18. foreign corporations

CORPORATION LAW REVIEWER (2013-‐2014) ATTY. JOSE MARIA G. HOFILEÑA

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

FOREIGN CORPORATIONS I. Definition; Nature of a Foreign Corporation A. Definition (Section 123) Section 123. Definition and rights of foreign corporations. For the purposes of this Code, a foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency. (n)

• A foreign corporation is one which owes its existence to the laws of another state, and generally, has no legal existence within the State in which it is foreign. Avon Insurance PLC v. Court of Appeals, 278 SCRA 312 (1997)

• Atty. Hofileña à this part of the Corporation Code deals with foreign corporations who establish a presence here on their own as such (i.e. branch), thereby, there is only one juridical entity. This does not contemplate situations wherein the foreign corporation establishes a domestic corporation as its subsidiary, thereby, there are two juridical entities.

o Foreign Corporations who apply for a license would thereby establish a branch. It does not acquire a new personality. The Corporation Code will apply on the

branch with regard to external matters, but the governing law for internal matters would be the law of their home country (e.g. where foreign company decides to sell all its Philippine assets, such cannot be questioned because it is an internal matter that is governed by the laws of the home country of the foreign corporation.)

B. Two requirements to be considered a foreign corporation:

1. Organized in another country. o Regardless of the ownership (e.g. a corporation

organized under foreign laws even if wholly owned by Filipinos)

2. The laws of the corporation’s home state allows for Filipino citizens and corporations to do business thereat (policy of reciprocity).

o The presence of absence of reciprocity affects its capacity to do business in the Philippines.

C. Nature of the Corporate Creature

• A corporation is essentially a creature of the state under the laws of which it has been granted its juridical personality; and strictly speaking, beyond the territories of such creating state, a corporation has no legal existence, since the powers of the creating laws do not extend beyond the territorial jurisdiction of the state under which it is created.1

1 Marshall-‐Wells Co. v. Henry W. Elser & Co., 46 Phil. 70, at p. 74 (1924).



• A foreign corporation is one which owes its existence to the laws of another state, and generally, has no legal existence within the state in which it is foreign.1

• It is a fundamental rule of international jurisdiction that no state can by its laws, and no court (which is only a creature of the state) can by its judgments or decrees, directly bind or affect property or persons beyond the limits of that state.2 However, under the doctrine of comity in international laws, "a corporation created by the laws of one state is usually allowed to transact business in other states and to sue in the courts of the forum."3

1. Consent. The legal standing of foreign corporations in the host state therefore is founded on international law on the basis of consent,4 and the extent by which a hosting state can enforce its laws and jurisdiction over corporations created by other states has been the subject of jurisprudential rules and municipal legislations, especially in the fields of taxation, 5 foreign investments, and capacity to obtain reliefs in local courts and administrative bodies.6

1 Avon Insurance PLC v. Court of Appeals, 278 SCRA 312, 86 SCAD 401 (1997). 2 Times, Inc. v. Reyes, 39 SCRA 303 (1971), citing Perkins v. Dizon, 69 Phil. 186 (1939). 3 Times, Inc. v. Reyes, 39 SCRA 303 (1971), citing Paul v. Virginia, 8 Wall. 168 (1869); Sioux Remedy Co. v. Cape and Cope, 235 U.S. 197 (1914); Cyclone Mining Co. v. Baker Light & Power Co., 165 Fed. 996 (1908). 4 SALONGA, PRIVATE INTERNATIONAL LAW, 1979 ed., p. 344.

5 The chapter does not cover nor discuss the concept of "doing business" in the field of taxation, as the subject is itself a technical matter that deserves a separate discussion. 6 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store.

o Consent, as a requisite for jurisdiction over foreign corporations, is founded on considerations of due process and fair play.

o A foreign corporation may be subjected to jurisdiction by reason of consent, ownership of property within the State, or by reason of activities within or having an effect within the state.7 For example, the filing of an action by a foreign corporation before Philippine courts would mean that by voluntary appearance, the local courts have actually obtained jurisdiction over the "person" of the foreign corporation.8

2. “Doctrine of "doing business" within the territorial jurisdiction of the host state.” It is an established doctrine that when a foreign corporation undertakes business activities within the territorial jurisdiction of a host state, then it ascribes to the host state’s laws, rules and regulations. In the same manner, in order to regulate the basis by which a foreign corporation seeks to do business and the manner by which it would seek redress within the judicial and administrative authorities within the host state, have given rise to the requirement that a license be obtained under the penalty that failure to do so would not give it legal standing to sue in local courts and administrative bodies exercising quasi-‐judicial powers.9

7 SALONGA, supra, citing Goodrich (Scoles), 136. 8 Communication Materials and Design, Inc. v. Court of Appeals, 260 SCRA 673, 73 SCAD 374 (1996). 9 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store.



o On the other hand, when a foreign corporation's activities within the host state do not fall within the concept of "doing business," the requirements of obtaining a license to engage in business are generally not applicable to it, and it would still have legal standing to sue in local courts and administrative agencies to obtain relief. In such an instance, the jurisdiction by local courts and administrative bodies over a foreign corporation seeking relief would be the clear consent manifested by the filing of the suit.1

II. License to Do Business in the Philippines A. Application for License (Sections 124 and 125; Art. 48, Omnibus Investment Code) Section 124. Application to existing foreign corporations. Every foreign corporation which on the date of the effectivity of this Code is authorized to do business in the Philippines under a license therefore issued to it, shall continue to have such authority under the terms and condition of its license, subject to the provisions of this Code and other special laws. (n) Section 125. Application for a license. A foreign corporation applying for a license to transact business in the Philippines shall submit to the Securities and Exchange Commission a

1 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store.

copy of its articles of incorporation and by-‐laws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary. The application shall be under oath and, unless already stated in its articles of incorporation, shall specifically set forth the following: 1. The date and term of incorporation; 2. The address, including the street number, of the principal office of the corporation in the country or state of incorporation; 3. The name and address of its resident agent authorized to accept summons and process in all legal proceedings and, pending the establishment of a local office, all notices affecting the corporation; 4. The place in the Philippines where the corporation intends to operate; 5. The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: Provided, That said purpose or purposes are those specifically stated in the certificate of authority issued by the appropriate government agency; 6. The names and addresses of the present directors and officers of the corporation; 7. A statement of its authorized capital stock and the aggregate number of shares which the corporation has authority to issue, itemized by classes, par value of shares, shares without par value, and



series, if any; 8. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has issued, itemized by classes, par value of shares, shares without par value, and series, if any; 9. A statement of the amount actually paid in; and 10. Such additional information as may be necessary or appropriate in order to enable the Securities and Exchange Commission to determine whether such corporation is entitled to a license to transact business in the Philippines, and to determine and assess the fees payable. Attached to the application for license shall be a duly executed certificate under oath by the authorized official or officials of the jurisdiction of its incorporation, attesting to the fact that the laws of the country or state of the applicant allow Filipino citizens and corporations to do business therein, and that the applicant is an existing corporation in good standing. If such certificate is in a foreign language, a translation thereof in English under oath of the translator shall be attached thereto. The application for a license to transact business in the Philippines shall likewise be accompanied by a statement under oath of the president or any other person authorized by the corporation, showing to the satisfaction of the Securities and Exchange Commission and other governmental agency in the proper cases that the applicant is solvent and in sound financial condition, and setting forth the assets

and liabilities of the corporation as of the date not exceeding one (1) year immediately prior to the filing of the application. Foreign banking, financial and insurance corporations shall, in addition to the above requirements, comply with the provisions of existing laws applicable to them. In the case of all other foreign corporations, no application for license to transact business in the Philippines shall be accepted by the Securities and Exchange Commission without previous authority from the appropriate government agency, whenever required by law. (68a) B. Rationale for Requiring License:

• Section 69 of old Corporation Law was intended to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts and not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the necessary steps to render it amenable to suit in the local courts. Marshall-‐Wells v. Elser, 46 Phil. 71 (1924).

Marshall-‐Wells v. Elser Facts: Marshall-‐Wells Company (an Oregon, U.S. corporation) sued Henry W. Elser & Co., Inc. (a domestic corporation) in CFI Manila for the unpaid balance on goods it sold to the latter. Henry W. Elser & Co., Inc. averred that Marshall-‐Wells Company has no legal capacity to sue since there is no showing that it has complied with the laws of Philippines, particularly Section 69 of the Corporation Law where it states: “No



foreign corporation shall be permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in section 68 of the law.” Issue: Whether or not the obtaining of the license prescribed in section 68, as amended, of the Corporation Law is a condition precedent to the maintaining of any kind of action in the courts of the Philippine Islands by a foreign corporation. Held: NO. The SC decided in favor of Marshall Wells Co. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. Doctrine: The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law.

• Otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. Avon Insurance PLC v. Court of Appeals, 278 SCRA 312 (1997).

• The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines: there would be no reason for it to be subject to the State’s regulation; for in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such foreign corporation to the local courts’ jurisdiction would violate the essence of sovereignty of the creating state. Avon Insurance PLC v. Court of Appeals, 278 SCRA 312 (1997).

C. Appointment of a Resident Agent (Section 127 and 128) Section 127. Who may be a resident agent. A resident agent may be either an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines: Provided, That in the case of an individual, he must be of good moral character and of sound financial standing. (n) Section 128. Resident agent; service of process. The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission a written power of attorney designating some person who must be a resident of the Philippines, on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office. Any such foreign corporation shall likewise execute and file with the Securities and Exchange



Commission an agreement or stipulation, executed by the proper authorities of said corporation, in form and substance as follows: "The (name of foreign corporation) does hereby stipulate and agree, in consideration of its being granted by the Securities and Exchange Commission a license to transact business in the Philippines, that if at any time said corporation shall cease to transact business in the Philippines, or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any summons or other legal process may be made upon the Securities and Exchange Commission and that such service shall have the same force and effect as if made upon the duly-‐authorized officers of the corporation at its home office." Whenever such service of summons or other process shall be made upon the Securities and Exchange Commission, the Commission shall, within ten (10) days thereafter, transmit by mail a copy of such summons or other legal process to the corporation at its home or principal office. The sending of such copy by the Commission shall be necessary part of and shall complete such service. All expenses incurred by the Commission for such service shall be paid in advance by the party at whose instance the service is made. In case of a change of address of the resident agent, it shall be his or its duty to immediately notify in writing the Securities and Exchange Commission of the new address. (72a; and n)

• Being a resident agent of a foreign corporation does not mean that he is authorized to execute the requisite certification against forum shopping—while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines), he may not be aware of actions initiated by its principal, whether in the Philippines or abroad. Expertravel & Tours, Inc. v. Court of Appeals, 459 SCRA 147 (2005).

• A complaint filed by a foreign corporation is fatally defective for failing to allege its duly authorized representative or resident agent in Philippine jurisdiction. New York Marine Managers, Inv. c. Court of Appeals, 249 SCRA 416 (1995).

• When a corporation has designated a person to receive service of summon pursuant to the Corporation Code, the designation is exclusive and service of summons on any other person is inefficacious. H.B. Zachry Company Int’l v. Court of Appeals, 232 SCRA 329 (1994)

D. Issuance of License (Section 126; Art. 49, Omnibus Investment Code) Section 126. Issuance of a license. If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license. Upon issuance of the license, such foreign corporation may commence to transact business in the Philippines and continue to do so for as long as it retains its



authority to act as a corporation under the laws of the country or state of its incorporation, unless such license is sooner surrendered, revoked, suspended or annulled in accordance with this Code or other special laws. Within sixty (60) days after the issuance of the license to transact business in the Philippines, the license, except foreign banking or insurance corporation, shall deposit with the Securities and Exchange Commission for the benefit of present and future creditors of the licensee in the Philippines, securities satisfactory to the Securities and Exchange Commission, consisting of bonds or other evidence of indebtedness of the Government of the Philippines, its political subdivisions and instrumentalities, or of government-‐owned or controlled corporations and entities, shares of stock in "registered enterprises" as this term is defined in Republic Act No. 5186, shares of stock in domestic corporations registered in the stock exchange, or shares of stock in domestic insurance companies and banks, or any combination of these kinds of securities, with an actual market value of at least one hundred thousand (P100,000.) pesos; Provided, however, That within six (6) months after each fiscal year of the licensee, the Securities and Exchange Commission shall require the licensee to deposit additional securities equivalent in actual market value to two (2%) percent of the amount by which the licensee's gross income for that fiscal year exceeds five million (P5,000,000.00) pesos. The Securities and Exchange Commission shall also require deposit of additional securities if the actual market value of the securities on deposit has decreased by at least ten (10%) percent of their actual market value at the time they were deposited. The Securities and Exchange Commission may at its discretion release part of the

additional securities deposited with it if the gross income of the licensee has decreased, or if the actual market value of the total securities on deposit has increased, by more than ten (10%) percent of the actual market value of the securities at the time they were deposited. The Securities and Exchange Commission may, from time to time, allow the licensee to substitute other securities for those already on deposit as long as the licensee is solvent. Such licensee shall be entitled to collect the interest or dividends on the securities deposited. In the event the licensee ceases to do business in the Philippines, the securities deposited as aforesaid shall be returned, upon the licensee's application therefor and upon proof to the satisfaction of the Securities and Exchange Commission that the licensee has no liability to Philippine residents, including the Government of the Republic of the Philippines. (n)

• A foreign corporation licensed to do business should be subjected to no harsher rules that is required of domestic corporation and should not generally be subject to attachment on the pretense that such foreign corporation is not residing in the Philippines. Claude Neon Lights v. Phil. Advertising Corp., 57 Phil. 607 (1932).

E. Effects of Being Issued License

• The Corporation Code therefore takes pain to ensure that in allowing a foreign corporation to engage in business activities in the Philippines, proper safeguards are taken to allow obtaining jurisdiction over such foreign corporation in case of suit and that proper securities are present within Philippine jurisdiction to answer for a foreign corporation's obligations to locals. The



Supreme Court has held: "The purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to prevent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business without first taking steps necessary to render it amenable to suits in the local courts."1

1. Licensed Foreign Corporation Deemed Domesticated • The harmony and balance sought to be achieved by our "doing

business" requirements for obtaining license are best exemplified by the fact that once a foreign corporation has obtained a license to do business, then it is deemed domesticated, and should be subject to no harsher rules that is required of domestic corporations.2

F. Amendment of License (Section 131) Section 131. Amended license. A foreign corporation authorized to transact business in the

1 Eriks Pte. Ltd. v. Court of Appeals, 267 SCRA 567, 76 SCAD 70 (1997). The Court also held in that case: "It was never the intent of the legislature to bar court access to a foreign corporation or entity which happens to obtain an isolated order for business in the Philippines. Neither, did it intend to shield debtors from their legitimate liabilities or obligations. But it cannot allow foreign corporations or entities which conduct regular business any access to courts without the fulfillment by such corporation of the necessary requisites to be subjected to our government's regulation and authority. By securing a license, the foreign entity would be giving assurance that it will abide by the decisions of our courts, even if adverse to it." 2 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store.

Philippines shall obtain an amended license in the event it changes its corporate name, or desires to pursue in the Philippines other or additional purposes, by submitting an application therefor to the Securities and Exchange Commission, favorably endorsed by the appropriate government agency in the proper cases. (n) G. Effects of Failure to Obtain License:

1. On the Contract Entered Into: Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424 (1983).

Home Insurance Co. v. Eastern Shipping Lines Facts: S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development Corporation, shipped on board the SS Eastern Jupiter (owned by Eastern Shipping Lines) from Osaka, Japan, 2,361 coils of Black Hot Rolled Copper Wire Rods. The shipment was insured with the Home Insurance Company against all risks in favor of the recipient of the shipment, Phelps Dodge Copper Products Corporation of the Philippines at Manila. The coils discharged from the ship were in bad order. Home Insurance paid the Phelps Dodge under its insurance policy by virtue of which Home Insurance became subrogated to the rights and actions of the Phelps Dodge. Home Insurance made demands for payment against the Eastern Shipping and the Angel Jose Transportation for reimbursement of the aforesaid amount but each refused to pay. Issue: Whether or not Home Insurance, a foreign corporation licensed to do business at the time of the filing of the case, has the capacity to sue for claims on contracts made when it has no license yet to do business in the Philippines.



Held: YES. The lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of these cases. Home Insurance averred in its complaints that it is a foreign insurance company, that it is authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of Court. Home Insurance sufficiently alleged its capacity to sue. Doctrine: The Corporation Law is silent on whether or not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio. Still, there is no question that the contracts are enforceable. The requirement of registration affects only the remedy. Significantly, Batas Pambansa 68, the Corporation Code of the Philippines has corrected the ambiguity caused by the wording of Section 69 of the old Corporation Law.

• Section 133 of the present Corporation Code provides that: No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency in the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

• Home Insurance Company therefore held that contracts entered

into by a foreign corporation doing business in the Philippines without the requisite license remain valid and enforceable and

"[t]he requirement of registration affects only the remedy," and that "the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration." 1

2. Standing to Sue (Section 133) Section 133. Doing business without a license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. (69a)

• It seems clearly implied from the languages of both Sections 133 and 134, that the failure of a foreign corporation to obtain a license to do business when one is required, does not affect the validity of the transactions of such foreign corporation, but simply removes the legal standing of such foreign corporation to sue. Although such foreign corporation may still be sued, the Corporation Code fails to indicate that once sued, if such foreign corporation can interpose counterclaims in the same suit.2

3. Criminal Liability under Section 144: Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424 (1983).

1 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store. 2 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store.



Section 144. Violations of the Code. Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days but not more than five (5) years, or both, in the discretion of the court. If the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided, That such dissolution shall not preclude the institution of appropriate action against the director, trustee or officer of the corporation responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code. (190 1/2 a)

4. Summary of Rulings on Doing Business: The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be condensed in four statements: (1) if a foreign corporation does business in the Philippines without a license, it cannot sue before Philippine courts; (2) if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction; (3) if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporation’s corporate personality in a suit brought before the Philippine courts; and (4) if a foreign corporation does business in the Philippines with the required

license, it can sue before Philippine courts on any transaction. MR. Holdings, Ltd. V. Bajar, 380 SCRA 617 (2002).1

III. Concepts of “Doing Business in the Philippines”; Effects of Not Obtaining the License A. Statutory Concept of “Doing Business” (R.A. No. 7042, Foreign Investment Act of 1991). FOREIGN INVESTMENT ACT OF 1991 Section 3. Definitions.

x x x d) The praise "doing business" shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business: shall not be deemed to include mere investment as a shareholder by a foreign entity in

1 Agilent Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp., 427 SCRA 593 (2004).



domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;

x x x

• Under Section 123 of Corporation Code, a foreign corporation must first obtain a license and a certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign corporation does business in the Philippines without the proper license, it cannot maintain any action or proceeding before Philippine courts as provided in Section 133 of the Corporation Code. Cargill, Inc. v. Intra Strata Assurance Corp., 615 SCRA 304 (2010).

• The Foreign Investments Act of 1991, repealed Articles 44-‐56 of Book II of the Omnibus Investments Code of 1987, enumerated in Section 3(d) not only the acts or activities which constitute “doing business” but also those activities which are not deemed “doing business”. Cargill, Inc. v. Intra Strata Assurance Corp., 615 SCRA 304 (2010).

o Under Section 3(d) of the Foreign Investments Act of 1991, as supplemented by Rule I, Section 1(f) of its Implementing Rules and Regulations, the appointment of a distributor in the Philippines is not sufficient to constitute “doing business” unless it is under the full control of the foreign corporation. In the same manner, if the distributor is an independent entity which buys and distributes products, other than those of the

foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines. Steelcase, Inc. v. Design International Selections, Inc., 670 SCRA 64 (2012).

o Atty. Hofileña à The Foreign Investments Act of 1991 provided the standards and/or guidelines for identifying what constitutes “doing business.” Case law provides for the proper interpretation.

• The DTI Implementing Rules and Regulations, in defining "doing business," not only carry the same language as appearing in the Act, but also includes the following items as not being included in the term "doing business":

a. The publication of a general advertisement through any print or broadcast media;

b. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;

c. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;

d. Collecting information in the Philippines; and e. Performing services auxiliary to an existing isolated

contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.



B. Jurisprudential Concepts of “Doing Business”: It implies a continuity of commercial dealings and arrangements and the performance of acts or works or the exercise of some of the functions normally incident to the purpose or object of a foreign corporation’s organization. Mentholatum v. Mangaliman, 72 Phil. 525 (1941).

• The characterization by Mentholatum of "doing business" in the Philippines covers transactions or series of transactions in pursuit of the main business goals of the corporation, and done with intent to continue the same in the Philippines. 1

1. Twin Characterization Test.2

a. Nature of the act or transaction: “the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of the purpose and object of its organization and considered as the true test of doing business in the Philippines is whether a foreign corporation is maintaining or continuing in the Philippines "the body or substance of the business or enterprise for which it was organized or whether is has substantially retired from it and turned it over to another.

b. Existence of Continuing Intent: In doing the act or transaction there was an intent on the part of the foreign corporation to undertake a continuity of


commercial dealings and arrangement in the Philippines as to distinguish it from an isolated transaction.

Mentholatum v. Mangaliman

Facts: The Mentholatum Co., Inc., is a Kansas corporation which manufactures "Mentholatum," a medicament and salve for the treatment of irritation and other external ailments of the body. The Philippine-‐American Drug Co., Inc. is its exclusive distributing agent in the Philippines authorized by it to look after and protect its interests. On 26 June 1919 and on 21 January 1921, the Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the word, "Mentholatum", as trademark for its products. The Mangaliman brothers prepared a medicament and salve named "Mentholiman" which they sold to the public packed in a container of the same size, color and shape as "Mentholatum." As a consequence, Mentholatum, etc. suffered damages from the diminution of their sales and the loss of goodwill and reputation of their product in the market. On 1 October 1935, the Mentholatum Co., Inc., and the Philippine-‐American Drug, Co., Inc. instituted an action in the Court of First Instance (CFI) of Manila against Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for infringement of trademark and unfair competition. Issue: Whether or not Mentholatum, etc. could prosecute the instant action without having secured the license required in Section 69 of the Corporation Law.



Held: NO. Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without the license required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition. Neither may the Philippine-‐American Drug Co., Inc., maintain the action here for the reason that the distinguishing features of the agent being his representative character and derivative authority, it cannot now, to the advantage of its principal, claim an independent standing in court. Doctrine: No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in" or "transacting" business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.

2. Single Transaction – Whether a foreign corporation needs to obtain a license, and fails to do so, whether it should be denied legal standing to obtain remedies from local courts and administrative agencies, depends therefore on the issue whether it will engage in business in the Philippines. Not every

activity undertaken in the Philippines amounts to doing business as to require the foreign corporation to obtain such license.1

o Isolated transactions, even when perfected and/or consummated within Philippine territory, do not constitute “doing business” in the Philippines, and do not constitute the essential element of “presence” required under due process considerations. The legal basis by which local courts can legally obtain jurisdiction over the person of a foreign corporation on an isolated transaction would be consent or the voluntary surrender of tis person to the jurisdiction of the courts.2

• Where a single act or transaction, however, is not merely incidental or casual but indicates the foreign corporation's intention to do other business in the Philippines, said single act or transaction constitutes doing business. Far East Int'l. v. Nankai Kogyo, 6 SCRA 725 (1962).

o It is not really the fact that there is only a single act done that is material for determining whether a corporation is engaged in business in the Philippines, since other circumstances must be considered. Where a single act or transaction of a foreign corporation is not merely incidental or casual but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, such act will be considered as constituting business.




Litton Mills, Inc. v. Court of Appeals, 256 SCRA 696 (1996).

• Participating in a bidding process constitutes “doing business” because it shows the foreign corporation’s intention to engage in business in the Philippines. In this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or not.” European Resources and Technologies, Inc. v. Ingenieuburo Birkhanh + Nolte, 435 SCRA 246 (2004).

o Atty. Hofileña à At the moment, the Court has ruled that at the time one bids, you need to have a license under the presumption that you bid because you want to pursue your business here. Disagrees, because the act of doing business begins when you actually win the bidding.

3. “Territoriality Rule” – (Contract Test1) • To be doing business in the Philippines requires that the

contract must be perfected or consummated in Philippine soil. A c.i.f. West Coast arrangement makes delivery outside of the Philippines. Pacific Vegetable Oil Corp. v. Singson, Advanced Decision Supreme Court, April 1955 Vol., p. 100-‐A; Aetna Casualty & Surety Co. v. Pacific Star Line, 80 SCRA 635 (1977).2

Pacific Vegetable Oil Corp. v. Singson

1 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store. 2 Universal Shipping Lines, Inc. v. IAC, 188 SCRA 170 (1990).

Facts: Pursuant to a contract, Angel Singzon promised to sell to Pacific Vegetable Oil Corporation, a foreign corporation, copra. Singzon failed to deliver, but promised to do so in the amicable settlement it executed with Pacific. Failure would entitle Pacific to damages from Singzon. However, Singzon again failed to deliver and announced by telegram that he would not be able to ship said copra. As such, Pacific filed for damages but Singzon filed a motion to dismiss on the ground that Pacific failed to obtain a license to transact business in the Philippines and consequently, it had no personality to file the action. The trial court held that Pacific had no personality to institute the present case even if it afterwards obtained a license to transact business upon the theory that this belated act did not have the effect of curing the defect that existed when the case was instituted. Issue: Whether or not Pacific can maintain the present action Held: YES. The agreement between Singzon and Pacific was c.i.f. Pacific Coast. This means that the vendor was to pay not only the cost of the goods, but also the freight and insurance expenses and, as it was judicially interpreted, this is to indicate that the delivery is to be made at the port of destination. It follows that the appellant corporation has not transacted business in the Philippines in contemplation of Section 68 and 69 of the Corporation Law. It appearing that appellant corporation has not transacted business in the Philippines and as such is not required to obtain a license before it could have personality to bring a court action, it may be stated that said appellant, even if a foreign corporation, can maintain the present action because as aptly said by this Court, “it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for



business from the Philippines, from securing redress in the Philippine courts, and this, in effect, to permit persons to avoid their contracts made with such foreign corporation.” Doctrine: CLV OPINION: The Pacific Vegetable Oil doctrine does consider the twin characterization tests of Mentholatum of substance of the transactions pertaining to the main business and the continuity or intent to continue such activities. It would seem that even if the twin characterization tests of Mentholatum obtained in a case, under the Pacific Vegetable doctrine, so long as the perfection and consummation of a series of transactions are done outside the Philippine jurisdiction, the same would not constitute doing business in the Philippines, even if the products themselves should be manufactured or processed in the Philippines by locals. The implication of this doctrine is that if the salient points of a contract do not find themselves in the Philippines, Philippine authorities have no business subjecting the parties to local registration and licensing requirements.

Aetna Casualty & Surety Co. v. Pacific Star Line Facts: I. Shalom & Co. Inc. were supposed to receive a shipment of goods carried on board SS Ampal whose operator was Pacific Star Line. The Bradman Co. Inc., was the ship agent in the Philippines for the SS Ampal, while the Manila Railroad Co. Inc. and Manila Port Service were the arrastre operators in the port of Manila and were authorized to delivery cargoes discharged into their custody. Aetna Surety Casualty & Surety Co. Inc. insured the cargo in for I. Shalom. The SS Ampal arrived in Manila but due to the negligence of the defendants, the shipment sustained damages representing pilferage and seawater damage.

Defendants refused to pay for the damage, so the surety company paid. Defendants Manila Port Service and Manila Railroad Company, Inc. alleged that the plaintiff, Aetna casualty & Surety Company, is a foreign corporation not duly licensed to do business in the Philippines and, therefore without capacity to sue and be sued. This was supported by certifications from the Office of the Insurance Commission and the Securities and Exchange Commission showing that the Aetna Casualty and Surety Company has not been licensed nor incorporated to do business in the Philippines as foreign corporation. The trial court ruled against surety company on the ground that it has been doing business in numerous the Philippines contrary to Philippine laws. Issue: Whether or not the appellant, Aetna Casualty & Surety Company, has been doing business in the Philippines. Held: NO. It is merely collecting a claim assigned to it by the consignee, it is not barred from filing the instant case although it has not secured a license to transact insurance business in the Philippines. While plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no to bring the present action. Such license is not necessary because it is not engaged in business in the Philippines. Doctrine: Object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of the Legislature to exclude a foreign



corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts.

o To be “transaction business in the Philippines” for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. B. Van Zuiden Bros., Ltd v. GTVL Manufacturing Industries, Inc., 523 SCRA 233 (2007), citing VILLANUEVA, PHILIPPINE CORPORATE LAW 813 (2001).

• Exception: Acts of Solicitations – Solicitation of business contracts constitutes doing business in the Philippines. Marubeni Nederland B.V. v. Tensuan, 190 SCRA 105. Examples: (Atty. Hofileña)

o Where a domestic corporation initiated a supply agreement with a foreign corporation and all of it was executed abroad, there is no “doing business” because there no act of solicitation on the part of the foreign company and in accordance with the territoriality rule, none of it happened here.

o Where the negotiations happened here upon request of the domestic corporation, that is still not “doing business” within the contemplation of the law.

o Where the foreign corporation sends a representative to approach a domestic corporation to offer a transaction, such would be considered as “doing

business.” à standard in the FIA requires physical presence

§ Issue: What about in the time of internet and telephone solicitations where there is no physical presence in the state?

4. “Transactions Seeking Profit” – Although each case must be judged in light of its attendant circumstances, jurisprudence has evolved several guiding principles for the application of these tests. “By and large, to constitute ‘doing business,’ the activity to be undertaken in the Philippines is one that is for profit-‐making.” Agilent Technolgies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp., 427 SCRA 593 (2004), citing VILLANUEVA, PHILIPPINE CORPORATE LAW 596 et seq. (1998 ed.); Cargill, Inc. v. Intra Strata Assurance Corp., 615 SCRA 304 (2010), citing VILLANUEVA, PHILIPPINE CORPORATE LAW 801-‐802 (2001).

Agilent Technolgies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp

Facts: Integrated Silicon entered into a Value Added Assembly Services Agreement ("VAASA"), with HP-‐Singapore. Under the contract, Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-‐Singapore, who in turn would provide raw materials and machinery and pay Integrated Silicon the purchase price of the finished products. The VAASA had a five-‐year term, with a provision for annual renewal by mutual written consent. In 1999, with the consent of Integrated Silicon, HP-‐Singapore assigned all its rights and obligations in the VAASA to Agilent. Agilent is not licensed to do business here.



In 2001, Integrated Silicon filed a complaint for "Specific Performance and Damages" against Agilent, alleging that Agilent breached the parties’ oral agreement to extend the VAASA. Agilent filed a separate replevin case against Integrated Silicon, praying that the defendants be ordered to immediately return its equipment, machineries and the materials to be used for fiber-‐optic components which were left in the plant of Integrated Silicon. Integrated Silicon argues that since Agilent is an unlicensed foreign corporation doing business in the Philippines, it lacks the legal capacity to file suit. The replevin case was dismissed. Issue: Whether or not the Agilent has legal capacity to sue. Held: YES. By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to (1) maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to be used in the processing of products for export. As such, we hold that, based on the evidence presented thus far, Agilent cannot be deemed to be "doing business" in the Philippines. As a foreign corporation not doing business in the Philippines, it needed no license before it can sue before our courts. Doctrine: The principles regarding the right of a foreign corporation to bring suit in Philippine courts may be condensed in four statements:

1. If a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts;

2. If a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated

transaction or on a cause of action entirely independent of any business transaction;

3. If a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporation’s corporate personality in a suit brought before Philippine courts; and

4. If a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction.

• Examples:

o Insurance Business – A foreign corporation with a settling agent in the Philippines which issues twelve marine policies covering different shipments to the Philippines is doing business in the Philippines. General Corp. of the Phil. v. Union Insurance Society of Canton, Ltd., 87 Phil. 313 (1950).

o A foreign corporation which had been collecting premiums on outstanding policies is doing business in the Philippines. Manufacturing Life Ins. v. Meer, 89 Phil. 351 (1951).

o Air Carriers – Off-‐line air carriers having general sales agents in the Philippines are engaged in business in the Philippines and that their income from sales of passage here (i.e., uplifts of passengers and cargo occur to or from the Philippines) is income from within the Philippines. South African Airways v. Commissioner of Internal Revenue, 612 SCRA 665 (2010).



• Exception: Transactions with Agents and Brokers – Granger Associates v. Microwave Systems, Inc., 189 SCRA 631 (1990).1

Granger Associates v. Microwave Systems, Inc.

Facts: Granger Associates (foreign corporation) sued Microwave Systems, Inc. (domestic corporation) for recovery of a sum of money arising from a series of agreements concluded between the two. In the principal contract, Granger licensed MSI to manufacture and sell its products in the Philippines and extended to the latter certain loans, equipment and parts, a contract for the sale of equipment. Payment of these contracts not having been made as agreed upon, Granger filed a complaint against MSI and the other private respondents. In its answer, MSI alleged the affirmative defense that the plaintiff had no capacity to sue in accordance with Section 133 of the Corporation Code. Granger insists that it has dealt only with MSI and not the general public and contends that dealing with the public itself is an indispensable ingredient of transacting business. It contends that its various transactions with MSI were mere facets of the basic agreement licensing MSI to manufacture and sell Granger's products in the Philippines. All subsequent agreements were merely auxiliary to that first. Issue: Whether Granger’s agreements with MSI covered only one isolated transaction for which it did not have to secure a license to be able to file its complaint.

1 La Chemise Lacoste, S.A. v. Fernandez, 129 SCRA 373 (1984); Schmid & Oberly v. RJL, 166 SCRA 493 (1988); Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1974).

Held: NO. We are convinced from an examination of the terms and conditions of the contracts and agreements entered into between Granger and MSI indicate that they established within our country a continuous business, and not merely one of a temporary character. Such agreements did not constitute only one isolated transaction, as Granger contends, but a succession of acts signifying the intent of Granger to extend its operations in the Philippines. Doctrine: The purpose of the rule requiring foreign corporations to secure a license to do business in the Philippines is to enable us to exercise jurisdiction over them for the regulation of their activities in this country, If a foreign corporation operates in the Philippines without submitting to our laws, it is only just that it not be allowed to invoke them in our courts when it should need them later for its own protection. While foreign investors are always welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an indispensable condition to respect and be bound by Philippine law in proper cases, as in the one at bar. C. The Special Cases on Infringement of Business Names and Trademarks: Western Equipment & Supply Co. v. Reyes, 51 Phil. 115 (1927).

Western Equipment & Supply Co. v. Reyes Facts: Western Equipment and Western Electric are both foreign corporation organized under the laws of the State of Nevada and New York, respectively. Western Equipment is engaged in the selling and importing electrical and telephone apparatus and supplies



manufactured by Western Electric. Herman, O’Brien, Diaz, Mapoy and Zamora (defendants) were residents of the Philippines. They filed articles of incorporation of a domestic corporation to be known as “Western Electric Company, Inc.” for the purpose of principally of manufacturing, buying, selling and generally dealing in electrical and telephone apparatus and supplies. Smith, who was authorized by the Board of Directors of Western Electric to process all legal proceedings for the corporation, lodged a complaint with the Bureau his protest against the attempted incorporation. It was alleged that the corporate name by which said defendants desire to be known, being identical with that of the plaintiff Western Equipment, will deceive and mislead the public purchasing electrical and telephone apparatus and supplies. Issue: Whether or not Western Equipment has a right to maintain an action to restrain residents of the Philippines from organizing a corporation bearing the same name as such foreign corporation Held: YES. It is true that Western Electric had never done business in the Philippines and had not obtained license to do business in the Philippines. However, it is not here seeking to enforce any legal or contract rights arising from, or growing out of, any business which it has transacted in the Philippines. The sole purpose of the action is to protect its reputation, its corporate name and goodwill. Western Electric has been in existence as a corporation for over fifty years, during which time it has established a reputation all over the world including the Philippine Islands, for the kind and quality of its

manufactured articles, and it is very apparent that the whole purpose and intent of the defendants in seeking to incorporate another corporation under the identical name of “Western Electric Company, Inc.”, and for the same identical purpose as that of Western Electric, is to trespass upon and profit by its good name and business reputation. The very fact that the defendants have sought the use of that particular name for that identical purpose is conclusive evidence of the fraudulent intent with which it is done. Doctrine: It is well accepted that the right to the use of corporate name and trade name is a property right a right in rem, which may assert and protect against all the world, in any of the courts of the world — even in jurisdictions where it does not transact business.

• Infringement of trade name. General Garments Corp. v. Director of Patens, 41 SCRA 50 (1971); Universal Rubber Products, Inc. v. Court of Appeals, 130 SCRA 104 (1988).

1. Under the Trademark Law • The matter as to trademarks and tradenames had become moot

with the adoption of Section 21-‐A1 of then Republic Act 166 (The Trademark Law), which expressly provided that a foreign

1 Section 21-‐A states: "Any foreign corporation or juristic person to which a mark or tradename has been registered or assigned under this Act may bring an action hereunder for infringement, for unfair competition, or false designation of origin and false description, whether or not it has been licensed to do business in the Philippines under Act numbered Fourteen Hundred and Fifty-‐Nine, as amended, otherwise known as the Corporation Law, at the time it brings the complaint; Provided, That the country of which the said foreign corporation or juristic person is a citizen, or in which it is domiciled, by treaty, convention or law, grants a similar privilege to corporate or juristic persons of the Philippines."



corporation, whether licensed to do business or not in the Philippines, with a mark or tradename registered in the Philippines, may bring an action before Philippine courts for infringement, unfair competition, false designation of origin and false description, if the country of which the foreign corporation is a citizen, or in which it is domiciled, by treaty, convention, or law, grants a similar privilege to corporations or juristic persons of the Philippines.1

2. Under the Intellectual Property Code • In 1997, the Intellectual Property Code was promulgated to

consolidate all laws relating to intellectual properties. Section 160 of the Code, which effectively replaced Section 21-‐A of The Trademark Law, provides that “Any foreign national or judicial person who meets the requirements of Section 32 of this Act and does not engage in business in the Philippines may bring a civil or administrative action hereunder for opposition, cancellation, infringement, unfair competition, or false designation of origin and false description, whether or not it is licensed to do business in the Philippine under existing laws.”

o CLV Comment: The wordings of Section 160 do not seem to comprehend the thrust of Section 21-‐A of The

1 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store. 2 Section 3 provides: “. . .Any person who is a national or who is domiciled or has a real and effective industrial establishment in a country which is a party to any convention, treaty or agreement relating to intellectual property rights or the repression of unfair competition, to which the Philippines is also a party, or extends reciprocal rights to nationals of the Philippines by law, shall be entitled to benefits to the extent necessary to give effect to any provision of such convention, treaty or reciprocal law, in addition to the rights to which any owner of an intellectual property right is otherwise entitled by this Act.”

Trademark Law, and the new qualification that such foreign corporation must not be engaged in business in the Philippines contradicts the provision that dispenses with the need to obtain a license to do business in the Philippines to qualify a foreign corporation to seek remedy under the Code. It can therefore be reasonably anticipated that the courts will eventually interpret Section 160 of the Code to have the same meaning and application as Section 21-‐A of The Trademark Law, which would qualify any foreign corporation, even when doing business in the Philippines without appropriate license, to be able to obtain remedies and reliefs under the Code.

D. Doctrine on Unrelated or Isolated Transactions:

• In one case, the Court held that the phrase "isolated transaction" has a definite and fixed meaning, i.e., "a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization."3

• Antam Consolidated v. Court of Appeals, 143 SCRA 288 (1986).4

Antam Consolidated v. Court of Appeals Facts: Stokely Van Camp and Capital City Product Company are foreign

3 Ericks Pte. Ltd. v. Court of Appeals, 267 SCRA 567, 76 SCAD 70 (1997). 4 Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1 (1957).



corporations not engaged in business in the Philippines and not licensed. Capital City entered into a contract with Coconut Oil Manufacturing (Comphil) wherein Comphil undertook to sell and deliver and Capital City agreed to buy 500 long tons of crude coconut oil to be delivered at c.i.f. price. but Comphil failed to deliver the coconut oil so that Capital City sustained a loss. As a result, herein respondents entered into two more contracts in an attempt to recover the loss they sustained from the first one. Stokely prayed that a writ of attachment be issued against any and all the properties of the petitioners in an amount sufficient to satisfy any lien of judgment that the respondent may obtain in its action. Herein petitioners alleged that the respondent has no personality to sue. Petitioners argue that to maintain the suit filed with the trial court, the respondent should have secured the requisite license to do business in the Philippines because, in fact, it is doing business. Issue: Whether or not the respondent should have secured the requisite license because it was doing business in the Philippines. Held: NO. The Supreme Court sustained the lower court in not dismissing a complaint filed by a foreign corporation on the basis of three contracts of purchase and sale of coconut oil from local companies. The Court found that from the facts alone it could be deduced that there was only one agreement between the petitioners and the respondent and that was the delivery by the former of 500 long tons of crude coconut oil to the latter, who in turn, must pay the corresponding price for the same. The only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the

petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation.1 Doctrine: The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on consideration of sound public policy. It was never intended to favor domestic corporations who enter into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not licensed to do business in this country.2

• A foreign corporation needs no license to sue before Philippine courts on an isolated transaction. Lorenzo Shipping v. Chubb and Sons, Inc., 431 SCRA 266 (2004).

• Single or isolated acts, contracts, or transactions of foreign corporations are not regarded as a carrying on of business. Typical examples of these are the making of a single contract, sale with the taking of a note and mortgage in the state to secure payment thereof, purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do any other business within the country. MR. Holdings, Ltd. V. Bajar, 380 SCRA 617 (2002).

o Even a series of transactions which are occasional, incidental and casual—not of a character to indicate a purpose to engage in business—do not constitute the




doing or engaging in business as contemplated by law. Lorenzo Shipping v. Chubb and Sons, Inc., 431 SCRA 266 (2004).

• Case-‐Law Examples of Isolated Transactions: o Recovery on the collision of two vessels at the Manila

Harbor. Dampfschieffs Rhederei Union v. La Campañia Transatlantica, 8 Phil. 766 (1907).

o Loss of goods bound for Hongkong but erroneously discharged in Manila. The Swedish East Asia Co., Ltd. v. Manila Port Service, 25 SCRA 633 (1968).

o Recovery of damages sustained by cargo shipped to the Philippines. Bulakhidas v. Navarro, 142 SCRA 1 (1986).

o Sale of construction equipment to the Government with no intent of continuity of transaction. Gonzales v. Raquiza, 180 SCRA 254 (1989).

o Recovery on a Hong Kong judgment against a Manila resident. Hang Lung Bak v. Saulog, 201 SCRA 137 (1991).

o Appointment of local lawyer by foreign movie companies who have registered intellectual property rights over their movies in the Philippines, to protect such rights for piracy: “We fail to see how exercising one's legal and property rights and taking steps for the vigilant protection of said rights, particularly the appointment of an attorney-‐in-‐fact, can be deemed by and of themselves to be doing business here.” Columbia Pictures Inc. v. Court of Appeals, 261 SCRA 144 (1996).

o Rationale: rationale for the allowing foreign corporations not doing business in the Philippines to

sue in our courts: "Otherwise we will be hampering the growth and development of business relations between Filipino citizens and foreign nationals. Worse, we will be allowing the law to serve as a protective shield for unscrupulous Filipino citizens who have business relationships abroad."1

DOING BUSINESS SYNTHESIS: (Atty. Hofileña) • If you pursue your business in a continuous basis showing an

intent to pursue your line of business in the Philippines • Even if you intend to derive profit, there must be some

connection with your business. Just because you’re being paid for an activity does not mean you are “doing business” in the Philippines.

o Doing business is generating income from the Philippines (Agilent v. Integrated Silicon)

o If it’s a cost on the part of the foreign company, such transaction is not considered as “doing business”

• If you don’t want to be accused of doing business, bring out as much of the business abroad as much as possible.

• Isolated Transaction v. Continuity of Actions o There are cases where the Court “forgave” the

corporations who did business at least once. o However, there are cases that due to the volume or

magnitude of the matter involved, that the Court has ruled as constituting “doing business”

• Where a corporation wants to do business in the Philippines, it

1Hang Lung Bank, Ltd. v. Saulog, 201 SCRA 137 (1991).



should get a license. o Where a party contracts with a foreign corporation

which is without a license, and such party has derived benefits, such party will be estopped from posing such lack of license as a defense from a suit initiated by the corporation.

• If a foreign corporation is not considered doing business in the Philippines, can the foreign corporation sue in Philippine Courts?

o YES. If you’re not deemed to be “doing business” in the Philippines, but you have certain transactions in the country, such foreign corporation may still sue in Philippine Courts. In this case, the corporation’s only connection with the Philippines may be that it contracted with a Philippine citizen.

• Can suits against foreign corporations be filed and prosper in Philippine Courts?

o YES. Foreign Corporations doing a business without a can be sued regardless of whether they have a license or not.

• Service of Summons in order to acquire jursdiction o FC doing business in the Philippines with a license à

summons shall be served either on the resident agent or in the absence thereof, to the SEC.

o FC doing business in the Philippines with a license à summons shall be served either through an agent, publication, or courts in the corporation’s home country with the assistance of the DFA.

o FC not doing business in the Philippines à if the

corporation has property here, you can attach the property and thereby bind the FC.

§ What if he’s gone completely or he has no property at all in the Philippines à you won’t be able to acquire jurisdiction over him. BUT you can go to the FC’s home country and file an action there subject to the rules of their jurisdiction.

o Jurisdiction may also be acquired if the FC voluntarily submits to the jurisdiction of our Courts such as by appearance through counsel.

§ Remember that not all appearances are submissions to the jurisdiction, such as when you appear precisely to question the jurisdiction of the court.

IV. Suits Brought by Foreign Corporations A. Need to Allege Capacity to Sue: The fact that a foreign corporation is not doing business in the Philippines must be alleged if a foreign corporation desires to sue in Philippines courts under the “isolated transactions rule.” In this case, although the Supreme Court sustained the principle upon which the plaintiffs appealed the dismissal, it nevertheless upheld the dismissal since the complaint filed with the lower court only alleged that the plaintiffs are foreign corporation, without further indicating that they are exempt from the requisite of a



license because they are not engaged in business in the Philippines. Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co., 17 SCRA 1037 (1966).1

Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co Facts: Atlantic Mutual Insurance Company and Continental Insurance Company (Atlantic), both foreign corporations sued Cebu Stevedoring Co., Inc. (Cebu), a domestic corporation, for recovery of a sum of money alleging that Cebu undertook to carry a shipment of copra and that upon discharge, a portion of the copra was found damaged; that since the copra had been insured with Atlantic they paid the shipper and/or consignee; and that as subrogee to the shipper's and/or consignee's rights, Atlantic demanded, but Cebu did not pay. Cebu moved to dismiss based on: (a) that Atlantic had "no legal personality and with no capacity to sue;" and (b) that the complaint did not state a cause of action. Issue: Whether or not Atlantic has the capacity to sue Held: NO. But where as in the present case, the law denies to a foreign corporation the right to maintain suit unless it has previously complied with a certain requirement, then such compliance, or the fact that the suing corporation is exempt therefrom, becomes a necessary averment in the complaint. These are matters peculiarly within the knowledge of

1 This overturned the previous doctrine in Marshall-‐Wells (as well as in In re Liquidation of the Mercantile Bank of China, etc., 65 Phil. 385 (1938), that the lack of authority of foreign corporation to sue in Philippine courts for failure to obtain the license is a matter of affirmative defense. Also Commissioner of Customs v. K.M.K. Gani, 182 SCRA 591 (1990).

appellants alone, and it would be unfair to impose upon appellee the burden of asserting and proving the contrary. It is enough that foreign corporations are allowed by law to seek redress in our courts under certain conditions: the interpretation of the law should not go so far as to include, in effect, an inference that those conditions have been met from the mere fact that the party suing is a foreign corporation. Doctrine:

o In any event, Rule 8, Section 4, of the 1997 Rules of Civil Procedure now require that in case of foreign corporations, "facts showing the capacity of a party to sue or be sued . . . must be averred." 2

B. Estoppel Doctrine: Under the principle of estoppel, a foreign corporation doing business in the Philippines may sue in Philippine courts even without license to do business against a Philippine citizen who had contracted with and been benefited by said corporation and knew it to be without the necessary license to do business. Merrill Lynch Futures, Inc. v. Court of Appeals, 211 SCRA 824 (1992).3

Merrill Lynch Futures, Inc. v. Court of Appeals

2 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store. 3 Georg Grotjahn GMBH & C. v. Isnani, 235 SCRA 216 (1994); Communications Material and Design, Inc. v. Court of Appeals, 260 SCRA 673 (1996); Agilent Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp., 427 SCRA 593 (2004); Global Business Holdings, Inc. v. Surecomp Software, B.V., 633 SCRA 470 (2010); Steelcase, Inc. v. Design International Selections, Inc., 670 SCRA 64 (2012).



Facts: Merrill Lynch Futures, Inc., through a domestic corporation, was found to be engaging in business (commodity futures) in the Philippines without obtaining the proper license. It brought a suit in Philippine courts to enforce a claim against local investors. Issue: Whether or not Merril Lynch engaged in business in the Philippines without the requisite license. Held: YES. Although the Court found the foreign corporation to have engaged in business in the Philippines without the requisite license, it overturned the dismissal of the suit, on the ground that if the local investors knew that the foreign corporation had no license to do business in the Philippines, then they are estopped from using the lack of license to avoid their obligations. Doctrine: The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" “one who has dealt with a corporation of foreign origin as corporate entity is estopped to deny its corporate existence and capacity." The principle "will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract.1 1 The "estoppel" doctrine was also reiterated in Georg Grotjahn GMBH & Co. v. Isnani, 235 SCRA 216, 54 SCAD 289 (1994).

• Proper Doctrine: Eriks Ltd. v. Court of Appeals, 267 SCRA 567 (1997).

Eriks Ltd. v. Court of Appeals

Facts: Eriks Pte., Ltd. is a non resident foreign corporation engaged in the manufacture and sale of elements used in sealing pumps. Delfin Enriquez, Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings within a period of 4 months. The transfer of goods were perfected in Singapore for private respondent’s account with a 90-‐day credit term. Subsequently, demands were made by petitioner upon private respondent to settle his account, but the latter failed/refused to do so. Eriks Pte., Ltd. filed with the RTC a complaint for the recovery of US$41,939.63. Private respondent responded with a Motion to Dismiss, contending that petitioner corporation had no legal capacity to sue. The trial court dismissed the action on the ground that Eriks Pte., Ltd. is a foreign corporation doing business in the Philippines without a license. Issue: Whether or not Eriks Pte., Ltd is deemed to be a foreign corporation “doing business” in the Philippines without a license Held: YES. The series of transactions in question could not have been isolated or casual transactions. What is determinative of “doing business” is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. Accordingly, petitioner must be held to be



incapacitated to maintain the action a quo against private respondent. By this judgment, we are not foreclosing petitioner’s right to collect payment. Res judicata does not set in a case dismissed for lack of capacity to sue, because there has been no determination on the merits. Moreover, this Court has ruled that subsequent acquisition of the license will cure the lack of capacity at the time of the execution of the contract. By securing a license, a foreign entity would be giving assurance that it will abide by the decisions of our courts, even if adverse to it. Doctrine: The test to determine whether a foreign company is “doing business” in the Philippines, thus: “x x x The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization (Mentholaturn Co., Inc. v. Mangaliman). The purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to prevent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business without first taking the steps necessary to render it amenable to suits in the local courts.

• Under the Eriks doctrine, it would compel every foreign corporation doing business in the Philippines without a license

to first go to the process of obtaining a license to do business from the SEC, and then file the proper suits before the local courts; otherwise, they run the risk, as it should be, that the suit would be dismissed, but not on the merits, but as a consequence of its failure to obtain a license, without prejudice to obtaining such license and re-‐filing the suit.1

C. On Isolated Transactions: A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local court. Aboitiz Shipping Corp. v. Insurance Company of North America, 561 SCRA 262 (2008). V. Suits Against Foreign Corporations:

• A fundamental rule of international law on state jurisdiction is that no state can by its laws, and no court which is only a creature of the state, can by its judgments and decrees, directly bind or affect property or persons beyond the limits of that state. Times, Inc. v. Reyes, 39 SCRA 303 (1971).

A. Jurisdiction Over Foreign Corporations (Section 14, Rule 14, Rules of Court; General Corp. of the Phil. v. Union Insurance Society of Canton, Ltd., 87 Phil. 313 (1950).2

1 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store. 2 Johnlo Trading Co., v Flores, 88 Phil. 741 (1951); Johnlo Trading Co. v. Zulueta, 88 Phil. 750 (1951); Pacific Micronisian Line, Inc. v. Del rosario, 96 Phil. 23 (1954); Far East Int’l Import and Export Corp. v. Nankai Kogyo Co., Ltd., 6 SCRA 725 (1962).



RULES OF COURT – RULE 14 Section 14. Service upon defendant whose identity or whereabouts are unknown. In any action where the defendant is designated as an unknown owner, or the like, or whenever his whereabouts are unknown and cannot be ascertained by diligent inquiry, service may, by leave of court, be effected upon him by publication in a newspaper of general circulation and in such places and for such time as the court may order.

• Atty. Hofileña à The Rules of Court don’t make a distinction about the service of summons. As long as the foreign corporation is doing business in the Philippines, whether it is licensed or not, service of summons is sufficient to acquire jurisdiction over the corporate entity.

General Corp. of the Phil. v. Union Insurance Society of Canton, Ltd. Facts: General Corporation and Mayon Investment are domestic corporations. Union Insurance is a foreign insurance corporation, duly authorized to do business in the PH, with head office in Hong Kong, and a branch office in Manila. Fireman's Fund Insurance is a foreign insurance corporation organized under the laws of California, and duly registered with the Insurance Commissioner of the Bureau of Commerce. Union has been acting as a settling agent for claims against Fireman's Fund Insurance. General Corp and Mayon Investment Co. sued Union (HK) and Fireman (USA) for the payment of 12 marine insurance policies arising from a

shipment of merchandise from the United States to the Philippines. All claims were forwarded to the courts in Seattle except for one, wherein on appeal Fireman claims that the trial court did not acquire jurisdiction over it. The summons to Fireman was served on Union which was then the former’s settling agent in PH because Fireman had not yet been registered in the PH. Said registration came two months later. Union claimed that Fireman was not doing business in the Philippines, and that it had no authority from its co-‐defendant to receive summons on its behalf. Issue: Whether or not summons was validly served upon Fireman as would confer jurisdiction over said corporation. Held: YES. Service of summons for appellant Fireman on its settling agent Union was legal and gave the court jurisdiction over Fireman. "Doing business in the Philippines" makes no distinction as to whether said business was being done legally or without authority from the Government. As long as a foreign private corporation does or engages in business in this jurisdiction, it should and will be amenable to process and the jurisdiction of the local courts. Hence service upon any agent of said foreign corporation constitutes personal service upon the corporation and accordingly judgment may be rendered against said. Even then, Fireman was adjudged of doing business in the Philippines. The subject transactions were not casual or isolated business transactions. According to the evidence, since before the war, the Fireman's Fund Insurance Co. would appear to have engaged in this kind of business and had employed its co-‐defendant Union as its settling agent.



Doctrine: That service of summons on a foreign corporation may be made only upon an agent of said corporation residing in the Philippines refers to those doing business in the Philippines which has complied with the law and obtained the corresponding license and not to those actually doing business here but without the corresponding license or authority.

1. Service of Summons under the Rules of Court Hinged Upon Doing Business in the Philippines

• For purpose serving summons a foreign corporation in accordance with Rule 14, Section 14, it is sufficient that it be alleged in the complaint that it is doing business in the Philippines. Hahn v. Court of Appeals, 266 SCRA 537 (1997).

• When it is shown that a foreign corporation is doing business in the Philippines, summons may be served on (a) its resident agent designated in accordance with law; (b) if there is no resident agent, the government official designated by law to that effect; or (c) any of its officers or agent within the Philippines. The mere allegation in the complaint that a local company is the agent of the foreign corporation is not sufficient to allow proper service to such alleged agent; it is necessary that there must be specific allegations that establishes the connection between the principal foreign corporation and its alleged agent with respect to the transaction in question. French Oil Mills Machinery Co.v. Court of Appeals, 295 SCRA 462 (1998).

• For purposes of venue involving a foreign corporation, its “residence” includes the country where it exercises corporate

functions or the place where its business is done. State Investment House v. Citibank, 203 SCRA 9 (1991); Northwest Orient Airlines v. Court of Apppeals, 241 SCRA 192 (1995).

2. Nexus of "Doing Business in the Philippines" • In construing the proper service of summons for a foreign

corporation under the old Section 14, Rule 14 of the Rules of Court, the Court held that "in order that services may be effected in the manner above stated, said section also requires that the foreign corporation be one which is doing business in the Philippines. This is a sine qua non requirement. This fact must first be established in order that summons can be made and jurisdiction acquired. This is not only clear in the rule but is reflected in a recent decision of this Court. We there said that `as long as a foreign private corporation does or engages in business in this jurisdiction, it should and will be amenable to process and the jurisdiction of local courts.'"1

B. Objection to Jurisdiction: Appearance of a foreign corporation to a suit precisely to question the tribunal’s jurisdiction over its person is not equivalent to service of summons, nor does it constitute an acquiescence to the court’s jurisdiction. Avon Insurance PLC v. Court of Appeals, 278 SCRA 312 (1997). C. Discredited Pari Delicto Doctrine: The local party to a contract with a foreign corporation that does business in the Philippines without license cannot maintain suit against the foreign corporation just as the foreign

1 Pacific Micronisian Line, Inc. v. Del Rosario, 96 Phil. 23 (1954). quoting also General Corporation of the Philippines v. Union Insurance Society of Canton, Ltd.,49 Off. Gaz., 73, September 14, 1950.



corporation cannot maintain suit, under the principle of pari delicto. Top-‐Weld Mfg. v. ECED, 119 SCRA 118 (1985).

Top-‐Weld Mfg. v. ECED Facts: Top-‐weld entered into separate contracts with 2 different foreign entities: (1) A license and technical assistance agreement with IRTI and (2) distributor agreement with ECED. Upon learning that the 2 foreign entities were negotiating with another group to replace the Top-‐weld as their licensee and distributor, Top-‐weld instituted a civil case against IRTI, ECED, EUTECTIC, and Gaerlan, a Filipino citizen alleged to be the representative and employee of these 3 corporations. IRTI and ECED later on terminated the agreement for breaches committed by Top-‐Weld like failure to pay interest, use of substandard or wrong materials, and re-‐labelling. Subsequently, Top-‐Weld asked for a preliminary mandatory injunction to compel ECED to ship and deliver various items covered by the distributorship contract, and to prohibit the corporations from importing into the Philippines directly or indirectly any EUTECTIC materials, supplies or equipment except to and through Top-‐Weld. Top-‐Weld now invokes R.A. No. 5455 (Aliens doing business in the Philippines) prohibiting foreign corporations from transacting business and engaging in economic activity in the Philippines without permit and from terminating any franchise or agreement with a resident unless for just cause and upon compensation. � Issue: Whether or not respondent corporations can be considered as "doing business" in the Philippines and, therefore, subject to the provisions of R.A. No. 5455.

Held: YES. From the evidence, it is apparent that the 2 foreign corporations are doing business in the Philippines. They were carrying out here the purposes for their creation (manufacture and marketing of welding products) and even negotiated with other groups for the transfer of franchising rights. HOWEVER, Top-‐Weld is not entitled to relief. It does not come to court with clean hands. It is chargeable with knowledge of the law, which by the way it in fact invokes before the court. It was incumbent upon Top-‐Weld to know whether IRTI or ECED are authorized to transact business. Since all are parties to an illegal agreement, the court will leave them where it finds them. Doctrine: No remedy could be afforded to the parties because of their presumptive knowledge that the transaction was tainted with illegality. Equity cannot lend its aid to the enforcement of an alleged right claimed by virtue of an agreement entered into in contravention of law.

• Atty. Hofileña à the party in Top-‐Weld Mfg. v. ECED cannot complain on the ground of pari delicto. Also, such contract was void for being against public policy.

o It seems a little strange for the Court to go that length. Despite the situation, the contracts were still valid. The only limitation is that they cannot avail of remedies through Philippine Courts.

• BUT SEE: Communication Materials v. Court of Appeals, 260 SCRA 673 (1996).

Communication Materials v. Court of Appeals



Facts: CMDI and ASPAC are domestic corporations, while Francisco S. Aguirre is their President and majority stockholder. Respondent ITEC International is a foreign corporations from Alabama. There is no dispute that ITEC is a foreign corporation not licensed to do business in the Philippines. ITEC entered into a Representative Agreement with ASPAC whereby it would be the exclusive representative in the Philippines for the sale of ITEC’s products. Through a “License Agreement” entered into by the same parties, ASPAC became legally and publicly known as ASPAC-‐ITEC (Philippines). By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, to their sole customer, PLDT. ITEC decided to terminate the same, because petitioner ASPAC allegedly violated its contractual commitment as stipulated in their agreements. ITEC charges the ASPAC and another Philippine Corporation, DIGITAL, the President of which is also Aguirre, of using knowledge and information of ITEC’s products specifications to develop their own line of equipment and product support, which are similar, if not identical to ITEC’s. Issue: Whether or not ITEC is “doing business” in the Philippines Held: YES. The Court held that private respondent had been “engaged in” or “doing business” in the Philippines for some time now. A perusal of the agreements between petitioner ASPAC and the respondents shows that there are provisions which are highly restrictive in nature, such as to reduce petitioner ASPAC to a mere extension or instrument of the private respondent. The “No Competing Product” provision of the Representative Agreement. Notwithstanding such finding that ITEC is doing business in the country, ASPAC is nonetheless estopped from

raising this fact to bar ITEC from instituting this injunction case against it. Doctrine: A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it.

• Atty. Hofileña à the foreign company was found doing business without a license with a Philippine party who was aware of such. But the Court did not declare the contract void and pari delicto. The suit was allowed.

D. Odd But Prevailing Doctrine:

• “Indeed, if a foreign corporation, not engaged in business in the Philippines, is not barred from seeking redress from the courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines.” Facilities Management Corp. v. De la Osa, 89 SCRA 131 (1979).1

Facilities Management Corp. v. De la Osa Facts: Facilities Management Corporation and J. S. Dreyer are domiciled in Wake Island while J. V. Catuira is an employee of FMC stationed in Manila. Leonardo dela Osa was employed by FMC in Manila, but rendered work in Wake Island, with the approval of the Department of

1 FBA Aircraft v. Zosa, 110 SCRA 1 (1981); Royal Crown Int’l v. NLRC, 178 SCRA 569 (1989); Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).



Labor of the Philippines. Dela Osa later filed for reinstatement with back wages and recovery of his overtime compensation, swing shift and graveyard shift differentials. FMC, et al. filed a motion to dismiss the subject petition on the ground that the Court has no jurisdiction. Issue: Whether the mere act by a non-‐resident foreign corporation of recruiting Filipino workers for its own use abroad, in law doing business in the Philippines. Held: YES. FMC may be considered as "doing business in the Philippines" within the scope of Section 14 (Service upon private foreign corporations), Rule 14 of the Rules of Court. Indeed, FMC, in compliance with Act 2486 as implemented by Department of Labor Order IV dated 20 May 1968 had to appoint Jaime V. Catuira, 1322 A. Mabini, Ermita, Manila "as agent for FMC with authority to execute Employment Contracts and receive, in behalf of that corporation, legal services from and be bound by processes of the Philippine Courts of Justice, for as long as he remains an employee of FMC." It is a fact that when the summons for FMC was served on Catuira he was still in the employ of the FMC. Doctrine: Under the rules and regulations promulgated by the Board of Investments which took effect 3 February 1969, implementing RA 5455, which took effect 30 September 1968, the phrase "doing business" has been exemplified with illustrations, among them being as follows: ""(1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm, not acting independently of the foreign firm, amounting to negotiation or fixing of the terms and conditions of sales or service contracts, regardless of whether the

contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines; (2) appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of the principal; xxx (4) Opening offices, whether called 'liaison' offices, agencies or branches, unless proved otherwise. xxx (10) Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and objective of the business organization."

• CONTRA: The sine qua non requirement for service of summons and other legal processes or any such agent or representative is that the foreign corporation is doing business in the Philippines. Hyopsung Maritime Co., Ltd. v. Court of Appeals, 165 SCRA 258 1988); Signetics Corp. v. Court of Appeals, 225 SCRA 737 (1993).

Signetics Corp. v. Court of Appeals Facts: Signetics was organized under the laws of the United States of America. Through Signetics Filipinas Corporation (SigFil), a wholly-‐owned subsidiary, Signetics entered into lease contract over a piece of land with Fruehauf Electronics Phils., Inc. (Freuhauf). Freuhauf sued Signetics for damages, accounting or return of certain machinery, equipment and accessories, as well as the transfer of title and surrender



of possession of the buildings, installations and improvements on the leased land. Service of summons was made on Signetics through Technology Electronics Assembly & Management Pacific Corp. on the basis of the allegation that Signetics is a subsidiary of US Philips Corp., and may be served summons at Philips Electrical Lamps, Inc. Issue: Whether or not the lower court, had correctly assumed jurisdiction over the petitioner, a foreign corporation, on its claim in a motion to dismiss, that it had since ceased to do business in the Philippines. Held: YES. The term "agent", in the context it is used in Section 14, refers to its general meaning, i.e., one who acts on behalf of a principal. The allegations in the complaint have thus been able to amply convey that not only is TEAM Pacific the business conduit of the petitioner in the Philippines but that, also, by the charge of fraud, is none other than the petitioner itself. Doctrine: The rule is that, a foreign corporation, although not engaged in business in the Philippines, may still look up to our courts for relief; reciprocally, such corporation may likewise be "sued in Philippine courts for acts done against a person or persons in the Philippines" (Facilities Management Corporation v. De la Osa).

• BUT NOW SEE: Avon Insurance PLC v. Court of Appeals, 278 SCRA 312 (1997).

Avon Insurance PLC v. Court of Appeals

Facts: Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties totaling P200 Million. These contracts were covered by reinsurance treaties between Worldwide Surety and Insurance, and several foreign reinsurance companies including the petitioners through CJ Boatrwright acting as agent of Worldwide Surety and Insurance. A Fire then razed the properties insured. A Deed of Assignment made by Worldwide Surety and Insurance acknowledged a remaining balance still due and assigned to Yupangco all reinsurance proceeds still collectible from all the foreign reinsurance companies. Yupangco then filed a collection suit on the above petitioners. The service of summons were made through the office of the Insurance Commissioner but since the international reinsurers question the jurisdiction the trial court the case has not proceeded to trial on the merits. The reinsurer is questioning also the service of summons through extraterritorial service under Sect 17 Rule 14 of the Rules of Court nor through the Insurance Commissioner under Sec 14. Yupangco also contends that since the reinsurers question the jurisdiction of the court they are deemed to have submitted to the jurisdiction of the court. Issue: Whether or not the international reinsurers are doing business in the Philippines. Held: NO. International reinsurers are not doing business in the Philippines and the Philippine court has not acquired jurisdiction over them. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker and NOT through any entity or means remotely connected with the Philippines. Reinsurance company is not doing business in a certain



state even if the property or lives which are insured by the original insurer company are located in that state. Reinsurance Contract is generally separate and distinct arrangement from the original contract of insurance. There was no allegation or demonstration of the existence of petitioners’ domestic agent but avers simply that they are doing business not only abroad but in the Philippines. Petitioners had not performed any act which would give the general public the impression that it had been engaging or intends to engage in its ordinary and usual business undertaking in the country. Doctrine: Reinsurance company is not doing business in a certain state even if the property or lives which are insured by the original insurer company are located in that state. Reinsurance Contract is generally separate and distinct arrangement from the original contract of insurance.

• Atty. Hofileña à Signetics Corp. v. Court of Appeals and Avon Insurance PLC v. Court of Appeals established what is a sufficient complaint in order for the Court to acquire jurisdiction? The fact of doing business must be established by appropriate allegations in the complaint, and thereafter, extraterritorial service of summons may be done pursuant to the provisions of Section 17, Rule 14, of the Rules of Court. The propriety of such service however may be contravened by the defense that the foreign corporation is not doing business in the Philippines. It is a defense that requires the contravention of the allegations of the complaint, as well as full ventilation, in effect,

of the main merits of the case, which should not thus be within the province of a mere motion to dismiss.1

E. Stipulation on Venue: When the contract sued upon has a venue clause within the Philippines, it is deemed a confirmation by the foreign corporation, even though not doing business in the Philippines, to be sued in local courts. Linger & Fisher GMBH v. IAC, 125 SCRA 522 (1983). VI. Laws Applicable to Foreign Corps. (Section 129) Section 129. Law applicable. Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class, except such only as provide for the creation, formation, organization or dissolution of corporations or those which fix the relations, liabilities, responsibilities, or duties of stockholders, members, or officers of corporations to each other or to the corporation. (73a)

• The provision in the New York law which allowed only stockholders with a minimum number of shareholdings (3%) to be entitled to exercise the right of inspection is valid in the case of a foreign corporation licensed to do business in the Philippines which in its internal relationship was bound by the New York law. Grey v. Insular Lumber Co., 67 Phil. 139 (1938)

VII. Amendment of Articles of Incorporation (Section 130) 1 Villanueva, C. L., & Villanueva-‐Tiansay, T. S. (2013). Philippine Corporate Law. (2013 ed.). Manila, Philippines: Rex Book Store.



Section 130. Amendments to articles of incorporation or by-‐laws of foreign corporations. Whenever the articles of incorporation or by-‐laws of a foreign corporation authorized to transact business in the Philippines are amended, such foreign corporation shall, within sixty (60) days after the amendment becomes effective, file with the Securities and Exchange Commission, and in the proper cases with the appropriate government agency, a duly authenticated copy of the articles of incorporation or by-‐laws, as amended, indicating clearly in capital letters or by underscoring the change or changes made, duly certified by the authorized official or officials of the country or state of incorporation. The filing thereof shall not of itself enlarge or alter the purpose or purposes for which such corporation is authorized to transact business in the Philippines. (n) VIII. Merger and Consolidation (Section 132; Art. 51, Omnibus Code) Section 132. Merger or consolidation involving a foreign corporation licensed in the Philippines. One or more foreign corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation or corporations if such is permitted under Philippine laws and by the law of its incorporation: Provided, That the requirements on merger or consolidation as provided in this Code are followed. Whenever a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or consolidation in its home country or state as permitted by the law of its incorporation, such

foreign corporation shall, within sixty (60) days after such merger or consolidation becomes effective, file with the Securities and Exchange Commission, and in proper cases with the appropriate government agency, a copy of the articles of merger or consolidation duly authenticated by the proper official or officials of the country or state under the laws of which merger or consolidation was effected: Provided, however, That if the absorbed corporation is the foreign corporation doing business in the Philippines, the latter shall at the same time file a petition for withdrawal of it license in accordance with this Title. (n)

• Atty. Hofileña à where two corporations, one of which is a branch, the SEC has authority to ensure requirements are met. However, the law does not provide allowance of a merger whereby the surviving corporation is that of the foreign corporation without a branch in the Philippines.

IX. Revocation of License (Sections 134 and 135; Art. 50, Omnibus Investment Code) Section 134. Revocation of license. Without prejudice to other grounds provided by special laws, the license of a foreign corporation to transact business in the Philippines may be revoked or suspended by the Securities and Exchange Commission upon any of the following grounds: 1. Failure to file its annual report or pay any fees as required by this Code;



2. Failure to appoint and maintain a resident agent in the Philippines as required by this Title; 3. Failure, after change of its resident agent or of his address, to submit to the Securities and Exchange Commission a statement of such change as required by this Title; 4. Failure to submit to the Securities and Exchange Commission an authenticated copy of any amendment to its articles of incorporation or by-‐ laws or of any articles of merger or consolidation within the time prescribed by this Title; 5. A misrepresentation of any material matter in any application, report, affidavit or other document submitted by such corporation pursuant to this Title; 6. Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due to the Philippine Government or any of its agencies or political subdivisions; 7. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized under its license; 8. Transacting business in the Philippines as agent of or acting for and in behalf of any foreign corporation or entity not duly licensed to do business in the Philippines; or 9. Any other ground as would render it unfit to transact business in the Philippines. (n)

Section 135. Issuance of certificate of revocation. Upon the revocation of any such license to transact business in the Philippines, the Securities and Exchange Commission shall issue a corresponding certificate of revocation, furnishing a copy thereof to the appropriate government agency in the proper cases. The Securities and Exchange Commission shall also mail to the corporation at its registered office in the Philippines a notice of such revocation accompanied by a copy of the certificate of revocation. (n) X. Withdrawal of Foreign Corporation (Section 136) Section 136. Withdrawal of foreign corporations. Subject to existing laws and regulations, a foreign corporation licensed to transact business in the Philippines may be allowed to withdraw from the Philippines by filing a petition for withdrawal of license. No certificate of withdrawal shall be issued by the Securities and Exchange Commission unless all the following requirements are met; 1. All claims which have accrued in the Philippines have been paid, compromised or settled; 2. All taxes, imposts, assessments, and penalties, if any, lawfully due to the Philippine Government or any of its agencies or political subdivisions have been paid; and 3. The petition for withdrawal of license has been published once a week for three (3) consecutive weeks in a newspaper of general



circulation in the Philippines.

• Atty. Hofileña à foreign companies are allowed to withdraw, but they must settle all credits, taxes and other obligations to the satisfaction of the SEC.

18. foreign corporations

Documents

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corporations home state

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