examined
during the trial on the merits. In resolving a motion to dismiss based on lack of cause of action, the
trial court is limited to the four corners of the complaint and its annexes. It is not yet necessary for the
trial court to examine the truthfulness of the allegations in the complaint. Such examination is proper
during the trial on the merits.
Forum Non-Conveniens

The doctrine of forum non-conveniens requires an examination of the truthfulness of the allegations in
the complaint. Section 1, Rule 16 of the 1997 Rules of Civil Procedure does not mention forum non-
conveniens as a ground for filing a motion to dismiss. The propriety of dismissing a case based
on forum non-conveniens requires a factual determination; hence, it is more properly considered a
matter of defense. While it is within the discretion of the trial court to abstain from assuming
jurisdiction on this ground, the trial court should do so only after vital facts are established to
determine whether special circumstances require the courts desistance. [25]

Jurisdiction over PIL

PIL questions the trial courts exercise of jurisdiction over it on two levels. First, that PIL is a foreign
corporation not doing business in the Philippines and because of this, the service of summons on PIL
did not follow the mandated procedure. Second, that Todarosclaims are based on an alleged breach of
an employment contract so Todaro should have filed his complaint before the NLRC and not before the
trial court.

Transacting Business in the Philippines and

Service of Summons

The first level has two sub-issues: PILs transaction of business in the Philippines and the service of
summons on PIL. Section 12, Rule 14 of the 1997 Rules of Civil Procedure provides the manner by
which summons may be served upon a foreign juridical entity which has transacted business in
the Philippines. Thus:

Service upon foreign private juridical entity. When the defendant is a foreign juridical entity which has
transacted 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 any of its officers or agents within the Philippines.

As to the first sub-issue, PIL insists that its sole act of transacting or doing business in
the Philippines consisted of its investment in PPHI. Under Philippine law, PILs mere investment in PPHI
does not constitute doing business. However, we affirm the lower courts ruling and declare that, based
on the allegations in Todaros complaint, PIL was doing business in the Philippines when it
negotiatedTodaros employment with PPHI. Section 3(d) of Republic Act No. 7042, Foreign Investments
Act of 1991, states:

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 totaling 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; (Emphases added)
PILs alleged acts in actively negotiating to employ Todaro to run its pre-mixed concrete operations in
the Philippines, which acts are hypothetically admitted in PILs motion to dismiss, are not mere acts of a
passive investor in a domestic corporation. Such are managerial and operational acts in directing and
establishing commercial operations in the Philippines. The annexes that Todaroattached to his
complaint give us an idea on the extent of PILs involvement in the negotiations
regarding Todaros employment. In Annex E, McDonald of Pioneer Concrete Group HK confirmed his
offer to engage Todaro as a consultant of PIL. In Annex F,Todaro accepted the consultancy. In Annex
H, Klepzig of PPHI stated that PIL authorized him to tell Todaro about the cessation of his
consultancy. Finally, in Annex I, Folwell of PIL wrote to Todaro to confirm that Pioneer no longer wishes
to be associated withTodaro and that Klepzig is authorized to terminate this association. Folwell further
referred to a Dr. Schubert and to Pioneer Hong Kong. These confirmations and references tell us that, in
this instance, the various officers and companies under the Pioneer brand name do not work
independently of each other. It cannot be denied that PIL had knowledge of and even authorized the
non-implementation of Todaros alleged permanent employment. In fact, in the letters to Todaro, the
word Pioneer was used to refer not just to PIL alone but also to all corporations negotiating
with Todaro under the Pioneer name.

As further proof of the interconnection of the various Pioneer corporations with regard to their
negotiations with Todaro, McDonald of Pioneer Concrete Group HK confirmed Todaros engagement as
consultant of PIL (Annex E) while Folwell of PIL stated that Todaro rendered consultancy services to
Pioneer HK (Annex I). In this sense, the various Pioneer corporations were not acting as separate
corporations. The behavior of the various Pioneer corporations shoots down their defense that the
corporations have separate and distinct personalities, managements, and operations. The various
Pioneer corporations were all working in concert to negotiate an employment contract
between Todaro and PPHI, a domestic corporation.

Finally, the phrase doing business in the Philippines in the former version of Section 12, Rule 14 now
reads has transacted business in the Philippines. The scope is thus broader in that it is enough for the
application of the Rule that the foreign private juridical entity has transacted business in
the Philippines.[26]

As to the second sub-issue, the purpose of summons is not only to acquire jurisdiction over the person
of the defendant, but also to give notice to the defendant that an action has been commenced against
it and to afford it an opportunity to be heard on the claim made against it. The requirements of the rule
on summons must be strictly followed; otherwise, the trial court will not acquire jurisdiction over the
defendant.

When summons is to be served on a natural person, service of summons should be made in person on
the defendant.[27]Substituted service is resorted to only upon the concurrence of two requisites: (1)
when the defendant cannot be served personally within a reasonable time and (2) when there is
impossibility of prompt service as shown by the statement in the proof of service in the efforts made to
find the defendant personally and that such efforts failed. [28]

The statutory requirements of substituted service must be followed strictly, faithfully, and fully, and
any substituted service other than by the statute is considered ineffective. Substituted service is in
derogation of the usual method of service. It is a method extraordinary in character and may be used
only as prescribed and in the circumstances authorized by the statute. [29] The need for strict
compliance with the requirements of the rule on summons is also exemplified in the exclusive
enumeration of the agents of a domestic private juridical entity who are authorized to receive
summons.

At present, Section 11 of Rule 14 provides that when the defendant is a domestic private juridical
entity, service may be made on the president, managing partner, general manager, corporate
secretary, treasurer, or in-house counsel. The previous version of Section 11 allowed for the service of
summons on the president, manager, secretary, cashier, agent, or any of its directors. The present
Section 11 qualified manager to general manager and secretary to corporate secretary. The present
Section 11 also removed cashier, agent, or any of its directors from the exclusive enumeration.

When summons is served on a foreign juridical entity, there are three prescribed ways: (1) service on
its resident agent designated in accordance with law for that purpose, (2) service on the government
official designated by law to receive summons if the corporation does not have a resident agent, and
(3) service on any of the corporations officers or agents within the Philippines. [30]

In the present case, service of summons on PIL failed to follow any of the prescribed processes. PIL had
no resident agent in thePhilippines. Summons was not served on the Securities and Exchange
Commission (SEC), the designated government agency, [31]since PIL is not registered with the
SEC. Summons for PIL was served on De Leon, Klepzigs Executive Assistant. Klepzig is PILsagent within
the Philippines because PIL authorized Klepzig to notify Todaro of the cessation of his consultancy
(Annexes H and I).[32] The authority given by PIL to Klepzig to notify Todaro implies
that Klepzig was likewise authorized to receive Todarosresponse to PILs notice. Todaro responded
to PILs notice by filing a complaint before the trial court.

However, summons was not served personally on Klepzig as agent of PIL. Instead, summons was
served on De Leon, KlepzigsExecutive Assistant. In this instance, De Leon was not PILs agent but a
mere employee of Klepzig. In effect, the sheriff[33] resorted to substituted service. For symmetry, we
apply the rule on substituted service of summons on a natural person and we find that no reason was
given to justify the service of PILs summons on De Leon.

Thus, we rule that PIL transacted business in the Philippines and Klepzig was its agent within
the Philippines. However, there was improper service of summons on PIL since summons was not
served personally on Klepzig.

NLRC Jurisdiction

As to the second level, Todaro prays for payment of damages due him because of PILs non-
implementation of Todaros alleged employment agreement with PPHI. The appellate court stated its
ruling on this matter, thus:

It could not be denied that there was no existing contract yet to speak of between PIONEER INTL. and
[Todaro]. Since there was an absence of an employment contract between the two parties, this Court is
of the opinion and so holds that no employer-employee relationship actually exists.Record reveals that
all that was agreed upon by [Todaro] and the Pioneer Concrete, acting in behalf of PIONEER INTL., was
the confirmation of the offer to engage the services of the former as consultant of PIONEER INTL.
(Rollo, p. 132). The failure on the part of PIONEER INTL. to abide by the said agreement, which was
duly confirmed by PIONEER INTL., brought about a breach of an obligation on a valid and perfected
agreement.There being no employer-employee relationship established between [PIL] and [Todaro], it
could be said that the instant case falls within the jurisdiction of the regular courts of justice as the
money claim of [Todaro] did not arise out of or in connection with [an] employer-employee relationship.
[34]

Todaros employment in the Philippines would not be with PIL but with PPHI as stated in the 20 October
1997 letter of Folwell. Assuming the existence of the employment agreement, the employer-employee
relationship would be between PPHI and Todaro, not between PIL and Todaro. PILs liability for the non-
implementation of the alleged employment agreement is a civil dispute properly belonging to the
regular courts. Todaros causes of action as stated in his complaint are, in addition to breach of
contract, based on violation of Articles 19 and 21 of the New Civil Code for the clear and evident bad
faith and malice[35] on the part of defendants. The NLRCs jurisdiction is limited to those enumerated
under Article 217 of the Labor Code.[36]

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated 27 September 2001 and the
Resolution dated 14 January 2003 of the appellate court are AFFIRMED with the MODIFICATION that
there was improper service of summons on Pioneer International, Ltd. The case is remanded to the trial
court for proper service of summons and trial. No costs.

SO ORDERED.
G.R. No. 159586 July 26, 2004

EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J. WENCESLAO, petitioners,

vs.
INGENIEUBURO BIRKHAHN + NOLTE, Ingeniurgesellschaft mbh and HEERS & BROCKSTEDT GMBH &
CO., respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this Petition for Review under Rule 45 of the Rules of Court is the Decision 1 of the Court of
Appeals dated May 15, 2003, which sustained the Order of the Regional Trial Court of Angeles City,
Branch 61, dated June 28, 2001, and its subsequent Resolution dated August 3, 2003 denying
petitioners motion for reconsideration.

European Resources and Technologies Inc. (hereinafter "ERTI"), a corporation organized and existing
under the laws of the Republic of the Philippines, is joined by Delfin J. Wenceslao as petitioner in this
case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers & Brockstedt Gmbh & Co. are
German corporations who are respondents in this case and shall be collectively referred to as the
"German Consortium".

The German Consortium tendered and submitted its bid to the Clark Development Corporation ("CDC")
to construct, operate and manage the Integrated Waste Management Center at the Clark Special
Economic Zone ("CSEZ"). CDC accepted the German Consortiums bid and awarded the contract to it.
On October 6, 1999, CDC and the German Consortium executed the Contract for Services 2 which
embodies the terms and conditions of their agreement.

The Contract for Services provides that the German Consortium shall be empowered to enter into a
contract or agreement for the use of the integrated waste management center by corporations, local
government units, entities, and persons not only within the CSEZ but also outside. For waste collected
within the CSEZ, the German Consortium may impose a "tipping fee" per ton of waste collected from
locators and residents of the CSEZ, which fees shall be subject to the schedule agreed upon by the
parties and specified in the Contract for Services. For its operations outside of the CSEZ, the German
Consortium shall pay CDC US$1.50 per ton of non-hazardous solid waste collected. 3 The CDC shall
guarantee that nineteen thousand eighteen hundred (19,800) tons per year of solid waste volume shall
be collected from inside and outside the CSEZ.4 The contract has a term of twenty-five (25)
years,5 during which time the German Consortium shall operate the waste management center on a
day-to-day basis.6

Article VIII, Section 7 of the Contract for Services provides that the German Consortium shall undertake
to organize a local corporation as its representative for this project. On April 18, 2000, the German
Consortium entered into a Joint Venture with D.M. Wenceslao and Associates, Inc. ("DMWAI") and Ma.
Elena B. Villarama (doing business as LBV and Associates), embodied in a Memorandum of
Understanding7 ("MOU") signed by the parties. Under the MOU, the parties agreed to jointly form a
local corporation to which the German Consortium shall assign its rights under the Contract for
Services. Pursuant to this agreement, petitioner European Resources and Technologies, Inc. was
incorporated. The parties likewise agreed to prepare and finalize a Shareholders Agreement within one
(1) month from the execution of the MOU, which shall provide that the German Consortium shall own
fifteen percent (15%) of the equity in the joint venture corporation, DMWAI shall own seventy percent
(70%) and LBV&A shall own fifteen percent (15%). In the event that the parties fail to execute the
Shareholders Agreement, the MOU shall be considered null and void. 8

On August 1, 2000, without the Shareholders Agreement having been executed, the German
Consortium and petitioner ERTI entered into a Memorandum of Agreement (MOA) 9 whereby the
German Consortium ceded its rights and obligations under the Contract for Services in favor of ERTI
and assigned unto ERTI, among others, "its license from CDC to engage in the business of providing
environmental services needed in the CSEZ in connection with the waste management within the CSEZ
and other areas."10 Likewise, the parties agreed that should there be a disagreement between or
among them relative to the interpretation or implementation of the MOA and the collateral documents
including but not limited to the Contract for Services between the German Consortium and CDC, the
dispute shall be referred to a panel of arbitrators.11

On December 11, 2000, ERTI received a letter from BN Consultants Philippines, Inc., signed by Mr.
Holger Holst for and on behalf of the German Consortium, 12 stating that the German Consortiums
contract with DMWAI, LBV&A and ERTI has been terminated or extinguished on the following grounds:
(a) the CDC did not give its approval to the Consortiums request for the approval of the assignment or
transfer by the German Consortium in favor of ERTI of its rights and interests under the Contract for
Services; (b) the parties failed to prepare and finalize the Shareholders Agreement pursuant to the
provision of the MOU; (c) there is no more factual or legal basis for the joint venture to continue; and
(d) with the termination of the MOU, the MOA is also deemed terminated or extinguished.

Attached to the letter was a copy of the letter of the CDC, 13 stating that the German Consortiums
assignment of an eighty-five percent (85%) majority interest to another party violated its
representation to undertake both the financial and technical aspects of the project. The dilution of the
Consortiums interest in ERTI is a substantial modification of the Consortiums representations which
were used as bases for the award of the project to it.

On February 20, 2001, petitioner ERTI, through counsel, sent a letter to CDC requesting for the
reconsideration of its disapproval of the agreement between ERTI and the German Consortium.

Before CDC could act upon petitioner ERTIs letter, the German Consortium filed a complaint for
injunction against herein petitioners before the Regional Trial Court of Angeles City, Branch 61,
docketed as Civil Case No. 10049. The German Consortium claimed that petitioner ERTIs continued
misrepresentation as to their right to accept solid wastes from third parties for processing at the waste
management center will cause irreparable damage to the Consortium and its exclusive right to operate
the waste management center at the CSEZ. Moreover, petitioner ERTIs acts destroy the Consortiums
credibility and undermine customer confidence in it. Hence, the German Consortium prayed that a writ
of temporary restraining order be issued against petitioner ERTI and, after hearing, a writ of
preliminary injunction be likewise issued ordering petitioner ERTI to cease and desist from
misrepresenting to third parties or the public that it has any right or interest in the waste management
center at CSEZ.14

Petitioners filed their Opposition to the application for preliminary injunction on February 7, 2001. The
following day, February 8, 2001, petitioners sent respondents, through Mr. Holger Holst, a letter
demanding that the parties proceed to arbitration in accordance with Section 17 of the MOA. At the
hearings on the application for injunction, petitioners objected to the presentation of evidence on the
ground that the trial court had no jurisdiction over the case since the German Consortium was
composed of foreign corporations doing business in the country without a license. Moreover, the MOA
between the parties provides that the dispute should be referred to arbitration.

The trial court overruled the objection and proceeded with the hearing. On June 28, 2001, the trial
court issued an Order granting the writ of preliminary injunction. 15 Petitioners filed a motion for
reconsideration, which was denied in a Resolution dated November 21, 2001.

On January 17, 2002, petitioners filed a petition for certiorari and prohibition under Rule 65 of the Rules
of Court before the Court of Appeals, assailing the trial courts Orders dated June 28, 2001 and
November 21, 2001.

Meanwhile, on February 11, 2002, the temporary restraining order issued was lifted in view of
respondents failure to file sufficient bond.16 On September 6, 2002, all proceedings in Civil Case No.
10049 were suspended until the petition for certiorari pending before the Court of Appeals shall have
been resolved.17

On May 15, 2003, the Court of Appeals dismissed the petition for certiorari. Petitioners Motion for
Reconsideration was denied in a Resolution dated August 25, 2003.

Hence, this petition arguing that the Court of Appeals committed reversible error in:

(a) Ruling that petitioners are estopped from assailing the capacity of the respondents to institute the
suit for injunction

(b) Ruling that respondents are entitled to an injunctive writ.

(c) Not holding that the dispute is covered by the arbitration clause in the memorandum of agreement.

(d) Issuing the writ of preliminary injunction that is tantamount to a decision of the case on the
merits.18

The petition is partly meritorious.

There is no general rule or governing principle laid down as to what constitutes "doing" or "engaging
in" or "transacting" business in the Philippines. Thus, it has often been held that a single act or
transaction may be considered as "doing business" when a corporation performs acts for which it was
created or exercises some of the functions for which it was organized. 19 We have held that the act of
participating in a bidding process constitutes "doing business" because it shows the foreign
corporations intention to engage in business in the Philippines. In this regard, it is the performance by
a foreign corporation of the acts for which it was created, regardless of volume of business, that
determines whether a foreign corporation needs a license or not. 20
Consequently, the German Consortium is doing business in the Philippines without the appropriate
license as required by our laws. By participating in the bidding conducted by the CDC for the operation
of the waste management center, the German Consortium exhibited its intent to transact business in
the Philippines. Although the Contract for Services provided for the establishment of a local
corporation to serve as respondents representative, it is clear from the other provisions of the
Contract for Services as well as the letter by the CDC containing the disapproval that it will be the
German Consortium which shall manage and conduct the operations of the waste management center
for at least twenty-five years. Moreover, the German Consortium was allowed to transact with other
entities outside the CSEZ for solid waste collection. Thus, it is clear that the local corporation to be
established will merely act as a conduit or extension of the German Consortium.

As a general rule, unlicensed foreign non-resident corporations cannot file suits in the Philippines.
Section 133 of the Corporation Code specifically provides:

SECTION 133. No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines, but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.

A corporation has legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the Philippines. In
order to subject a foreign corporation doing business in the country to the jurisdiction of our courts, it
must acquire a license from the Securities and Exchange Commission (SEC) and appoint an agent for
service of process. Without such license, it cannot institute a suit in the Philippines. 21

However, there are exceptions to this rule. In a number of cases, 22 we have declared a party estopped
from challenging or questioning the capacity of an unlicensed foreign corporation from initiating a suit
in our courts. In the case of Communication Materials and Design, Inc. v. Court of Appeals,23 a foreign
corporation instituted an action before our courts seeking to enjoin a local corporation, with whom it
had a "Representative Agreement", from using its corporate name, letter heads, envelopes, sign
boards and business dealings as well as the foreign corporations trademark. The case arose when the
foreign corporation discovered that the local corporation has violated certain contractual commitments
as stipulated in their agreement. In said case, we held that a foreign corporation doing business in the
Philippines without license may sue in Philippine Courts a Philippine citizen or entity that had
contracted with and benefited from it.

Hence, the party is estopped from questioning the capacity of a foreign corporation to institute an
action in our courts where it had obtained benefits from its dealings with such foreign corporation and
thereafter committed a breach of or sought to renege on its obligations. The rule relating to estoppel is
deeply rooted in the axiom ofcommodum ex injuria sua non habere debetno person ought to derive
any advantage from his own wrong.

In the case at bar, petitioners have clearly not received any benefit from its transactions with the
German Consortium. In fact, there is no question that petitioners were the ones who have expended a
considerable amount of money and effort preparatory to the implementation of the MOA. Neither do
petitioners seek to back out from their obligations under both the MOU and the MOA by challenging
respondents capacity to sue. The reverse could not be any more accurate. Petitioners are insisting on
the full validity and implementation of their agreements with the German Consortium.

To rule that the German Consortium has the capacity to institute an action against petitioners even
when the latter have not committed any breach of its obligation would be tantamount to an unlicensed
foreign corporation gaining access to our courts for protection and redress. We cannot allow this
without violating the very rationale for the law prohibiting a foreign corporation not licensed to do
business in the Philippines from suing or maintaining an action in Philippine courts. The object of
requiring a license is not to prevent the foreign corporation from performing single acts, but to prevent
it from acquiring domicile for the purpose of business without taking the steps necessary to render it
amenable to suits in the local courts.24 In other words, the foreign corporation is merely prevented from
being in a position where it takes the good without accepting the bad.

On the issue of whether the respondents were entitled to the injunctive writ, the petitioners claim that
respondents right is not in esse but is rather a future right which is contingent upon a judicial
declaration that the MOA has been validly rescinded. The Court of Appeals, in its decision, held that the
MOA should be deemed subject to a suspensive condition, that is, that CDCs prior written consent
must be obtained for the validity of the assignment.

This issue must be resolved in a separate proceeding. It must be noted that the hearing conducted in
the trial court was merely a preliminary hearing relating to the issuance of the injunctive writ. In order
to fully appreciate the facts of this case and the surrounding circumstances relating to the agreements
and contract involved, further proof should be presented for consideration of the court. Likewise,
corollary matters, such as whether either of the parties is liable for damages and to what extent,
cannot be resolved with absolute certainty, thus rendering any decision we might make incomplete as
to fully dispose of this case.
More importantly, it is evident that CDC must be made a proper party in any case which seeks to
resolve the effectivity or ineffectivity of its disapproval of the assignment made between petitioners
and respondent German Consortium. Where, as in the instant case, CDC is not impleaded as a party,
any decision of the court which will inevitably affect or involve CDC cannot be deemed binding on it.

For the same reason, petitioners assertion that the instant case should be referred to arbitration
pursuant to the provision of the MOA is untenable.

We have ruled in several cases that arbitration agreements are valid, binding, enforceable and not
contrary to public policy such that when there obtains a written provision for arbitration which is not
complied with, the trial court should suspend the proceedings and order the parties to proceed to
arbitration in accordance with the terms of their agreement. 25 In the case at bar, the MOA between
petitioner ERTI and respondent German Consortium provided:

17. Should there be a disagreement between or among the Parties relative to the interpretation or
implementation of this Agreement and the collateral documents including but not limited to the
Contract for Services between GERMAN CONSORTIUM and CDC and the Parties cannot resolve the
same by themselves, the same shall be endorsed to a panel of arbitrators which shall be convened in
accordance with the process ordained under the Arbitration Law of the Republic of the Philippines. 26

Indeed, to brush aside a contractual agreement calling for arbitration in case of disagreement between
parties would be a step backward.27 But there are exceptions to this rule. Even if there is an arbitration
clause, there are instances when referral to arbitration does not appear to be the most prudent action.
The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue before
us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration
proceedings and trial, or suspension of trial pending arbitration. 28

As discussed earlier, the dispute between respondent German Consortium and petitioners involves the
disapproval by the CDC of the assignment by the German Consortium of its rights under the Contract
for Services to petitioner ERTI. Admittedly, the arbitration clause is contained in the MOA to which only
the German Consortium and petitioner ERTI were parties. Even if the case is brought before an
arbitration panel, the decision will not be binding upon CDC who is a non-party to the arbitration
agreement. What is more, the arbitration panel will not be able to completely dispose of all the issues
of this case without including CDC in its proceedings. Accordingly, the interest of justice would only be
served if the trial court hears and adjudicates the case in a single and complete proceeding.

Lastly, petitioners question the propriety of the issuance of writ of preliminary injunction claiming that
such is already tantamount to granting the main prayer of respondents complaint without the benefit
of a trial. Petitioners point out that the purpose of a preliminary injunction is to prevent threatened or
continuous irremediable injury to some of the parties before their claims can be thoroughly studied
and decided. It cannot be used to railroad the main case and seek a judgment without a full-blown trial
as in the instant case.

The Court of Appeals ruled that since petitioners did not raise this issue during the hearing on the
application for preliminary injunction before the trial court, the same cannot be raised for the first time
on appeal and even in special civil actions for certiorari as in this case.

At the outset, it must be noted that with the finding that the German Consortium is without any
personality to file the petition with the trial court, the propriety of the injunction writ issued is already
moot and academic. Even assuming for the sake of argument that respondents have the capacity to
file the petition, we find merit in the issue raised by petitioners against the injunction writ issued.

Before an injunctive writ can be issued, it is essential that the following requisites are present: (1)
there must be a right in esse or the existence of a right to be protected; and (2) the act against which
injunction to be directed is a violation of such right. 29 The onus probandi is on movant to show that
there exists a right to be protected, which is directly threatened by the act sought to be enjoined.
Further, there must be a showing that the invasion of the right is material and substantial and that
there is an urgent and paramount necessity for the writ to prevent a serious damage. 30

Thus, it is clear that for the issuance of the writ of preliminary injunction to be proper, it must be
shown that the invasion of the right sought to be protected is material and substantial, that the right of
complainant is clear and unmistakable and that there is an urgent and paramount necessity for the
writ to prevent serious damage.31 At the time of its application for an injunctive writ, respondents right
to operate and manage the waste management center, to the exclusion of or without any participation
by petitioner ERTI, cannot be said to be clear and unmistakable. The MOA executed between
respondents and petitioner ERTI has not yet been judicially declared as rescinded when the complaint
was lodged in court.32 Hence, a cloud of doubt exists over respondent German Consortiums exclusive
right relating to the waste management center.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 68923 dated May 15, 2003 is
REVERSED and SET ASIDE. The Orders of the trial court dated June 28, 2001 and November 21, 2001
are ANNULLED and SET ASIDE and Civil Case No. 10049 is DISMISSED for lack of legal capacity of
respondents to institute the action. Costs against respondents.
SO ORDERED.

G.R. No. L-24295 September 30, 1971

GENERAL GARMENTS CORPORATION, petitioner,

vs.
THE DIRECTOR OF PATENTS and PURITAN SPORTSWEAR CORPORATION, respondents.

Rafael R. Lasam for petitioner.

Office of the Solicitor General Antonio A. Alafriz, Assistant Solicitor General Pacifico P. de Castro and
Solicitor Celso P. Ylagan for respondent Director of Patents.

Parades, Poblador, Cruz & Nazareno for respondent Corporation.

MAKALINTAL, J.:

The General Garments Corporation, organized and existing under the laws of the Philippines, is the
owner of the trademark "Puritan," under Registration No. 10059 issued on November 15, 1962 by the
Philippine Patent Office, for assorted men's wear, such as sweaters, shirts, jackets, undershirts and
briefs.

On March 9, 1964 the Puritan Sportswear Corporation, organized and existing in and under the laws of
the state of Pennsylvania, U.S.A., filed a petition with the Philippine Patent Office for the cancellation of
the trademark "Puritan" registered in the name of General Garments Corporation, alleging ownership
and prior use in the Philippines of the said trademark on the same kinds of goods, which use it had not
abandoned; and alleging further that the registration thereof by General Garments Corporation had
been obtained fraudulently and in violation of Section 17(c) of Republic Act No. 166, as amended, in
relation to Section 4(d) thereof.

On March 30, 1964 General Garments Corporation moved to dismiss the petition on several grounds,
all of which may be synthesized in one single issue: whether or not Puritan Sportswear Corporation,
which is a foreign corporation not licensed to do business and not doing business in the Philippines,
has legal capacity to maintain a suit in the Philippine Patent Office for cancellation of a trademark
registered therein. The Director of Patents denied the motion to dismiss on August 6, 1964, and denied
likewise the motion for reconsideration on March 5, 1965, whereupon General Garments Corporation,
hereinafter referred to as petitioner, filed the instant petition for review.

Section 17 (c) and Section 4 (d) of the Trademark Law provide respectively as follows:

SEC. 17. Grounds for cancellation. Any person, who believes that he is or will be damaged by the
registration of a mark or trade-name, may, upon the payment of the prescribed fee, apply to cancel
said registration upon any of the following grounds:

xxx xxx xxx

(c) That the registration was obtained fraudulently or contrary to the provisions of section four,
Chapter II thereof: ...

(d) SEC. 4. Registration of trademarks, tradenames and service-marks which shall be known as the
principal register. The owner of a trade-mark, trade-name or service-mark used to distinguish his
goods, business or services from the goods, business or services of others shall have the right to
register the same on the principal register, unless it:

xxx xxx xxx

(d) Consists of or comprises a mark or trade-name which so resembles a mark or trade-name

registered in the Philippines or 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; or ...

Petitioner contends that Puritan Sportswear Corporation (hereinafter referred to as respondent), 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 aforequoted. That respondent is a juridical person should be beyond serious dispute.
The fact that it 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 respondent 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. As first enunciated in Marshall-Wells Co. v. Elser
& Co. 1 "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 the Philippines, from securing
redress in the Philippine Courts. ..." The principle has since then been applied in a number of other
cases. 2

To recognize respondent as a juridical person, however, does not resolve the issue in this case. It
should be postulated at this point that respondent is not suing in our courts "for the recovery of any
debt, claim or demand," for which a license to transact business in the Philippines is required by
Section 69 of the Corporation Law, subject only to the exception already noted. Respondent 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. A more or less analogous
question arose in Western Equipment & Supply Co. v. Reyes, 51 Phil. 115. The syllabus of the report,
which is a correct statement of the doctrine laid down in the decision, reads as follows:

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.

xxx xxx xxx

The purpose of such a suit is to protect its reputation, corporate name and goodwill which has been
established, through the natural development of its trade for a long period of years, in the doing of
which it does not seek to enforce any legal or contract rights arising from, or growing out of any
business which it has transacted in the Philippine Islands.

The right to the use of the corporate or trade name is a property right, a right in rem, which it may
assert and protect in any of the courts of the world even in jurisdictions where it does not transact
business just the same as it may protect its tangible property, real or personal against trespass or
conversion.

In Asari Yoko Co., Ltd. v. Kee Boc (Jan. 20, 1961) 1 SCRA 1, the plaintiff, a Japanese corporation which
had acquired prior use in the Philippines of the trademark "RACE" for men's shirts and undershirts but
which had not shown prior registration thereof, successfully maintained a suit opposing the application
of the defendant, a local businessman, to register the same trademark for similar goods produced by
him. This Court said: "The lawful entry into the Philippines of goods bearing the trademark since 1949
should entitle the owner of the trademark to the right to use the same to the exclusion of others.
Modern trade and commerce demands that depredations on legitimate trademarks of non-nationals
should not be countenanced." It may be added here that the law against such depredations is not only
for the protection of the owner of the trademark who has acquired prior use thereof but also, and more
importantly, for the protection of purchasers from confusion, mistake or deception as to the goods they
are buying. This is clear from a reading of Section 4(d) of the Trademark Law.

Petitioner argues that the ruling in Western Equipment has been superseded by the later decision of
this Court inMentholatum Co., Inc. v. Mangaliman (1941), 72 Phil. 524, where it was held that inasmuch
as Mentholatum Co., Inc. was a foreign corporation doing business in the Philippines without the
license required by Section 68 of the Corporation Law it could not prosecute an action for infringement
of its trademark which was the subject of local registration. The court itself, however, recognized a
distinction between the two cases, in that in Western Equipment the foreign corporation was not
engaged in business in the Philippines, and observed that if it had been so engaged without first
obtaining a license "another and a very different question would be presented."

Parenthetically, it may be stated that the ruling in the Mentholatum case was subsequently derogated
when Congress, purposely to "counteract the effects" of said case, enacted Republic Act No. 638,
inserting Section 21-A in the Trademark Law, which allows a foreign corporation or juristic person to
bring an action in Philippine courts for infringement of a mark or trade-name, for unfair competition, or
false designation of origin and false description, "whether or not it has been licensed to do business in
the Philippines under Act Numbered Fourteen hundred and fifty-nine, as amended, otherwise known as
the Corporation Law, at the time it brings complaint."

Petitioner argues that 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
tradename has been registered under the Trademark Law. The 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 (precisely to
counteract the effects of the decision in the Mentholatum case).
In any event, respondent in the present case is not suing for infringement or unfair competition under
Section 21-A, but for cancellation under Section 17, on one of the grounds enumerated in Section 4.
The first kind of action, it maybe stated, is cognizable by the Courts of First Instance (Sec. 27); the
second partakes of an administrative proceeding before the Patent Office (Sec. 18, in relation to Sec.
8). And while a suit under Section 21-A requires that the mark or tradename alleged to have been
infringed has been "registered or assigned" to the suing foreign corporation, a suit for cancellation of
the registration of a mark or tradename under Section 17 has no such requirement. For such mark or
tradename should not have been registered in the first place (and consequently may be cancelled if so
registered) if it "consists of or comprises a mark or tradename which so resembles a mark or
tradename ... previously used in the Philippines by another and not abandoned, as to be likely, when
applied to or used in connection with goods, business or services of the applicant, to cause confusion
or mistake or to deceive purchasers; ..."(Sec. 4d).

Petitioner's last argument is that 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. Section 37
reads in part:

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.

As correctly pointed out by respondents, this provision was incorporated in the law in anticipation of
the eventual adherence of the Philippines to any international convention or treaty for the protection of
industrial property. It speaks of 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 industrial property to which the Philippines may be a
party. In other words, the provision will be operative only when the Philippines becomes a party to
such a convention or treaty. .That this was the intention of Congress is clear from the explanatory note
to House Bill No. 1157 (now Republic Act 166), in reference to Section 37, which is the only provision in
Chapter XI of the Trademark Law on Foreign Industrial Property: "The necessary provisions to qualify
the Philippines under the international convention for the protection of industrial property have been
specifically incorporated in the Act." 3 In the meantime, 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 the Philippines, provided that the country of which the
applicant for registration is a citizen grants bylaw substantially similar privileges to citizens of the
Philippines.

WHEREFORE, the petition is dismissed, and the resolution of the Director of Patents dated August 6,
1964 is affirmed, with costs.

G.R. No. L-18961 August 31, 1966

ATLANTIC MUTUAL INSURANCE COMPANY and CONTINENTAL INSURANCE COMPANY, plaintiffs and
appellants,
vs.
CEBU STEVEDORING CO., INC., defendant and appellee.

William H. Quasha and Associates for plaintiffs and appellants.

Deen Law Offices for defendant and appellee.

MAKALINTAL, J.:

This is an appeal from three orders of the Court of First Instance of Cebu, the last one dismissing
appellants' complaint. These appellants Atlantic Mutual Insurance Company and Continental
Insurance Company are both foreign corporations existing under the laws of the United States. They
sued the Cebu Stevedoring Co., Inc., a domestic corporation, for recovery of a sum of money on the
following allegations: that defendant, a common carrier, undertook to carry a shipment of copra for
deliver to Procter & Gamble Company, at Cebu City; that upon discharge, a portion of the copra was
found damaged; that since the copra had been previously insured with plaintiffs they paid the shipper
and/or consignee, upon proper claim and assessment of the damage, the sum of P15,980.30; and that
as subrogee to the shipper's and/or consignee's rights, plaintiffs demanded, without success,
settlement from defendant by reason of its failure to comply with its obligation, as carrier, to deliver
the copra in good order.
Defendant moved to dismiss on two grounds: (a) that plaintiffs had "no legal personality to appear
before Philippine courts and with no capacity to sue;" and (b) that the complaint did not state a cause
of action. Both grounds were based upon failure of the complaint to allege compliance with section 69
of the Corporation Law, which states:

SEC. 69. No foreign corporation or corporation formed, organized, or existing under any laws other
than those of the Philippines shall be permitted to transact business in the Philippines or maintain by
itself or assigned any suit for the recovery of any debt, claim, or demand whatever, unless it shall have
the license prescribed in the section immediately preceeding. Any officer, director or agent of the
corporation or any person transacting business for any foreign corporation not having the license
prescribed shall be punished by imprisonment for not less than six months nor more than two years or
by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such
imprisonment and fine, in the discretion of the Court.

Section 68 of the Corporation Law is almost identical with the first part of Section 69 which requires a
license before a foreign corporation may be permitted to transact business in the Philippines, but adds
that such license may be obtained from the Director of Commerce upon order of the Secretary of
Commerce and Industry.

Plaintiffs opposed the motion to dismiss; and the trial court, in an order dated June 27, 1960, found the
complaint deficient in that it failed to state the plaintiffs were duly licensed to transact business in the
Philippines, but gave them an opportunity to amend said complaint within a period of ten days.
Plaintiffs moved to reconsider and, after the motion was denied, filed a manifestation to the effect that
they could not comply with the order to amend but would wait for the dismissal of the complaint so as
to be able to elevate the matter to this Court on appeal. On September 6, 1960, the order of dismissal
was issued.

The trial court would have plaintiffs amend the complaint by including therein an allegation that as
foreign corporations they were duly licensed to engage in business in the Philippines. The implication
of the court's ruling is that without such license a foreign corporation may not sue in our courts in view
of section 69 of the Corporation Law. Appellants contend that this is an erroneous interpretation of the
statute; that a license is necessary before a foreign corporation may transact, that is, engage in,
business in the Philippines, and if so engaged before, it may maintain a suit in our courts; but that if a
foreign corporation is not doing business here it is not barred from seeking redress in our courts in
proper cases, as when it sues on an isolated transaction, even if it has not obtained a license pursuant
to Section 69.

Appellants' contention is correct as far as it goes. It finds support in the decision written by Mr. Justice
Malcolm in Marshall-Wells Co. vs. Elser & Co., 46 Phil. 71 (September 8, 1924), where this Court said
after analyzing Section 69 of the Corporation Law: "The Law simply means that no foreign corporation
shall be permitted to transact business in the Philippines, ... unless it shall have the license required by
law, and, until it complies with this law, shall not be permitted to maintain any suit in the local courts."

"The object of the statute," this Court explained in that case, "was to object of the statute was not to
prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile
for the purpose of business without taking the steps necessary to render it amenable to suit in the
local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order for business from the Philippines, from
securing redress in the Philippine Courts, and thus, in effect, to permit persons to avoid their contracts
made with such foreign corporations. The effect of the statute preventing foreign corporations from
doing business and from bringing actions in the local courts, except in compliance with elaborate
requirements, must not be unduly extended or improperly applied. It should not be construed to
extend beyond the plain meaning of its terms, considered in connection with its object, and in
connection with the spirit of the entire law."

But merely to say that a foreign corporation not doing business in the Philippines does not need a
license in order to sue in our courts does not completely resolve the issue in the present case. The
proposition, as stated, refers to the right to sue; the question here refers to pleading and procedure. It
should be noted that insofar as the allegations in the complaint have a bearing on appellants' capacity
to sue, all that is averred is that they are both foreign corporations existing under the laws of the
United States. This averment conjures two alternative possibilities: either they are engaged in business
in the Philippines or they are not so engaged. If the first, they must have been duly licensed in order to
maintain this suit; if the second, if the transaction sued upon is singular and isolated, no such license is
required. In either case, the qualifying circumstance is an essential part of the element of plaintiffs'
capacity to sue and must be affirmatively pleaded.1wph1.t

To be sure, under the Rules of Court (Section 11, Rule 15) in force prior to the promulgation of the
Revised Rules on January 1, 1964, it was not necessary to aver the capacity of a party to sue except to
the extent required to show jurisdiction of the court. In our opinion, however, such rule does not apply
in all situations and under all circumstances. The theory behind a similar rule in the United States is
"that capacity ... of a party for purpose of suit is not in dispute in the great bulk of cases, and that
pleading and proof can be simplified by a rule that an averment of such matter is not necessary,
except to show jurisdiction."1 But where as in the present case, the lawdenies to a foreign corporation
the right to maintain suit unless it has previously complied with a certain requirement, then such
compliance, or the fact that the suing corporation is exempt therefrom, becomes a necessary
averment in the complaint. These are matters peculiarly within the knowledge of appellants alone, and
it would be unfair to impose upon appellee the burden of asserting and proving the contrary. It is
enough that foreign corporations are allowed by law to seek redress in our courts under certain
conditions: the interpretation of the law should not go so far as to include, in effect, an inference that
those conditions have been met from the mere fact that the party suing is a foreign corporation.

It was indeed in the light of these and other consideration that this Court has seen fit to amend the
former rule by requiring in the Revised Rules (Section 4, Rule 8) that "facts showing the capacity of a
party to sue or be sued or the authority of a party to sue or be sued in a representative capacity or the
legal existence of an organized association of persons that is made a party, must be averred."

The orders appealed from are affirmed, with costs against plaintiffs-appellants.