G.R. No. 29627 , December 19, 1989
RAMON A. GONZALES, plaintiff-appellant, vs. HON. ANTONIO V. RAQUIZA, as Secretary of Public Works and Communications; BALTAZAR AQUINO, as Commissioner of Public Highways; THE PHILIPPINE NATIONAL BANK (PNB), CONTINENTAL ORE (PHIL.), INC., HUBER CORPORATION, ALLIS-CHALMERS INTERNATIONAL and GENERAL MOTORS CORPORATION, defendants-appellants.

FACTS

This case originated from a taxpayer’s suit filed by Ramon A. Gonzales seeking the annulment of two contracts entered into by the Republic of the Philippines, represented by the Commissioner of Public Highways, with three American corporations (Huber Corporation, Allis-Chalmers International, and General Motors Corporation) through their agent, Continental Ore (Phil.), Inc., for the purchase of road construction equipment and spare parts totaling approximately US$34.5 million. The contracts were secured by irrevocable letters of credit issued by the Philippine National Bank (PNB), guaranteed by the national government upon presidential approval. Gonzales alleged the contracts violated Sections 606, 607, and 608 of the Revised Administrative Code for lack of a prior appropriation law and the Auditor General’s certification on fund availability. He also contended the PNB’s accommodation exceeded its lending limit under its charter.
The Court of First Instance of Manila dismissed the complaint. Gonzales appealed, raising four issues: the applicability of the Revised Administrative Code provisions; the validity of contracts with unlicensed foreign corporations; the invalidity of letters of credit from an allegedly void contract; and the illegality of the PNB accommodation for exceeding statutory loan limits and lacking collateral.

ISSUE

The core legal issues were: (1) Whether the contracts violated the Revised Administrative Code provisions requiring appropriation and certification of funds; (2) Whether the contracts were void because the foreign corporations were not licensed to do business in the Philippines; (3) Whether the letters of credit were invalid if the contracts were void; and (4) Whether the PNB’s accommodation constituted a loan exceeding legal limits.

RULING

The Supreme Court affirmed the dismissal and denied the appeal. On the first issue, the Court ruled that Sections 606-608 of the Revised Administrative Code were inapplicable. These provisions govern contracts involving the immediate disbursement of public funds. The contracts in question did not require immediate payment but were to be paid via letters of credit upon future shipment of goods, constituting executory contracts where the government’s obligation was contingent on future events. The Court distinguished this from contracts creating an immediate enforceable obligation for fund disbursement. Moreover, the Auditor General had approved the contracts, satisfying the certification requirement.
On the second issue, the Court held the contracts were not void merely because the foreign corporations were unlicensed. The “doing business” requirement applies to entities engaged in continuous commercial transactions in the Philippines. Isolated or singular transactions, as in this case, do not constitute “doing business” under the law. The third issue was rendered moot by the finding of contract validity. Regarding the fourth issue, the Court found that even assuming the PNB’s issuance of letters of credit was a loan, Section 23 of Republic Act No. 337 (the General Banking Act) explicitly exempts loans fully guaranteed by the Philippine government from the statutory lending limits. Since the national government guaranteed the letters of credit, the PNB’s accommodation was legally permissible.