Mentholatum Co. v. Mangaliman
REITERATIONFacts
The Antecedents: The Mentholatum Co., Inc. (a Kansas corporation) and its exclusive Philippine distributor, Philippine-American Drug Co., Inc., filed a complaint against Anacleto and Florencio Mangaliman for infringement of trademark and unfair competition. Plaintiffs alleged that defendants were selling a product named "Mentholiman" in containers similar to "Mentholatum," causing damages due to diminished sales and loss of goodwill. Procedural History: The Court of First Instance of Manila rendered judgment in favor of the plaintiffs, making permanent the preliminary injunction against the defendants, ordering an accounting of profits and payment of damages, and imposing a fine for contempt. The Court of Appeals reversed this decision, holding that the Mentholatum Co., Inc. was transacting business in the Philippines and, not having secured the required license under Section 69 of the Corporation Law, could not maintain the suit. The Petition: Petitioners sought a writ of certiorari to review the Court of Appeals' decision, arguing that the Court of Appeals erred in concluding that Mentholatum Co., Inc. was transacting business in the Philippines and that the issue was foreign to the case. They also contended that even if Mentholatum Co., Inc. lacked standing, the Philippine-American Drug Co., Inc., as a local entity, had sufficient interest to maintain the complaint.
Issue(s)
Whether the activities of the Mentholatum Co., Inc., through its exclusive distributor, constitute "transacting business" in the Philippines as contemplated by Section 69 of the Corporation Law. Whether the Philippine-American Drug Co., Inc., as an exclusive distributor, could maintain the action independently of the Mentholatum Co., Inc., even if the latter lacked the required license.
Ruling
The petition for certiorari is denied. The Supreme Court affirmed the decision of the Court of Appeals, holding that the Mentholatum Co., Inc. was indeed transacting business in the Philippines and, not having secured the necessary license, could not maintain the suit. Consequently, its exclusive distributor, the Philippine-American Drug Co., Inc., could also not maintain the action.
Ratio Decidendi
On the issue of "transacting business" by a foreign corporation: The Court held that the term "transacting business" implies a continuity of commercial dealings and arrangements, and contemplates the performance of acts or the exercise of functions normally incident to the purpose and object of its organization. In this case, the Mentholatum Co., Inc., through its exclusive distributing agent, the Philippine-American Drug Co., Inc., was engaged in the sale and distribution of its products in the Philippines. The Court emphasized that the acts of the exclusive distributor were, in legal contemplation, the acts of the foreign corporation itself. The Court cited the admission in the complaint that the Philippine-American Drug Co., Inc. was 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." This admission was deemed conclusive for the purpose of the action, establishing that the foreign corporation was indeed conducting business within the Philippines. The Court further clarified that a foreign corporation cannot take a position contradictory to its pleadings, and the facts admitted therein are taken as true. Therefore, whatever transactions the Philippine-American Drug Co., Inc. executed were legally attributable to the Mentholatum Co., Inc. On the standing of the exclusive distributor to maintain the action: The Court ruled that the Philippine-American Drug Co., Inc. could not maintain the action independently. The Court explained that the distinguishing features of an agent are its representative character and derivative authority. Since the agent's authority is derived from the principal, it cannot claim an independent standing in court to the advantage of its principal, especially when the principal itself is barred from prosecuting the action due to non-compliance with statutory requirements. The Court reasoned that allowing the agent to sue would circumvent the purpose of Section 69 of the Corporation Law, which aims to regulate foreign corporations doing business in the Philippines and to ensure they contribute to the state's revenue and are subject to its jurisdiction. The Court also noted that the case of Western Equipment and Supply Co. vs. Reyes was properly distinguished by the Court of Appeals because, in that case, the plaintiff was expressly found not to be engaged in business in the Philippines, a crucial factual difference.
Main Doctrine
A foreign corporation that appoints an exclusive distributor in the Philippines for its products is considered to be transacting business in the Philippines, and thus, must secure the required license to maintain a suit in Philippine courts. The acts of the exclusive distributor are considered the acts of the foreign corporation.