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RENE KNECHT and KNECHT, INC vs. UNITED CIGARETTE CORP Before us is a petition for review on certiorari[1] seeking to set aside the Decision dated May 19, 1999 of the Court of Appeals in CA-G.R. SP No. 47978 upholding the validity of the Orders dated June 27, 1997 and May 12, 1998 issued by the Regional Trial Court, Branch 151, Pasig City in Civil Case No. 9165. The facts are: Rose Packing Company, Inc. (Rose Packing), a domestic corporation, owns three (3) parcels of land with a total area of 31, 842 square meters situated in Sto. Domingo, Cainta, Rizal. The largest among these parcels has an area of 31,447 square meters covered by Transfer Certificate of Title (TCT) No. 73620 of the Registry of Deeds of Rizal. The other two remaining parcels are unregistered. The area covered by TCT No. 73620 is mortgaged with the Philippine Commercial and Industrial Bank (PCIB). On October 26, 1965, Rose Packing, through its President Rene Knecht, sold to the United Cigarette Corporation (UCC), a domestic corporation, the said parcels of land, with all the buildings and improvements thereon, for P800,000.00.[2] Rose Packing made a warranty that the lots are free from all liens and encumbrances, except the real estate mortgage constituted over the area covered by TCT No. 73620. For its part, UCC promised to pay the purchase price under the following terms and conditions: (a) a P250,000.00 down payment must be made upon signing of the deed of sale with mortgage; (b) it will assume Rose Packing’s P250,000.00 overdraft line obligation with the PCIB, subject to the latter’s approval; and (c) the balance of P300,000.00 shall be paid in two annual installments at P150,000.00 each (within 12 and 14 months) from the date of sale, with 10% annual interest. To secure the deal, UCC initially paid Rose Packing P80,000.00 as earnest money. Before the deed of sale could be executed, the parties found that Rose Packing’s actual obligation with the PCIB far exceeded the P250,000.00 which UCC assumed to pay under their agreement. So the PCIB demanded additional collateral from UCC as a condition precedent for the approval of the sale of the mortgaged property. However, UCC did not comply. Meanwhile, Rose Packing again offered to sell the same lots to other prospective buyers without the knowledge of UCC and without returning to the latter the earnest money it earlier paid.[3] Aggrieved, UCC, on March 2, 1966, filed with the then Court of First Instance (CFI) of Rizal, Branch I, a complaint against Rose Packing and Rene Knecht for specific performance and recovery of damages, docketed as Civil Case No. 9165. On July 15, 1969, the CFI rendered a Decision holding that Rose Packing was in bad faith when it did not inform UCC the amount of its actual obligation with the PCIB. Considering that UCC agreed to assume the overdraft line obligation of Rose Packing with the PCIB only to the extent of P250,000.00, it (UCC) cannot be compelled to assume the excess obligation. The dispositive portion of the CFI Decision reads: “PREMISES CONSIDERED, this Court orders defendants Rose Packing Company’s, Inc. and its President, Rene Knecht to convey and deliver to plaintiff, United Cigarette Corporation, the three parcels of land object of the complaint, together with all the buildings and improvements thereon, with the exception of machines for canning factory, and to execute the corresponding deed of sale with mortgage covering said properties for the purchase price of P800,000.00 under the following terms and conditions: P250,000.00 as down payment upon the signing of the Deed of Sale with Mortgage, less the P80,000.00 which plaintiff had paid to defendant company as earnest money and less the amount in excess of the P250,000.00 overdraft line obligation of defendant corporation with Philippine Commercial and Industrial Bank which the parties had agreed will be assumed by the plaintiff; assumption by the plaintiff of the total of the overdraft line obligation of defendant corporation to the Philippine Commercial and & Industrial Bank for which the properties are answerable; and the balance of P300,000.00 to be paid in two equal installments payable 12 months and 24 months from date of sale with 10% annual interest each installment to be covered by draft accepted by the Philippine Bank of Commerce; provided, that, together with the P80,000.00 earnest money paid by plaintiff to defendant, should the sum of defendant corporation’s overdraft line obligation to the Philippine Commercial and Industrial Bank (which obligation will be assumed by plaintiff) total more than P420,000.00, which is the total of the P170,000.00 still due as down payment and the P250,000.00 agreed portion of the obligation to the Philippine Commercial and Industrial Bank to be assumed by plaintiff, the excess over said amount of P420,000.00, as well as the other amounts which plaintiff may

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Page 1: Corpo Cases

RENE KNECHT and KNECHT, INCvs.

UNITED CIGARETTE CORP

Before us is a petition for review on certiorari[1] seeking to set aside the Decision dated May 19, 1999 of the Court of Appeals in CA-G.R. SP No. 47978 upholding the validity of the Orders dated June 27, 1997 and May 12, 1998 issued by the Regional Trial Court, Branch 151, Pasig City in Civil Case No. 9165.

The facts are:

Rose Packing Company, Inc. (Rose Packing), a domestic corporation, owns three (3) parcels of land with a total area of 31, 842 square meters situated in Sto. Domingo, Cainta, Rizal. The largest among these parcels has an area of 31,447 square meters covered by Transfer Certificate of Title (TCT) No. 73620 of the Registry of Deeds of Rizal. The other two remaining parcels are unregistered. The area covered by TCT No. 73620 is mortgaged with the Philippine Commercial and Industrial Bank (PCIB).

On October 26, 1965, Rose Packing, through its President Rene Knecht, sold to the United Cigarette Corporation (UCC), a domestic corporation, the said parcels of land, with all the buildings and improvements thereon, for P800,000.00.[2] Rose Packing made a warranty that the lots are free from all liens and encumbrances, except the real estate mortgage constituted over the area covered by TCT No. 73620. For its part, UCC promised to pay the purchase price under the following terms and conditions: (a) a P250,000.00 down payment must be made upon signing of the deed of sale with mortgage; (b) it will assume Rose Packing’s P250,000.00 overdraft line obligation with the PCIB, subject to the latter’s approval; and (c) the balance of P300,000.00 shall be paid in two annual installments at P150,000.00 each (within 12 and 14 months) from the date of sale, with 10% annual interest. To secure the deal, UCC initially paid Rose Packing P80,000.00 as earnest money.

Before the deed of sale could be executed, the parties found that Rose Packing’s actual obligation with the PCIB far exceeded the P250,000.00 which UCC assumed to pay under their agreement. So the PCIB demanded additional collateral from UCC as a condition precedent for the approval of the sale of the mortgaged property. However, UCC did not comply.

Meanwhile, Rose Packing again offered to sell the same lots to other prospective buyers without the knowledge of UCC and without returning to the latter the earnest money it earlier paid.[3]

Aggrieved, UCC, on March 2, 1966, filed with the then Court of First Instance (CFI) of Rizal, Branch I, a complaint against Rose Packing and Rene Knecht for specific performance and recovery of damages, docketed as Civil Case No. 9165.

On July 15, 1969, the CFI rendered a Decision holding that Rose Packing was in bad faith when it did not inform UCC the amount of its actual obligation with the PCIB. Considering that UCC agreed to assume the overdraft line obligation of Rose Packing with the PCIB only to the extent of P250,000.00, it (UCC) cannot be compelled to assume the excess obligation. The dispositive portion of the CFI Decision reads:

“PREMISES CONSIDERED, this Court orders defendants Rose Packing Company’s, Inc. and its President, Rene Knecht to convey and deliver to plaintiff, United Cigarette Corporation, the three parcels of land object of the complaint, together with all the buildings and improvements thereon, with the exception of machines for canning factory, and to execute the corresponding deed of sale with mortgage covering said properties for the purchase price of P800,000.00 under the following terms and conditions: P250,000.00 as down payment upon the signing of the Deed of Sale with Mortgage, less the P80,000.00 which plaintiff had paid to defendant company as earnest money and less the amount in excess of the P250,000.00 overdraft line obligation of defendant corporation with Philippine Commercial and Industrial Bank which the parties had agreed will be assumed by the plaintiff; assumption by the plaintiff of the total of the overdraft line obligation of defendant corporation to the Philippine Commercial and & Industrial Bank for which the properties are answerable; and the balance of P300,000.00 to be paid in two equal installments payable 12 months and 24 months from date of sale with 10% annual interest each installment to be covered by draft accepted by the Philippine Bank of Commerce; provided, that, together with the P80,000.00 earnest money paid by plaintiff to defendant, should the sum of defendant corporation’s overdraft line obligation to the Philippine Commercial and Industrial Bank (which obligation will be assumed by plaintiff) total more than P420,000.00, which is the total of the P170,000.00 still due as down payment and the P250,000.00 agreed portion of the obligation to the Philippine Commercial and Industrial Bank to be assumed by plaintiff, the excess over said amount of P420,000.00, as well as the other amounts which plaintiff may have to pay for existing attachments and other encumbrances authorized by existing orders and the expenses in connection with the same, shall be insufficient from the 2nd installment as well.

“Should the total balance of P720,000.00 of the purchase price be insufficient to free the properties from the obligation of defendant corporation for which they are or have been made answerable, defendant corporation is hereby ordered to reimburse plaintiff the amount of the excess and to execute the appropriate and effective deed without mortgage transferring and conveying the subject properties to plaintiff.

“Defendant Rose Packing Company, Inc., is also ordered to pay plaintiff the amount of P10,000.00 in moral damages and to indemnify plaintiff United Cigarette Corporation in the amount of P20,000.00 as litigation expenses which include the costs of this suit and attorney’s fees.

“SO ORDERED.”[4]

Rose Packing interposed an appeal to the Court of Appeals (CA), docketed as CA-G.R. No. 45525-R. On March 30, 1973 and during the pendency of this appeal, UCC’s corporate life expired.[5] Alberto Wong, one of UCC’s major stockholders, was appointed trustee/liquidator of the dissolved corporation. He then represented UCC in the proceedings in Civil Case 9165.[6]

On June 26, 1976, the CA affirmed the CFI Decision with modification in the sense that the award of moral damages was deleted. This prompted Rose Packing and Rene Knecht to file with this Court a petition for review on certiorari, docketed as G.R. No. L-44977. In a Resolution dated January 5, 1977, this Court denied the petition for lack of merit.[7] They filed a motion for reconsideration but was denied. On March 23, 1977, this Court’s Decision became final and executory.[8]

Unfortunately, several supervening incidents hampered the due execution of the CFI Decision.

Page 2: Corpo Cases

The records show that on July 15, 1968, even before the trial court could render its Decision in Civil Case No 9165, Rose Packing filed Civil Case No. 11015 with Branch 2 of the same CFI, praying among others, to enjoin the PCIB from proceeding with the foreclosure sale of the land covered by TCT No. 73620. The CFI denied the application for injunction. Thus, the foreclosure sale proceeded and title over the subject lot was consolidated in the name of the PCIB through the issuance of TCT No. 286176 by the Registry of Deeds of Rizal.[9] On appeal by Rose Packing, docketed as CA-G.R. No. 43198-R, the Court of Appeals upheld the validity of the foreclosure sale but declared void ab initio the consolidation of ownership in the name of PCIB over the subject property for being premature. The appellate court granted Rose Packing a 60-day period within which to redeem the foreclosed property. Unsatisfied, Rose Packing filed a petition for review on certiorari with this Court, docketed as G.R. No. L.-33084.[10]

On November 14, 1988, this Court rendered a Decision in G.R. No. L.-33084[11] declaring the foreclosure sale void and remanding Civil Case No. 11015 to the lower court for further proceedings to determine the exact amount of Rose Packing’s liability with the PCIB. In effect, ownership over the subject property reverted to Rose Packing. At that time, however, Rose Packing (like UCC) had been dissolved with the expiration of its corporate charter on June 10, 1986. Thereupon, Knecht, Inc., a domestic corporation, undertook the liquidation of Rose Packing’s assets as well as the winding-up of its pending affairs.

Subsequently, on July 19, 1990, UCC, through its liquidator Alberto Wong, filed with the CFI, Branch 2 a motion for leave to intervene and to admit its complaint-in-intervention in Civil Case No. 11015, which case was then absorbed by Branch 152 of the Regional Trial Court (RTC), Pasig City pursuant to the implementation of Batas Pambansa Blg. 129 (the Judiciary Reorganization Act of 1981).[12] The complaint-in-intervention sought to compel Rose Packing to comply with the Decision in Civil Case No. 9165 and prayed that a writ of execution be issued to enforce that decision. Rose Packing, through its liquidator/trustee, Knecht, Inc., opposed the motion claiming that the Decision in Civil Case No. 9165 which became final on March 23, 1977 can no longer be enforced since more than ten (10) years had elapsed from its finality.[13]

Despite the opposition, the RTC of Pasig (Branch 152), in an Order dated December 10, 1990, granted UCC’s motion for leave to intervene and admitted its complaint-in-intervention. On October 10, 1991, the same court issued an Order granting the writ of execution prayed for by UCC to enforce the Decision in Civil Case No. 9165.

Rose Packing, through Knecht, Inc. then questioned the validity of these twin orders via a petition for certiorari with the CA, docketed as CA-G.R. SP No. 26545. The CA, in its Decision dated March 5, 1992,[14] nullified the CFI Orders dated December 10, 1990 and October 10, 1991, holding that UCC’s intervention in Civil Case No. 11015 is not warranted since the “only purpose is to execute the judgment obtained by UCC against petitioner (Rose Packing) in Civil Case No. 9165.” Thus, the RTC of Pasig City (Branch 152) has no jurisdiction to admit the complaint-in-intervention and to issue the assailed writ of execution.

While it nullified the Orders dated December 10, 1990 and October 10, 1991, the CA nonetheless stressed that “UCC’s right to execute the judgment in Civil Case No. 9165 has not yet prescribed insofar as the parcel of land covered by TCT No. 73620 is concerned” because this land was involved in Civil Case No. 11015. Its execution can be availed of in Branch 151, not in Branch 152, of the RTC, Pasig City. As regards the two other unregistered parcels of land, the judgment has already prescribed because these properties were not involved in Civil Case No. 11015, hence, UCC should have then sought the execution of the judgment with respect to said properties.

Pursuant to the CA Decision in CA-G.R. SP No. 26545, the RTC of Pasig City (Branch 151) issued an Order on June 17, 1992[15] granting UCC’s motion for the issuance of a writ of execution of the judgment in Civil Case No. 9165 with respect to the land covered by TCT 73620 (then still in the name of PCIB under TCT No. 286176).

In seeking the annulment of this order, Rose Packing, through Knecht, Inc. and Rene Knecht, filed with the CA CA-G.R. SP No. 28333 for certiorari. For the second time, it assailed the validity of the judgment in Civil Case No. 9165 and reiterated its position that UCC’s right to enforce that judgment had already prescribed.

On March 18, 1993, the CA rendered a Decision[16] in CA-G.R. SP No. 28333 reiterating its ruling in CA-G.R. No. 26545 that UCC’s right to file a motion for execution of the Decision in Civil Case No. 9165 has not yet prescribed insofar as the titled land is concerned, and that Rose Packing could no longer re-litigate Civil Case No. 9165 which had long become final and executory.

Forthwith, Rose Packing filed a petition for review on certiorari with this Court, docketed as G.R. No. 109385. On August 30, 1993, this Court denied the petition[17] on the ground that no reversible error was committed by the CA in rendering the questioned decision in CA-G.R. SP No. 28333. Rose Packing filed a motion for reconsideration but it was denied with finality by this Court in a Resolution dated October 20, 1993.

On November 14, 1993, Knecht, Inc. and Rene Knecht, claiming that they had just discovered UCC’s dissolution on April 10, 1973 and that the three-year period to liquidate its affairs had already expired, again questioned before the RTC of Pasig City, Branch 151, the validity of the June 17, 1992 Order granting the writ of execution in Civil Case No. 9165. They averred that upon its dissolution, UCC may no longer move for execution.

On March 24, 1994, the trial court ordered the issuance of an alias writ of execution in favor of UCC.[18] The alias writ was subsequently issued on April 19, 1994.

When the alias writ was about to be implemented, Rose Packing, through Knecht, Inc. and Rene Knecht, instituted another petition with the CA, docketed as CA-G.R. SP No. 33852.[19] They assailed the validity of the writ, reiterating that the judgment in Civil Case No. 9165 which had become final and executory in 1977 cannot be enforced in favor of UCC due to the latter’s dissolution in 1973.

The CA, on October 25, 1994, dismissed the petition.[20] It ruled that the validity and propriety of the enforcement of the Decision in Civil Case No. 9165 had been resolved with finality in CA-G.R. SP No. 26545 and CA-G.R. SP No 28333, and affirmed by this Court in G.R. No. 109385.

Aggrieved, Knecht, Inc. and Rene Knecht again filed a petition with this Court, docketed as G.R. Nos. 118183-84, questioning the Decision of the Court of Appeals in CA-G.R. SP No. 33852. In a Resolution dated January 30, 1995, this Court denied the petition for being technically infirm. Their motion for reconsideration was denied with finality on March 15, 1995.[21]

Page 3: Corpo Cases

On July 15, 1995, UCC, thru Encarnacion Gonzales Wong, its new trustee/liquidation, filed a motion for the issuance of a second alias writ of execution to enforce the decision in Civil Case No. 9165 insofar as the land covered by TCT No. 73620 is concerned. Surprisingly, for unknown reasons, title over the subject realty (then already substituted by TCT No. 286176 in the name of PCIB) underwent an anomalous transfer in the name of Knecht, Inc under TCT No. 613113.[22]

On November 8, 1995, upon UCC’s motion, the trial court issued a Second Alias Writ of Execution.[23]

To further derail the implementation of the second alias writ of execution over the property covered by TCT No. 613113, Knecht, Inc. and Rene Knecht filed a petition with the CA, docketed as CA G.R. SP No. 39003. They contended anew that Civil Case No. 9165 can no longer be enforced for having been rendered moot and academic because of UCC’s dissolution in 1973 and that of Rose Packing in 1986. Finding the contention devoid of merit, the CA in its Decision dated May 8, 1996,[24] dismissed the petition. It held that the three-year period allowed to a dissolved corporation for liquidating its assets and winding up of its affairs can be extended under certain circumstances where, as here, the suit filed by UCC during its corporate existence necessarily prolonged that period. Moreover, mere dissolution of a corporation cannot be invoked by Rose Packing to unjustly enrich itself at the expense of the dissolved corporation.

Knecht, Inc. and Rene Knecht filed with this Court a petition for review, docketed as G.R. No. 124983, questioning the CA Decision in CA-G.R. SP No. 39003. In a Resolution dated August 26, 1996, this Court dismissed the petition for petitioners’ failure to pay the prescribed docketing and other fees within the reglementary period. On November 11, 1996, their motion for reconsideration was denied with finality.[25]

Thereafter, the trial court, upon motion[26] by UCC, issued an Order dated June 27, 1997[27] directing Sheriff Eduardo L. Bolima of Branch 151, RTC, Pasig City to execute the corresponding deed of sale with mortgage in compliance with the judgment in Civil Case No. 9165.

Rene Knecht filed a motion for reconsideration[28] insisting that the execution of the judgment in Civil Case No. 9165 cannot be availed of anymore whether against Rose Packing or in favor of UCC because both corporations had been dissolved. This motion was denied by the trial court in an Order dated May 12, 1998.[29]

Undaunted, Rene Knecht and Knecht, Inc. filed a petition with the CA, docketed as CA-G.R. SP No. 47978, assailing the trial court’s jurisdiction to issue the June 27, 1997 and May 12, 1998 Orders. They impleaded as respondents Hon. Deogracias O. Felizardo (Judge, RTC, Branch 151, Pasig City), Sheriff Eduardo L. Bolima and UCC. Pending resolution of this petition, Sheriff Bolima executed a “Sheriff’s Deed of Absolute Sale”[30] dated June 16, 1998 transferring to UCC the parcel of land covered by TCT No. 613113 for a consideration of P720,000.00 (which is the difference between the agreed purchase price of P800,000.00 and the amount of P80,000.00 paid by UCC as earnest money). UCC deposited the P720,000.00 with the Cashier of the Clerk of Court, RTC, Pasig City.

On May 10, 1999, the CA rendered the now questioned Decision,[31] upholding the twin orders of the trial court dated June 27, 1997 and May 12, 1998. The CA emphasized that all the issues raised in the petition – including the validity of the enforcement of the decision and the corresponding writ of execution issued in Civil Case No. 9165 in favor of UCC – had already been finally decided and judicially laid to rest in the several certiorari proceedings filed by Rene Knecht and Knecht, Inc. with the Court of Appeals and this court. These issues cannot be reopened and re-litigated without violating the rule on res judicata. Furthermore, the certiorari proceedings directed against the enforcement of the same decision and writ of execution constitute forum-shopping which, in essence, “degrades the administration of justice”.

Upon denial by the CA of their motion for reconsideration, Rene Knecht and Knecht, Inc. filed the present petition for review on certiorari assailing the Decision in CA-G.R. SP No. 47978.

In the main, petitioners vehemently aver that the absence of a statutory authority for the extension of the life of UCC for the purpose of pursuing Civil Case No. 9165 after its dissolution rendered void the July 15, 1969 Decision of the trial court in that case. A void decision can be attacked any time either directly or collaterally without violating the rules on res judicata and non-forum shopping. Necessarily, the writs of execution and all other orders issued by the trial court to implement that void decision are likewise void. In support of this contention, petitioners cite Sumera vs. Valencia,[32] National Abaca and Other Fibers Corporation vs. Pore[33] and Board of Liquidators vs. Kalaw.[34]

Furthermore, petitioners claim that the November 8, 1995 second alias writ of execution cannot be implemented by the June 27, 1997 Order of the trial court because: (1) the second alias writ varied the terms of the judgment in Civil Case No. 9165 resulting in the deprivation of petitioner Knecht, Inc. of its property without due process; and (2) the said writ having expired, became functus officio.

The petition lacks merit.

Viewed from the facts stated above, it appears that petitioners have filed a total of eight (8) appeals and/or petitions (including the present petition) with this Court and the CA, all geared towards frustrating the execution of the judgment in Civil Case No. 9165, to wit:

1. CA-G.R. SP No. 28333 – Petition for certiorari filed with the CA to annul the June 17, 1992 Order of the RTC, Branch 151, Pasig City allowing the issuance of a writ of execution to enforce the decision in Civil Case No. 9165 (in accordance with the Decision of the CA in CA-G.R. SP No. 26545). Petitioners insisted that the judgment in Civil Case No. 9165 cannot be enforced due to prescription. The CA dismissed the petition and upheld the questioned order of the trial court;

2. G.R. No. 109385 – Petition for review on certiorari filed with this Court questioning the CA Decision in CA-G.R. SP No. 28333. This Court found no reversible error on the part of the CA;

3. CA-G.R. SP No. 33852 – Petition for certiorari filed with the CA seeking to enjoin the enforcement of an alias writ of execution issued by the trial court on April 19, 1994. Petitioners interposed the new argument that the judgment in Civil Case No. 9165 cannot be enforced due to the dissolution of UCC on March 30, 1973. The CA dismissed the petition;

4. G.R. Nos. 118183 and 118184 – Petition for review on certiorari filed with this Court questioning the CA Decision in CA-G.R. SP No. 33852. This Court dismissed the petition in a Resolution dated January 30, 1995;

Page 4: Corpo Cases

5. CA-G.R. SP No. 39003 – Petition for certiorari and prohibition with prayer for the issuance of temporary restraining order filed with the CA seeking, among others, the annulment of the second alias writ of execution issued by the trial court on November 8, 1995. Petitioners reiterated that the judgment in Civil Case No. 9165 cannot anymore be enforced for having been rendered moot and academic by the dissolution of UCC. The CA denied this petition for lack of merit and upheld the validity of the second alias writ of execution;

6. G.R. No. 124983 – Petition for review on certiorari filed with this Court questioning the CA Decision in CA-G.R. SP No. 39003. This Court denied the petition in a Resolution dated August 26, 1996;

7. CA-G.R. SP No. 47978 – Petition for certiorari filed with the CA seeking to annul the June 27, 1997 Order of the trial court directing Sheriff Eduardo L. Bolima of Branch 151, RTC, Pasig City to execute the corresponding deed of sale with mortgage in compliance with the judgment and the second alias writ of execution issued in Civil Case No. 9165. Petitioners persistently claimed that the decision in Civil Case No. 9165 is voided by the expiration of UCC’s three-year period of liquidation from its dissolution. Furthermore, they theorized that the second alias writ of execution is improper because it varied the terms of the judgment and also deprived Knecht, Inc. of its property without due process of law. The CA denied this petition and cited petitioners guilty of forum shopping;

8. G.R. No. 139370 – The present petition for review filed with this Court questioning the decision of the CA in CA-G.R. SP No. 47978.

Petitioners’ basis in filing these multiple petitions is the expiration of UCC’s corporate existence.

There is no doubt that the judgment in Civil Case No. 9165 became final and executory on March 23, 1977. That this judgment is still enforceable was decided with finality by this Court in G.R. No. 109385.

In Reburiano vs. Court of Appeals,[35] a case with similar facts, this Court held:

“the trustee (of a dissolved corporation) may commence a suit which can proceed to final judgment even beyond the three-year period (of liquidation) x x x, no reason can be conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation, should not be accorded similar treatment – to proceed to final judgment and execution thereof.” (Emphasis ours)

Indeed, the rights of a corporation (dissolved pending litigation) are accorded protection by law. This is clear from Section 145 of the Corporation Code, thus:

“Section 145. Amendment or repeal. No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof.” (Emphasis ours)

The dissolution of UCC itself, or the expiration of its three-year liquidation period, should not be a bar to the enforcement of its rights as a corporation. One of these rights, to be sure, includes the UCC’s right to seek from the court the execution of a valid and final judgment in Civil Case No. 9165 – through its trustee/liquidator Encarnacion Gonzales Wong – for the benefit of its stockholders, creditors and any other person who may have legal claims against it. To hold otherwise would be to allow petitioners to unjustly enrich themselves at the expense of UCC. This, in effect, renders nugatory all the efforts and expenses of UCC in its quest to secure justice, not to mention the undue delay in disposing of this case prejudicial to the administration of justice.

Next, petitioners aver that the November 8, 1995 second alias writ of execution, implemented in the June 27, 1997 Order of the trial court, varied the judgment in Civil Case No. 9165 resulting in the deprivation of their property without due process.

Their argument is fallacious.

Suffice it to state that the final decision sought to be enforced in the alias writ only pertains to the area covered by TCT No. 73620, not to the other two unregistered lots. The said writ was intended only for the execution of the judgment respecting one and the same parcel of land which, as elucidated earlier, underwent series of transfer from Rose Packing (TCT No. 73620) to PCIB (TCT No. 286176) and later to petitioner Knecht, Inc. (TCT No. 613113). As aptly found by the CA:

“x x x what is being commanded to be conveyed in the judgment is Lot 2, Parcel 20, Plan 11-8099, Amd-2, formerly covered by TCT No. 73620, Book No. T-645, Page No. 20 of the Registry of Deeds of Rizal, presently covered by TCT No. 613113, due to what respondent UCC claims to be anomalous transfers. Verily, not because the title to a parcel of land is cancelled and replaced by a new one makes it a new or different lot.”[36]

Lastly, petitioners submit that the November 8, 1995 second alias writ of execution cannot be implemented by the June 27, 1997 Order of the trial court on the ground that the said writ had already expired and, therefore, had become functus officio pursuant to former Section 11, Rule 39 of the Rules of Civil Procedure. We quote with approval the following disquisition of the CA in rejecting petitioners’ argument:

“Petitioners protestation that the second alias writ of execution dated November 8, 1995 could no longer be enforced after its life span of (sixty) 60 days is incorrect. At the present times, the life span of a writ of execution is without limit for as long as the judgment has not been satisfied, although it is returnable to the court issuing it immediately after the judgment has been satisfied in part or in full. If the judgment cannot be satisfied in full within thirty (30) days after receipt of the writ, the officer’s duty is to report to the court and state the reason therefor (Section 14, Rule 39, 1997 Rules). There is, therefore, no more need to ask an alias writ of execution under the new Rules.”[37]

To be sure, the expiration of the second alias writ is attributable to petitioners alone who deliberately caused the filing of numerous and unmeritorious petitions with the CA and this Court to thwart the long-delayed execution of the final and executory Decision in Civil Case No. 9165.

Page 5: Corpo Cases

It may now be trite, but apt, to stress that the Rules of Court “shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding.”[38] They are mere tools designed to facilitate the attainment of justice. Any rigid application of the rules which would tend to frustrate, rather than promote, substantial justice is abhorred.[39]

Every litigation must come to an end. While a litigant’s right to initiate an action in court is fully respected, however, once his case has been adjudicated by a competent court in a valid final judgment, he should not be permitted to initiate similar suits hoping to secure a favorable ruling, for this will result to endless litigations detrimental to the administration of justice, as in this case.

WHEREFORE, the instant petition is DENIED and the assailed Decision of the Court of Appeals in CA-G.R. SP No. 47978 is AFFIRMED. Treble costs against petitioners. SO ORDERED.

G.R. No. L-27906 January 8, 1987

CONVERSE RUBBER CORPORATION, petitioner,vs.

UNIVERSAL RUBBER PRODUCTS, INC. and TIBURCIO S. EVALLE, DIRECTOR OF PATENTS, respondents.

The undisputed facts of the case are as follows:

Respondent Universal Rubber Products, Inc. filed an application with the Philippine Patent office for registration of the trademark "UNIVERSAL CONVERSE AND DEVICE" used on rubber shoes and rubber slippers.

Petitioner Converse Rubber Corporation filed its opposition to the application for registration on grounds that:

a] The trademark sought to be registered is confusingly similar to the word "CONVERSE" which is part of petitioner's corporate name "CONVERSE RUBBER CORPORATION" as to likely deceive purchasers of products on which it is to be used to an extent that said products may be mistaken by the unwary public to be manufactured by the petitioner; and,

b] The registration of respondent's trademark will cause great and irreparable injury to the business reputation and goodwill of petitioner in the Philippines and would cause damage to said petitioner within the, meaning of Section 8, R.A. No. 166, as amended.

Thereafter, respondent filed its answer and at the pre-trial, the parties submitted the following partial stipulation of facts:

1] The petitioner's corporate name is "CONVERSE RUBBER CORPORATION" and has been in existence since July 31, 1946; it is duly organized under the laws of Massachusetts, USA and doing business at 392 Pearl St., Malden, County of Middle sex, Massachusetts;

2] Petitioner is not licensed to do business in the Philippines and it is not doing business on its own in the Philippines; and,

3] Petitioner manufacturers rubber shoes and uses thereon the trademarks "CHUCK TAYLOR "and "ALL STAR AND DEVICE". 1

At the trial, petitioner's lone witness, Mrs. Carmen B. Pacquing, a duly licensed private merchant with stores at the Sta. Mesa Market and in Davao City, testified that she had been selling CONVERSE rubber shoes in the local market since 1956 and that sales of petitioner's rubber shoes in her stores averaged twelve to twenty pairs a month purchased mostly by basketball players of local private educational institutions like Ateneo, La Salle and San Beda.

Mrs. Pacquing, further stated that she knew petitioner's rubber shoes came from the United States "because it says there in the trademark Converse Chuck Taylor with star red or blue and is a round figure and made in U.S.A. " 2 In the invoices issued by her store, the rubber shoes were described as "Converse Chuck Taylor", 3 "Converse All Star," 4 "All Star Converse Chuck Taylor," 5 or "Converse Shoes Chuck Taylor." 6 She also affirmed that she had no business connection with the petitioner.

Respondent, on the other hand, presented as its lone witness the secretary of said corporation who testified that respondent has been selling on wholesale basis "Universal Converse" sandals since 1962 and "Universal Converse" rubber shoes since 1963. Invoices were submitted as evidence of such sales. The witness also testified that she had no Idea why respondent chose "Universal Converse" as a trademark and that she was unaware of the name "Converse" prior to her corporation's sale of "Universal Converse" rubber shoes and rubber sandals.

Eventually, the Director of Patents dismissed the opposition of the petitioner and gave due course to respondent's application. His decision reads in part:

... the only question for determination is whether or not the applicant's partial appropriation of the Opposer's [petitioner'] corporate name is of such character that in this particular case, it is calculated to deceive or confuse the public to the injury of the corporation to which the name belongs ...

I cannot find anything that will prevent registration of the word 'UNIVERSAL CONVERSE' in favor of the respondent. In arriving at this conclusion, I am guided by the fact that the opposer failed to present proof that the single word "CONVERSE' in its corporate name has become so Identified with the corporation that whenever used, it designates to the mind of the public that particular corporation.

The proofs herein are sales made by a single witness who had never dealt with the petitioner . . . the entry of Opposer's [petitioner's] goods in the Philippines were not only effected in a very insignificant quantity but without the opposer [petitioner] having a direct or indirect hand in the transaction so as to be made the basis for trademark pre- exemption.

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Opposer's proof of its corporate personality cannot establish the use of the word "CONVERSE" in any sense, as it is already stipulated that it is not licensed to do business in the Philippines, and is not doing business of its own in the Philippines. If so, it will be futile for it to establish that "CONVERSE" as part of its corporate name Identifies its rubber shoes. Besides, it was also stipulated that opposer [petitioner], in manufacturing rubber shoes uses thereon the trademark "CHUCK TAYLOR" and "ALL STAR and DEVICE" and none other.

Furthermore, inasmuch as the Opposer never presented any label herein, or specimen of its shoes, whereon the label may be seen, notwithstanding its witness' testimony touching upon her Identification of the rubber shoes sold in her stores, no determination can be made as to whether the word 'CONVERSE' appears thereon.

. . .the record is wanting in proof to establish likelihood of confusion so as to cause probable damage to the Opposer. 7

Its motion for reconsideration having been denied by the respondent Director of Patents, petitioner instituted the instant petition for review.

As correctly phrased by public respondent Director of Patents, the basic issue presented for our consideration is whether or not the respondent's partial appropriation of petitioner's corporate name is of such character that it is calculated to deceive or confuse the public to the injury of the petitioner to which the name belongs.

A trade name is any individual name or surname, firm name, device or word used by manufacturers, industrialists, merchants and others to Identify their businesses, vocations or occupations. 8 As the trade name refers to the business and its goodwill ... the trademark refers to the goods." 9 The ownership of a trademark or tradename is a property right which the owner is entitled to protect "since there is damage to him from confusion or reputation or goodwill in the mind of the public as well as from confusion of goods. The modern trend is to give emphasis to the unfairness of the acts and to classify and treat the issue as fraud. 10

From a cursory appreciation of the petitioner's corporate name "CONVERSE RUBBER CORPORATION,' it is evident that the word "CONVERSE" is the dominant word which Identifies petitioner from other corporations engaged in similar business. Respondent, in the stipulation of facts, admitted petitioner's existence since 1946 as a duly organized foreign corporation engaged in the manufacture of rubber shoes. This admission necessarily betrays its knowledge of the reputation and business of petitioner even before it applied for registration of the trademark in question. Knowing, therefore, that the word "CONVERSE" belongs to and is being used by petitioner, and is in fact the dominant word in petitioner's corporate name, respondent has no right to appropriate the same for use on its products which are similar to those being produced by petitioner.

A corporation is entitled to the cancellation of a mark that is confusingly similar to its corporate name."11 "Appropriation by another of the dominant part of a corporate name is an infringement."12

Respondent's witness had no Idea why respondent chose "UNIVERSAL CONVERSE" as trademark and the record discloses no reasonable explanation for respondent's use of the word "CONVERSE" in its trademark. Such unexplained use by respondent of the dominant word of petitioner's corporate name lends itself open to the suspicion of fraudulent motive to trade upon petitioner's reputation, thus:

A boundless choice of words, phrases and symbols is available to one who wishes a trademark sufficient unto itself to distinguish his product from those of others. When, however, there is no reasonable explanation for the defendant's choice of such a mark though the field for his selection was so broad, the inference is inevitable that it was chosen deliberately to deceive. 13

The testimony of petitioner's witness, who is a legitimate trader as well as the invoices evidencing sales of petitioner's products in the Philippines, give credence to petitioner's claim that it has earned a business reputation and goodwill in this country. The sales invoices submitted by petitioner's lone witness show that it is the word "CONVERSE" that mainly Identifies petitioner's products, i.e. "CONVERSE CHUCK TAYLOR, 14 "CONVERSE ALL STAR," 15 ALL STAR CONVERSE CHUCK TAYLOR," 16 or "CONVERSE SHOES CHUCK and TAYLOR." 17 Thus, contrary to the determination of the respondent Director of Patents, the word "CONVERSE" has grown to be Identified with petitioner's products, and in this sense, has acquired a second meaning within the context of trademark and tradename laws.

Furthermore, said sales invoices provide the best proof that there were actual sales of petitioner's products in the country and that there was actual use for a protracted period of petitioner's trademark or part thereof through these sales. "The most convincing proof of use of a mark in commerce is testimony of such witnesses as customers, or the orders of buyers during a certain period. 18 Petitioner's witness, having affirmed her lack of business connections with petitioner, has testified as such customer, supporting strongly petitioner's move for trademark pre-emption.

The sales of 12 to 20 pairs a month of petitioner's rubber shoes cannot be considered insignificant, considering that they appear to be of high expensive quality, which not too many basketball players can afford to buy. Any sale made by a legitimate trader from his store is a commercial act establishing trademark rights since such sales are made in due course of business to the general public, not only to limited individuals. It is a matter of public knowledge that all brands of goods filter into the market, indiscriminately sold by jobbers dealers and merchants not necessarily with the knowledge or consent of the manufacturer. Such actual sale of goods in the local market establishes trademark use which serves as the basis for any action aimed at trademark pre- exemption. It is a corollary logical deduction that while Converse Rubber Corporation is not licensed to do business in the country and is not actually doing business here, it does not mean that its goods are not being sold here or that it has not earned a reputation or goodwill as regards its products. The Director of Patents was, therefore, remiss in ruling that the proofs of sales presented "was made by a single witness who had never dealt with nor had never known opposer [petitioner] x x x without Opposer having a direct or indirect hand in the transaction to be the basis of trademark pre- exemption."

Another factor why respondent's applications should be denied is the confusing similarity between its trademark "UNIVERSAL CONVERSE AND DEVICE" and petitioner's corporate name and/or its trademarks "CHUCK TAYLOR" and "ALL STAR DEVICE" which could confuse the purchasing public to the prejudice of petitioner,

The trademark of respondent "UNIVERSAL CONVERSE and DEVICE" is imprinted in a circular manner on the side of its rubber shoes. In the same manner, the trademark of petitioner which reads "CONVERSE CHUCK TAYLOR" is imprinted on a circular base attached to the side of its rubber shoes. The deteminative factor in ascertaining whether or not marks are confusingly similar to each other "is not whether the

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challenged mark would actually cause confusion or deception of the purchasers but whether the use of such mark would likely cause confusion or mistake on the part of the buying public. It would be sufficient, for purposes of the law, that the similarity between the two labels is such that there is a possibility or likelihood of the purchaser of the older brand mistaking the new brand for it." 19 Even if not an the details just mentioned were identical, with the general appearance alone of the two products, any ordinary, or even perhaps even [sic] a not too perceptive and discriminating customer could be deceived ... " 20

When the law speaks co-purchaser," the reference is to ordinary average purchaser. 21 It is not necessary in either case that the resemblance be sufficient to deceive experts, dealers, or other persons specially familiar with the trademark or goods involve." 22

The similarity y in the general appearance of respondent's trademark and that of petitioner would evidently create a likelihood of confusion among the purchasing public. But even assuming, arguendo, that the trademark sought to be registered by respondent is distinctively dissimilar from those of the petitioner, the likelihood of confusion would still subsists, not on the purchaser's perception of the goods but on the origins thereof. By appropriating the word "CONVERSE," respondent's products are likely to be mistaken as having been produced by petitioner. "The risk of damage is not limited to a possible confusion of goods but also includes confusion of reputation if the public could reasonably assume that the goods of the parties originated from the same source. 23

It is unfortunate that respondent Director of Patents has concluded that since the petitioner is not licensed to do business in the country and is actually not doing business on its own in the Philippines, it has no name to protect iN the forum and thus, it is futile for it to establish that "CONVERSE" as part of its corporate name identifies its rubber shoes. That a foreign corporation has a right to maintain an action in the forum even if it is not licensed to do business and is not actually doing business on its own therein has been enunciated many times by this Court. In La Chemise Lacoste, S.A. vs. Fernandez, 129 SCRA 373, this Court, reiterating Western Equipment and Supply Co. vs. Reyes, 51 Phil. 115, stated that:

... a foreign corporation which has never done any business in the Philippines and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Philippines through the use therein of its products bearing its corporate and tradename, has a legal right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from organizing a corporation therein bearing the same name as the foreign corporation, when it appears that they have personal knowledge of the existence of such a foreign corporation, and it is apparent that the purpose of the proposed domestic corporation is to deal and trade in the same goods as those of the foreign corporation.

We further held:

xxx xxx xxx

That company is not here seeking to enforce any legal or control rights arising from or growing out of, any business which it has transacted in the Philippine Islands. The sole purpose of the action:

Is to protect its reputation, its corporate name, its goodwill whenever that reputation, corporate name or goodwill have, through the natural development of its trade, established themselves.' And it contends that its rights to the use of its corporate and trade name:

Is a property right, a right in recess which it may assert and protect against all the world, 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. Citing sec. 10, Nims on Unfair Competition and Trademarks and cases cited; secs. 21-22, Hopkins on Trademarks, Trade Names and Unfair Competition and cases cited That point is sustained by the authorities, and is well stated in Hanover Star Milling Co. vs. Allen and Wheeler Co. [208 Fed., 5131, in which the syllabus says:

Since it is the trade and not the mark that is to be protected, a trademark acknowledges no territorial boundaries of municipalities or states or nations, but extends to every market where the trader's goods have become known and Identified by the use of the mark.

The ruling in the aforecited case is in consonance with the Convention of the Union of Paris for the Protection of Industrial Property to which the Philippines became a party on September 27, 1965. Article 8 thereof provides that "a trade name [corporate name] shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of the trademark. " [emphasis supplied]

The object of the Convention is to accord a national of a member nation extensive protection "against infringement and other types of unfair competition" [Vanitary Fair Mills, Inc. vs. T. Eaton Co., 234 F. 2d 6331.

The mandate of the aforementioned Convention finds implementation in Sec. 37 of RA No. 166, otherwise known as the Trademark Law:

Sec. 37. Rights of Foreign Registrants-Persons who are nationals of, domiciled or have a bona fide or effective business or commercial establishment in any foreign country, which is a party to an international convention or treaty relating to marks or tradenames on 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 . . . ...

Tradenames of persons described in the first paragraph of this section shall be protected without the obligation of filing or registration whether or not they form parts of marks. [emphasis supplied]

WHEREFORE, the decision of the Director of Patents is hereby set aside and a new one entered denying Respondent Universal Rubber Products, Inc.'s application for registration of the trademark "UNIVERSAL CONVERSE AND DEVICE" on its rubber shoes and slippers.

SO ORDERED.

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G.R. No. 97816 July 24, 1992

MERRILL LYNCH FUTURES, INC., petitioner,vs.

HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and ELISA G. LARA, respondents.

NARVASA, C.J.:

The capacity of a foreign corporation to maintain an action in the Philippines against residents thereof, is the principal question in the appellate proceedings at bar. The issue arises from the undisputed facts now to be briefly narrated.

On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES) filed a complaint with the Regional Trial Court at Quezon City against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and attorney's fees. 1 In its complaint ML FUTURES described itself as —

a) a non-resident foreign corporation, not doing business in the Philippines, duly organized and existing under and by virtue of the laws of the state of Delaware, U.S.A.;" as well as

b) a "futures commission merchant" duly licensed to act as such in the futures markets and exchanges in the United States, . . essentially functioning as a broker . . (executing) orders to buy and sell futures contracts received from its customers on U.S. futures exchanges.

It also defined a "futures contract" as a "contractual commitment to buy and sell a standardized quantity of a particular item at a specified future settlement date and at a price agreed upon, with the purchase or sale being executed on a regulated futures exchange."

In its complaint ML FUTURES alleged the following:

1) that on September 28, 1983 it entered into a Futures Customer Agreement with the defendant spouses (Account No. 138-12161), in virtue of which it agreed to act as the latter's broker for the purchase and sale of futures contracts in the U.S.;

2) that pursuant to the contract, orders to buy and sell futures contracts were transmitted to ML FUTURES by the Lara Spouses "through the facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a company servicing plaintiffs customers; 2

3) that from the outset, the Lara Spouses "knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts," and that it "did not have a license from the Securities and Exchange Commission to operate as a commodity trading advisor (i.e., 'an entity which, not being a broker, furnishes advice on commodity futures to persons who trade in futures contracts');

4) that in line with the above mentioned agreement and through said Merrill Lynch Philippines, Inc., the Lara Spouses actively traded in futures contracts, including "stock index futures" for four years or so, i.e., from 1983 to October, 1987, 3 there being more or less regular accounting and corresponding remittances of money (or crediting or debiting) made between the spouses and ML FUTURES;

5) that because of a loss amounting to US$160,749.69 incurred in respect of three (3) transactions involving "index futures," and after setting this off against an amount of US$75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses became indebted to ML FUTURES for the ensuing balance of US$84,836.27, which the latter asked them to pay;

6) that the Lara Spouses however refused to pay this balance, "alleging that the transactions were null and void because Merrill Lynch Philippines, Inc., the Philippine company servicing accounts of plaintiff, . . had no license to operate as a 'commodity and/or financial futures broker.'"

On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment against defendant spouses' properties "up to the value of at least P2,267,139.50," and (2) for judgment, after trial, sentencing the spouses to pay ML FUTURES:

a) the Philippine peso equivalent of $84,836.27 at the applicable exchanged rate on date of payment, with legal interest from date of demand until full payment;

b) exemplary damages in the sum of at least P500,000.00; and

c) attorney's fees and expenses of litigation as may be proven at the trial.

Preliminary attachment issued ex parte on December 2, 1987, and the defendant spouses were duly served with summons.

They then filed a motion to dismiss dated December 18, 1987 on the grounds that:

(1) plaintiff ML FUTURES had "no legal capacity to sue" and

(2) its "complaint states no cause of action since . . (it) is not the real party in interest."

In that motion to dismiss, the defendant spouses averred that:

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a) although not licensed to do so, ML FUTURES had been doing business in the Philippines "at least for the last four (4) years," this being clear from the very allegations of the complaint; consequently, ML FUTURES is prohibited by law "to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines;" and

b) they had never been informed that Merrill Lynch Philippines, Inc. was not licensed to do business in this country; and contrary to the allegations of the complaint, all their transactions had actually been with MERRILL LYNCH PIERCE FENNER & SMITH, INC., and not with ML FUTURES (Merrill Lynch Futures, Inc.), in proof of which they attached to their motion to dismiss copies of eight (8) agreements, receipts or reminders, etc., executed on standard printed forms of said Merrill Lynch Pierce Fenner & Smith Inc. 4

ML FUTURES filed an OPPOSITION to the defendant spouses' motion to dismiss. In that motion —

a) it drew attention to paragraph 4 of its complaint, admitted by defendants, that the latter "have been actively trading in futures contracts . . . in U.S. futures exchanges from 1983 to 1987," and ask, "If the trading . . . (was) made in U.S., how could plaintiff be doing business in the Philippines?"

b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc." filled out and signed by defendant spouses when they opened an account with ML Futures, in order to supply information about themselves, including their bank's name —

(1) in which appear the following epigraph: "Account introduced by Merrill Lynch International, Inc.," and the following statements, to wit:

This Commodity Trading Advisor (Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc.) is prohibited by the Philippine Securities and Exchange Commission from accepting funds in the trading advisor's name from a client of Merrill Lynch Futures, Inc. for trading commodity interests. All funds in this trading program must be placed with Merrill Lynch Futures, Inc.;

and

. . . It is agreed between MERRILL LYNCH, PIERCE, FENNER & SMITH INC., and other account carrying MERRILL LYNCH entities and their customers that all legal relationships between them will be governed by applicable laws in countries outside the Philippines where sale and purchase transactions take place.

c) and it argued that —

(1) it is not permitted for defendant spouses to present "evidence" in connection with a motion to dismiss based on failure of the complaint to state a cause of action;

(2) even if the documents appended to the motion to dismiss be considered as admissible "evidence," the same would be immaterial since the documents refer to a different account number: 138-12136, the defendants' account number with ML FUTURES being 138-12161;

(3) it is a lie for the defendant spouses to assert that they were never informed that Merrill Lynch Philippines, Inc. had not been licensed to do business in the Philippines; and

(4) defendant spouses should not be allowed to "invoke the aid of the court with unclean hands.

The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill Lynch Philippines, Inc. (formerly registered as Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc.) 5 did not have a license, claiming that they learned of this only from inquiries with the Securities and Exchange Commission which elicited the information that it had denied said corporation's application to operate as a commodity futures trading advisor — a denial subsequently affirmed by the Court of Appeals (Merrill Lynch Philippines, Inc. v. Securities & Exchange Commission, CA-G.R. No. 10821-SP, Nov. 19, 1987). The spouses also submitted additional documents (Annexes J to R) involving transactions with Merrill Lynch Pierce Fenner & Smith, Inc., dating back to 1980, stressing that all but one of the documents "refer to Account No. 138-12161 which is the very account that is involved in the instant complaint."

ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure statement by which the latter were made aware that the transactions they were agreeing on would take place outside of the Philippines, and that "all funds in the trading program must be placed with Merrill Lynch Futures, Inc."

On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to dismiss, directing the dismissal of the case and discharging the writ of preliminary attachment. It later denied ML FUTURES's motion for reconsideration, by Order dated February 29, 1988. ML FUTURES appealed to the Court of Appeals. 6

In its own decision promulgated on November 27, 1990, 7 the Court of Appeals affirmed the Trial Court's judgment. It declared that the Trial Court had seen "through the charade in the representation of MLPI and the plaintiff that MLPI is only a trading advisor and in fact it is a conduit in the plaintiff's business transactions in the Philippines as a basis for invoking the provisions of Section 133 of the Corporation Code," 8 viz.:

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 in 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.

It also declared that the evidence established that plaintiff had in fact been "doing business" in this country in legal contemplation, adverting to Mentholatum v. Mangaliman, 72 Phil. 524, 528-530, and Section 1 of Republic Act No. 5455 reading as follows: 9

Sec. 1. Definition and scope of this ACT . (1) As used in this Act, the term "investment" shall mean equity participation in any enterprise formed, organized, or existing under the laws of the Philippines; and the phrase "doing business" shall INCLUDE soliciting orders, purchases,

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service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; AND ANY OTHER ACT OR ACTS THAT IMPLY A CONTINUITY OF COMMERCIAL DEALINGS OR ARRANGEMENTS AND CONTEMPLATE TO THAT EXTENT THE PERFORMANCE OF ACTS OR WORKS, OR THE EXERCISE OF SOME FUNCTIONS NORMALLY INCIDENT TO, AND IN PROGRESSIVE PROSECUTION OF COMMERCIAL GAIN OR OF THE PURPOSE AND OBJECT OF THE BUSINESS ORGANIZATION.

As regards the claim that it was error for the Trial Court to place reliance on the decision of the Court of Appeals in CA-G.R. No. 10821-SP — sustaining the finding of the Securities & Exchange Commission that ML FUTURES was doing business in the Philippines — since that judgment was not yet final and ML FUTURES was not a party to that proceeding, the Court of Appeals ruled that there was no need to belabor the point considering that there was, in any event, "adequate proof of the activities of MLPI . . . which manifestly show that the plaintiff (ML FUTURES) performed a series of business acts, consummated contracts and undertook transactions for the period from 1983 to October 1987," "and because ML FUTURES had done so without license, it consequently had "no legal personality to bring suit in Philippine courts."

Its motion for reconsideration having been denied, 10 ML FUTURES has appealed to this Court on certiorari. Here, it submits the following issues for resolution:

(a) Whether or not the annexes appended by the Laras to their Motion to Dismiss and Reply filed with the Regional Trial Court, but never authenticated or offered, constitute admissible evidence.

(b) Whether or not in the proceedings below, ML FUTURES has been accorded procedural due process.

(c) Whether or not the annexes, assuming them to be admissible, established that ML FUTURES was doing business in the Philippines without a license.

As just stated, the Lara Spouse's motion to dismiss was founded on two (2) grounds: (a) that the plaintiff has no legal capacity to sue, and (b) that the complaint states no cause of action (Sec. 1 [d], and [g], Rule 16, Rules of Court).

As regards the second ground, i.e., that the complaint states no cause of action, the settled doctrine of course is that said ground must appear on the face of the complaint, and its existence may be determined only by the allegations of the complaint, consideration of other facts being proscribed, and any attempt to prove extraneous circumstances not being allowed. 11 The test of the sufficiency of the facts alleged in a complaint as constituting a cause of action is whether or not, admitting the facts alleged, the court might render a valid judgment upon the same in accordance with the prayer of the complaint. 12 Indeed, it is error for a judge to conduct a preliminary hearing and receive evidence on the affirmative defense of failure of the complaint to state a cause of action. 13

The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to sue — may be understood in two senses: one, that the plaintiff is prohibited or otherwise incapacitated by law to institute suit in Philippine Courts, 14 or two, although not otherwise incapacitated in the sense just stated, that it is not a real party in interest. 15 Now, the Lara Spouses contend that ML Futures has no capacity to sue them because the transactions subject of the complaint were had by them, not with the plaintiff ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc. Evidence is quite obviously needed in this situation, for it is not to be expected that said ground, or any facts from which its existence may be inferred, will be found in the averments of the complaint. When such a ground is asserted in a motion to dismiss, the general rule governing evidence on motions applies. The rule is embodied in Section 7, Rule 133 of the Rules of Court.

Sec. 7. Evidence on motion. — When a motion is based on facts not appearing of record the court may hear the matter on affidavits or depositions presented by the respective parties, but the court may direct that the matter be heard wholly or partly on oral testimony or depositions.

There was, to be sure, no affidavit or deposition attached to the Lara Spouses' motion to dismiss or thereafter proffered in proof of the averments of their motion. The motion itself was not verified. What the spouses did do was to refer in their motion to documents which purported to establish that it was not with ML FUTURES that they had theretofore been dealing, but another, distinct entity, Merrill Lynch, Pierce, Fenner & Smith, Inc., copies of which documents were attached to the motion. It is significant that ML FUTURES raised no issue relative to the authenticity of the documents thus annexed to the Laras' motion. In fact, its arguments subsumed the genuineness thereof and even adverted to one or two of them. Its objection was centered on the propriety of taking account of those documents as evidence, considering the established principle that no evidence should be received in the resolution of a motion to dismiss based on an alleged failure of the complaint to state a cause of action.

There being otherwise no question respecting the genuineness of the documents, nor of their relevance to at least one of the grounds for dismissal — i.e., the prohibition on suits in Philippine Courts by foreign corporations doing business in the country without license — it would have been a superfluity for the Court to require prior proof of their authenticity, and no error may be ascribed to the Trial Court in taking account of them in the determination of the motion on the ground, not that the complaint fails to state a cause of action — as regards which evidence is improper and impermissible — but that the plaintiff has no legal capacity to sue — respecting which proof may and should be presented.

Neither may ML FUTURES argue with any degree of tenability that it had been denied due process in the premises. As just pointed out, it was very clear from the outset that the claim of lack of its capacity to sue was being made to rest squarely on the documents annexed thereto, and ML FUTURES had more than ample opportunity to impugn those documents and require their authentication, but did not do so. To sustain its theory that there should have been identification and authentication, and formal offer, of those documents in the Trial Court pursuant to the rules of evidence would be to give unwarranted importance to technicality and make it prevail over the substance of the issue.

The first question then, is, as ML FUTURES formulates it, whether or not the annexes, assuming them to be admissible, establish that (a) ML FUTURES is prohibited from suing in Philippine Courts because doing business in the country without a license, and that (b) it is not a real party in interest since the Lara Spouses had not been doing business with it, but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.

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The Court is satisfied that the facts on record adequately establish that ML FUTURES, operating in the United States, had indeed done business with the Lara Spouses in the Philippines over several years, had done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had executed all these transactions without ML FUTURES being licensed to so transact business here, and without MLPI being authorized to operate as a commodity futures trading advisor. These are the factual findings of both the Trial Court and the Court of Appeals. These, too, are the conclusions of the Securities & Exchange Commission which denied MLPI's application to operate as a commodity futures trading advisor, a denial subsequently affirmed by the Court of Appeals. Prescinding from the proposition that factual findings of the Court of Appeals are generally conclusive this Court has been cited to no circumstance of substance to warrant reversal of said Appellate Court's findings or conclusions in this case.

The Court is satisfied, too, that the Laras did transact business with ML FUTURES through its agent corporation organized in the Philippines, it being unnecessary to determine whether this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner & Smith (MLPI's alleged predecessor). The fact is that ML FUTURES did deal with futures contracts in exchanges in the United States in behalf and for the account of the Lara Spouses, and that on several occasions the latter received account documents and money in connection with those transactions.

Given these facts, if indeed the last transaction executed by ML FUTURES in the Laras's behalf had resulted in a loss amounting to US $160,749.69; that in relation to this loss, ML FUTURES had credited the Laras with the amount of US$75,913.42 — which it (ML FUTURES) then admittedly owed the spouses — and thereafter sought to collect the balance, US$84,836.27, but the Laras had refused to pay (for the reasons already above stated), the crucial question is whether or not ML FUTURES may sue in Philippine Courts to establish and enforce its rights against said spouses, in light of the undeniable fact that it had transacted business in this country without being licensed to do so. In other words, if it be true that during all the time that they were transacting with ML FUTURES, the Laras were fully aware of its lack of license to do business in the Philippines, and in relation to those transactions had made payments to, and received money from it for several years, the question is whether or not the Lara Spouses are now estopped to impugn ML FUTURES' capacity to sue them in the courts of the forum.

The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. 16 And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" 17 "one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity." 18 The principle "will be applied to prevent 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 (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and distinguished in Dudley v. Collier, 87 Ala 431, 6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317), where such person has acted as agent for the corporation and has violated his fiduciary obligations as such, and where the statute does not provide that the contract shall be void, but merely fixes a special penalty for violation of the statute. . . ." 19

The doctrine was adopted by this Court as early as 1924 in Asia Banking Corporation v. Standard Products Co., 20 in which the following pronouncement was made: 21

The general rule that in the absence of fraud of person who has contracted or otherwise dealt with an association in such a way as to recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its corporate existence in any action leading out of or involving such contract or dealing, unless its existence is attacked for causes which have arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign as well as domestic corporations. (14 C.J .7; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil. 222).

There would seem to be no question that the Laras received benefits generated by their business relations with ML FUTURES. Those business relations, according to the Laras themselves, spanned a period of seven (7) years; and they evidently found those relations to be of such profitability as warranted their maintaining them for that not insignificant period of time; otherwise, it is reasonably certain that they would have terminated their dealings with ML FUTURES much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly suffered a loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES credited them with the amount of US$75,913.42 then due to them, thus reducing their debt to US$84,836.27. Given these facts, and assuming that the Lara Spouses were aware from the outset that ML FUTURES had no license to do business in this country and MLPI, no authority to act as broker for it, it would appear quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done business in this country in the first place, or that its agent in this country, MLPI, had no license either to operate as a "commodity and/or financial futures broker."

Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth liable to ML FUTURES and if so in what amount, and whether they were so far aware of the absence of the requisite licenses on the part of ML FUTURES and its Philippine correspondent, MLPI, as to be estopped from alleging that fact as defense to such liability, should be ventilated and adjudicated on the merits by the proper trial court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 16478 dated November 27, 1990 and its Resolution of March 7, 1991 are REVERSED and SET ASIDE, and the Regional Trial Court at Quezon City, Branch 84, is ORDERED to reinstate Civil Case No. Q-52360 and forthwith conduct a hearing to adjudicate the issues set out in the preceding paragraph on the merits.

SO ORDERED.

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[G.R. No. 94980. May 15,1996]

LITTON MILLS; INC., petitioner, vs. COURT OF APPEALS and GELHAAR UNIFORM COMPANY, INC., respondents.SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; SUMMONS; A COURT NEED NOT GO BEYOND THE ALLEGATIONS IN THE COMPLAINT TO DETERMINE WHETHER OR NOT A DEFENDANT FOREIGN CORPORATION IS DOING BUSINESS FOR THE PURPOSE OF RULE 14, SECTION 14; CASE AT BAR. — A court need not go beyond the allegations in the complaint to determine whether or not a defendant foreign corporation is doing business for the purpose of Rule 14, § 14. In the case at bar, the allegation that Empire, for and in behalf of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton and for this purpose Gelhaar caused the opening of an irrevocable letter of credit in favor of Litton is a sufficient allegation that Gelhaar was doing business in the Philippines.

2. ID.; ID.; ID.; SERVICE OF SUMMONS; VALID IN CASE AT BAR. — In accordance with Rule 14, §14, service upon Gelhaar could be made in three ways: (1) by serving upon the agent designated in accordance with law to accept service of summons; (2) if there is no resident agent, by service on the government official designated by law to that effect; and (3) by serving on any officer or agent of said corporation within the Philippines. Here, service was made through Gelhaar’s agent, the Empire Sales Philippines Corp. There was, therefore, a valid service of summons on Gelhaar, sufficient to confer on the trial court jurisdiction over the person of Gelhaar.

APPEARANCES OF COUNSEL

Juanitas, Perez, Gonzales, Bolos & Associates for petitioner.Sycip Salazar Hernandez & Gatmaitan for private respondent.D E C I S I O N MENDOZA, J.:

This is a petition to review the decision of the Court of Appeals annulling the order of the Regional Trial Court which denied private respondent’s plea that it is a foreign corporation not doing business in the Philippines and therefore not subject to the jurisdiction of Philippine courts.

Petitioner Litton Mills, Inc. (Litton) entered into an agreement with Empire Sales Philippines Corporation (Empire), as local agent of private respondent Gelhaar Uniform Company (Gelhaar), a corporation organized under the laws of the United States, whereby Litton agreed to supply Gelhaar 7,770 dozens of soccer jerseys. The agreement stipulated that be fore it could collect from the bank on the letter of credit, Litton must present an inspection certificate issued by Gelhaar’s agent in the Philippines, Empire Sales, that the goods were in satisfactory condition.

Litton sent four shipments totalling 4,770 dozens of the soccer jerseys between December 2 and December 30, 1983. A fifth shipment, consisting of 2,110 dozens of the jerseys, was inspected by Empire from January 9 to January 19, 1984, but Empire refused to issue the required certificate of inspection.

Alleging that Empire’s refusal to issue a certificate was without valid reason, Litton filed a complaint with the Regional Trial Court of Pasig (Branch 158) on January 23,1984, for specific performance. Litton alleged that under the terms of the letter of credit, the goods should be shipped not later than January 30, 1984; that the vessel stipulated to carry the shipment was scheduled to receive the cargo only on January 27, 1984; and that the letter of credit itself was due to expire on February 14, 1984. Litton sought the issuance of a writ of preliminary mandatory injunction to compel Empire to issue the inspection certificate covering the 2,110 dozen jerseys and the recovery of compensatory and exemplary damages, costs, attorney’s fees and other just and equitable relief.

The trial court issued the writ on January 25, 1984. The next day, Empire issued the inspection certificate, so that the cargo was shipped on time.

On February 8, 1984, Atty. Remie Noval filed in behalf of the defendants a “Motion For Extension of Time To File An Answer/Responsive Pleading.” He filed on February 17, February 22, March 2, March 14, March 26, April 5, April 16, May 2, May 16, May 31, all in 1984, ten other motions for extension, all of which were granted by the court, with the exception of the last, which the Court denied. On his motion, the court later reconsidered its order of denial and admitted the answer of the defendants. On September 10, 1984, Atty. Noval filed the pretrial brief for the defendants.

On January 29,1985, the law firm of Sycip, Salazar, Feliciano and Hernandez entered a special appearance for the purpose of objecting to the jurisdiction of the court over Gelhaar. On February 4,1985, it moved to dismiss the case and to quash the summons on the ground that Gelhaar was a foreign corporation not doing business in the Philippines, and as such, was beyond the reach of the local courts.

It contended that Litton failed to allege and prove that Gelhaar was doing business in the Philippines, which they argued was required by the ruling in Pacific Micronisian Lines, Inc. v. Del Rosario,1 before summons could be served under Rule 14, §14.

It likewise denied the authority of Atty. Noval to appear for Gelhaar and contended that the answer filed by Atty. Noval on June 15, 1984 could not bind Gelhaar and its filing did not amount to Gelhaar’s submission to the jurisdiction of the court.

Litton opposed the motion. On the other hand, Empire moved to dismiss on the ground of failure of the complaint to state a cause of action since the complaint alleged that Empire only acted as agent of Gelhaar; that it was made party-defendant only for the purpose of securing the issuance of an inspection certificate; and that it had already issued such certificate and the shipment had already been shipped on time.

For his part, Atty. Remie Noval claimed that he had been authorized by Gelhaar to appear for it in the case; that he had in fact given legal advice to Empire and his advice had been transmitted to Gelhaar; that Gelhaar had been furnished a copy of the answer; that Gelhaar denied his authority only on December of 1984; and that the belated repudiation of his authority could be only an afterthought because of problems which had developed between Gelhaar and Empire. (Gelhaar refused to pay Empire for its services as agent). Nevertheless, Atty. Noval withdrew his appearance with respect to Gelhaar.

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On September 24, 1986, the trial court issued an order denying for lack of merit Gelhaar’s motion to dismiss and to quash the summons. It held that Gelhaar was doing business in the Philippines, and that the service of summons on Gelhaar was therefore valid. Gelhaar filed a motion for reconsideration, but its motion was denied.

Gelhaar then filed a special civil action of certiorari with the Court of Appeals, which on August 20, 1990, set aside the orders of the trial court. The appellate court held that proof that Gelhaar was doing business in the Philippines should have been presented because, under the doctrine of Pacific Micronisian, this is a condition sine qua non for the service of summons under Rule 14, § 14 of the Rules of Court, and

that it was error for the trial court to rely on the mere allegations of the complaint.

The appellate court held that neither did the trial court acquire jurisdiction over Gelhaar through voluntary submission because the authority of Atty. Noval to represent Gelhaar had been questioned. Pursuant to Rule 138, §21, the trial court should have required Atty. Noval to prove his authority.

Consequently, the appellate court ordered the trial court to issue anew summons to be served on Empire Sales Philippines Corporation, after the allegation in the complaint that Gelhaar was doing business in the Philippines had been established. Hence this petition.

Litton contends that jurisdiction over Gelhaar was acquired by the trial court by the service of summons through Gelhaar’s agent and, at any rate, by the voluntary appearance of Atty. Remie Noval as counsel of Gelhaar.

We sustain petitioner’s contention based on the first ground, namely, that the trial court acquired jurisdiction over Gelhaar by service of summons upon its agent pursuant to Rule 14, §14.

First. The appellate court invoked the ruling in Pacific Micronisian, in which it was stated that the fact of doing business must first be established before summons can be served in accordance with Rule 14, § 14. The Court of Appeals quoted the following portion of the opinion in that case:

The above section [referring to Rule 14, Section 14] provides for three modes of effecting service upon a private corporation, namely: [enumerates the three modes of service of summons]. But, it should be noted, in order that service may be effected in the manner above stated, said section also requires that the foreign corporation be one which is doing business in the Philippines. This is a sine qua non requirement. This fact must first be established in order that summons can be made and jurisdiction acquired. (Italics by the Court of Appeals)2

In the later case of Signetics Corporation v. Court of Appeals,3 however, we clarified the holding in Pacific Micronisian, thus:

The petitioner opines that the phrase, “(the) fact (of doing business in the Philippines) must first be established in order that summons be made and jurisdiction acquired,” used in the above pronouncement, would indicate that a mere allegation to that effect in the complaint is not enough — there must instead be proof of doing business. In any case, the petitioner points out, the allegations themselves did not sufficiently show the fact of its doing business in the Philippines.

It should be recalled that jurisdiction and venue of actions are, as they should so be, initially determined by the allegations of the complaint. Jurisdiction cannot be made to depend on independent pleas set up in a mere motion to dismiss, otherwise jurisdiction would become dependent almost entirely upon the defendant. The fact of doing business must then, in the first place, be established by appropriate allegations in the complaint. This is what the Court should be seen to have meant in the Pacific Micronisian case. The complaint, it is true, may have been vaguely structured but, taken correlatively, not disjunctively as the petitioner would rather suggest, it is not really so weak as to be fatally deficient in the above requirement. . . .

Hence, a court need not go beyond the allegations in the complaint to determine whether or not a defendant foreign corporation is doing business for the purpose of Rule 14, § 14. In the case at bar, the allegation that Empire, for and in behalf of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton and for this purpose Gelhaar caused the opening of an irrevocable letter of credit in favor of Litton is a sufficient allegation that Gelhaar was doing business in the Philippines.

Second. Gelhaar contends that the contract with Litton was a single, isolated transaction and that it did not constitute “doing business.” Reference is made to Pacific Micronisian in which the only act done by the foreign company was to employ a Filipino as a member of the crew on one of its ships. This court held that the act was an isolated, incidental or casual transaction, not sufficient to indicate a purpose to engage in business.

It is not really the fact that there is only a single act done that is material. The other circumstances of the case must be considered. Thus, in Wang Laboratories, Inc. v. Mendoza,4 it was held that where a single act or transaction of a foreign corporation 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, such act will be considered as constituting doing business.5 This Court referred to acts which were in the ordinary course of business of the foreign corporation.

In the case at bar, the trial court was certainly correct in holding that Gelhaar’s act in purchasing soccer jerseys to be within the ordinary course of business of the company considering that it was engaged in the manufacture of uniforms. The acts noted above are of such a character as to indicate a purpose to do business.

In accordance with Rule 14, § 14, service upon Gelhaar could be made in three ways: (1) by serving upon the agent designated in accordance with law to accept service of summons; (2) if there is no resident agent, by service on the government official designated by law to that effect; and (3) by serving on any officer or agent of said corporation within the Philippines.6 Here, service was made through Gelhaar’s agent, the Empire Sales Philippines Corp. There was, therefore, a valid service of summons on Gelhaar, sufficient to confer on the trial court jurisdiction over the person of Gelhaar.

Page 14: Corpo Cases

Third. On the question, however, of whether the appearance of Atty. Noval in behalf of Gelhaar was binding on the latter, we hold that the Court of Appeals correctly ruled that it was not.

Atty. Noval admits that he was not appointed by Gelhaar as its counsel. What he claims is simply that Gelhaar knew of the filing of the case in the trial court and of his representation but Gelhaar did not object. Atty. Noval contends that there was thus a tacit confirmation of his authority.

Gelhaar claims, however, that it was only sometime in December, 1994 when it found out that the answer which Atty. Noval had filed in June was also made in its behalf. Gelhaar in fact sent a telex message dated January 15, 1985 to its counsel, the Sycip law firm, stating

WE NEVER AUTHORIZED THE RETENTION OF MR. NOVAL ON OUR BEHALF. WE HAVE NEVER EXCHANGED CORRESPONDENCE NOR HAD ANY TELEPHONE CONVERSATIONS WITH HIM RE ANY ASPECT OF THIS CASE, INCL. HIS FEES. WE ARE TOLD THAT HE HAS FILED AN ANSWER TO LTN’S (Litton’s) COMPLT. PURPORTEDLY ON OUR BEHALF BUT HE HAS NEVER DISCUSSED THAT ANSWER WITH US NOR EVEN SENT US A DRAFT OR THE FINAL VERSION OF SUCH ANSWER. WE ARE SENDING SWORN AFFIDAVITS TO THIS EFFECT BY COURIER.7

Atty. Noval has not denied any of these statements. He claims that the advisory opinions he had rendered in the case was sent to Gelhaar by the president of Empire, Enoch Chiu, and that he was informed by Chiu that Gelhaar had been advised on all developments in the case and the necessity of filing an answer, and that a copy of the answer he had filed was furnished Gelhaar.

All this is, however, merely hearsay. Noval does not claim that he ever directly conferred with Gelhaar regarding the case. There is no evidence to show that he notified Gelhaar of his appearance in its behalf, or that he furnished Gelhaar with copies of pleadings or the answer which he filed in its behalf.

No voluntary appearance by Gelhaar can, therefore, be inferred from the acts of Atty. Noval. Nor can Atty. Noval’s representations in the answer he considered binding on Gelhaar. Gelhaar should be allowed a new period for filing its own answer.

WHEREFORE, the decision of the Court of Appeals is REVERSED. The order of the trial court denying the motion to dismiss is hereby REINSTATED, with the MODIFICATION that Gelhaar is given a new period of ten (10) days for the purpose of filing its answer.

SO ORDERED.

[G.R. No. 110318. August 28, 1996]

COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION, UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and

WARNER BROTHERS, INC., petitioners, vs. COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIO, respondents.

D E C I S I O N

REGALADO, J.:

Before us is a petition for review on certiorari of the decision of the Court of Appeals[1] promulgated on July 22, 1992 and its resolution[2] of May 10, 1993 denying petitioners’ motion for reconsideration, both of which sustained the order[3] of the Regional Trial Court, Branch 133, Makati, Metro Manila, dated November 22, 1988 for the quashal of Search Warrant No. 87-053 earlier issued per its own order[4] on September 5, 1988 for violation of Section 56 of Presidential Decree No. 49, as amended, otherwise known as the “Decree on the Protection of Intellectual Property.”

The material facts found by respondent appellate court are as follows:

Complainants thru counsel lodged a formal complaint with the National Bureau of Investigation for violation of PD No. 49, as amended, and sought its assistance in their anti-film piracy drive. Agents of the NBI and private researchers made discreet surveillance on various video establishments in Metro Manila including Sunshine Home Video Inc. (Sunshine for brevity), owned and operated by Danilo A. Pelindario with address at No. 6 Mayfair Center, Magallanes, Makati, Metro Manila.

On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a search warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated video tapes of copyrighted films all of which were enumerated in a list attached to the application; and, television sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of videograms tapes in the premises above described. In the hearing of the application, NBI Senior Agent Lauro C. Reyes, upon questions by the court a quo, reiterated in substance his averments in his affidavit. His testimony was corroborated by another witness, Mr. Rene C. Baltazar. Atty. Rico V. Domingo’s deposition was also taken. On the basis of the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Rene C. Baltazar and Atty. Rico V. Domingo, Search Warrant No 87-053 for violation of Section 56 of PD No. 49, as amended, was issued by the court a quo.

The search warrant was served at about 1:45 p.m. on December 14, 1987 to Sunshine and/or their representatives. In the course of the search of the premises indicated in the search warrant, the NBI Agents found and seized various video tapes of duly copyrighted motion pictures/films owned or exclusively distributed by private complainants, and machines, equipment, television sets, paraphernalia, materials, accessories all of which were included in the receipt for properties accomplished by the raiding team. Copy of the receipt was furnished and/or tendered to Mr. Danilo A. Pelindario, registered owner-proprietor of Sunshine Home Video.

On December 16, 1987, a “Return of Search Warrant” was filed with the Court.

A “Motion To Lift the Order of Search Warrant” was filed but was later denied for lack of merit (p. 280, Records).

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A Motion for reconsideration of the Order of denial was filed. The court a quo granted the said motion for reconsideration and justified it in this manner:

“It is undisputed that the master tapes of the copyrighted films from which the pirated films were allegedly copies (sic), were never presented in the proceedings for the issuance of the search warrants in question. The orders of the Court granting the search warrants and denying the urgent motion to lift order of search warrants were, therefore, issued in error. Consequently, they must be set aside.” (p. 13, Appellant’s Brief)[5]

Petitioners thereafter appealed the order of the trial court granting private respondents’ motion for reconsideration, thus lifting the search warrant which it had therefore issued, to the Court of Appeals. As stated at the outset, said appeal was dismissed and the motion for reconsideration thereof was denied. Hence, this petition was brought to this Court particularly challenging the validity of respondent court’s retroactive application of the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et al.,[6] in dismissing petitioners’ appeal and upholding the quashal of the search warrant by the trial court.

I

Inceptively, we shall settle the procedural considerations on the matter of and the challenge to petitioners’ legal standing in our courts, they being foreign corporations not licensed to do business in the Philippines.

Private respondents aver that being foreign corporations, petitioners should have such license to be able to maintain an action in Philippine courts. In so challenging petitioners’ personality to sue, private respondents point to the fact that petitioners are the copyright owners or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures or films, and also to the appointment of Atty. Rico V. Domingo as their attorney-in-fact, as being constitutive of “doing business in the Philippines” under Section 1(f) (1) and (2), Rule 1 of the Rules of the Board of Investments. As foreign corporations doing business in the Philippines, Section 133 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines, denies them the right to maintain a suit in Philippine courts in the absence of a license to do business. Consequently, they have no right to ask for the issuance of a search warrant.[7]

In refutation, petitioners flatly deny that they are doing business in the Philippines,[8] and contend that private respondents have not adduced evidence to prove that petitioners are doing such business here, as would require them to be licensed by the Securities and Exchange Commission, other than averments in the quoted portions of petitioners’ “Opposition to Urgent Motion to Lift Order of Search Warrant” dated April 28, 1988 and Atty. Rico V. Domingo’s affidavit of December 14, 1987. Moreover, an exclusive right to distribute a product or the ownership of such exclusive right does not conclusively prove the act of doing business nor establish the presumption of doing business.[9]

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 obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. However, under the aforequoted provision, no foreign corporation shall be permitted to transact business in the Philippines, as this phrase is understood under the Corporation Code, unless it shall have the license required by law, and until it complies with the law in transacting business here, it shall not be permitted to maintain any suit in local courts.[10] As thus interpreted, any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action, provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of the prescribed license but “doing business” in the Philippines without such license which debars the foreign corporation from access to our courts. In other words, although a foreign corporation is without license to transact business in the Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in business in the Philippines.[11]

Statutory provisions in many jurisdictions are determinative of what constitutes “doing business” or “transacting business” within that forum, in which case said provisions are controlling there. In others where no such definition or qualification is laid down regarding acts or transactions falling within its purview, the question rests primarily on facts and intent. It is thus held that all the combined acts of a foreign corporation in the State must be considered, and every circumstance is material which indicates a purpose on the part of the corporation to engage in some part of its regular business in the State.[12]

No general rule or governing principles can be laid down as to what constitutes “doing” or “engaging in” or “transacting” business. Each case must be judged in the light of its own peculiar environmental circumstances.[13] The true tests, however, seem 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.[14]

As a general proposition upon which many authorities agree in principle, subject to such modifications as may be necessary in view of the particular issue or of the terms of the statute involved, it is recognized that a foreign corporation is “doing,” “transacting,” “engaging in,” or “carrying on” business in the State when, and ordinarily only when, it has entered the State by its agents and is there engaged in carrying on and transacting through them some substantial part of its ordinary or customary business, usually continuous in the sense that it may be distinguished from merely casual, sporadic, or occasional transactions and isolated acts.[15]

The Corporation Code does not itself define or categorize what acts constitute doing or transacting business in the Philippines. Jurisprudence has, however, held 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.[16]

Page 16: Corpo Cases

This traditional case law definition has evolved into a statutory definition, having been adopted with some qualifications in various pieces of legislation in our jurisdiction.

For instance, Republic Act No. 5455[17] provides:

SECTION 1. Definitions and scope of this Act. — (1) x x x; and the phrase “doing business” shall include soliciting orders, purchases, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in-progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Presidential Decree No. 1789,[18] in Article 65 thereof, defines “doing business” to include soliciting orders, purchases, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

The implementing rules and regulations of said presidential decree conclude the enumeration of acts constituting “doing business” with a catch-all definition, thus:

Sec. 1(g). ‘Doing Business’ shall be any act or combination of acts enumerated in Article 65 of the Code. In particular ‘doing business’ includes:

xxx xxx xxx

(10) Any other act or acts which imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Finally, Republic Act No. 7042[19] embodies such concept in this wise:

SEC. 3. Definitions. — As used in this Act:

xxx xxx xxx

(d) the phrase “doing business shall include soliciting orders, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase “doing business” shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investors; 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.

Based on Article 133 of the Corporation Code and gauged by such statutory standards, petitioners are not barred from maintaining the present action. There is no showing that, under our statutory or case law, petitioners are doing, transacting, engaging in or carrying on business in the Philippines as would require obtention of a license before they can seek redress from our courts. No evidence has been offered to show that petitioners have performed any of the enumerated acts or any other specific act indicative of an intention to conduct or transact business in the Philippines.

Accordingly, the certification issued by the Securities and Exchange Commission[20] stating that its records do not show the registration of petitioner film companies either as corporations or partnerships or that they have been licensed to transact business in the Philippines, while undeniably true, is of no consequence to petitioners’ right to bring action in the Philippines. Verily, no record of such registration by petitioners can be expected to be found for, as aforestated, said foreign film corporations do not transact or do business in the Philippines and, therefore, do not need to be licensed in order to take recourse to our courts.

Although Section 1(g) of the Implementing Rules and Regulations of the Omnibus Investments Code lists, among others —

(1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm, or by an agent of such foreign firm, not acting independently of the foreign firm amounting to negotiations or fixing of the terms and conditions of sales or service contracts, regardless of where the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. The arrangements agreed upon as to manner, time and terms of delivery of the goods or the transfer of title thereto is immaterial. A foreign firm which does business through the middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

(2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of a principal. Thus, where a foreign firm is represented in the Philippines by a person or local company which does not act in its name but in the name of the foreign firm, the latter is doing business in the Philippines.

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as acts constitutive of “doing business,” the fact that petitioners are admittedly copyright owners or owners of exclusive distribution rights in the Philippines of motion pictures or films does not convert such ownership into an indicium of doing business which would require them to obtain a license before they can sue upon a cause of action in local courts.

Neither is the appointment of Atty. Rico V. Domingo as attorney-in-fact of petitioners, with express authority pursuant to a special power of attorney, inter alia —

To lay criminal complaints with the appropriate authorities and to provide evidence in support of both civil and criminal proceedings against any person or persons involved in the criminal infringement of copyright, or concerning the unauthorized importation, duplication, exhibition or distribution of any cinematographic work(s) — films or video cassettes — of which x x x is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between x x x and the respective owners of copyright in such cinematographic work(s), to initiate and prosecute on behalf of x x x criminal or civil actions in the Philippines against any person or persons unlawfully distributing, exhibiting, selling or offering for sale any films or video cassettes of which x x x is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between x x x and the respective owners of copyright in such works.[21]

tantamount to doing business in the Philippines. We fail to see how exercising one’s legal and property rights and taking steps for the vigilant protection of said rights, particularly the appointment of an attorney-in-fact, can be deemed by and of themselves to be doing business here.

As a general rule, a foreign corporation will not be regarded as doing business in the State simply because it enters into contracts with residents of the State, where such contracts are consummated outside the State.[22] In fact, a view is taken that a foreign corporation is not doing business in the state merely because sales of its product are made there or other business furthering its interests is transacted there by an alleged agent, whether a corporation or a natural person, where such activities are not under the direction and control of the foreign corporation but are engaged in by the alleged agent as an independent business.[23]

It is generally held that sales made to customers in the State by an independent dealer who has purchased and obtained title from the corporation to the products sold are not a doing of business by the corporation.[24] Likewise, a foreign corporation which sells its products to persons styled “distributing agents” in the State, for distribution by them, is not doing business in the State so as to render it subject to service of process therein, where the contract with these purchasers is that they shall buy exclusively from the foreign corporation such goods as it manufactures and shall sell them at trade prices established by it.[25]

It has moreover been held that the act of a foreign corporation in engaging an attorney to represent it in a Federal court sitting in a particular State is not doing business within the scope of the minimum contact test.[26] With much more reason should this doctrine apply to the mere retainer of Atty. Domingo for legal protection against contingent acts of intellectual piracy.

In accordance with the rule that “doing business” imports only acts in furtherance of the purposes for which a foreign corporation was organized, it is held that the mere institution and prosecution or defense of a suit, particularly if the transaction which is the basis of the suit took place out of the State, do not amount to the doing of business in the State. The institution of a suit or the removal thereof is neither the making of a contract nor the doing of business within a constitutional provision placing foreign corporations licensed to do business in the State under the same regulations, limitations and liabilities with respect to such acts as domestic corporations. Merely engaging in litigation has been considered as not a sufficient minimum contact to warrant the exercise of jurisdiction over a foreign corporation.[27]

As a consideration aside, we have perforce to comment on private respondents’ basis for arguing that petitioners are barred from maintaining suit in the Philippines. For allegedly being foreign corporations doing business in the Philippines without a license, private respondents repeatedly maintain in all their pleadings that petitioners have thereby no legal personality to bring an action before Philippine courts.[28]

Among the grounds for a motion to dismiss under the Rules of Court are lack of legal capacity to sue[29] and that the complaint states no cause of action.[30] Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in the case, or does not have the character or representation he claims.[31] On the other hand, a case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest, hence grounded on failure to state a cause of action.[32] The term “lack of capacity to sue” should not be confused with the term “lack of personality to sue.” While the former refers to a plaintiff’s general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality or any other general disqualifications of a party, the latter refers to the fact that the plaintiff is not the real party- in-interest. Correspondingly, the first can be a ground for a motion to dismiss based on the ground of lack of legal capacity to sue;[33] whereas the second can be used as a ground for a motion to dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action.[34]

Applying the above discussion to the instant petition, the ground available for barring recourse to our courts by an unlicensed foreign corporation doing or transacting business in the Philippines should properly be “lack of capacity to sue,” not “lack of personality to sue.” Certainly, a corporation whose legal rights have been violated is undeniably such, if not the only, real party-in-interest to bring suit thereon although, for failure to comply with the licensing requirement, it is not capacitated to maintain any suit before our courts.

Lastly, on this point, we reiterate this Court’s rejection of the common procedural tactics of erring local companies which, when sued by unlicensed foreign corporations not engaged in business in the Philippines, invoke the latter’s supposed lack of capacity to sue. The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on considerations of public policy. It was never intended to favor nor insulate from suit unscrupulous establishments or nationals in case of breach of valid obligations or violations of legal rights of unsuspecting foreign firms or entities simply because they are not licensed to do business in the country.[35]

II

We now proceed to the main issue of the retroactive application to the present controversy of the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et al., promulgated on August 19, 1988,[36] that for the determination of probable cause to support the issuance of a

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search warrant in copyright infringement cases involving videograms, the production of the master tape for comparison with the allegedly pirated copies is necessary.

Petitioners assert that the issuance of a search warrant is addressed to the discretion of the court subject to the determination of probable cause in accordance with the procedure prescribed therefor under Sections 3 and 4 of Rule 126. As of the time of the application for the search warrant in question, the controlling criterion for the finding of probable cause was that enunciated in Burgos vs. Chief of Staff[37] stating that:

Probable cause for a search warrant is defined as such facts and circumstances which would lead a reasonably discrete and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched.

According to petitioners, after complying with what the law then required, the lower court determined that there was probable cause for the issuance of a search warrant, and which determination in fact led to the issuance and service on December 14, 1987 of Search Warrant No. 87-053. It is further argued that any search warrant so issued in accordance with all applicable legal requirements is valid, for the lower court could not possibly have been expected to apply, as the basis for a finding of probable cause for the issuance of a search warrant in copyright infringement cases involving videograms, a pronouncement which was not existent at the time of such determination, on December 14, 1987, that is, the doctrine in the 20th Century Fox case that was promulgated only on August 19, 1988, or over eight months later.

Private respondents predictably argue in support of the ruling of the Court of Appeals sustaining the quashal of the search warrant by the lower court on the strength of that 20th Century Fox ruling which, they claim, goes into the very essence of probable cause. At the time of the issuance of the search warrant involved here, although the 20th Century Fox case had not yet been decided, Section 2, Article III of the Constitution and Section 3, Rule 126 of the 1985 Rules on Criminal Procedure embodied the prevailing and governing law on the matter. The ruling in 20th Century Fox was merely an application of the law on probable cause. Hence, they posit that there was no law that was retrospectively applied, since the law had been there all along. To refrain from applying the 20th Century Fox ruling, which had supervened as a doctrine promulgated at the time of the resolution of private respondents’ motion for reconsideration seeking the quashal of the search warrant for failure of the trial court to require presentation of the master tapes prior to the issuance of the search warrant, would have constituted grave abuse of discretion.[38]

Respondent court upheld the retroactive application of the 20th Century Fox ruling by the trial court in resolving petitioners’ motion for reconsideration in favor of the quashal of the search warrant, on this renovated thesis:

And whether this doctrine should apply retroactively, it must be noted that in the 20th Century Fox case, the lower court quashed the earlier search warrant it issued. On certiorari, the Supreme Court affirmed the quashal on the ground among others that the master tapes or copyrighted films were not presented for comparison with the purchased evidence of the video tapes to determine whether the latter is an unauthorized reproduction of the former.

If the lower court in the Century Fox case did not quash the warrant, it is Our view that the Supreme Court would have invalidated the warrant just the same considering the very strict requirement set by the Supreme Court for the determination of ‘probable cause’ in copyright infringement cases as enunciated in this 20th Century Fox case. This is so because, as was stated by the Supreme Court in the said case, the master tapes and the pirated tapes must be presented for comparison to satisfy the requirement of ‘probable cause.’ So it goes back to the very existence of probable cause. x x x[39]

Mindful as we are of the ramifications of the doctrine of stare decisis and the rudiments of fair play, it is our considered view that the 20th Century Fox ruling cannot be retroactively applied to the instant case to justify the quashal of Search Warrant No. 87-053. Herein petitioners’ consistent position that the order of the lower court of September 5, 1988 denying therein defendants’ motion to lift the order of search warrant was properly issued, there having been satisfactory compliance with the then prevailing standards under the law for determination of probable cause, is indeed well taken. The lower court could not possibly have expected more evidence from petitioners in their application for a search warrant other than what the law and jurisprudence, then existing and judicially accepted, required with respect to the finding of probable cause.

Article 4 of the Civil Code provides that “(l)aws shall have no retroactive effect, unless the contrary is provided. Correlatively, Article 8 of the same Code declares that “(j)udicial decisions applying the laws or the Constitution shall form part of the legal system of the Philippines.”

Jurisprudence, in our system of government, cannot be considered as an independent source of law; it cannot create law.[40] While it is true that judicial decisions which apply or interpret the Constitution or the laws are part of the legal system of the Philippines, still they are not laws. Judicial decisions, though not laws, are nonetheless evidence of what the laws mean, and it is for this reason that they are part of the legal system of the Philippines.[41] Judicial decisions of the Supreme Court assume the same authority as the statute itself.[42]

Interpreting the aforequoted correlated provisions of the Civil Code and in light of the above disquisition, this Court emphatically declared in Co vs. Court of Appeals, et al.[43] that the principle of prospectivity applies not only to original amendatory statutes and administrative rulings and circulars, but also, and properly so, to judicial decisions. Our holding in the earlier case of People vs. Jubinal[44] echoes the rationale for this judicial declaration, viz.:

Decisions of this Court, although in themselves not laws, are nevertheless evidence of what the laws mean, and this is the reason why under Article 8 of the New Civil Code, “Judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system.” The interpretation upon a law by this Court constitutes, in a way, a part of the law as of the date that the law was originally passed, since this Court’s construction merely establishes the contemporaneous legislative intent that the law thus construed intends to effectuate. The settled rule supported by numerous authorities is a restatement of the legal maxim “legis interpretation legis vim obtinet” — the interpretation placed upon the written law by a competent court has the force of law. x x x, but when a doctrine of this Court is overruled and a different view is adopted, the new doctrine should be applied prospectively, and should not apply to parties who had relied on the old doctrine and acted on the faith thereof. x x x. (Stress supplied).

This was forcefully reiterated in Spouses Benzonan vs. Court of Appeals, et al.,[45] where the Court expounded:

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x x x. But while our decisions form part of the law of the land, they are also subject to Article 4 of the Civil Code which provides that “laws shall have no retroactive effect unless the contrary is provided.” This is expressed in the familiar legal maximum lex prospicit, non respicit, the law looks forward not backward. The rationale against retroactivity is easy to perceive. The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of contract and hence, is unconstitutional (Francisco v. Certeza, 3 SCRA 565 [1961]). The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. x x x.

The reasoning behind Senarillos vs. Hermosisima[46] that judicial interpretation of a statute constitutes part of the law as of the date it was originally passed, since the Court’s construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect, is all too familiar. Such judicial doctrine does not amount to the passage of a new law but consists merely of a construction or interpretation of a pre-existing one, and that is precisely the situation obtaining in this case.

It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine and acted in good faith.[47] To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no recognition of what had transpired prior to such adjudication.[48]

There is merit in petitioners’ impassioned and well-founded argumentation:

The case of 20th Century Fox Film Corporation vs. Court of Appeals, et al., 164 SCRA 655 (August 19, 1988) (hereinafter 20th Century Fox) was inexistent in December of 1987 when Search Warrant 87-053 was issued by the lower court. Hence, it boggles the imagination how the lower court could be expected to apply the formulation of 20th Century Fox in finding probable cause when the formulation was yet non-existent.

xxx xxx xxx

In short, the lower court was convinced at that time after conducting searching examination questions of the applicant and his witnesses that “an offense had been committed and that the objects sought in connection with the offense (were) in the place sought to be searched” (Burgos v. Chief of Staff, et al., 133 SCRA 800). It is indisputable, therefore, that at the time of the application, or on December 14, 1987, the lower court did not commit any error nor did it fail to comply with any legal requirement for the valid issuance of search warrant.

x x x. (W)e believe that the lower court should be considered as having followed the requirements of the law in issuing Search Warrant No. 87-053. The search warrant is therefore valid and binding. It must be noted that nowhere is it found in the allegations of the Respondents that the lower court failed to apply the law as then interpreted in 1987. Hence, we find it absurd that it is (sic) should be seen otherwise, because it is simply impossible to have required the lower court to apply a formulation which will only be defined six months later.

Furthermore, it is unjust and unfair to require compliance with legal and/or doctrinal requirements which are inexistent at the time they were supposed to have been complied with.

xxx xxx xxx

x x x. If the lower court’s reversal will be sustained, what encouragement can be given to courts and litigants to respect the law and rules if they can expect with reasonable certainty that upon the passage of a new rule, their conduct can still be open to question? This certainly breeds instability in our system of dispensing justice. For Petitioners who took special effort to redress their grievances and to protect their property rights by resorting to the remedies provided by the law, it is most unfair that fealty to the rules and procedures then obtaining would bear but fruits of injustice.[49]

Withal, even the proposition that the prospectivity of judicial decisions imports application thereof not only to future cases but also to cases still ongoing or not yet final when the decision was promulgated, should not be countenanced in the jural sphere on account of its inevitably unsettling repercussions. More to the point, it is felt that the reasonableness of the added requirement in 20th Century Fox calling for the production of the master tapes of the copyrighted films for determination of probable cause in copyright infringement cases needs revisiting and clarification.

It will be recalled that the 20th Century Fox case arose from search warrant proceedings in anticipation of the filing of a case for the unauthorized sale or renting out of copyrighted films in videotape format in violation of Presidential Decree No. 49. It revolved around the meaning of probable cause within the context of the constitutional provision against illegal searches and seizures, as applied to copyright infringement cases involving videotapes.

Therein it was ruled that —

The presentation of master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary for the validity of search warrants against those who have in their possession the pirated films. The petitioner’s argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns.

The application for search warrants was directed against video tape outlets which allegedly were engaged in the unauthorized sale and renting out of copyrighted films belonging to the petitioner pursuant to P.D. 49.

The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. This linkage of the copyrighted films to the pirated films

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must be established to satisfy the requirements of probable cause. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant.

For a closer and more perspicuous appreciation of the factual antecedents of 20th Century Fox, the pertinent portions of the decision therein are quoted hereunder, to wit:

In the instant case, the lower court lifted the three questioned search warrants against the private respondents on the ground that it acted on the application for the issuance of the said search warrants and granted it on the misrepresentations of applicant NBI and its witnesses that infringement of copyright or a piracy of a particular film have been committed. Thus the lower court stated in its questioned order dated January 2, 1986:

“According to the movant, all three witnesses during the proceedings in the application for the three search warrants testified of their own personal knowledge. Yet, Atty. Albino Reyes of the NBI stated that the counsel or representative of the Twentieth Century Fox Corporation will testify on the video cassettes that were pirated, so that he did not have personal knowledge of the alleged piracy. The witness Bacani also said that the video cassettes were pirated without stating the manner it was pirated and that it was Atty. Domingo that has knowledge of that fact.

“On the part of Atty. Domingo, he said that the re-taping of the allegedly pirated tapes was from master tapes allegedly belonging to the Twentieth Century Fox, because, according to him it is of his personal knowledge.

“At the hearing of the Motion for Reconsideration, Senior NBI Agent Atty. Albino Reyes testified that when the complaint for infringement was brought to the NBI, the master tapes of the allegedly pirated tapes were shown to him and he made comparisons of the tapes with those purchased by their man Bacani. Why the master tapes or at least the film reels of the allegedly pirated tapes were not shown to the Court during the application gives some misgivings as to the truth of that bare statement of the NBI agent on the witness stand.

“Again as the application and search proceedings is a prelude to the filing of criminal cases under P.D. 49, the copyright infringement law, and although what is required for the issuance thereof is merely the presence of probable cause, that probable cause must be satisfactory to the Court, for it is a time-honored precept that proceedings to put a man to task as an offender under our laws should be interpreted in strictissimi juris against the government and liberally in favor of the alleged offender.

xxx xxx xxx

“This doctrine has never been overturned, and as a matter of fact it had been enshrined in the Bill of Rights in our 1973 Constitution.

“So that lacking in persuasive effect, the allegation that master tapes were viewed by the NBI and were compared to the purchased and seized video tapes from the respondents’ establishments, it should be dismissed as not supported by competent evidence and for that matter the probable cause hovers in that grey debatable twilight zone between black and white resolvable in favor of respondents herein.

“But the glaring fact is that ‘Cocoon,’ the first video tape mentioned in the search warrant, was not even duly registered or copyrighted in the Philippines. (Annex C of Opposition, p. 152, record.) So that lacking in the requisite presentation to the Court of an alleged master tape for purposes of comparison with the purchased evidence of the video tapes allegedly pirated and those seized from respondents, there was no way to determine whether there really was piracy, or copying of the film of the complainant Twentieth Century Fox.”

xxx xxx xxx

The lower court, therefore, lifted the three (3) questioned search warrants in the absence of probable cause that the private respondents violated P.D. 49. As found by the court, the NBI agents who acted as witnesses did not have personal knowledge of the subject matter of their testimony which was the alleged commission of the offense by the private respondents. Only the petitioner’s counsel who was also a witness during the application for the issuance of the search warrants stated that he had personal knowledge that the confiscated tapes owned by the private respondents were pirated tapes taken from master tapes belonging to the petitioner. However, the lower court did not give much credence to his testimony in view of the fact that the master tapes of the allegedly pirated tapes were not shown to the court during the application” (Italics ours).

The italicized passages readily expose the reason why the trial court therein required the presentation of the master tapes of the allegedly pirated films in order to convince itself of the existence of probable cause under the factual milieu peculiar to that case. In the case at bar, respondent appellate court itself observed:

We feel that the rationale behind the aforequoted doctrine is that the pirated copies as well as the master tapes, unlike the other types of personal properties which may be seized, were available for presentation to the court at the time of the application for a search warrant to determine the existence of the linkage of the copyrighted films with the pirated ones. Thus, there is no reason not to present them (Italics supplied for emphasis).[50]

In fine, the supposed pronunciamento in said case regarding the necessity for the presentation of the master tapes of the copyrighted films for the validity of search warrants should at most be understood to merely serve as a guidepost in determining the existence of probable cause in copyright infringement cases where there is doubt as to the true nexus between the master tape and the pirated copies. An objective and careful reading of the decision in said case could lead to no other conclusion than that said directive was hardly intended to be a sweeping and inflexible requirement in all or similar copyright infringement cases. Judicial dicta should always be construed within the factual matrix of their parturition, otherwise a careless interpretation thereof could unfairly fault the writer with the vice of overstatement and the reader with the fallacy of undue generalization.

In the case at bar, NBI Senior Agent Lauro C. Reyes who filed the application for search warrant with the lower court following a formal complaint lodged by petitioners, judging from his affidavit[51] and his deposition,[52] did testify on matters within his personal knowledge based on said complaint of petitioners as well as his own investigation and surveillance of the private respondents’ video rental shop. Likewise, Atty. Rico V. Domingo, in his capacity as attorney-in-fact, stated in his affidavit[53] and further expounded in his deposition[54] that he personally

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knew of the fact that private respondents had never been authorized by his clients to reproduce, lease and possess for the purpose of selling any of the copyrighted films.

Both testimonies of Agent Reyes and Atty. Domingo were corroborated by Rene C. Baltazar, a private researcher retained by Motion Pictures Association of America, Inc. (MPAA, Inc.), who was likewise presented as a witness during the search warrant proceedings.[55] The records clearly reflect that the testimonies of the abovenamed witnesses were straightforward and stemmed from matters within their personal knowledge. They displayed none of the ambivalence and uncertainty that the witnesses in the 20th Century Fox case exhibited. This categorical forthrightness in their statements, among others, was what initially and correctly convinced the trial court to make a finding of the existence of probable cause.

There is no originality in the argument of private respondents against the validity of the search warrant, obviously borrowed from 20th Century Fox, that petitioners’ witnesses — NBI Agent Lauro C. Reyes, Atty. Rico V. Domingo and Rene C. Baltazar — did not have personal knowledge of the subject matter of their respective testimonies and that said witnesses’ claim that the video tapes were pirated, without stating the manner by which these were pirated, is a conclusion of fact without basis.[56] The difference, it must be pointed out, is that the records in the present case reveal that (1) there is no allegation of misrepresentation, much less a finding thereof by the lower court, on the part of petitioners’ witnesses; (2) there is no denial on the part of private respondents that the tapes seized were illegitimate copies of the copyrighted ones nor have they shown that they were given any authority by petitioners to copy, sell, lease, distribute or circulate, or at least, to offer for sale, lease, distribution or circulation the said video tapes; and (3) a discreet but extensive surveillance of the suspected area was undertaken by petitioner’s witnesses sufficient to enable them to execute trustworthy affidavits and depositions regarding matters discovered in the course thereof and of which they have personal knowledge.

It is evidently incorrect to suggest, as the ruling in 20th Century Fox may appear to do, that in copyright infringement cases, the presentation of master tapes of the copyrighted films is always necessary to meet the requirement of probable cause and that, in the absence thereof, there can be no finding of probable cause for the issuance of a search warrant. It is true that such master tapes are object evidence, with the merit that in this class of evidence the ascertainment of the controverted fact is made through demonstrations involving the direct use of the senses of the presiding magistrate.[57] Such auxiliary procedure, however, does not rule out the use of testimonial or documentary evidence, depositions, admissions or other classes of evidence tending to prove the factum probandum,[58] especially where the production in court of object evidence would result in delay, inconvenience or expenses out of proportion to its evidentiary value.[59]

Of course, as a general rule, constitutional and statutory provisions relating to search warrants prohibit their issuance except on a showing of probable cause, supported by oath or affirmation. These provisions prevent the issuance of warrants on loose, vague, or doubtful bases of fact, and emphasize the purpose to protect against all general searches.[60] Indeed, Article III of our Constitution mandates in Sec. 2 thereof that no search warrant shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized; and Sec. 3 thereof provides that any evidence obtained in violation of the preceding section shall be inadmissible for any purpose in any proceeding.

These constitutional strictures are implemented by the following provisions of Rule 126 of the Rules of Court:

Sec. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized.

Sec. 4. Examination of complainant; record. — The judge must, before issuing the warrant, personally examine in the form of searching questions and answers, in writing and under oath the complainant and any witnesses he may produce on facts personally known to them and attach to the record their sworn statements together with any affidavits submitted.

Sec. 5. Issuance and form of search warrant. — If the judge is thereupon satisfied of the existence of facts upon which the application is based, or that there is probable cause to believe that they exist, he must issue the warrant, which must be substantially in the form prescribed by these Rules.

The constitutional and statutory provisions of various jurisdictions requiring a showing of probable cause before a search warrant can be issued are mandatory and must be complied with, and such a showing has been held to be an unqualified condition precedent to the issuance of a warrant. A search warrant not based on probable cause is a nullity, or is void, and the issuance thereof is, in legal contemplation, arbitrary.[61] It behooves us, then, to review the concept of probable cause, firstly, from representative holdings in the American jurisdiction from which we patterned our doctrines on the matter.

Although the term “probable cause” has been said to have a well-defined meaning in the law, the term is exceedingly difficult to define, in this case, with any degree of precision; indeed, no definition of it which would justify the issuance of a search warrant can be formulated which would cover every state of facts which might arise, and no formula or standard, or hard and fast rule, may be laid down which may be applied to the facts of every situation.[62] As to what acts constitute probable cause seem incapable of definition.[63] There is, of necessity, no exact test.[64]

At best, the term “probable cause” has been understood to mean a reasonable ground of suspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious man in the belief that the person accused is guilty of the offense with which he is charged;[65] or the existence of such facts and circumstances as would excite an honest belief in a reasonable mind acting on all the facts and circumstances within the knowledge of the magistrate that the charge made by the applicant for the warrant is true.[66]

Probable cause does not mean actual and positive cause, nor does it import absolute certainty. The determination of the existence of probable cause is not concerned with the question of whether the offense charged has been or is being committed in fact, or whether the accused is guilty or innocent, but only whether the affiant has reasonable grounds for his belief.[67] The requirement is less than certainty or proof, but more than suspicion or possibility.[68]

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In Philippine jurisprudence, probable cause has been uniformly defined as such facts and circumstances which would lead a reasonable, discreet and prudent man to believe that an offense has been committed, and that the objects sought in connection with the offense are in the place sought to be searched.[69] It being the duty of the issuing officer to issue, or refuse to issue, the warrant as soon as practicable after the application therefor is filed,[70] the facts warranting the conclusion of probable cause must be assessed at the time of such judicial determination by necessarily using legal standards then set forth in law and jurisprudence, and not those that have yet to be crafted thereafter.

As already stated, the definition of probable cause enunciated in Burgos, Sr. vs. Chief of Staff, et al., supra, vis-a-vis the provisions of Sections 3 and 4 of Rule 126, were the prevailing and controlling legal standards, as they continue to be, by which a finding of probable cause is tested. Since the proprietary of the issuance of a search warrant is to be determined at the time of the application therefor, which in turn must not be too remote in time from the occurrence of the offense alleged to have been committed, the issuing judge, in determining the existence of probable cause, can and should logically look to the touchstones in the laws therefore enacted and the decisions already promulgated at the time, and not to those which had not yet even been conceived or formulated.

It is worth noting that neither the Constitution nor the Rules of Court attempt to define probable cause, obviously for the purpose of leaving such matter to the court’s discretion within the particular facts of each case. Although the Constitution prohibits the issuance of a search warrant in the absence of probable cause, such constitutional inhibition does not command the legislature to establish a definition or formula for determining what shall constitute probable cause.[71] Thus, Congress, despite its broad authority to fashion standards of reasonableness for searches and seizures,[72] does not venture to make such a definition or standard formulation of probable cause, nor categorize what facts and circumstances make up the same, much less limit the determination thereof to and within the circumscription of a particular class of evidence, all in deference to judicial discretion and probity.[73]

Accordingly, to restrict the exercise of discretion by a judge by adding a particular requirement (the presentation of master tapes, as intimated by 20th Century Fox) not provided nor implied in the law for a finding of probable cause is beyond the realm of judicial competence or statemanship. It serves no purpose but to stultify and constrict the judicious exercise of a court's prerogatives and to denigrate the judicial duty of determining the existence of probable cause to a mere ministerial or mechanical function. There is, to repeat, no law or rule which requires that the existence of probable cause is or should be determined solely by a specific kind of evidence. Surely, this could not have been contemplated by the framers of the Constitution, and we do not believe that the Court intended the statement in 20th Century Fox regarding master tapes as the dictum for all seasons and reasons in infringement cases.

Turning now to the case at bar, it can be gleaned from the records that the lower court followed the prescribed procedure for the issuances of a search warrant: (1) the examination under oath or affirmation of the complainant and his witnesses, with them particularly describing the place to be searched and the things to be seized; (2) an examination personally conducted by the judge in the form of searching questions and answers, in writing and under oath of the complainant and witnesses on facts personally known to them; and, (3) the taking of sworn statements, together with the affidavits submitted, which were duly attached to the records.

Thereafter, the court a quo made the following factual findings leading to the issuance of the search warrant now subject to this controversy:

In the instant case, the following facts have been established: (1) copyrighted video tapes bearing titles enumerated in Search Warrant No. 87-053 were being sold, leased, distributed or circulated, or offered for sale, lease, distribution, or transferred or caused to be transferred by defendants at their video outlets, without the written consent of the private complainants or their assignee; (2) recovered or confiscated from defendants' possession were video tapes containing copyrighted motion picture films without the authority of the complainant; (3) the video tapes originated from spurious or unauthorized persons; and (4) said video tapes were exact reproductions of the films listed in the search warrant whose copyrights or distribution rights were owned by complainants.

The basis of these facts are the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Atty. Rico V. Domingo, and Rene C. Baltazar. Motion Pictures Association of America, Inc. (MPAA) thru their counsel, Atty. Rico V. Domingo, filed a complaint with the National Bureau of Investigation against certain video establishments one of which is defendant, for violation of PD No. 49 as amended by PD No, 1988. Atty. Lauro C. Reyes led a team to conduct discreet surveillance operations on said video establishments. Per information earlier gathered by Atty. Domingo, defendants were engaged in the illegal sale, rental, distribution, circulation or public exhibition of copyrighted films of MPAA without its written authority or its members. Knowing that defendant Sunshine Home Video and its proprietor, Mr. Danilo Pelindario, were not authorized by MPAA to reproduce, lease, and possess for the purpose of selling any of its copyrighted motion pictures, he instructed his researcher, Mr. Rene Baltazar to rent two video cassettes from said defendants on October 21, 1987. Rene C. Baltazar proceeded to Sunshine Home Video and rented tapes containing Little Shop of Horror. He was issued rental slip No. 26362 dated October 21, 1987 for P10.00 with a deposit of P100.00. Again, on December 11, 1987, he returned to Sunshine Home Video and rented Robocop with a rental slip No. 25271 also for P10.00. On the basis of the complaint of MPAA thru counsel, Atty. Lauro C. Reyes personally went to Sunshine Home Video at No. 6 Mayfair Center, Magallanes Commercial Center, Makati. His last visit was on December 7, 1987. There, he found the video outlet renting, leasing, distributing video cassette tapes whose titles were copyrighted and without the authority of MPAA.

Given these facts, a probable cause exists. x x x.[74]

The lower court subsequently executed a volte-face, despite its prior detailed and substantiated findings, by stating in its order of November 22, 1988 denying petitioners’ motion for reconsideration and quashing the search warrant that —

x x x. The two (2) cases have a common factual milieu; both involve alleged pirated copyrighted films of private complainants which were found in the possession or control of the defendants. Hence, the necessity of the presentation of the master tapes from which the pirated films were allegedly copied is necessary in the instant case, to establish the existence of probable cause.[75]

Being based solely on an unjustifiable and improper retroactive application of the master tape requirement generated by 20th Century Fox upon a factual situation completely different from that in the case at bar, and without anything more, this later order clearly defies elemental fair play and is a gross reversible error. In fact, this observation of the Court in La Chemise Lacoste, S.A. vs. Fernandez, et al., supra, may just as easily apply to the present case:

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A review of the grounds invoked x x x in his motion to quash the search warrants reveals the fact that they are not appropriate for quashing a warrant. They are matters of defense which should be ventilated during the trial on the merits of the case. x x x

As correctly pointed out by petitioners, a blind espousal of the requisite of presentation of the master tapes in copyright infringement cases, as the prime determinant of probable cause, is too exacting and impracticable a requirement to be complied with in a search warrant application which, it must not be overlooked, is only an ancillary proceeding. Further, on realistic considerations, a strict application of said requirement militates against the elements of secrecy and speed which underlie covert investigative and surveillance operations in police enforcement campaigns against all forms of criminality, considering that the master tapes of a motion picture required to be presented before the court consists of several reels contained in circular steel casings which, because of their bulk, will definitely draw attention, unlike diminutive objects like video tapes which can be easily concealed.[76] With hundreds of titles being pirated, this onerous and tedious imposition would be multiplied a hundredfold by judicial fiat, discouraging and preventing legal recourses in foreign jurisdictions.

Given the present international awareness and furor over violations in large scale of intellectual property rights, calling for transnational sanctions, it bears calling to mind the Court’s admonition also in La Chemise Lacoste, supra, that —

x x x. Judges all over the country are well advised to remember that court processes should not be used as instruments to, unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties.

III

The amendment of Section 56 of Presidential Decree No. 49 by Presidential Decree No. 1987,[77] which should here be publicized judicially, brought about the revision of its penalty structure and enumerated additional acts considered violative of said decree on intellectual property, namely, (1) directly or indirectly transferring or causing to be transferred any sound recording or motion picture or other audio-visual works so recorded with intent to sell, lease, publicly exhibit or cause to be sold, leased or publicly exhibited, or to use or cause to be used for profit such articles on which sounds, motion pictures, or other audio-visual works are so transferred without the written consent of the owner or his assignee; (2) selling, leasing, distributing, circulating, publicly exhibiting, or offering for sale, lease, distribution, or possessing for the purpose of sale, lease, distribution, circulation or public exhibition any of the abovementioned articles, without the written consent of the owner or his assignee; and, (3) directly or indirectly offering or making available for a fee, rental, or any other form of compensation any equipment, machinery, paraphernalia or any material with the knowledge that such equipment, machinery, paraphernalia or material will be used by another to reproduce, without the consent of the owner, any phonograph record, disc, wire, tape, film or other article on which sounds, motion pictures or other audio-visual recordings may be transferred, and which provide distinct bases for criminal prosecution, being crimes independently punishable under Presidential Decree No. 49, as amended, aside from the act of infringing or aiding or abetting such infringement under Section 29.

The trial court’s finding that private respondents committed acts in blatant transgression of Presidential Decree No. 49 all the more bolsters its findings of probable cause, which determination can be reached even in the absence of master tapes by the judge in the exercise of sound discretion. The executive concern and resolve expressed in the foregoing amendments to the decree for the protection of intellectual property rights should be matched by corresponding judicial vigilance and activism, instead of the apathy of submitting to technicalities in the face of ample evidence of guilt.

The essence of intellectual piracy should be essayed in conceptual terms in order to underscore its gravity by an appropriate understanding thereof. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright.[78]

A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not know what works he was indirectly copying, or did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril. In determining the question of infringement, the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement, it is not necessary that the whole or even a large portion of the work shall have been copied. If so much is taken that the value of the original is sensibly diminished, or the labors of the original author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law to constitute a piracy.[79] The question of whether there has been an actionable infringement of a literary, musical, or artistic work in motion pictures, radio or television being one of fact,[80] it should properly be determined during the trial. That is the stage calling for conclusive or preponderating evidence, and not the summary proceeding for the issuance of a search warrant wherein both lower courts erroneously require the master tapes.

In disregarding private respondent’s argument that Search Warrant No. 87-053 is a general warrant, the lower court observed that “it was worded in a manner that the enumerated seizable items bear direct relation to the offense of violation of Sec. 56 of PD 49 as amended. It authorized only the seizur(e) of articles used or intended to be used in the unlawful sale, lease and other unconcerted acts in violation of PD 49 as amended. x x x.”[81]

On this point, Bache and Co., (Phil.), Inc., et al. vs. Ruiz, et al.,[82] instructs and enlightens:

A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow (People vs. Rubio, 57 Phil. 384); or when the description expresses a conclusion of fact — not of law — by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). x x x. If the articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. x x x.

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On private respondents’ averment that the search warrant was made applicable to more than one specific offense on the ground that there are as many offenses of infringement as there are rights protected and, therefore, to issue one search warrant for all the movie titles allegedly pirated violates the rule that a search warrant must be issued only in connection with one specific offense, the lower court said:

x x x. As the face of the search warrant itself indicates, it was issued for violation of Section 56, PD 49 as amended only. The specifications therein (in Annex A) merely refer to the titles of the copyrighted motion pictures/films belonging to private complainants which defendants were in control/possession for sale, lease, distribution or public exhibition in contravention of Sec. 56, PD 49 as amended.[83]

That there were several counts of the offense of copyright infringement and the search warrant uncovered several contraband items in the form of pirated video tapes is not to be confused with the number of offenses charged. The search warrant herein issued does not violate the one-specific-offense rule.

It is pointless for private respondents to insist on compliance with the registration and deposit requirements under Presidential Decree No. 49 as prerequisites for invoking the court’s protective mantle in copyright infringement cases. As explained by the court below:

Defendants-movants contend that PD 49 as amended covers only producers who have complied with the requirements of deposit and notice (in other words registration) under Sections 49 and 50 thereof. Absent such registration, as in this case, there was no right created, hence, no infringement under PD 49 as amended. This is not well-taken.

As correctly pointed out by private complainants-oppositors, the Department of Justice has resolved this legal question as far back as December 12, 1978 in its Opinion No. 191 of the then Secretary of Justice Vicente Abad Santos which stated that Sections 26 and 50 do not apply to cinematographic works and PD No. 49 “had done away with the registration and deposit of cinematographic works” and that “even without prior registration and deposit of a work which may be entitled to protection under the Decree, the creator can file action for infringement of its rights.” He cannot demand, however, payment of damages arising from infringement. The same opinion stressed that “the requirements of registration and deposit are thus retained under the Decree, not as conditions for the acquisition of copyright and other rights, but as prerequisites to a suit for damages.” The statutory interpretation of the Executive Branch being correct, is entitled (to) weight and respect.

xxx xxx xxx

Defendants-movants maintain that complainant and his witnesses led the Court to believe that a crime existed when in fact there was none. This is wrong. As earlier discussed, PD 49 as amended, does not require registration and deposit for a creator to be able to file an action for infringement of his rights. These conditions are merely pre-requisites to an action for damages. So, as long as the proscribed acts are shown to exist, an action for infringement may be initiated.[84]

Accordingly, the certifications[85] from the Copyright Section of the National Library, presented as evidence by private respondents to show non-registration of some of the films of petitioners, assume no evidentiary weight or significance, whatsoever.

Furthermore, a closer review of Presidential Decree No. 49 reveals that even with respect to works which are required under Section 26 thereof to be registered and with copies to be deposited with the National Library, such as books, including composite and cyclopedic works, manuscripts, directories and gazetteers; and periodicals, including pamphlets and newspapers; lectures, sermons, addresses, dissertations prepared for oral delivery; and letters, the failure to comply with said requirements does not deprive the copyright owner of the right to sue for infringement. Such non-compliance merely limits the remedies available to him and subjects him to the corresponding sanction.

The reason for this is expressed in Section 2 of the decree which prefaces its enumeration of copyrightable works with the explicit statement that “the rights granted under this Decree shall, from the moment of creation, subsist with respect to any of the following classes of works.” This means that under the present state of the law, the copyright for a work is acquired by an intellectual creator from the moment of creation even in the absence of registration and deposit. As has been authoritatively clarified:

The registration and deposit of two complete copies or reproductions of the work with the National Library within three weeks after the first public dissemination or performance of the work, as provided for in Section 26 (P.D. No. 49, as amended), is not for the purpose of securing a copyright of the work, but rather to avoid the penalty for non-compliance of the deposit of said two copies and in order to recover damages in an infringement suit.[86]

One distressing observation. This case has been fought on the basis of, and its resolution long delayed by resort to, technicalities to a virtually abusive extent by private respondents, without so much as an attempt to adduce any credible evidence showing that they conduct their business legitimately and fairly. The fact that private respondents could not show proof of their authority or that there was consent from the copyright owners for them to sell, lease, distribute or circulate petitioners’ copyrighted films immeasurably bolsters the lower court’s initial finding of probable cause. That private respondents are licensed by the Videogram Regulatory Board does not insulate them from criminal and civil liability for their unlawful business practices. What is more deplorable is that the reprehensible acts of some unscrupulous characters have stigmatized the Philippines with an unsavory reputation as a hub for intellectual piracy in this part of the globe, formerly in the records of the General Agreement on Tariffs and Trade and, now, of the World Trade Organization. Such acts must not be glossed over but should be denounced and repressed lest the Philippines become an international pariah in the global intellectual community.

WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals, and necessarily inclusive of the order of the lower court dated November 22, 1988, are hereby REVERSED and SET ASIDE. The order of the court a quo of September 5, 1988 upholding the validity of Search Warrant No. 87-053 is hereby REINSTATED, and said court is DIRECTED to take and expeditiously proceed with such appropriate proceedings as may be called for in this case. Treble costs are further assessed against private respondents.

SO ORDERED.

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[G.R. No. 97642. August 29, 1997]

AVON INSURANCE PLC, BRITISH RESERVE INSURANCE. CO. LTD., CORNHILL INSURANCE PLC, IMPERIO REINSURANCE CO. (UK) LTD., INSTITUTE DE RESEGURROS DO BRAZIL, INSURANCE CORPORATION OF IRELAND PLC, LEGAL AND GENERAL ASSURANCE SOCIETY LTD., PROVINCIAL INSURANCE PLC, QBL INSURANCE (UK) LTD., ROYAL INSURANCE CO. LTD., TRINITY INSURANCE CO.

LTD., GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORP. LTD., COOPERATIVE INSURANCE SOCIETY and PEARL ASSURANCE CO. LTD., petitioners, vs. COURT OF APPEALS, REGIONAL TRIAL COURT OF MANILA, BRANCH 51, YUPANGCO COTTON MILLS,

WORLDWIDE SURETY & INSURANCE CO., INC., respondents.D E C I S I O N

TORRES, JR., J.:

Just how far can our court assert jurisdiction over the persons of foreign entities being charged with contractual liabilities by residents of the Philippines?

Appealing from the Court of Appeals’ October 11, 1990 Decision[1] in CA-G.R. No. 22005, petitioners claim that the trial court’s jurisdiction does not extend to them, since they are foreign reinsurance companies that are not doing business in the Philippines. Having entered into reinsurance contracts abroad, petitioners are beyond the jurisdictional ambit of our courts and cannot be rendered summons through extraterritorial service, as under Section 17, Rule 14 of the Rules of Court, nor through the Insurance Commissioner, under Section 14. Private respondent Yupangco Cotton Mills contend on the other hand that petitioners are within our courts’ cognitive powers, having submitted voluntarily to their jurisdiction by filing motions to dismiss[2] the private respondent’s suit below.

The antecedent facts, as found by the appellate court, are as follows:

“Respondent Yupangco Cotton Mills filed a complaint against several foreign reinsurance companies (among which are petitioners) to collect their alleged percentage liability under contract treaties between the foreign insurance companies and the international insurance broker C.J. Boatright, acting as agent for respondent Worldwide Surety and Insurance Company. Inasmuch as petitioners are not engaged in business in the Philippines with no offices, places of business or agents in the Philippines, the reinsurance treaties having been rendered abroad, service of summons upon motion of respondent Yupangco, was made upon petitioners through the office of the Insurance Commissioner. Petitioners, by counsel on special appearance, seasonably filed motions to dismiss disputing the jurisdiction of respondent Court and the extra-territorial service of summons. Respondent Yupangco filed its opposition to the motion to dismiss, petitioners filed their reply, and respondent Yupangco filed its rejoinder. In an order dated April 30, 1990 respondent Court denied the motions to dismiss and directed petitioners to file their answer. On May 29, 1990, petitioners filed their notice of appeal. In an order dated June 4, 1990, respondent court denied due course to the appeal.”[3]

To this day, trial on the merits of the collection suit has not proceeded as in the present petition, petitioners continue vigorously to dispute the trial court’s assumption of jurisdiction over them.

It will be remembered that in the plaintiff’s complaint,[4] it was contended that on July 6, 1979 and on October 1, 1980, Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties for the periods July 6, 1979 to July 6, 1980 as under Policy No. 20719 for a coverage of P100,000,000.00 and from October 1, 1980 to October 1, 1981, under Policy No. 25896, also for P100,000,000.00. Both contracts were covered by reinsurance treaties between Worldwide Surety and Insurance and several foreign reinsurance companies, including the petitioners. The reinsurance arrangements had been made through international broker C.J. Boatright and Co. Ltd., acting as agent of Worldwide Surety and Insurance.

As fate would have it, on December 16, 1979 and May 2, 1981, with in the respective effectivity periods of Policies 20719 and 25896, the properties therein insured were razed by fire , thereby giving rise to the obligation of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were made by Worldwide Surety and Insurance and some of the reinsurance companies.

On May 2, 1983, Worldwide Surety and Insurance, in a deed of Assignment, acknowledge a remaining balance of P19,444,447.75 still due Yupangco Cotton Mills, and assigned to the latter all reinsurance proceeds still collectible from all the foreign reinsurance companies. Thus, in its interest as assignee and original insured, Yupangco Cotton Mills instituted this collection suit against the petitioners.

Service of summons upon the petitioners was made by notification to the Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of Court.[5]

In a Petition for Certiorari filed with the Court of Appeals, petitioners submitted that respondent Court has no jurisdiction over them, being all foreign corporations not doing business in the Philippines with no office, place of business or agents in the Philippines. The remedy of Certiorari was resorted to by petitioners on the premise that if petitioners had filed an answer to the complaint as ordered by the respondent court, they would risk abandoning the issue of jurisdiction. Moreover, extra-territorial service of summons on petitioners is null and void because the complaint for collection is not one affecting plaintiff’s status and not relating to property within the Philippines.

The Court of Appeals found the petition devoid of merit, stating that:

1. Petitioners were properly served with summons and whatever defect, if any, in the service of summons were cured by their voluntary appearance in court, via motion to dismiss.

2. Even assuming that petitioners have not yet voluntarily appeared as co-defendants in the case below even after having filed the motion to dismiss adverted to, still the situation does not deserve dismissal of the complaint as far as they are concerned, since as held by this Court in Linger Fisher GMBH vs. IAC, 125 SCRA 253.

“A case should not be dismissed simply because an original summons was wrongfully served. It should be difficult to conceive for example, that when a defendant personally appears before a court complaining that he had not been validly summoned, that the case filed against him should be dismissed. An alias summons can be actually served on said defendant.”

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3. Being reinsurers of respondent Worlwide Surety and Insurance of the risk which the latter assumed when it issued the fire insurance policies in dispute in favor of respondent Yupangco, petitioners cannot now validly argue that they do not do business in this country. At the very least, petitioners must be deemed to have engaged in business in the Philippines no matter how isolated or singular such business might be, even on the assumption that among the local domestic insurance corporations of this country, it is only in favor of Worldwide Surety and Insurance that they have ever reinsured any risk arising from reinsurance within the territory.

4. The issue of whether or not petitioners are doing business in the country is a matter best reffered to a trial on the merits of the case and so should be addressed there.

Maintaining its submission that they are beyond the jurisdiction of the Philippine Courts, petitioners are now before us, stating:

“Petitioners, being foreign corporations, as found by the trial court, not doing business in the Philippines with no office, place of business or agents in the Philippines, are not subject to the jurisdiction of the Philippine courts.

The complaint for sum of money being a personal action not affecting status or relating to property, extraterritorial service of summons on petitioners – all not doing business in the Philippines – is null and void.

The appearance of counsel for petitioners being explicitly ‘by special appearance without waiving objections to the jurisdiction over their persons or the subject matter’ and the motions do dismiss having excluded non-jurisdictional grounds, there is no voluntary submission to the jurisdiction of the trial court.”[6]

For its part, private respondent Yupangco counter-submits:

“1. Foreign corporations, such as petitioners, not doing business in the Philippines, can be sued in the Philippine Courts, not withstanding petitioners’ claim to the contrary.

2. While the complaint before the Honorable Trial Court is for a sum of money, not affecting status or relating to property, petitioners (then defendants) can submit themselves voluntarily to the jurisdiction of Philippine Courts, even if there is no extra-judicial (sic) service of summons upon them.

3. The voluntary appearance of the petitioners (then defendants) before the Honorable Trial Court amounted, in effect, to voluntary submission to its jurisdiction over their persons.”[7]

In the decisions of the courts below, there is much left to speculation and conjecture as to whether or not the petitioners were determined to be “doing business in the Philippines” or not.

To qualify the petitioners’ business of reinsurance within the Philippine forum, resort must be made to established principles in determining what is meant by “doing business in the Philippines.” In Communication Materials and Design, Inc. et. al vs. Court of Appeals,[8] it was observed that:

“There is no exact rule of governing principle as to what constitutes doing or engaging in or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. 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.

Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include:

'soliciting orders, purchases, service contracts opening offices, whether called ‘liaison offices of branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods 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 or 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 purpose and object of the business organization.’”

The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and object of its organization.[9]

A single act or transaction made in the Philippines, however, could not qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation’s intention to do business in the Philippines.[10]

There is no sufficient basis in the records which would merit the institution of this collection suit in the Philippines. More specifically, there is nothing to substantiate the private respondent’s submission that the petitioners had engaged in business activities in this country. This is not an instance where the erroneous service of summons upon the defendant can be cured by the issuance and service of alias summons, as in the absence of showing that petitioners had been doing business in the country, they cannot be summoned to answer for the charges leveled against them.

The Court is cognizant of the doctrine is Signetics Corp. vs. Court of Appeals[11] that for the purpose of acquiring jurisdiction by way of summons on a defendant foreign corporation, there is no need to prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served thereto, even without prior evidence advancing such factual allegation.

As it is, private respondent has made no allegation or demonstration of the existence of petitioners’ domestic agent, but avers simply that they are doing business not only abroad but in the Philippines as well. It does not appear at all that the petitioners had performed any act which

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would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance brokers, and not through any entity of means remotely connected with the Philippines. Moreover there is authority to the effect that a reinsurance company is not doing business in a certain state merely because the property of lives which are insured by the original insurer company are located in that state.[12] The reason for this is that a contract or reinsurance is generally a separate and distinct arrangement from the original contract of insurance, whose contracted risk is insured in the reinsurance agreement.[13] Hence, the original insured has generally no interest in the contract of reinsurance.[14]

A foreign corporation, is one which owes its existence to the laws of another state,[15] and generally has no legal existence within the state in which it is foreign. In Marshall Wells Co. vs. Elser,[16] it was held that corporations have no legal status beyond the bounds of sovereignty by which they are created. Nevertheless, it is widely accepted that foreign corporations are, by reason of state comity, allowed to transact business in other states and to sue in the courts of such fora. In the Philippines foreign corporations are allowed such privileges, subject to certain restrictions, arising from the state’s sovereign right of regulation.

Before a foreign corporation can transact business in the country, it must first obtain a license to transact business here[17] and secure the proper authorizations under existing law.

If a foreign corporation engages in business activities without the necessary requirements, it opens itself to court actions against it, but it shall not be allowed maintain or intervene in an action, suit or proceeding for its own account in any court or tribunal or agency in the Philippines.[18]

The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts,[19] otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts.

The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the State’s regulation. As we observed, in so far as State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the court’s jurisdiction would violate the essence of sovereignty.

In the alternative, private respondent submits that foreign corporations not doing business in the Philippines are not exempt from suits leveled against them in courts, citing the case of Facilities Management Corporation vs. Leonardo Dela Osa, et. al.[20] where we ruled “that indeed, if a foreign corporation, not engaged in business in the Philippines, is not barred from seeking redress from Courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in the Philippines Courts for acts done against a person or persons in the Philippines.”

We are not persuaded by the position taken by the private respondent. In Facilities Management case, the principal issue presented was whether the petitioner had been doing business in the Philippines, so that service of summons upon its agent as under Section 14, Rule 14 of the Rules of Court can be made in order that the Court of First Instance could assume jurisdiction over it. The court ruled that the petitioner was doing business in the Philippines, and that by serving summons upon its resident agent, the trial court had effectively acquired jurisdiction. In that case, the court made no prescription as the absolute suability of foreign corporations not doing business in the country, but merely discounts the absolute exemption of such foreign corporations from liabilities particularly arising from acts done against a person or persons in the Philippines.

As we have found, there is no showing that petitioners had performed any act in the country that would place it within the sphere of the court’s jurisdiction. A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness. In addition, the assertion that a resident of the Philippines will be inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and unavailing to sustain the continuance of a local action, for jurisdiction is not dependent upon the convenience or inconvenience of a party.[21]

It is also argued that having filed a motion to dismiss in the proceedings before the trial court, petitioners have thus acquiesced to the court’s jurisdiction, and they cannot maintain the contrary at this juncture.

This argument is at the most, flimsy.

In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons.[22]

Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action had been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the complaint.[23] The service of summons, upon the defendant becomes an important element in the operation of a court’s jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his person.[24] Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation of due process, are null and void,[25] unless the defendant waives the service of summons by voluntarily appearing and answering the suit.[26]

When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court.[27] This is not, however, always the case. Admittedly, and without subjecting himself to the court’s jurisdiction, the defendant in an action can, by special appearance object to the court’s assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have submitted himself to that jurisdiction.[28] In the case of foreign corporations, it has been held that they may seek relief against the wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes,[29] it was held that the action of a court in refusing to rule of deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same

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remedy is available should the motion to dismiss be denied, and the court, over the foreign corporations objections, theratens to impose its jurisdiction upon the same.

If the defendant, besides setting up in a motion to dismiss his objections to the jurisdiction of the court, alleges at the same time any other ground for dismissing the action, or seeks an affirmative refief in the motion,[30] he is deemed to have submitted himself to the jurisdiction of the court.

In this instance, however, the petitioners from the time they filed their motions to dismiss, their submission have been consistently and unfailingly to object to the trial court’s assumption of jurisdiction, anchored on the fact that they are all foreign corporations not doing business in the Philippines.

As we have consistently held, if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does is constitute an acquiescence to the court’s jurisdiction.[31] Thus it cannot be argued that the petitioners had abandoned their objections to the jurisdiction of the court, as their motions to dismiss in the trial court, and all their subsequent posturings, were all in protest of the private respondent's insistence on holding them so answer a charge in a forum where they believe they are not subject to. Clearly, to continue the proceedings in a case such as those before Us would just “be useless and a waste of time.”[32]

ACCORDINGLY, the decision appealed from dated October 11, 1990, is SET ASIDE and the instant petition is hereby GRANTED. The respondent Regional Trial Court of Manila, Branch 51 is declared without jurisdiction to take cognizance of Civil Case No. 86-37932, and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. The respondent court is hereby ORDERED to DESIST from maintaining further proceeding in the case aforestated.

SO ORDERED.

ABOITIZ vs INSURANCE OF NORTH AMERICAG.R. No. 168402D E C I S I O N

REYES, R.T., J.: THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the wrongdoer who caused the damage. Before Us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) which reversed the Decision[2] of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and attorney’s fees in favor of respondent Insurance Company of North America (ICNA). The Facts Culled from the records, the facts are as follows: On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines.[3] ICNA issued an “all-risk” open marine policy,[4] stating: This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: – Loss, if any, payable to the Assured or order.[5] The cargo, packed inside one container van, was shipped “freight prepaid” from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading[6] was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City. The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of lading[7] issued by Aboitiz contained the notation “grounded outside warehouse.” The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the Stuffing/Stripping Report.[8] On August 1, 1993, the container van was loaded on board petitioner’s vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993. On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report[9] dated August 5, 1993, petitioner’s checker noted that the crates were slightly broken or cracked at the bottom. On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the container and other cargoes

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stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness.[10] Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the “grounded outside warehouse” notation in the bill of lading referred only to the container van bearing the cargo.[11] In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo.[12] The letter stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found to have been completely soaked in water with most of the packing cartons already disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering through the broken parts of the crate. The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee.[13] On September 21, 1993, the consignee filed a formal claim[14] with Aboitiz in the amount of P276,540.00 for the damaged condition of the following goods: ten (10) wooden workbenchesthree (3) carbide-tipped saw bladesone (1) set of ball-bearing guidesone (1) set of overarm router bitstwenty (20) rolls of sandpaper for stroke sander In a Supplemental Report dated October 20, 1993,[15] CAC reported to ICNA that based on official weather report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation “grounded outside warehouse.” It was only on July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu. Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz. RTC Disposition ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and attorney’s fees.[16] ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by the fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery. Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the suit was premature there being no claim made upon Aboitiz. On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision[17] states: WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for being baseless and without merit. The complaint is hereby DISMISSED. The defendant’s counterclaims are, likewise, DISMISSED for lack of basis.[18] The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.’ claim that it had been subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for being hearsay evidence. The RTC reasoned: While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would show that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies. Plaintiff’s witness, Francisco B. Francisco, claims that the signature below the name MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiff’s witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand or took (sic) the deposition of the person who made that signature. Hence, the claim that there was an endorsement of the marine policy has no probative value as it is hearsay.

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Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as shown by the Subrogation Form (Exhibit “K”) allegedly signed by a representative of Science Teaching Improvement Project. Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-serving and has no probative value.[19] (Emphasis supplied) The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit: Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do business in the Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign corporation doing business in the Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied) CA Disposition ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy.[20] On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed within the period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the subrogation receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the representative of the consignee. On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows: WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case until fully paid, and attorney’s fees in the sum of P50,000, plus the costs of suit.[21] The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled: At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by Philippine courts. x x x x x x x Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of the claim of the insured under the subject marine policy, is therefore the real party in interest to bring this suit and recover the full amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x x[22] The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo. Issues The following issues are up for Our consideration: (1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT. (2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) (“ICNA UK”). (3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED (“MSAS”) IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.

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(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.[23] (Underscoring supplied) Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for damages? Our Ruling We answer the triple questions in the affirmative. A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is “transacting” or “doing business” in the country will a license be necessary before it can institute suits.[24] It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law.[25] Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts.[26] In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present suit was filed by the said company’s authorized agent in Manila. It was the domestic corporation that brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of the foreign company’s agents. As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee. The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the company who issued the insurance, or against any of its listed agents worldwide.[27] MSAS accepted said provision when it signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer. Likewise, the Open Policy expressly provides that: The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: – Loss, if any, payable to the Assured or Order. The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states: A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the owner of the interest insured. (Emphasis added) Respondent’s cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states: Article 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. (Emphasis added) As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,[28] payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.[29] Upon payment to the consignee of indemnity for damage to the insured goods, ICNA’s entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual breach or negligence.[30] This right of subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading.[31] Second, the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against the latter.[32] The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the carrier’s liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with. As held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,[33] this notice requirement protects the carrier by affording it an opportunity to make an investigation of the claim while the matter is still fresh and easily investigated. It is meant to safeguard the carrier from false and fraudulent claims. Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be made immediately. The law provides:

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Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied) The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under the bill of lading issued by petitioner for the goods. The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated August 15, 1993, that letter, together with the notice of claim, was received by petitioner only on September 21, 1993. But petitioner admits that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse and to the delivery site to inspect the goods in behalf of petitioner.[34] In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,[35] the notice was allegedly made by the consignee through telephone. The claim for damages was denied. This Court ruled that such a notice did not comply with the notice requirement under the law. There was no evidence presented that the notice was timely given. Neither was there evidence presented that the notice was relayed to the responsible authority of the carrier. As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases. Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier must be given a reasonable and practical construction, adapted to the circumstances of the case under adjudication, and their application is limited to cases falling fairly within their object and purpose.[36] Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered goods were discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was able to investigate the claims himself and he confirmed that the goods were, indeed, already corroded. Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical, rather than a strict construction.[37] We give due consideration to the fact that the final destination of the damaged cargo was a school institution where authorities are bound by rules and regulations governing their actions. Understandably, when the goods were delivered, the necessary clearance had to be made before the package was opened. Upon opening and discovery of the damaged condition of the goods, a report to this effect had to pass through the proper channels before it could be finalized and endorsed by the institution to the claims department of the shipping company. The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case. To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent. We now discuss petitioner’s liability for the damages sustained by the shipment. The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by law.[38] Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property rights.[39] This standard is intended to grant favor to the shipper who is at the mercy of the common carrier once the goods have been entrusted to the latter for shipment.[40] Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that petitioner failed to overturn this presumption: x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo Arrastre, and the crates opened, it was discovered that the workbenches and work tools suffered damage due to “wettage” although by then they were already physically dry. Appellee carrier having failed to discharge the burden of proving that it exercised extraordinary diligence in the vigilance over such goods it contracted for carriage, the presumption of fault or negligence on its part from the time the goods were unconditionally placed in its possession (July 26, 1993) up to the time the same were delivered to the consignee (August 11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. x x x[41] (Emphasis added) The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day, it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van. On August 1, 1993, it was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the shipment was outside a container van and kept in storage by petitioner.

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The bill of lading issued by petitioner on July 31, 1993 contains the notation “grounded outside warehouse,” suggesting that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila during the same period, We can conclude that this was when the shipment sustained water damage. To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It must prove that it used “all reasonable means to ascertain the nature and characteristic of the goods tendered for transport and that it exercised due care in handling them.[42] Extraordinary diligence must include safeguarding the shipment from damage coming from natural elements such as rainfall. Aside from denying that the “grounded outside warehouse” notation referred not to the crate for shipment but only to the carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show that the crate was properly stored indoors during the time when it exercised custody before shipment to Cebu. As amply explained by the CA: On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that seeped into the cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier from the time it was delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other inevitable conclusion can be deduced from the foregoing established facts that damage from “wettage” suffered by the subject cargo was caused by the negligence of appellee carrier in grounding the shipment outside causing rainwater to seep into the cargoes. Appellee’s witness, Mr. Mayo tried to disavow any responsibility for causing “wettage” to the subject goods by claiming that the notation “GROUNDED OUTSIDE WHSE.” actually refers to the container and not the contents thereof or the cargoes. And yet it presented no evidence to explain where did they place or store the subject goods from the time it accepted the same for shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container van to another container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to Cebu City, appellee provided no explanation as to where said cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo was stripped from the container van of the shipper and transferred to the container on August 1, 1993 and finally loaded into the appellee’s vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit “D”) at the Manila port did not indicate any such defect or damage, but when the container was stripped upon arrival in Cebu City port after being discharged from appellee’s vessel, it was noted that only one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit “F”).[43] (Emphasis added) Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it exercised the extraordinary diligence required of common carriers. WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED. SO ORDERED.