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 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 prior appropriation and certification of fund availability by the Auditor General, and the PNB Charter for exceeding lending limits.
The trial court dismissed the complaint. Gonzales appealed, raising four issues: the applicability of the Revised Administrative Code provisions; the validity of the contracts given the foreign corporations were not licensed to do business in the Philippines; the invalidity of the letters of credit if the contracts were void; and whether the letters of credit constituted loans exceeding PNB’s statutory lending capacity.

ISSUE

The core legal issues were: (1) Whether the contracts violated the Revised Administrative Code provisions on appropriation and certification of funds; (2) Whether the contracts were void because the foreign corporations were unlicensed; (3) Whether the letters of credit were invalid if the contracts were void; and (4) Whether the PNB’s accommodation violated its charter’s lending limits.

RULING

The Supreme Court denied the appeal and affirmed the trial court’s dismissal. On the first issue, the Court ruled that Sections 606, 607, and 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 through future letters of credit upon shipment of the equipment, constituting executory agreements to be funded by future appropriations. The Court cited the principle that a contract for a future contingent liability does not require a prior appropriation. The approval of the Auditor General on the contracts was also noted.
On the second issue, the Court held the contracts were not void. The foreign corporations’ participation in these isolated transactions did not constitute “doing business” in the Philippines under the law. The rule is that occasional, incidental, and casual transactions not indicating a purpose to engage in continuity of business do not require a license.
The third issue was rendered moot by the validity of the underlying contracts. Since the contracts were upheld, the challenge to the letters of credit based on contract invalidity failed.
On the fourth issue, the Court found no violation of the PNB Charter. Assuming the letters of credit constituted loans, 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. The accommodation was secured by a full government guaranty, thus removing it from the coverage of the lending limit restrictions.