CASE # 25 |A G E N C Y | D i g e s t b y : K e v i n H e r n a n d e z

Hahn v. CA and BMW (1997)

Ponente: Mendoza, J.
Petitioner: Alfred Hahn
Respondent: CA and Bayerische Motoren Werke Aktiengesell Schaft (BMW)

Under what topic: IV. How is agency distinguished from other contracts/relationships

Synopsis: Petitioner was the exclusive dealer of BMW in the Philippines. In consideration of this
exclusive dealership, petitioner assigned and transferred his rights over the BMW trademark and
device. Later on, BMW terminated its exclusive dealership with petitioner and gave it to another entity.
Petitioner sued for specific performance. Respondent tried to have the complaint dismissed by
arguing that the trial court could not have acquired jurisdiction over it by the service of summons upon
the Department of Trade and Industry since it is a foreign corporation NOT doing business in the
Philippines, petitioner NOT being its agent.

Doctrine: The arrangement between two parties must be examined in order to come up with a definite
conclusion as to the existence of a principal-agent relationship (e.g. if one party exercises a degree of
control over the operations other party, if one party holds out to the public that the other party is its
agent, payment of commission, etc.)

Facts:
 Petitioner is a Filipino citizen doing business under the name and style “Hahn-Manila.” Private
respondent is a non-resident foreign corporation existing under the laws of the former Federal
Republic of Germany.
 On 1967, petitioner executed in favor of respondent a “Deed of Assignment with Special
Power of Attorney.” In this document, petitioner (assignor), being the present owner and
holder of the BMW trademark and device in the Philippines which the respondent (assignee)
has been using on the products it manufactures and the petitioner also being the authorized
exclusive dealer of respondent in the Philippines, has agreed to transfer the said BMW
trademark and device in favor of the respondent.
 Moreover, the deed was subject to some terms and conditions:
o Respondent (assignee) should take appropriate steps against any user who infringes
on the BMW trademark in the Philippines and for such purpose, petitioner (assignor)
shall automatically act as respondent’s attorney-in-fact.
o That the petitioner and respondent shall continue business relations as has been usual
in the past without a formal contract.
 However, in 1993, petitioner was informed that respondent was arranging to grant the
exclusive dealership of BMW cars and products to Jose Alvarez and his company Columbia
Motors Corporation (CMC). Respondent did so because of its dissatisfaction with various
aspects of petitioner’s business such as decline in sales, deteriorating services, inadequate
showroom and warehouse facilities, and failure to comply with the standards for an exclusive
BMW dealer.
 Nonetheless, respondent was willing to continue doing business with petitioner on the basis
of a “standard BMW importer” contract. Petitioner protested and claimed that the
termination of his exclusive dealership would be a breach of the Deed of Assignment as the
assignment he made of the trademark and device was in consideration of the exclusive
dealership.
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 Respondent withdrew its offer of “standard importer contract” and terminated the exclusive
dealer relationship. Respondent, this time proposed that Hahn and CMC jointly import and
distribute BMW cars and parts. However, Hahn did not agree.
 Petitioner then filed a complaint for specific performance and damages against respondent.
In his amended complaint, he included an application for TRO and for writs of preliminary,
mandatory, and prohibitory injunction to prevent BMW from terminating his exclusive
dealership.
 RTC ruled in favor of petitioner and issued a TRO. Summons and copies of the complaint were
served to respondent through the Department of Trade and Industry (DTI) 1 . A writ of
preliminary injunction was also issued.
 Respondent moved to dismiss the case, contending that the RTC did not acquire jurisdiction
over it through the service of summons on the DTI because BMW was a foreign corporation
NOT doing business in the Philippines; that Hahn was not its agent because the latter
undertook to assemble and sell BMW cars and products without the participation of BMW and
sold other products; and that Hahn was a middleman transacting business in his own name
and for his own account.
 Petitioner argued otherwise. He maintains that BMW was doing business in the Philippines
through him as an agent, as shown by the fact that BMW invoices and order forms were used
to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW
officials periodically inspected standards of service rendered by him; and that he was
described in service booklets and international publications of BMW as a “BMW Importer” or
“BMW Trading Company” in the Philippines.
 RTC deferred resolution of respondent’s motion to dismiss. BMW then filed a petition for
certiorari with the CA to enjoin the trial court from hearing petitioner’s complaint, which the
CA did. CA found that the RTC was guilty of grave abuse of discretion in deferring resolution
of respondent’s motion to dismiss. CA ruled that BMW was NOT doing business in the
Philippines and therefore, jurisdiction over it could not be acquired through service of
summons on the DTI. CA also held that Hahn acted in his own name and for his own account,
independently of BMW. It held that petitioner was merely a broker and not an agent.
 Hence, this appeal.

Issue/s:
WON CA erred in finding that BMW is NOT doing business in the Philippines and, for this reason,
dismissing the petitioner’s case. YES, CA ERRED. BMW IS DOING BUSINESS IN THE PHILIPPINES
THROUGH PETITIONER, ITS AGENT.

Held-Ratio:
 Under the Foreign Investments Act of 1991 (RA 7042), the phrase “doing business in the
Philippines” includes “appointing representatives or distributors in the Philippines” but not
when the representative or distributor “transacts business in its name and for its own account.”
 In addition, Sec. 1(f)(1) of the IRR of the Omnibus Investment Code of 1987 (E.O. No. 226)
provided that “a foreign firm which does business through middlemen acting in their own
names, such as indentors, commercial brokers or commission merchants, shall NOT be

1Rule 14, Sec. 14, Rules of Court

Service upon foreign corporations. – If the defendant is a foreign corporation, or a non-resident joint stock company or association, DOING
BUSINESS IN THE PHILIPPINES, service may be made on its resident agent designate in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect, or any of its officers or agents within the Philippines.
CASE # 25 |A G E N C Y | D i g e s t b y : K e v i n H e r n a n d e z

deemed to be 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.
 The question now is whether petitioner is the agent or distributor in the Philippines of
respondent. If he is, BMW may be considered doing business in the Philippines and the trial
court acquired jurisdiction over BMW by virtue of the service of summons on the DTI.
 The following facts (which petitioner alleged and respondent substantially admitted) show an
agency between petitioner and respondent:
o As soon as the vehicles are fully manufactured and full payment of the purchase prices
are made, the vehicles are shipped to the Philippines. The bills of lading are made up
in the name of the purchasers, but Hahn-Manila is therein indicated as the person to
be notified.
o It is Han who picks up the vehicles from the Philippine sports, for purpose of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
o As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of
14% of the full purchase price thereof, and as soon as he confirms in writing, that the
vehicles have been registered in the Philippines and have been serviced by him, he will
receive an additional 3% of the full purchase prices as commission.
o BMW held out Hahn as its exclusive distributor in the Philippines.
o BMW exercised control over Hahn’s activities as a dealer and made regular inspections
of Hahn’s premises to enforce compliance with BMW standards and specifications.
 An agent receives a commission upon the successful conclusion of a sale. On the other hand,
a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made.
 Communications Materials, Inc. v. CA: (case cited by SC) foreign corporation entered into a
“Representative Agreement” and a “Licensing Agreement” with a domestic corporation. The
latter was appointed as the exclusive representative in the Philippines for a commission. The
domestic corporation sold products exported by the foreign corporation and put up a service
center. Court held that these acts constituted doing business in the Philippines. That the
purpose of this arrangement was to penetrate the Philippine market and establish its presence
in the Philippines.
 The RTC properly deferred resolution of the motion to dismiss and thus avoided prematurely
deciding a question which requires a factual basis. It is the CA which, by ruling that BMW is not
doing business on the basis merely of uncertain allegations in the pleadings, disposed of the
whole case with finality.

Dispositive:
Wherefore, the decision of the CA is reversed and the case is remanded to the trial court for further
proceedings.