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CALTEX (Philippines) Inc. v. Enrico Palomar as The Postmaster General, G.R. No. L-19650, 29 September 1966

[CASTRO, J.]

FACTS

Caltex launched its promo “Caltex Hooded Pump Contest”.

“No puzzles, no rhymes? You don’t need wrappers, labels or boxtops? You don’t have to buy anything? Simply estimate the actual number of liter the Caltex gas pump with the hood at your favorite Caltex dealer will dispense from — to —, and win valuable prizes . . . .”

In order to secure advance clearance for anticipated extensive use of mails, Caltex provided the Postmaster General a copy of the contest rules and endeavored to justify its position that the contest does not violate the anti-lottery provisions of the Postal Law.

SECTION 1954. Absolutely non-mailable matter. — x x x.

Written or printed matter x x x concerning any lottery, gift enterprise, or similar scheme depending in whole or in part upon lot or chance, or any scheme, device, or enterprise for obtaining any money or property of any kind by means of false or fraudulent pretenses, representations, or promises.

“SECTION 1982. Fraud orders.—Upon satisfactory evidence that any person or company is engaged in conducting any lottery, gift enterprise, or scheme for the distribution of money, x x x the Director of Posts may x x x return to the person, depositing the same in the mails, with the word “fraudulent” plainly written or stamped upon the outside cover thereof, x x x.

SECTION 1983. Deprivation of use of money order system and telegraphic transfer service.—The Director of Posts may, upon evidence satisfactory to him that any person or company is engaged in conducting any lottery, gift enterprise or scheme for the distribution of money, x x x forbid the issue or payment by any postmaster of any postal money order or telegraphic transfer xxx.

The Postmaster General declined to grant the requested clearance, relying on Opinion 217 issued by the Secretary of Justice. Caltex thereupon invoked judicial intervention by filing the present petition for declaratory relief against Postmaster General Enrico Palomar, praying “that judgment be rendered declaring its ‘Caltex Hooded Pump Contest’ not to be violative of the Postal Law, and ordering respondent to allow petitioner the use of the mails to bring the contest to the attention of the public”. The Postmaster General argued that there is no question of construction because he “simply applied the clear provisions of the law to a given set of facts as embodied in the rules of the contest”, hence, there is no room for declaratory relief.

 

ISSUES

(1) Do we need to apply rules of construction to determine if “Caltex Hooded Pump Contest” promo violates the Postal Law?

(2) What is the correct construction of the terms “lottery” and “gift enterprise” in relation to the Postal Law?

(3) Whether “consideration” as an element of “lottery” also applies to “gift enterprise”.

 

HELD

(1) YES.

Construction, verily, is the art or process of discovering and expounding the meaning and intention of the authors of the law with respect to its application to a given case, where that intention is rendered doubtful, amongst others, by reason of the fact that the given case is not explicitly provided for in the law . This is precisely the case here. Whether or not the scheme proposed by the appellee is within the coverage of the prohibitive provisions of the Postal Law inescapably requires an inquiry into the intended meaning of the words used therein. To our mind, this is as much a question of construction or interpretation as any other.

(2) The term “lottery” extends to all schemes for the distribution of prizes by chance, such as policy playing, gift exhibitions, prize concerts, raffles at fairs, etc., and various forms of gambling. The three essential elements of a lottery are: First, consideration; second, prize; and third, chance.Nowhere in the said rules is any requirement that any fee be paid, any merchandise be bought, any service be rendered, or any value whatsoever be given for the privilege to participate. A prospective contestant has but to go to a Caltex station, request for the entry form which is available on demand, and accomplish and submit the same for the drawing of the winner. Viewed from all angles or turned inside out, the contest fails to exhibit any discernible consideration which would brand it as a lottery. Indeed, even as we head the stern injunction, “look beyond the fair exterior, to the substance, in order to unmask the real element and pernicious tendencies which the law is seeking to prevent”, we find none. In our appraisal, the scheme does not only appear to be, but actually is, a gratuitous distribution of property by chance.

While an all-embracing concept of the term “gift enterprise” is yet to be spelled out in explicit words, there appears to be a consensus among lexicographers and standard authorities that the term is commonly applied to a sporting artifice of under which goods are sold for their market value but by way of inducement each purchaser is given a chance to win a prize. As thus conceived, the term clearly cannot embrace the scheme at bar. As already noted, there is no sale of anything to which the chance offered is attached as an inducement to the purchaser. The contest is open to all qualified contestants irrespective of whether or not they buy the appellee’s (Caltex) products.

(3) YES.

[I]n the Postal Law, the term in question is used in association with the word “lottery”. With the meaning of lottery settled, and consonant to the well-known principle of legal hermeneutics noscitur a sociis — which Opinion 217 aforesaid also relied upon although only insofar as the element of chance is concerned — it is only logical that the term under a construction should be accorded no other meaning than that which is consistent with the nature of the word associated therewith. Hence, if lottery is prohibited only if it involves a consideration, so also must the term “gift enterprise” be so construed. Significantly, there is not in the law the slightest indicium of any intent to eliminate that element of consideration from the “gift enterprise” therein included.

 
 

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The Mentholatum Co. Inc. et al., v. Mangaliman, et al., G.R. No. L-47701, 27 June 1941.

[LAUREL, J.]

 

FACTS

The Mentholatum Co., Inc., a foreign corporation, and the Philippine-American Drug Co., Inc., the former’s exclusive distributing agent of the product “Mentholatum” in the Philippine Islands, instituted an action against Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair competition, praying for the issuance of an order restraining Anacleto and Florencio Mangaliman from selling their product “Mentholiman,” and directing them to render an accounting of their sales and profits and to pay damages. Mentholatum, not licensed to do business in the Philippines, claims that they have not sold personally any of their products in the Philippines and that products were imported from them by local entities including Philippine-American Drug under their own account.

ISSUES

(1) Is Mentholatum Co. Inc. “doing business” in the Philippines?

(2) Is Mentholatum Co. Inc. allowed prosecute its action?

HELD

(1) YES.

[The test is] whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.

[Here] the Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippine Islands of the Mentholatum Co., Inc., in the sale and distribution of its product known as the Mentholatum. xxx It follows that whatever transactions the Philippine-American Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc., did it itself.

(2) NO.

Section 69 of Act No. 1459 provides that No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to… maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license xxx.”

The Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without the license required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition. Neither may the Philippine-American Drug Co., Inc., maintain the action here for the reason that the distinguishing features of the agent being his representative character and derivative authority.

 

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B. Van Zuiden Bros. Ltd. v. GTVL Manufacturing, G.R. No. 147905, 28 May 2007

[CARPIO, J.]

 

FACTS

B. Van Zuiden Bros. Ltd. (Zuiden) is a corporation incorporated under the laws of Hong Kong, suing in Philippine court for collection of sum of money. In its complaint, petitioner alleged that it is engaged in the importation and exportation of several products, including lace products. Petitioner asserted that on several occasions, respondent purchased lace products from it. Petitioner also claimed that respondent instructed it to deliver the purchased goods to Kenzar, which is a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the goods, the products were considered sold. Kenzar, in turn, had the obligation to deliver the lace products to the Philippines. In other words, the sale of lace products was consummated in Hong Kong.Instead of filing an Answer, GTVL Manufacturing (GVTL) filed a Motion to Dismiss

 

ISSUES

(1) Whether the petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts.

(2) What constitutes doing business in the Philippines?

 

 RULINGS

(1) YES, if the foreign corporation is not doing business in the Philippines. NO, if the foreign corporation is doing business in the Philippines.

Section 133 of the Corporation Code provides:

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

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

The series of transactions between petitioner and respondent cannot be classified as doing business in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as doing business in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. Here, there is no showing that petitioner performed within the Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and respondent entered into a series of transactions implying a continuity of commercial dealings, the perfection and consummation of these transactions were done outside the Philippines.

(2) To be doing or transacting business in the Philippines for purposes of Section 133 of the Corporation Code, the foreign corporation mustactually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license.

 

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Steelcase, Inc. v. Design International Selections, Inc. (DISI), G.R. No. 171995, 18 April 2012

[MENDOZA, J.]

 

FACTS

Steelcase, Inc. (Steelcase) granted Design International Selections, Inc. (DISI) the right to market, sell, distribute, install, and service its products to end-user customers within the Philippines.Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of 1991 (FIA) expressly states that the phrase doing business excludes the appointment by a foreign corporation of a local distributor domiciled in the Philippines which transacts business in its own name and for its own account. On the other hand, DISI argues that it was appointed by Steelcase as the latter’s exclusive distributor of Steelcase products.  The dealership agreement between Steelcase and DISI had been described by the owner himself as basically a buy and sell arrangement.

 

ISSUE

Whether Steelcase had been doing business in the Philippines.

RULING

NO.

[T]he appointment of a distributor in the Philippines is not sufficient to constitute doing business unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines. Here, DISI was an independent contractor which sold Steelcase products in its own name and for its own account. As a result, Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.

 

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Heirs of Gamboa v. Teves, et al., G.R. No. 176579, 09 October 2012

[CARPIO, J.]

FACTS

Movants Philippine Stock Exchange’s (PSE) President, Manuel V. Pangilinan, Napoleon L. Nazareno, and the Securities and Exchange Commission (SEC) contend that the term “capital” in Section 11, Article XII of the Constitution has long been settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has consistently adopted this particular definition in its numerous opinions. Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a “new” definition or “midstream redefinition” of the term “capital” in Section 11, Article XII of the Constitution.

ISSUE

Whether the term “capital” includes both voting and non-voting shares.

RULING

NO.

The Constitution expressly declares as State policy the development of an economy “effectively controlled” by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that “[f]or stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential.” In effect, the FIA clarifies, reiterates and confirms the interpretation that the term “capital” in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership. This is precisely because the right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.

 

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Narra Nickel Mining and Dev’t Corp., et al. v. Redmont Consolidated Mines Corp., G.R. No. 195580, 21 April 2014

[VELASCO, JR., J.]

FACTS

Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the DENR separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and Development, Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra) applications Mineral Production Sharing Agreement (MPSA) on the ground that they are not “qualified persons” and thus disqualified from engaging in mining activities through MPSAs reserved only for Filipino citizens.

McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;

Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc. (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;

Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of Patricia Louise Mining & Development Corporation;

ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS

(1) YES.

The instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules which states, “but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership.

(2) NO.

[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners. xxx Noticeably, the ownership of the “layered” corporations boils down to xxx group wherein MBMI has joint venture agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.

 

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Garcia v. J.G. Summit Petrochemical Corporation, G.R. No. 127925, 27 February 2007

[CARPIO-MORALES, J.]

 

FACTS

The petitioner’s motion for partial reconsideration asks this Court to rule on his contention that the transfer of the Bataan (now Luzon) Petrochemical plant site from Bataan to Batangas violates PD Nos. 949 and 1803 reserving a 576-hectare site in Limay, Bataan as a “petrochemical industrial zone” and placing it under the administration, management and ownership of the Philippine National Oil Company (PNOC).

ISSUE

Whether Presidential Decree (P.D.) Nos. 949 and 1803, the laws creating a petrochemical complex in Limay, Bataan, prohibit the establishment of a petrochemical facility outside of it.

 

HELD

NO.[P].D. Nos. 949 and 1830 do not prohibit the establishment of a petrochemical plant outside of Limay, Bataan. A meticulous perusal of the two decrees reveals that nowhere in their provisions is it stated or can it be inferred that all petrochemical plants must be established in Limay, Bataan or, stated differently, that Bataan is intended to be the only site for all petrochemical plants.What is clear then is that the law reserved an area for a petrochemical industrial zone in Bataan and that PNOC was to operate, manage and develop it. There is, however, nothing further in the law to indicate that the choice of Limay, Bataan as a petrochemical zone was exclusive.

 
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Posted by on March 5, 2016 in Case Digests, Investment Law

 

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