Mr. Moises Villanueva

July 11, 1995 Mr. Moises Villanueva Diaz Murillo Dalupan 3F Don Jacinto Bldg. Dela Rosa cor. Salcedo Sts. Legaspi Village, Makati City 1200 S i r : This refers to your letter of June 26, 1995 requesting legal opinion on the business transaction described therein. LibLex As stated, a proposed joint venture corporation with foreign equity participation intends to import and sell directly to its customers ( banking institutions, service offices/contractors, multinational firms ) highly advanced telecommunication and service processing equipment which will be used to improve their services to clients/customers . Queries: 1. Can the joint venture sell directly to its customer without violating RA 1180, as amended, otherwise known as the "Retail Trade Law? 2. Can the joint venture company qualify for resignation under RA 7042, otherwise known as the Foreign Investments Act? Section 4 of the Retail Trade Law defines "retail business" as follows: "SECTION 4. As used in this act, the term "retail business" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption ,but shall not include: xxx xxx xxx." (Emphasis supplied) Thus, for sale transactions to be considered as "retail",the following elements should concur: (1) The seller should be habitually engaged in selling ; (2) The sale must be direct to the general public ; (3) The object of the sale is limited to merchandise, commodities or goods for consumption . In the case of Marsman & Company, Inc. vs. First Coconut Central Company, Inc., GR. No. L-39841, June 20, 1988, the Supreme Court ruled that: " ...The last element refers to the subject of the retailer's activities or what he is selling, i.e., consumption goods or consumer goods . Consumer goods may be defined as "goods" which are used or bought for use primarily for personal, family or household purposes .Such goods are not intended for resale or further use in the production of other products. In other words, consumer goods are goods which by their very nature are ready for consumption. Producer goods have been defined as "goods (as tools and raw material) that are factors in the production of other goods and that satisfy wants only indirectly-called also auxiliary goods, instrumental goods, intermediate goods." They are by their very nature not sold to the public for consumption. As such, the sale of producer goods used for industry or business is classified as a wholesale transaction .Wholesaling has been defined as "selling to retailers or jobbers rather than to consumers or a sale in large quantity to one who intends to resell." xxx xxx xxx. That the sales to industrial or commercial users do not fall within the scope of the Retail Trade Nationalization Law is further confirmed by Presidential Decree No. 714 promulgated on May 28, 1975 amending said law when the latter provided in its preamble that " Whereas, it is believed to be not within the intendment of said nationalization law to include within its scope sales made to industrial or commercial users or consumers ." (Emphasis supplied) Applying the above definitions, the equipment mentioned in your letter may be considered as producers goods, not as consumer goods, inasmuch as they will be used for business purposes, not for household purposes. Accordingly, the sale thereof is not considered as "retail transaction".Your first query is therefore answered in the affirmative. Relative to your second query, since the transaction does not fall within the meaning of "retail trade" as contemplated under the Retail Trade Law, the proposed corporation to be formed out of the joint venture may qualify for registration under the Foreign Investments Act, provided it complies with the minimum paid-in equity capital requirement of the equivalent of five hundred thousand US dollars (US$500,000.00) in the event the foreign equity participation exceeds forty percent (40%) of the outstanding capital stock. Please be advised accordingly. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner