GRANGER ASSOCIATES, PETITIONER, VS. MICROWAVE SYSTEMS, INC., LORETO F. STEWARD, MENARDO R. JIMENEZ AND JOHN PALMER, RESPONDENTS.

The Court is once again asked to interpret the phrase “doing
business in the Philippines”
as applied to an unlicensed foreign corporation that has filed a complaint
against a domestic corporation.

The foreign corporation is Granger Associates, the herein petitioner,
which was organized in the United States
and has no license to do business
in this country.  The domestic
corporation is Microwave Systems, Inc., one of the herein private respondents,
which has been sued for recovery of a sum equivalent to US$900,633.30 allegedly
due from it to the petitioner.

The claim arose from a series of agreements concluded between the
two parties, principally the contract dated March 28. 1977, under which Granger
licensed MSI to manufacture and sell its products in the Philippines and
extended to the latter certain loans, equipment and parts; the contract dated
May 17, 1979, for the sale by Granger of its Model 7100/7200 Multiplex
Equipment to MSI; and the Supplemental
and Amendatory Agreement concluded in December 1979.

Payment on these contracts not having been made as agreed
upon.  Granger filed a complaint against
MSI and the other private respondents on June 29, 1984, in the Regional
Trial Court of
Pasay City.  This was docketed as Civil Case No. 1982-P. 
In its answer, MSI alleged the affirmative defense that the plaintiff
had no capacity to sue, being an unlicensed foreign corporation, and moved to
dismiss.

The law invoked by the defendants was Section 133 of the
Corporation Code reading as follows:

No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; x x x.

The trial court, after considering the evidence of parties in
light of their respective memoranda, sustained the defendants and granted the
motion to dismiss.^[1]
On appeal, the order of dismissal
was affirmed by the respondent court,^[2] prompting the present petition under
Rule 45 of the Rules of Court.

In this petition, Granger seeks the reversal of the respondent
court on the ground that MSI has failed to prove its affirmative allegation that Granger was transacting business in the Philippines.  It
insists that it has dealt only with MSI and not the general public and contends
that dealing with the public itself is an indispensable ingredient of
transacting business.  It also argues
that its agreements with MSI covered only one isolated transaction for which it
did not have to secure a license to be able to file its complaint.

According to Section 1 of Rep. Act No. 5455 –

x x x the phrase “doing
business” shall include soliciting orders, purchases, service contracts,
opening offices whether called “liaison” offices or branches;
appointing representatives or distributors domiciled in the Philippines or who
in any calendar year stay in the Philippines for a period or periods totaling
one hundred eighty days or more; participating in the management, supervision
or control of any domestic business firm, entity or corporation in the Philippines;
any other act or acts that imply a continuity of commercial dealings or
arrangements and contemplates to that extent the performance of acts or works,
or the exercise of some of these functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the
business organization.

This Court interpreted the same phrase in the old case of Mentholatum v. Mangaliman^[3]
as follows:

The true test, however, seems to be whether the foreign corporation
is continuing the body or substance of the business or enterprise for which it
was organized or whether it has substantially retired from it and turned it
over to another.  (Traction
Cos. v. Collectors of Int. Revene [C.C.A. Ohio], 223
F. 984, 987.) The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization.  (Griffin v.
Implement Dealers’ Mut. Fire Ins. Co., 241
N.W. 75, 77, Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851,
852, 118 Ok1.  111; Automotive Material
Co. v. American Standard Metal Products Corp., 158 N.E. 698, 703, 327, 111,
367.)

We have amplified on that discussion in subsequent cases, among
them Top-Weld Manufacturing, Inc. v. ECED, S.A.,^[4]
where we said:

There is no general rule or governing principle laid down as to
what constitutes “doing” or “engaging in” or
“transacting” business in the Philippines.  Each case must be judged in the light of its
peculiar circumstances.  Thus, a foreign
corporation with a settling agent in the Philippines
which issued twelve marine policies covering different shipments to the Philippines
and a foreign corporation which had been collecting premiums on outstanding
policies were regarded as doing business here. 
The acts of these corporations should be distinguished from a single or isolated business
transaction or occasional, incidental and casual transactions which do not come
within the meaning of the law.  Where a
single act or transaction, however, is not merely incidental or casual but
indicates the foreign corporation’s intention to do other business in the Philippines,
said single act or transaction constitutes “doing” or “engaging
in” or “transacting” business in the Philippines.

The petitioner contends that its various transactions with the
private respondent were mere facets of the basic agreement licensing MSI to
manufacture and sell Granger’s products in the Philippines.  All subsequent agreements were merely
auxiliary to that first contract and should not be considered separate
transactions coming within the concept of “doing business in the Philippines.”

The Supplemental and Amendatory Agreement concluded by Granger
and MSI in December 1979 enumerates the various agreements between them thus:

1.  Agreement dated March 28, 1977, under which
MSI acquired from GRANGER the right to manufacture, assemble, test, rent and
sell, or otherwise deal in certain electronic communications equipment designed
and manufactured by GRANGER;

2.  Agreement to Purchase Shares dated March 28, 1977 under which GRANGER
was granted the option to purchase thirty (30%) percent equity of MSI;

3.  Amendatory Agreement dated May 12, 1978, adopting certain
amendments to the Agreement dated March
28, 1977 for the purpose of complying with the requirements imposed
by the Board of Investments and the Central Bank of the Philippines;

4.  Exclusive Distributorship and Marketing
Agreement dated May 16, 1978,
appointing MSI to handle sale, distribution and promotion of products of
GRANGER outside of the Republic of the Philippines;

5.  Sales Agency Agreement, dated May 16, 1978, under which MSI was
appointed by GRANGER as the latter’s exclusive sales representative outside the
Philippines to
market GRANGER products;

6.  Agreement for Purchase of Shares dated May
17, 1978, manifesting the intention of GRANGER to exercise its option to
purchase thirty (30%) percent of the issued and outstanding shares of stock of
MSI equivalent to a total of 9,000 issued shares of MSI;

7.  Model 7100/7200 Multiplex Agreement dated May 17, 1979, prescribing the terms
and conditions for the sale by GRANGER of Model 7100/7200 Multiplex Equipment
to MSI;

8.  Technology Transfer Agreement dated May 17,
1979, transferring to and/or providing MSI, by virtue of the Model 7100/7200
Multiplex Agreement, the necessary technical services, assistance, manuals,
catalogues, sales, literature, etc. for the operation of the Model 7100/7200
Multiplex Equipment;

9.  Deed of Assignment of Receivables dated October 20, 1979, under which MSI
assigned to GRANGER a certain percentage of its receivables from the Philippine
Electronics, Inc. in favor of GRANGER to secure payment and performance of MSI’s obligations to GRANGER under previous agreements.

In the Model 7100/7200 Mutliplex
Equipment Agreement entered into on May
17, 1979, the following stipulations appear:

4. GRANGER shall
assign in favor of MSI all orders for the Model 7100/7200 Multiplex Equipment,
which have not been filled by GRANGER at the date of the ratification of this
Agreement as per paragraph 9 hereof, as described
in a list hereto attached and made a part hereof as Annex “C.” All
proceeds under said orders shall be assigned to and received by MSI and MSI
shall take over and assume all obligations which GRANGER may have pursuant to
the orders of equipment within a reasonable time following receipt of the shipment
of the Products by MSI but not to exceed one hundred eighty (180) days from
date of said receipt.  Any orders GRANGER
may receive following the date on which this Agreement becomes effective as
provided herein will be forwarded
to MSI by GRANGER.

x        x          x

6.  As an additional consideration for the
purchase of the products, MSI binds itself to render all equipment support
service and maintain reasonable amount of spares inventory for the equipment in
the field previously having been sold by GRANGER or by RCA Corporation to their
customers for a period of ten (10) years from the date the last sale of GRANGER
is recorded.  Any amount earned in
providing such equipment support shall be billed and received by MSI.  Additionally, MSI binds itself to assume the
warranty obligations and advance the necessary funds to perform such
obligations associated with Model 7100/7200 Multiplex Equipment already sold by
GRANGER.  However, GRANGER shall
reimburse MSI the out-of-pocket cost for the services rendered by MSI in
connection with the warranty for the equipment assumed from GRANGER but only to
the extent authorized in advance by GRANGER.

A study of the enumeration does support the contention that many
of the agreements concluded by the petitioner and the private respondent were
intended merely to supplement the basic contract dated March 28, 1977. 
However, this is not true of the Multiplex agreement dated May 17, 1979, which dealt with a
different subject matter and had a different consideration to be paid under a
different method from that specified in the first agreement of the parties in
1977.  It is also noted that in the Supplemental and Amendatory
Agreement, Granger sold to MSI certain materials/parts for 80 radios and
granted it the right to exploit the designs of Model 6015, Series of radio
equipment (1.5 Ghz.) and the Plug-In Order Wire, and
the 6002 Series and Power Amplifiers. 
The subject matter of this transaction is also different from those
covered by the previous agreements.

Even if it be assumed for the sake of argument that the subject
matter of the first contract is of the same kind as that of the subsequent
agreements, that fact alone would not necessarily signify that all such
agreements are merely auxiliary to the first. 
As long as it can be shown that the parties entered into a series of
agreements, as in successive sales of the foreign company’s regular products, that company shall be deemed as doing
business in the Philippines.

The quoted stipulations show that Granger had extended its
personality in the Philippines
and would receive orders for its products and discharge its warranty
obligations through the agency of MSI. 
It would even appear that Granger intended to transact business in the Philippines
through the instrumentality of MSI, not only for the sale and warranty of its
products in this country.  The agency was expected to extend also
in mainland China
and other ASEAN countries, where MSI was to act as its representative in the
development of possible markets for Granger products.  Thus it was provided in the Agreement:

6.  OFF-SHORE MANUFACTURING.

GRANGER undertakes to utilize MSI’s
manufacturing facilities in the Philippines in preference to any other
manufacturer for off-shore manufacture, assembly, fabrication and testing of
equipment, sub-assemblies, printed circuit boards and related or allied
activities, subject to MSI’s demonstrated technical
capability and its capacity to comply with normal quality and delivery
requirement for such components and as long as such off-shore manufacturing
would be to GRANGER’s economic advantage.

7.  MAINLAND CHINA AND ASEAN MARKETS.

Toward maximizing exploitation of export opportunities for the sale
of MSI manufactured equipment under license from GRANGER, MSI undertakes to do
or perform the following:

a)  MSI, independently or in concert with GRANGER
shall develop a marketing strategy towards Mainland China
market at its cost or on the basis of shared expense arrangement with GRANGER,
agreed between both parties in advance, and shall pursue sales opportunities in
that market as it deems warranted.  This
includes establishing local sales office to manage and monitor direct sales
effort as well as appointments of non-exclusive manufacturer’s Sales
Representatives or non-exclusive Distributors as the case may be;

b)  MSI, always in close cooperation with
GRANGER, shall develop and pursue direct sales opportunities in the ASEAN
market for its own account, always reaching agreement with GRANGER in advance
on a case-to-case basis as to the extent of reimbursing GRANGER for its direct
or indirect expenses that it might be incurring while acting as an Exclusive
Distributor or a Manufacturer’s Representative for the licensed equipment in
the ASEAN market.

We also note that in the Supplemental and Amendatory Agreement of December 1979, Granger saw to it
that it was assured of at least
one seat in the board of directors of MSI, “without prejudice to the right
of Granger to request additional seats as its interest may require.”
Granger actually purchased 9,000
shares of MSI, representing 30% of the latter’s issued
and outstanding shares of stock.^[5]
The fact that it was directly involved in the business of MSI was also
manifested in another stipulation where Granger “acknowledged and
confirmed” the transfer of a block of stocks from one shareholder to
another group of investors.  Such
approval is not normally given except by a stockholder enjoying substantial participation
in the management of the business of the company.

The said stipulations read as follows:

4.  BOARD OF DIRECTORS.

GRANGER shall be entitled to one (1) seat in the Board of
Directors, with the option to fill said seat at its discretion and
instance.  GRANGER further interposes no
objection to MSI’s increasing the number of its Board
of Directors without a
corresponding entitlement to an additional seat, without prejudice however to
the right of GRANGER to request additional seat as its interest may require.

x        x          x

8.  CONFIRMATION OF SALE OF SHARES OF STOCK.

The parties hereto take cognizance of the sale of shares of stock
in MSI owned by Vicente C. Sayaon, in his personal
capacity and as controlling stockholder of authorized representative of
Cosmopolitan Realty Corporation and Visayas Realty
and Investment Corporation, in favor of a new group of Filipino entrepreneurs
represented in the transaction by Mrs. Remedios Porcuna.  The Deed of
Sale covering this transaction is incorporated hereto by reference and made an
integral part of this Agreement.

Pursuant to the provision embodied in the said Deed of Sale,
GRANGER hereby acknowledges and confirms this transaction.

The petitioner cites the regulations of the Board of Investments
stating that mere investment in a local company by a foreign corporation should
not be construed as doing business in the Philippines.^[6]
It cannot be denied, however, that
the investment of Granger in MSI is quite substantial, enabling it to
participate in the actual
management and control of MSI.  In fact,
it appointed a representative in the board of directors to protect its interests, and this director was so influential
that, at his request, the regular
board meeting was converted
into an annual stockholder’s meeting to
take advantage of his presence.^[7]

At any rate, the administrative regulation, which is intended
only to supplement the law, cannot prevail against law itself as the Court has
interpreted it.  It is axiomatic that the
delegate, in exercising the power to promulgate implementing regulations,
cannot contradict the law from which the regulations derive their very existence. 
The courts, for their part, interpret the administrative regulations in
harmony with the law that authorized them in the first place and avoid as much
as possible any construction that would annul them as an invalid exercise of
legislative power.

On the question of whether the foreign corporation must be shown
to have dealt with the public in general to be considered as transacting
business in the Philippines,
the following observations are instructive:

On the other hand, if a corporation performs acts for which it was
created or exercises some of the functions for which it was organized, the
amount or volume of the business is immaterial and a single act of that
character may constitute doing business. 
Thus, an engineering consulting firm that had entered into a single
contract with a Philippine government agency for the purpose of rendering
services for a period of three years as a technical consultant in engineering
will be required to obtain a license to do business.  Similarly, a foreign company invited to bid
for IBRD and ADB international projects in the Philippines
will be considered as doing business in the Philippines
for which a license is required.  In this
regard, it is the performance by a foreign corporation of the acts for which it
was created, regardless of volume of business, that determines whether a
foreign corporation needs a license or not. 
(Emphasis supplied.)^[8]

Finally, this case must be distinguished from Antam
Consolidated, Inc. v. Court of Appeals,^[9]
where this Court declared:

In the case at bar, the transactions entered into by the respondent
with the petitioners are not a series of commercial dealings which signify an intent on the
part of the respondent to do business in the Philippines but constitute an
isolated one which does not fall under the category of “doing
business.” The records show that the only reason why the respondent’
entered into the second and third transactions with the petitioners was because
it wanted to recover the loss it sustained from the failure of the petitioners
to deliver the crude coconut oil under the first transaction and in order to
give the latter a
chance to make good on their obligation. 
Instead of making an outright demand on the petitioners, the respondent
opted to try to push through with the transactions to recover the amount of
US$103,600.00 it lost.  This explains why
in the second transaction, the petitioners were supposed to buy back the crude
coconut oil they should have delivered to the respondent in an amount which
will earn the latter a profit of US$103,600.00. 
When this failed the third transaction was entered into by the parties
whereby the petitioners were supposed to sell crude coconut oil to the
respondent at a
discounted rate, the total amount of such discount being
US$103,600.00.  Unfortunately, the
petitioners failed to deliver again, prompting the respondent to file the suit
below.

From these facts alone, it can be deduced that in reality, there
was only one agreement between the petitioners and the respondent and that was
the delivery by the former of 500 long tons of crude coconut oil to the latter,
who in turn, must pay the corresponding price for the same.  The three seemingly different transactions
were entered into by the parties only in an effort to fulfill the basic
agreement and in no way indicate an intent on the part of
the respondent to engage in a continuity of transactions with petitioners which
will categorize it as a foreign
corporation doing business in the Philippines.

We are convinced from an examination of the terms and conditions
of the contracts and agreements entered into between petitioner and private
respondents indicate that they established within our country a continuous
business, and not merely one of a temporary character.  Such agreements
did not constitute only one isolated transaction, as the petitioner
contends, but a succession of acts signifying the intent of Granger to extend
its operations in the Philippines.

In any event, it is now settled that even one single transaction
may be construed as transacting business in the Philippines
under certain circumstances, as we observed in Far East International Import
and Export Corporation v. Nankai Kogyo Co., Ltd.,^[10]
thus:

The rule stated in the preceding section that the doing of a single
act does not constitute business within the meaning of statutes prescribing the
conditions to be complied with by foreign corporations must be qualified to
this extent, that a single act may bring the corporation within the
purview of the statute where it is an act of the ordinary business of the
corporation.  In such a case, the single
act or transaction is not merely incidental or casual, but is of such character
as distinctly
to indicate a purpose on the part of the foreign corporation to do other
business in the state, and to make the state a base of operations for the
conduct of a part of the corporation’s ordinary business.  (17 Fletchers Cyc.
of Corporations, sec. 8470, pp. 572, 573, and authorities cited therein.)

The petitioner stresses that whoever makes affirmative averments
has the obligation to prove such averments and points out that the private
respondent has not established its
allegation that the petitioner is doing business in the Philippines.  On the other hand, it is also the rule that
the factual findings of the lower court are binding on this Court in the
absence of any of those exceptional circumstances we have enumerated in many
cases that warrant a different conclusion. 
Having assailed the finding of the respondent court that the petitioner
is doing business in the Philippines,
the petitioner had the burden of showing that such finding fell under the
exception rather than the rule and so should be reviewed and reversed.  The petitioner has not done this.

The purpose of the rule requiring foreign corporations to secure
a license to do business in the Philippines
is to enable us to exercise jurisdiction over them for the regulation of their
activities in this country.  If a foreign
corporation operates in the Philippines
without submitting to our laws, it is only just that it not be allowed to
invoke them in our courts when it should need them later for its own
protection.  While foreign investors are
always welcome in this land to collaborate with us for our mutual benefit, they
must be prepared as an indispensable condition
to respect and be bound by
Philippine law in proper cases, as in the one at bar.

WHEREFORE, the petition is DENIED, with costs against the
petitioner.  It is ordered.

Narvasa, (Chairman), Gancayco, Griño-Aquino, and Medialdea, JJ., concur.

^[1]
Through Judge Nicanor E. Silvano.

^[2]
Penned by Purisima, J., with Cui and Elbinias, JJ., concurring.

^[3]
72 Phil. 524.

^[4]
138 SCRA 118.

^[5]
Exhibit “C,” Index of Exhibits, p. 14.

^[6]
Rollo, p. 173; Section 1(g) (9), Rule I of Rules
to Implement the Omnibus Investment Code (Pres. Decree No. 1789).

^[7]
Exhibit “D,” Index of Exhibits, p. 15.

^[8]
Tabios, Severiano S.,
Fundamentals of Doing Business by a Foreign Corporation in the Philippines,
142 SCRA 10.

^[9]
143 SCRA 288.

^[10]
6 SCRA 725.