FOREIGN CORPORATIONS AND THE

CONCEPT OF "DOING BUSINESS IN

THE PHILIPPINES"1
NATURE OF 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.2 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. 3
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.4 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."5
The legal standing of foreign corporations in the host state therefore is
founded on international law on the basis of consent,6 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, 7 foreign investments, and capacity
to obtain reliefs in local courts and administrative bodies.
Consent, as a requisite for jurisdiction over foreign corporations, is
founded on considerations of due process and fair play. As held in Pennoyer v.
Neff,8 the jurisdiction of courts to render judgment in personam is grounded on
their de facto power over the defendant's person. Therefore his presence within
1

This chapter is based on the article entitled Philippine Doctrine of Doing Business' for
Foreign Corporations, published in two-part series in THE LAWYERS REVIEW, Part I - Vol. VII (No.
4, April, 1993), Part II - Vol. VII (No. 6, June, 1993).
2
Marshall-Wells Co. v. Henry W. Elser & Co., 46 Phil. 70, at p. 74 (1924).
3
Avon Insurance PLC v. Court of Appeals, 278 SCRA 312, 86 SCAD 401 (1997).
4
Times, Inc. v. Reyes, 39 SCRA 303 (1971), citing Perkins v. Dizon, 69 Phil. 186 (1939).
5
Ibid, citing Paul v. Virginia, 8 Wall. 168 (1869); Sioux Remedy Co. v. Cgpe and Cope, 235
U.S. 197 (1914); Cyclone Mining Co. v. Baker Light & Power Co., 165 Fed. 996 (1908).
6
SALONGA, PRIVATE INTERNATIONAL LAW, 1979 ed., p. 344.
7
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.
8
95 U.S. 714, 733, 24 L.Ed. 565 (1877).

the territorial jurisdiction of a court is prerequisite to its rendition of judgment

personally binding him. International Shoe Co. v. State of Washington 9 expanded
the coverage by stating that due process requires only that in order to subject a
defendant to a judgment in personam, if he not be present within the territory of
the forum, he must have certain minimum contacts with it such that the
maintenance of the suit does not offend "traditional notions of fair play and
substantial justice."
International Shoe Co. held that "[s]ince the corporate personality is a
fiction, although a fiction intended to be acted upon as though it were a fact, it is
clear that unlike an individual its presence without, as well as within, the State of
its origin can be manifested only by activities carried on in its behalf by those who
are authorized to act for it. To say that a corporation is so present there as to
satisfy due process requirements . . . is to beg the question to be decided. For
the terms present or presence are merely used to symbolize those activities of
the corporation's agent with the State which courts will deem to be sufficient to
satisfy the demands of due process." Thus, it deemed that "presence" in a forum
state will not be doubted when the activities of the corporation there have not
only been continuous and systematic, but also give rise to liabilities sued on,
even though no consent to be sued or authorization to an agent to accept service
of process has been given.
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. 10 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.11
Another basis by which a host state is deemed to have authority over a
foreign corporation is under the 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 standing to enforce its 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.
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
9

326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945).

SALONGA, supra, citing Goodrich (Scoles), 136.
11
Communication Materials and Design, Inc. v. Court of Appeals, 260 SCRA 673, 73 SCAD
374 (1996).
10

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.
The Philippine Supreme Court has held that "the recognition of the legal
status of a foreign corporation is a matter affecting the policy of the forum, and
distinction drawn in our Corporation Law between the standing of a corporation
which does not engage in business in the Philippines and does not require a
license to sue, and a foreign corporation which engages in business in the
Philippines, and is required to obtain a license to sue, is an expression of that
policy."12 A state may therefore restrict the right of a foreign corporation to engage
in business within its limits, and to sue in its courts. 13
Outside of consent, the concept of "doing business" therefore becomes
the crucial point to determine whether foreign corporations and multinational
enterprises have come within the territorial jurisdictions of the host countries and
consequently to determine to what extent they are bound to obtain licenses
within various host countries before they can sue with local courts and
administrative bodies.

DEFINITION OF "FOREIGN CORPORATIONS"

Section 123 of Corporation Code defines a "foreign corporation" as "one
formed, organized or existing under any laws other than those of the Philippines
and whose laws allow Filipino citizens and corporation to do business in its own
country or state." It is unfortunate that the present Philippine definition of foreign
corporation contains the policy of reciprocity as part of the definition, since it
leads to an absurd implication that corporate entities organized in countries that
do not grant reciprocity rights to Filipinos and Philippine entities are not "foreign
corporations." It is clear that despite the language of Section 123, all corporations
organized other than under Philippine laws are foreign corporations, irrespective
of the issue of reciprocity.
Although wrongly placed, the inclusion of the element of reciprocity in the
definition of foreign corporations emphasizes the Philippines' policy that unless
our own nationals are granted business access in a foreign state, then the
corporate entities of such foreign state would likewise not be granted legal
business access in Philippine territory. This is clear in the succeeding sentence of
Section 123 that provides that foreign corporations from state that grant
reciprocity rights to Philippine nationals "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."
12
13

Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524, 530 (1941).

Marshall-Wells Co. v. Henry W. Elser & Co., 46 Phil. 70, 74.

REQUISITES FOR OBTAINING LICENSE

DO BUSINESS IN PHILIPPINES

TO

A foreign corporation shall be granted a license to transact business by

filing a verified application with the SEC setting forth specifically required data,
including certified copies of its articles of incorporation and by-laws. 14
1. Designation of Local Agent
Among the things to be stated in the verified application are the name and
address of the foreign corporation's 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. 15 Obviously, this requirement
insures that proper jurisdiction may be obtained over a foreign corporation in the
event of suits and other proceedings.
A written power of attorney must be filed by the foreign corporation with
the SEC 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. 16
2. Agreement on Service of Summons with SEC
In consideration of its being granted a license to do business in the
Philippines, the foreign corporation shall execute and file with the SEC an
agreement or stipulation agreeing 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 SEC and that such service shall have the same force and
effect as if made upon the duly authorized officers of the foreign corporation at its
home office.17
Whenever such service of summons or other process shall be made upon
the SEC, it must, 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 SEC shall be a necessary part of and shall
complete such service.18
14

Sec. 125, Corporation Code.

Ibid. Sec. 127 of the Corporation Code provides that the resident agent may either be an
individual residing in the Philippines who must be of good moral character and sound financial
standing or a domestic corporation lawfully transacting business in the Philippines.
16
Sec. 128, Corporation Code.
17
Ibid.
18
Ibid.
15

3. Effect of Failure to Appoint or Maintain Agent

The failure to appoint and maintain a resident agent in the Philippines or
failure, after change of its resident agent or of his address, to submit to the SEC
a statement of such change, are grounds for revocation of a license granted to a
foreign corporation to do business.19
4. Oath on Reciprocity Compliance
Attached to the application shall also be a duly executed certificate under
oath by the authorized official or officials of the jurisdiction of 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. 20
5. Deposit of Securities
Within sixty (60) days from issuance of the license to do business, such
foreign corporation shall deposit with the SEC, for the benefit of its present and
future creditors, Philippine securities 21 in the actual market value of at least
P100,000.00, subject to further deposit of additional securities every six months
after each fiscal year equivalent in actual market value to two percent (2%) of the
amount by which the foreign corporation's gross income for that fiscal year
exceeds P5,000,000.00.
Furthermore, the SEC may require further securities in the event the
deposit has decreased by at least ten percent (10%) of the actual market value at
the time they were deposited.22
6. Effects of Being Issued License
When a foreign corporation is issued the license to do business in the
Philippines, it may commence to transact its 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. 23
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
19

Sec. 134, Corporation Code.

Sec. 128, Corporation Code.
21
Sec. 126, Corporation Code enumerates them to consist of bonds or other evidence of
indebtedness of the Philippine Government, its political subdivisions and instrumentalities, or
government-owned or controlled corporations and entities, shares of stocks in "registered
enterprises," shares of stocks of listed domestic entities, or shares of stock in domestic insurance
companies and banks, or any combination of these kinds of securities 22
Sec. 126, Corporation Code.
23
Sec. 126, Corporation Code.
20

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." 24
Such strict rules are necessary since a foreign corporation doing business
in the Philippines is bound by all laws, rules and regulations applicable to
domestic corporations of the same class, except for matters that go into creation,
formation, organization or dissolution of corporations or such as to fix relations,
liabilities, responsibilities or duties of stockholders, members, or officers of
corporation to each other or to the corporation, or simple intra-corporate
disputes.25
a. 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.
Such policy is exemplified in the case of Claude Neon Lights, Fed. Inc. v.
Phil. Adv. Corp.,26 where the Supreme Court refused the issuance of a writ of
attachment on properties in the Philippines of a foreign corporation licensed to do
business in the Philippines on the mere allegation that "it is not residing in the
Philippine Islands." The Court held that having regard for the reason of the law
allowing issuance of writs of attachments for the protection of creditors of a nonresident, the same reason does not apply to a foreign corporation doing business
in the Philippines and licensed to do so by Philippine authority.
The Court held that unlike a natural person who does not reside in the
Philippines, such foreign corporation is required by law to appoint a resident
agent for service of process; must prove to the satisfaction of the Government
before it does business here, that it is solvent and in sound financial condition;
has had to pay license fee and its business subject at anytime to investigation by
the Government authorities; and that his right to continue do business is subject
to revocation by the Government; and books and papers subject to examination
at any time by the Government; and is bound by all laws, rules and regulations
24

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."
25
Sec. 129, Corporation Code.
26
57 Phil. 607 (1932).

applicable to domestic corporations; all designed to protect the creditors and the
public. The Court further held:
A natural person not residing in the Philippines can
evade service of summons and other legal processes, the
foreign corporation licensed to do business in Philippines
cannot. Corporations, as a rule, are less mobile than
individuals. This is specially true of foreign corporations that
are carrying on business by proper authority in [the
Philippines]. They possess, as a rule, great capital which is
seeking lucrative and more or less permanent investment in
young and developing countries like our Philippines.27

CONSEQUENCES OF NOT OBTAINING A LICENSE TO DO BUSINESS

1. On Standing to Sue and Be Sued
Under Section 133 of the Corporation Code provides that a foreign
corporation doing business in the Philippines without first obtaining the license to
do business:
(a) Shall not be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of
the Philippines;
(b) But such foreign corporation may be sued or proceeded
against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine
laws.
In addition, Section 134 makes it a ground for revocation of license, when
a foreign corporation transacts 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.
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. On Validity of Contract

27

Ibid, at p. 612.

Home Insurance Company v. Eastern Shipping Lines,28 established the

Philippine doctrine on the legal effect on the contract itself when a foreign
corporation engages in business in the Philippines without obtaining the required
license.
In that case, Home Insurance Company, a foreign corporation, which
admittedly had engaged in business in the Philippines, had issued the subject
insurance contracts in the Philippines without obtaining the necessary license.
Subsequently, it obtained the license before filing the cases for collection under
the insurance contracts. The lower court dismissed the complaint and declared
that pursuant to its understanding of the basic public policy reflected in the
Corporation Law, the insurance contracts executed before a license was secured
must be held null and void, and the subsequent procurement of the license did
not validate the contracts.
The Supreme Court, although it recognized there were conflicting schools
of thought both here and abroad which are divided on whether such contracts are
void or merely voidable, took its cue from the doctrine laid down in MarshallWells Co. v. Elser29 that the doctrine under Section 69 of the then Corporation
Law "was 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."
In addition, the Court took into consideration the philosophy discussed in
General Corporation of the Philippines v. Union Insurance Society of Canton
Ltd.,30 that the fact of doing business in the Philippines, and not the non-obtaining
of the license, is the more crucial point:
The test is whether a foreign corporation was actually
doing business here. Otherwise, a foreign corporation illegally
doing business here because of its refusal or neglect to obtain
the corresponding license and authority 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. It would indeed be anomalous and quite
prejudicial, even disastrous, to the citizens in this jurisdiction
who in all good faith and in the regular course of business
accept and pay for shipments of goods from America, relying
for their protection on duly executed foreign marine insurance
policies made payable in Manila and duly endorsed and
delivered to them, that when they go to court to enforce said
policies, the insurer who all along has been engaging in this
business of issuing similar marine policies, serenely pleads
immunity to local jurisdiction because of its refusal or neglect
28

123 SCRA 424 (1983).

46 Phil. 70 (1924).
30
87 Phil. 313 (1950).
29

to obtain the corresponding license to do business here

thereby compelling the consignee or purchasers of the goods
insured to go to America and sue in its courts for redress.

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,"31 and that "the lack of capacity at the time of the execution of the
contracts was cured by the subsequent registration." 32
The Court also noted that under both Sections 68 and 69 of the old
Corporation Law (now Sections 133 and 144 of the Corporation Code), penal
sanctions are imposed for failure to comply with the registration requirements,
then "[t]he penal sanction for the violation and the denial of access to our courts
and administrative bodies are sufficient from the viewpoint of legislative policy." 33
The Home Insurance Company doctrine was reiterated in Eriks Pte. Ltd. v.
Court of Appeals,34 where the Supreme Court expressly held "subsequent
acquisition of the license will cure the lack of capacity at the time of the execution
of the contract."

CONFLICTING RULINGS OF SUPREME COURT

Based on the foregoing, it is therefore with serious doubt that we consider
the doctrinal pronouncements of the Supreme Court on the legal effects of nonobtaining of the license when a foreign corporation engages in business in the
Philippines.
1. Pari Delicto Ruling
In Top-Weld Manufacturing v. ECED, S.A.,35 a local company entered into
separate licensing and technical assistance agreements with two Swiss
corporations, by virtue of which the local company was constituted a licensee to
manufacture welding products under specifications, with raw materials to be
purchased from suppliers designated by the licensors. In addition, distributorship
agreements were entered into with another Panamanian company.
When the local company found out that the foreign entities were
negotiating with another group to replace it as their licensee and distributor, it
instituted an action seeking to enjoin the foreign corporations from negotiating
with third persons or from actually carrying out the transfer of their distributorship
31

Supra, at p. 438.
Ibid, at p. 439.
33
Ibid. The feasibility of imposing the criminal penalty under Section 144 of the Corporation
Code against the officers of the foreign corporation seems of doubtful application. See
discussions on the matter in Chapter 19.
34
267 SCRA 567, 76 SCAD 70 (1997).
35
138 SCRA 118 (1985).
32

and franchising rights, and from terminating the existing contracts. The local
company invoked the provisions of Section 4(9) of Rep. Act No. 5455, known as
the Foreign Business Regulation Act, which prohibited aliens or foreign firms
from terminating any franchise, licensing or other agreements that they have with
a resident of the Philippines except for violation thereof or other just cause and
upon payment of just compensation and reimbursement and other expenses
incurred by the licensee in developing a market for the products.
The Supreme Court held that although the foreign corporations did not
obtain the necessary license, it did not exempt them from BOI requirements
under the law for "[t]o accept this view would open the way for an interpretation
that by doing business in the country without first securing the required written
certificate from the Board of Investments, a foreign corporation may violate or
disregard the safeguards which the law, by its provisions, seeks to establish." 36
However, the Court nevertheless decreed that the local company could not
invoke the provisions of Rep. Act No. 5455, thus:
As between the parties themselves, R.A. No. 5455 does
not declare as void or invalid the contracts entered into without
first securing a license or certificate to do business in the
Philippines. Neither does it appear to intend to prevent the
courts from enforcing contracts made in contravention of its
licensing provisions. There is no denying, though, that an
illegal situation, as the appellate court has put it, was created
when the parties voluntarily contracted without such license.
The parties are charged with knowledge of the existing
law at the time they enter into the contract and at the time it is
to become operative. . . In this case, the record shows that, at
least, petitioner had actual knowledge of the applicability of
R.A. No. 5455 at the time the contract was executed and at all
times thereafter. . . . The very purpose of the law was
circumvented and evaded when the petitioner entered into
said agreements despite the prohibition of R.A. No. 5455. The
parties in this case being equally guilty of violating R.A. No.
5455, they are in pari delicto, in which case it follows as a
consequence that petitioner is not entitled to the relief prayed
for in this case.37

The result in Top-Weld Manufacturing would be that a contract or

transaction between a local and foreign corporation that would qualify the latter to
be doing business in the Philippines without obtaining the requisite license would
not be actionable at all in Philippine courts or administrative bodies. If the foreign
corporation brings an action on said contract or transaction, it will be dismissed
under Section 133 of the Corporation Code as a consequence of not obtaining
the license. On the other hand, if the local counterpart brings an action on the
contract, it would also be dismissed on grounds of pari delicto, under Top-Weld
36
37

Ibid, at p. 130.
Ibid, at p. 131. Emphasis supplied.

which held that "the law will not aid either party to an illegal agreement. It leaves
the parties where it finds them."38
Although the Court acknowledged that "[a]s between the parties
themselves, R.A. No. 5455 does not declare as void or invalid the contracts
entered into without first securing a license or certificate to do business in the
Philippines," yet at the same time it would apply the pari delicto doctrine because
it would "not aid either party to an illegal agreement." The effect is to hold such a
contract void.
Such pronouncements in Top-Weld contravene the clear language in
Section 133 that "a foreign corporation doing business in the Philippines without
first obtaining the license to do business . . . may be sued or proceeded against
before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws." Also, the pronouncements fail to consider the
crucial point that obtaining the license is a duty imposed upon the foreign
corporation doing business in the Philippines, not on the locals who deal with it,
and precisely it is a duty imposed on foreign corporations in order to protect the
locals.
2. Doctrine of Estoppel
In Merrill Lynch Futures, Inc. v. Court of Appeals,39 the Supreme Court
came out with a diametrically opposed ruling to the pari delicto principle of TopWeld Manufacturing.
In that case, 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. 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, thus
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

38
39

Ibid, at p. 131, citing Bough v. Cantiveros, 40 Phil. 210 (1919).

211 SCRA 824 (1992).

with the statutes, chiefly in cases where such person has

received the benefits of the contract . . .40

The Merrill Lynch doctrine of estoppel has been reiterated in National

Sugar Trading Corporation v. Court of Appeals.41 In that case a complaint for
specific performance and partial rescission of contract and damages was brought
by a foreign corporation against the National Sugar Trading Corporation
(NASUTRA) with the Regional Trial Court. Although the complaint alleged that
the foreign corporation was not engaged in business in the Philippines,
NASUTRA, after filing an answer, had moved to dismiss the complaint on the
ground that the foreign corporation was actually engaged in business in the
Philippines and had not obtained a license, and thereby has no standing to sue in
Philippine courts.
Although the issue brought before the Supreme Court was whether the
foreign corporation was engaged in business in the Philippines without a license,
and in fact the Court held that "[w]hether a foreign corporation is doing business
in the Philippine must be determined in the light of the peculiar circumstances of
each case . . . [and] is essentially a question of fact," nevertheless the resolution
of such issue was rendered irrelevant because the Court applied the Merrill
Lynch estoppel doctrine. It held Petitioners do not dispute private respondent's claim that
NASUTRA entered into the Contract of Purchase and Sale of
Sugar with the latter in 1980 . . . In fact, in its Motion to
Dismiss filed below, petitioner SRA admits the partial delivery
of the sugar and the issuance of SRA Resolution No. 68-87-A
recognizing payment and receipt by NASUTRA of the
purchase price for the said sugar, and NASUTRA's existing
obligation over the undelivered portion . . . Given these
preliminary facts and assuming that petitioner NASUTRA was
aware from the outset that private respondent had no license
to do business in this country, it would appear quite inequitable
for NASUTRA, a state-owned corporation, to evade payment
of an otherwise legitimate indebtedness due and owing to
private respondent upon the plea that the latter should have
obtained a license first before perfecting a contract with the
Philippine government.42

In addition, the Court took into serious consideration the fact that the
foreign corporation did not actually "sell sugar and derive income from the
Philippines," but actually bought sugar from the Philippine government and
allegedly paid for it in full. The theory therefore would seem that the activity to be
40
Ibid, at p. 837. The "estoppel" doctrine was also reiterated in Georg Grotjahn GMBH &
Co. v. Isnani, 235 SCRA 216, 54 SCAD 289 (1994).
41
246 SCRA 465, 63 SCAD 31 (1995)
42
Ibid, at pp. 469-470 citing Merrill Lynch Futures, Inc. v. Court of Appeals, 211 SCRA 824
(1992).

undertaken in the Philippines to be considered engaged in business is one that is

for profit-making activity and not one where the foreign corporation merely seeks
to enter into a purchase or acquisition transaction which by itself it does not
derive profit. The Court then went on to quote from Antam Consolidated, Inc. v.
Court of Appeals,43 which it deemed similar in facts and held that the doctrine of
lack of capacity to sue based on failure to acquire a local license is based on
considerations of sound public policy. The license requirement was imposed to
subject the foreign corporation doing business in the Philippines to the
jurisdiction of its courts and never intended to favor domestic corporation 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 the
country.
The rulings of the Supreme Court would also imply that when a foreign
corporation doing business in the Philippines has not obtained the requisite
license is sued, then by the principle of estoppel, it may interpose the proper
counterclaims.
3. Revoking Pari-Delicto Ruling
Favor of Estoppel Doctrine

in

Recently, the Top-Weld doctrine of pari delicto seems to have been

revoked in favor of the estoppel doctrine in Communication Materials and
Design, Inc. v. Court of Appeals,44 where the Supreme Court in applying directly
the Top-Weld doctrine found that the contract of a foreign corporation with a local
broker or agent as having highly restrictive terms and conditions as to constitute
the foreign corporation as doing business in the Philippines.
In that case, although the foreign corporation was held doing business in
the Philippines, the Court refused to allow the plea of the local company that not
having been licensed to do business in the Philippines, the foreign corporation
has no standing to sue. The Court, invoking the Merrill Lynch doctrine held:
A foreign corporation doing business in the Philippines
may sue in Philippine courts although not authorized to do
business here against a Philippine citizen or entity who had
contracted with and benefited by said corporation. To put it
another way, 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 a foreign as well as to
domestic corporations. One who has dealt with a corporation
of foreign origin as a 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
43
44

143 SCRA 288 (1986).

260 SCRA 673, 73 SCAD 374 (1996).

chiefly in cases where such person has received the benefits

of the contract.

The Court held that the doctrine of lack of capacity to sue based on the
failure to acquire a local license is based on considerations of sound public
policy. The license requirement was imposed to subject the foreign corporation
doing business in the Philippines to the jurisdiction of its courts. 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.45
4. Problems with Estoppel Doctrine
The problem with the Merrill Lynch estoppel doctrine is that it basically
lacks one of the essential ingredients that constitutes the element of estoppel,
which is that by the action or representation of one party (i.e., the local entity or
individual), the other party (i.e., the foreign corporation), has been held to believe
that he would be entitled to relief on the contract entered into in the course of
doing business in the Philippines without a license. When a foreign entity
engages in business in the Philippines and fails to obtain the requisite license,
then the simple act of a local entering into a contract with such foreign
corporation cannot reasonably give rise to estoppel or the belief therefore on the
part of the foreign entity that he would be allowed to secure reliefs from local
courts since the provisions of Section 133 of the Corporation Code, which is
deemed to be part of such contract, prevents such belief from having a
reasonable basis.
The Merrill Lynch estoppel doctrine effectively removes the sanction
provided for by law on the failure of a foreign corporation to obtain a license
before it engages in business in the Philippines, and therefore there would be
less motive on the part of such foreign corporation to obtain the license since it
can always sue in Philippine courts.
Eriks Pte. Ltd. v. Court of Appeals,46 has answered the issue that to
prevent a foreign corporation to sue on a contract would be unjust enrichment for
the local counterpart, albeit not in express reference to the estoppel doctrine. In
that case it was argued by the foreign corporation that its denial of access to
Philippine courts would afford unjust enrichment to the defendant. The Court
held: "a judgment denying a foreign corporation relief from our courts for failure to
obtain the requisite license to do business, should not be construed as an
attempt to foreclose the ultimate right to collect on an obligation. . . 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."
45

Quoting from National Sugar Trading Corp. v. Court of Appeals, 246 SCRA 465, 63 SCAD
31 (1995).
46
267 SCRA 567, 76 SCAD 70 (1997).

CONCEPT OF "DOING BUSINESS" UNDER

FOREIGN INVESTMENT ACT OF 1991
The Foreign Investment Act of 199147 now governs foreign investments in
the Philippines that do not seek BOI incentives. The Act has repealed Book II of
the Omnibus Investments Code of 1987.48
1. Statutory Definition of "Doing Business"
Instead of defining a "foreign corporation," the Act refers to a "nonPhilippine national" as an entity not falling within the definition of "Philippine
National." A Philippine national means
a corporation organized under the laws of the Philippines
of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens
of the Philippines . . . Provided, That where a corporation and
its non-Filipino stockholders own stocks in a SEC registered
enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of both corporations must be
owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines, in order
that the corporation shall be considered a Philippine national.49

Under the negative list concept of the Act, a non-Philippine national, upon
registration with the SEC, may do business in the Philippines or invest in a
domestic enterprise up to one hundred percent (100%) of its capital, unless
participation of non-Philippine nationals in the enterprise is prohibited or limited to
a smaller percentage by existing law and/or under the negative lists of the Act. 50
Although the Act has removed the requirement of registration with the BOI
for foreign investors to do business in the Philippines outside the negative lists,
nevertheless it confirms the need for such foreign corporation, before engaging in
business in the Philippines, to register with, and obtain a license to do business
from, the SEC.
Under the Implementing Rules and Regulations issued by the Department
of Trade and Industry, a foreign corporation is defined as "one which is formed,
organized or existing under laws other than those of the Philippines." 51
The Act defines "doing business" to include the following by express
enumeration:

47

Rep. Act No. 7042.

Executive Order No. 226.
49
Sec. 3(a), Foreign Investment Act of 1991.
50
Sec. 5, Foreign Investment Act of 1991.
51
Sec. 1(c), Implementing Rules and Regulations of FIA 91.
48

(a) Soliciting orders, service contracts, opening offices,

whether called liaison offices or branches;
(b) Appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the
country for a period or periods totaling one hundred
eighty (180) days or more;
(c) Participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the
Philippines; and
(d) 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 or object of the business organization.52
On the other hand, the Act makes clear that "doing business" does not
include the following acts and activities:
(a) Mere investment as a shareholder by a foreign entity in a
domestic corporation duly registered to do business,
and/or the exercise of rights as such investor;
(b) Having a nominee director or officer to represent its
interests in such corporation; and
(c) Appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and
for its own account.53
The DTI Implementing Rules and Regulations, in defining "doing
business," not only carries 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
52
53

Sec. 3(d), Foreign Investment Act of 1991; emphasis supplied.

Ibid.

(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.54
A review of the enumerated instances of activities not constituting doing
business shows a common denominator that by themselves the activities do not
bring any direct receipts or profits to the foreign corporation. This would be
consistent with the ruling of the Supreme Court in National Sugar Trading
Corporation v. Court of Appeals,55 that activities within Philippine jurisdiction that
do not create earnings or profits to the foreign corporation do not constitute doing
business in the Philippines.
Such exceptions to the doing business concept are not found in the
statutory definition of doing business, and do not conform to the public policy
behind the requirement of getting a license, i.e., that foreign corporation are
prevented from conducting activities in the Philippine before steps are taken to
ensure that both the state and the locals would have a valid means of obtaining
jurisdiction over their persons (which is achieved by the process of obtaining a
license to do business). Thus, it has been held in Avon Insurance PLC v. Court
of Appeals, 56 thus:
The purpose of the law in requiring that foreign
corporations doing business in the country be licensed to do
so, it to subject the foreign corporations doing business in the
Philippines to the jurisdiction of the courts, otherwise, a foreign
corporation illegally doing business here because of its refusal
or neglect to obtain the required license and authority 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.
The same danger does not exist among foreign
corporations that are indubitably not doing business in the
Philippines. Indeed, if a foreign corporation does not do
business here, there would be no reason for it to be subject to
the States regulation. As we observed, in so far as the State is
concerned, such foreign corporation has no legal existence.
Therefore, to subject such foreign corporation to the courts
jurisdiction would violate the essence of sovereignty.

2. Ruling on Indentors and Brokers

54

Sec. 1(f), Implementing Rules and Regulations of FIA 91.

246 SCRA 465, 63 SCAD 31 (1995).
56
278 SCRA 312, 86 SCAD 401 (1997).
55

The Supreme Court in Top-Weld Manufacturing, Inc. v. ECED S.A., 57 has

ruled on operative function of exemption of a foreign corporation from obtaining a
license to do business under Section 1(f)(1) and 1(f)(2) of the Rules and
Regulations Implementing the Omnibus Investments Code of 1987, when it
transacts business through middlemen, acting in their own names, such as
indentors, commercial brokers or commercial merchants.
In Top-Weld, the licensing and representative agreements entered into by
the foreign corporation with locals were deemed to be "highly restrictive" in
nature as to reduce the locals to being mere conduits or extension of the foreign
corporation in the Philippines.
The Court held that the foreign corporations were doing business in the
Philippine because the disputed contracts with the locals were entered into to
carry out the purposes for which they were created, i.e., to manufacture and
market welding products and equipment. The terms and conditions of the
contracts as well as the conduct of the foreign corporations indicate that they
established within the Philippines a continuous business, and not merely one of a
temporary character.
The Court in Top-Weld did indicate that the foreign corporations could be
exempted from the requirements of Republic Act 5455 if the local company were
an independent entity which buys and distributes products not only of the foreign
corporation, but also of other manufactures or transacts business in its name and
for its account and not in the name or for the account of the foreign principal. It
held that a reading of the agreements between the foreign corporations and the
local company shows that they are highly restrict in nature, thus making the local
company a mere conduit or extension of the foreign corporations.
In spite of the provisions of the Act and the Implementing Rules and
Regulations, therefore, even when the local agents, brokers, or indentors of
foreign corporation transact sales in their own names, but the covering licensing
or representative agreements with foreign corporations contain highly restrictive
terms as to render the locals merely conduits or extensions of foreign
corporations, the latter would still be considered as "doing business" in the
Philippines.
The doctrine was reiterated in Communication Materials and Design, Inc.
v. Court of Appeals,58 which found the following provisions in the Master Service
Agreement of the foreign corporation with the local company as highly restrictive
as to make the latter merely a conduit or extension of the foreign company:
(a) It required the local technical representative to provide
the employees of the technical and service center with
the foreign corporation identification cards, and to
correspond only on the foreign corporation's letterhead;

57
58

138 SCRA 118 (1985).

260 SCRA 673, 73 SCAD 374 (1996).

(b) Local employees were instructed to answer telephone

using the foreign corporation's name, and all calls being
recorded and forwarded to the foreign company on a
weekly basis;
(c) The local company was obliged to provide the foreign
company with a monthly report detailing the failure and
repair of the products and to requisition materials and
components from the foreign corporation; and
(d) The agreement provided for a "no competing product"
clause.

LAW ON REGIONAL OR AREA HEADQUARTERS

The acts of a foreign corporation registered under Pres. Decree No. 218
as a regional or area headquarter, which includes acting as supervision,
coordination, communications and coordination center for its home office's
affiliates, the naming of its local agent and employment of Philippine national are
acts pursuant to its primary purposes and functions as a regional/area
headquarters for its home office, and are deemed to be "doing business" in the
country, as defined under the Omnibus Investment Code of 1987, and would give
it standing to sue in Philippine courts even without a separate license to do
business.59
Regional headquarters are not regulated nor licensed under Section 123
of the Corporation Code, but under Executive Order No. 226 (otherwise known
as the Omnibus Investment Code of 1987), and therefore do not need a separate
license from the SEC in order to operate as an area or regional headquarters in
the Philippines for a multinational company. No license is required since area or
regional headquarters are established only to supervise, coordinate and
communicate with their own affiliates, subsidiaries or branches in the Asia Pacific
region, and are not allowed to do business in the Philippines like the branch or
representative offices of foreign corporations licensed pursuant to the
Corporation Code.60
Republic Act No. 8756, which amended the Omnibus Investment Code,
has provided for the establishment within Philippine jurisdiction of regional
operating headquarters, which means foreign entity which is allowed to derive
income in the Philippines by performing qualifying services to its affiliates,
subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in
other foreign markets. Once is has obtained the appropriate license as a
regional operating headquarters, it does not need to acquire a separate license
to do business in the Philippines.

59
60

Georg Grotjahn GMBH & Co. v. Isnani, 235 SCRA 216, 54 SCAD 289 (1994).
SEC Letter reply to Atty. Cesar L. Villanueva, dated 31 January 1996.

JURISPRUDENTIAL TESTS OF "DOING BUSINESS"

1. Defining Isolated Transactions
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. The issue is exactly what "doing business" covers. No
definition is offered under the Corporation Code as to what constitutes doing
business.
Marshall-Wells Co. v. Henry W. Elser & Co.,61 was the earliest case
decided by the Supreme Court directly in point. In that case, an Oregon
corporation sued a domestic corporation in the then court of first instance of
Manila, to recover the unpaid balance on a bill on sale of goods. The complaint
was dismissed by the trial court on demurrer by the defendant since the
complaint did not show that the plaintiff, being a foreign corporation, had
complied with the legal requirement of foreign corporations obtaining the license
to do business.
Marshall-Wells then established the rule that obtaining of a license and the
effect of not obtaining such license only applied to foreign corporations doing
business in the Philippines; it had no application to foreign corporations not doing
business in the Philippine. In construing what is not included in the term "doing
business," Marshall-Wells did indicate that an "isolated" transaction would not
place a foreign corporation within the term "doing business."
The Supreme Court in Marshall-Wells discussed the rationale behind then
Section 69 of the Corporation Law (now Section 133 of the Corporation Code),
thus:
The object of the statute was to subject the foreign
corporation doing business in the Philippines to the jurisdiction
of its courts. The object of the statute was not to prevent the
foreign corporation from performing single act, 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. 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."62

61
62

46 Phi. 70 (1924).
Ibid, at p. 75. Emphasis supplied.

Subsequently, the Court rendered a decision in Western Equipment and

Supply Co. v. Reyes,63 where from the stipulation of facts of the parties they had
agreed that the foreign corporation, "had never engaged in business in the
Philippine Islands." Under such an admitted fact it was easy for the Court to hold
that a foreign corporation which has never done any business in the Philippines
and which is unlicensed and unregistered to do business here, but is widely and
favorably known in the Philippines through the use therein of its products bearing
its corporate and trade name, has a legal right to maintain an action in the
Philippines to restrain the residents and inhabitants from organizing a corporation
bearing the same name as the foreign corporation.
Western Equipment did not define what constitutes "doing business" since
it was stipulated by the parties that the foreign corporation has done no business
in the Philippines. It supported the doctrine that foreign corporation can bring an
action in the Philippines to protect its reputation, corporate name and goodwill
which have been established through the natural development of its trade over a
long period of years, in the doing of which it does not seek to enforce any legal or
contract rights arising from, or growing out of, any business which it has
transacted in the Philippines.64
2. Twin Characterization Test
In 1941, the Supreme Court in Mentholatum Co., Inc. v. Mangaliman,65
began to fashion a jurisprudential test of what constitutes "doing business" in the
Philippines for foreign corporations. In that case, Mentholatum Company, an
American corporation, and its exclusive Philippine distributing agent, PhilippineAmerican Drug Company, instituted an action for infringement of trademark and
unfair competition against defendants Mangaliman. Mentholatum had in previous
years registered the trademark "Mentholatum" for its products consisting of
medicament and salve. The defendants Mangaliman had prepared a
medicament and salve named "Mentholiman" which they sold to the public
packed in containers of the same size, color and shape as "Mentholatum".
Although the trial court found for the plaintiffs, on appeal the Court of Appeals
reversed the decision, holding that the activities of Mentholatum were business
transactions in the Philippines, and that, by Section 69 of the Corporation Law, it
could not maintain any action.
In a petition for certiorari filed with the Supreme Court, the plaintiffspetitioners claimed that although Mentholatum may be covered by the provision
of then Section 69 of the Corporation Law on the effects of doing business
without a license, the complaint was also filed by Philippine-American Drug
Company, a domestic corporation, which had sufficient interest and standing to
maintain the complaint. In addition, it was shown that Mentholatum itself had not
sold any of its products in the Philippines, and it was Philippine-American Drug
63

51 Phil. 115 (1927).

Ibid, at p. 128.
65
72 Phil. 524 (1941).
64

Co., Inc. and fifteen other local entities which imported the products and sold
them locally.
It determining whether Mentholatum fell under the category of doing
business in the Philippines, which thereby required it to obtain a license to do
business, the Court held:
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 a
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.66

In deciding that Mentholatum was indeed engaged in business in the

Philippines, the Supreme Court took cognizance of the allegation in the complaint
that clearly stated that the "Philippine-American Drug Co., Inc., is the exclusive
distributing agent in the Philippine Islands of the Mentholatum Co., Inc., in the
sale and distribution of its products known as the Mentholatum." The Court
therefore concluded that whatever transactions the Philippine-American Drug
Company had executed in view of the law, the Mentholatum did itself. The Court
held therefore that since Mentholatum is a foreign corporation doing business in
the Philippine without a license, it may not prosecute the action for violation of
trademark and unfair competition. In addition, neither may the PhilippineAmerican Drug Company maintain the action for the reason that the
distinguishing features of the agent being its representative character and
derivative authority, and could not, to the advantage of its principal, claim an
independent standing in court apart from Mentholatum.
What is significant in Mentholatum is its drawing of the two tests to
determine whether a foreign corporation is engaged in business in the
Philippines:
First, it considered as the "true test" of doing business in the Philippines
as to 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."
66

Ibid, at pp. 528-529, citing Traction Cos. v. Collectors of Int. Revenue [C.C.A. Ohio] 223 F.
984, 987; Griffin v. Implement Dealer's Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co.
v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co., v. American
Standard Metal Products Corp., 158 N.E. 698, 703, 327 Ill. 367). Emphasis supplied.

Second, it defined "doing business" to necessarily imply "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."
Taken together, 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. It re-affirmed the early characterization of Marshall-Wells
that an "isolated transaction" by a foreign corporation cannot qualify as "doing
business" since it lacks the element of continuity. Notice that the element of profit
results did not figure into the test.
Commissioner of Internal Revenue v. British Overseas Airways Corp.,67
held that when an international airline maintains a general sales agent in the
Philippines, which engaged in the selling and issuing of tickets, breaking down
the whole trip into series of tripeach trip in the series corresponding to a
different airline company, receiving the fare from the whole trip, and allocating to
the various airline companies on the basis of their participation in the services
rendered through the mode of interline settlement, then those activities constitute
doing business in the Philippines for which it could be held liable for income tax
liabilities as a resident foreign corporation under the Philippine Tax Code. 68
Top-Weld Manufacturing, Inc. v. ECED, S.A.,69 summarized it well when it
held that:
There is no general rule or governing principle laid down
as to what constitutes "doing" or "engaging in" or "transacting"
business in the Philippines. Each case must be judged in the
light of its peculiar circumstances. (Mentholatum Co. v.
Mangaliman, 72 Phil. 524). Thus, a foreign corporation with a
settling agent in the Philippines which issues twelve marine
policies covering different shipments to the Philippines
(General Corporation of the Philippines v. Union Insurance
Society of Canton, Ltd. 87 Phil 313) and a foreign corporation
which had been collecting premiums on outstanding policies
(Manufacturing Life Insurance Co., v. Meer, 89 Phil. 351) were
regarded as doing business here. The acts of these
corporations should be distinguished from a single or isolated
business transaction or occasional, incidental and casual
transactions which do not come within the meaning of the law.
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" or "engaging in" or
67
68

149 SCRA 395 (1987).

Reiterated in Commissioner of Internal Revenue v. Japan Air Lines, Inc., 202 SCRA 450

(1991).
69

138 SCRA (1985).

"transacting" business in the Philippines (Far East

International Import and Export Corporation v. Nankai Kogyo,
Co., 6 SCRA 725).

In Top-Weld Manufacturing the Court considered the foreign corporation

as doing business in the Philippines when it entered into the disputed contracts
which were in accordance with the purpose for which it was created, namely, to
manufacture and market welding products and equipment. The terms and
conditions of the contracts, as well as the conduct thereof, indicate the
establishment within the country of a continuous business, and not merely one of
a temporary character.
3. Essence of Intent to Pursue Continuity of Transactions
The lack of intent to pursue with continuity transactions in the Philippines
has been found crucial by the Supreme Court in determining whether the foreign
corporation is engaged in business in the Philippines.
Litton Mills, Inc. v. Court of Appeals,70 clearly held that 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.
4. Extension of Credit as Essential Indication of Intent
Eriks Pte. Ltd. v. Court of Appeals,71 found the extension of credit terms to
be indicative of intent to do business in the Philippines for an indefinite period,
thus: "More than the sheer number of transactions entered into, a clear and
unmistakable intention on the part of petitioner to continue the body of its
business in the Philippines is more than apparent. . . Further, its grant and
extension of 90-day credit terms to private respondent for every purchase made,
unarguably shows an intention to continue transaction with private respondent,
since in the usual course of commercial transactions, credit is extended only to
customers in good standing or to those on whom there is an intention to maintain
long-term relationship. . . 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. The number and
quantity are merely evidence of such intention."
In the case of foreign movie companies who have registered intellectual
property rights over their movies in the Philippines, it was held that the
appointment of local lawyer to protect such rights for piracy is not deemed to be
70

256 SCRA 696, 75 SCAD 160 (1996).

267 SCRA 567, 76 SCAD 70 (1997).

71

doing business.72 The Court held: "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."73
5. Contract Test
In 1955, in Pacific Vegetable Oil Corp. v. Singzon,74 the Supreme Court
began fashion what seemed like a second branch of judicial characterization of
what constitutes "doing business," which essentially is a contract test.
In that case, a suit was filed by a foreign corporation against the defendant
to recover damages suffered as a consequence of the failure of the defendant to
deliver copra which was ordered through a contract negotiated and perfected in
the United States, under "c.i.f. Pacific Coast" terms. The lower court dismissed
the complaint holding that plaintiff had no personality to institute the case
because at the time the case was filed the plaintiff had no license to do business
in the Philippines, and even it afterwards obtained such license, the belated act
did not have the effect of curing the defect that existed when the case was
instituted. On appeal, the Supreme Court held that the plaintiff was not doing
business in the Philippines under the contract, and there was no necessity for it
to obtain a license before it can maintain the suit.
In holding that the plaintiff foreign corporation was not doing business in
the Philippines by virtue of the contract covering copra to be processed and
delivered from the Philippines, the Supreme Court took cognizance of the fact
that the subject contract was entered into in the United States by the parties; that
payment of the price was to be made at San Francisco, California, through a
letter of credit to be opened at a bank thereat; and with respect to the delivery of
the copra, it was stipulated to be at "c.i.f., Pacific Coast" which meant that
delivery is to be made only at the port of destination since the seller (defendant)
obliged himself to take care of the freight until the goods have reached
destination. Thus, although it was found by the Supreme Court that the plaintiff
foreign corporation had also bought copra from other exporters in the Philippines,
it took note of the fact that those transactions were undertaken under similar
circumstances.
The Pacific Vegetable Oil doctrine does not consider the twin
characterization tests of Mentholatum of substance of the transactions pertaining
to the main business of the corporation 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 Oil doctrine, so
long as the perfection and consummation of a series of transactions are done
outside Philippine territorial jurisdiction, the same would not constitute doing

72

Columbia Pictures, Inc. v. Court of Appeals, 261 SCRA 144, 73 SCAD 674 (1996).
Ibid.
74
Advanced Decisions Supreme Court, April 1955 Vol., p. 100-A.
73

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.
The doctrine had a follow-up in Aetna Casualty & Surety Company v.
Pacific Star Line.75 In that case, a foreign insurance company, as subrogee of the
insured, instituted civil actions in the then court of first instance of Manila to
recover sums pertaining to damages on stolen cargo it insured, against local
companies which handled the goods. In their amended answers, the defendants
alleged that plaintiff is a foreign corporation not duly licensed to do business in
the Philippines and, therefore, without capacity to sue.
Upon stipulation of facts showing that plaintiff was not licensed to engage
in business in the Philippines, and that in fact it had filed thirteen (13) other civil
cases in the Philippines of similar nature, the trial court dismissed the complaint
ruling that although a foreign corporation may file a suit in the Philippines in
isolated cases, but where the plaintiff has been filing actions in the Philippines
not just in isolated instances, but in numerous cases and therefore has been
doing business in the country without obtaining a license.
On appeal, the Supreme Court held that the foreign insurance company
was not doing business in the Philippines, and therefore was not prohibited from
maintaining a suit in Philippine courts. The Court found that the contract of
insurance was entered into in New York; that payment was made to the
consignee in its New York branch and that since the corporation "was 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."76
Subsequently, in Universal Shipping Lines, Inc. v. Intermediate Appellate
Court,77 it was held that a foreign insurance company may sue in Philippine
courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no
license to do business in the Philippines, "for it is not the lack of the prescribed
license (to do business in the Philippines) but doing business without such
license, which bars a foreign corporation from access to our courts." 78 The
Supreme Court considered the activities as not doing business in the Philippines.
The Rules and Regulations implementing the Omnibus Investments Code
of 1987,79 expressly included in the definition of "doing business" the "soliciting of
orders, purchases (sales) or service contracts." In fact, it provided that "Concrete
and specific solicitations by a foreign firm or by an agent of such foreign firm, not
75

80 SCRA 635 (1977).

Ibid, at p. 644.
77
188 SCRA 170 (1990)
78
Ibid, at p. 173.
79
Executive Order No. 226.
76

acting independently of the foreign firm, amounting to negotiations or fixing of the

terms and conditions of sales or service contracts, regardless of where 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." In
addition, the Rules and Regulations expressly provided that "The arrangements
agreed upon as to manner, time and terms of delivery of the goods or the
transfer of title thereto is immaterial." Effectively therefore, the Board of
Investments, by the implementing Rules and Regulations, had attempted to
override the Pacific Vegetable doctrine.
The Implementing Rules and Regulations to the Foreign Investment Act of
1991, while retaining "soliciting orders" as doing business in the Philippines has
dropped entirely the explicit provisions seeking to override the Pacific Vegetable
doctrine. However, its retaining "soliciting orders" as constituting doing business
in the Philippines indicates a bias against the Pacific Vegetable doctrine.
In addition, the Supreme Court in Communication Materials and Design,
Inc. v. Court of Appeals,80 has held that "[i]n determining whether a corporation
does business in the Philippines, or not, aside from their activities within the
forum, reference may be made to the contractual agreements entered into by it
with other entities in the country." It referred to the case of Top-Weld
Manufacturing, Inc. v. ECED S.A.,81 where the highly restrictive terms in the
License and Technical Agreement and the Distributor Agreement with locals
became the basis of treating the foreign corporations as doing business in the
country; and to the case of Merill Lynch Futures, Inc. v Court of Appeals,82 where
the futures contract entered into by the foreign corporation with locals weighed
heavily in the Court's ruling finding it engaging in business in the Philippines.
6. Evolving Role of Contract Test
As the contract test is evolving in Philippine jurisprudence, it seems to
provide a premise upon which the twin characterization test of Mentholatum
should be applied, requiring that the transactions or series of transactions that
should be the basis for determining whether a foreign corporation is transacting
business in the Philippines, would require that the salient features of such
contract must find their fulfillment within Philippine shores. This clearly was the
implication in the more recent case of Columbia Pictures, Inc. v. Court of
Appeals.83
In that case, the Court reviewed the general concept of doing business by
applying the twin characterization tests:
No general rule or governing principles can be laid down
as to what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its own
80

260 SCRA 673, 73 SCAD 374 (1996).

138 SCRA 118 (1985).
82
211 SCRA 824 (1992).
83
261 SCRA 144, 73 SCAD 674 (1996).
81

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 whether it has substantially retired from it and
turned it over to another.
As a general proposition upon which many authorities
agree in principle, subject to such modifications as may be
necessary in view of the particular issue or of the terms of the
statute involved, it is recognized that a foreign corporation is
"doing," "transacting," "engaging in," or "carrying on" business
in the State when, and ordinarily only when, it has entered the
State by its agents and is there engaged in carrying on and
transacting through them some substantial part of its ordinary
or customary business, usually continuous in the sense that it
may be distinguished from merely casual, sporadic, or
occasional transitions and isolated acts.

The Court held that although Section 1(g) of the Implementing Rules and
Regulations of the Omnibus Investments Code lists among others the "soliciting
orders, purchases (sales) or service contracts, and the appointing of
representative or distributor who is domiciled in the Philippines," as constituting
doing business, the mere fact that foreign movie companies are copyright owners
or owners of exclusive distribution rights in the Philippines of motion pictures or
films did "not convert such ownership into an indicium of doing business which
would require them to obtain a license before they can sue upon a cause of
action in local courts, such as in this case seeking protection for the intellectual
properties."
The Court stressed that as a general rule, a foreign corporation will not be
regarded as doing business in the State simply because it enters into contracts
with residents of the State, where such contracts are consummated outside the
State. In fact, a view is taken that a foreign corporation is not doing business in
the State merely because sales of its products are made there or other business
furthering its interest is transacted there by an alleged agent, whether a
corporation or a natural person, whether such activities are not under the
direction and control of the foreign corporation but are engaged in by the alleged
agent as an independent business.
It is generally held that sales made to customers in the State by an
independent dealer who has purchased and obtained title from the corporation of
the products sold are not a doing of business by the corporation. Likewise, a
foreign corporation which sells its products to person styled "distributing agents"
in the State, for distribution by them, is not doing business in the State so as to
render it subject to service of process therein, where the contract with these
purchasers is that they shall buy exclusively from the foreign corporation such
goods as it manufactures and shall sell them at trade prices established by it."
As discussed hereunder, the contract test has also been applied as part of
the jurisprudential ruling subjecting the foreign corporation not doing business in

the Philippines to the jurisdiction of local courts on isolated contracts that have
been entered into or performed within Philippine territorial jurisdiction. 84
7. Reinsurance Not Per Se Doing Business
Avon Insurance PLC v. Court of Appeals,85 held that the nature of the
reinsurance business cannot not necessarily mean that a foreign reinsurance
company can be deemed being engaged in business in the Philippines. The
Supreme Court recognized existence of authority to the effect that a reinsurance
company is not doing business in a certain state merely because the property or
lives which are insured by the original insurer company are located in that state, 86
thus: The reason for this is that a contract of reinsurance is generally a separate
and distinct arrangement for the original contract of insurance, whose contracted
risk is insured in the reinsurance agreement. Hence, the original insured has
generally no interests in the contract of reinsurance.

DOCTRINE ON ISOLATED TRANSACTIONS

The doctrine is that for isolated transactions, foreign corporation are not
required to obtain a license in order to obtain relief from local courts or agencies.
In one case,87 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."
The Court held that 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."88
In Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc.,89 it was held
that when a foreign shipping company entered into a charter party arrangement
with a local company for a vessel to load cargo of scrap iron in the Philippines for
Buenos Aires, the transaction entered into in the Philippines was held not to
84

Hyopsung Maritime Co., Ltd. v. Court of Appeals, 165 SCRA 258 (1988); Signetics
Corporation v. Court of Appeals, 225 SCRA 737, 44 SCAD 357 (1993).
85
278 SCRA 312 (1997).
86
Citing Moris Co. v. Scandinavia Ins. Co., 279 U.S. 405 (1929).
87
Ericks Pte. Ltd. v. Court of Appeals, 267 SCRA 567, 76 SCAD 70 (1997).
88
Ericks Pte. Ltd. v. Court of Appeals, 267 SCRA 567, 76 SCAD 70 (1997).
89
102 Phil. 1 (1957).

qualify it to be considered as being engaged in business, although on a previous

occasion its vessel was chartered by the National Rice and Corn Corporation to
carry rice cargo from abroad to the Philippines, since the two transactions were
not related. It was held therefore, that such foreign corporation had capacity to
sue in the Philippines even without a license.
In Antam Consolidated, Inc. v. Court of Appeals,90 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. The Court discussed the policy behind the rule:
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.91

The auxiliary rule in Antam Consolidated is similar in principle to the

provision of Section 1(f)(8) of the Implementing Rules to the Foreign Investment
Act that does not consider as "doing business" the performance of services
auxiliary to an existing isolated contract of sale which are not on a continuing
basis.
The principle that a foreign corporation not engaged in business in the
Philippines may not be denied the right to file an action in Philippine courts for
isolated transactions has been reiterated in other cases, such as (a) one
involving the collision of two vessels at the harbor of Manila in Dampfschieffs
Rhederei Union v. La Campaia Transatlantica;92 (b) the loss of goods bound for
Hongkong but erroneously discharged in Manila in The Swedish East Asia Co.,
Ltd. v. Manila Port, Service;93 (c) infringement of trade name in General
Garments Corporation v. Director of Patents 94 and Universal Rubber Products,
Inc. v. Court of Appeals;95 (d) the recovery of damages sustained by cargo
90

143 SCRA 288 (1986).

Ibid, at p. 297.
92
8 Phil. 766 (1907).
93
25 SCRA 633 (1968).
94
41 SCRA 50 (1971).
95
130 SCRA 104 (1984).
91

shipped to the Philippines in Bulakhidas v. Navarro;96 (e) the sale to the

government of road construction equipment and spare parts with no intent of
continuity of transaction in Gonzales v. Raquiza;97 and (f) the recovery on a
Hongkong judgment against a resident in Manila in Hang Lung Bank, Ltd. v.
Saulog.98
In Hang Lung Bank, Ltd. v. Saulog 99 the Supreme Court added a particular
point in the 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." 100

SPECIAL RULES PERTAINING TO ACTIONS ON

CORPORATE
NAMES,
TRADENAMES
AND
TRADEMARKS
Justice Moran rendered a dissenting opinion in Mentholatum that the
provisions of Section 69 of the Corporation Law do not apply to suits brought by
foreign corporations for infringement of trademarks and unfair competition, the
theory being that "the right to the use of the corporate name and trade name of a
foreign corporation is a property right, a right in rem, which it may assert and
protect in any of the courts of the world even in countries where it does not
personally transact any business," and that "trade mark does not acknowledge
any territorial boundaries but extends to every mark where the traders' goods
have become known and identified by the use of the mark." 101
Although Western Equipment had previously held that the right to the use
of the corporate name and trade name of a foreign corporation is a property right,
a right in rem, which it may assert and protect in any of the courts of the world
even in countries where it does not personally transact any business, the same
ruling could not then apply in Mentholatum, since unlike in Western Equipment
where there was an expressed finding or stipulation that the foreign corporation
never engaged in business in the Philippines, in Mentholatum the foreign
corporation was found to have engaged in business in the Philippines without
obtaining the requisite license; therefore, by public policy expressed in Section
69 of the then Corporation Law, the Court declared In Mentholatum that it could
not sue in Philippine courts.
The remarks of Justice Moran in his dissenting opinion state only the
positive rule discussed in Western Equipment that when a foreign corporation
does not do business in the country, it needs no license to bring suit to enforce its
96

142 SCRA 1 (1986).

180 SCRA 254 (1989).
98
201 SCRA 137 (1991).
99
201 SCRA 137 (1991).
100
Ibid, at p. 7145.
101
at pp. 530-531.
97

rights within the local courts. However, the remarks forget that the purpose of
then Section 69 of the Corporation Law was that when a foreign corporation
indeed does business in the Philippines without obtaining a license, there is a
public policy of prohibiting it from seeking any remedy from Philippine courts and
administrative bodies.
However, the matter as to trademarks and tradenames had become moot
with the adoption of Section 21-A 102 of then Republic Act No. 166 (The Trademark
Law), which expressly provided that a foreign 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.
In Leviton Industries v. Salvador103 the Supreme Court held that pursuant
to the terms of Section 21-A of Rep. Act No. 166, failure of a foreign corporation
to allege in its complaint two essential conditions, namely, that the trademark or
tradename has been registered with the Philippine Patent Office and that the
country of which the foreign corporation is a domiciliary grants similar privileges
to Philippine corporations, would be fatal to its cause of action and would subject
the complaint to dismissal.
Previously it was held in General Garments Corporation v. Director of
Patents,104 that when the action brought by a foreign corporation is not one under
Section 21-A, but rather under Section 17 of Rep. Act. No. 166 for the
administrative cancellation of the trademark which is alleged to have been
infringed, then registration of the trademark with the Philippine Patent Office
would not be necessary.
Subsequently, in La Chemise Lacoste, S.A. v. Fernandez, 105 it was held
that a foreign corporation not doing business in the Philippines, has personality to
commence criminal proceedings for violation of Article 189 of the Revised Penal
Code for unfair competition on the use of trademarks and tradenames, without
having to allege the qualifying circumstances under Section 21-A of Rep. Act No.
166. In that case, the Court also took judicial cognizance of the Philippine duties
and obligations under the Paris Convention for the Protection of Industrial
Property to assure the nationals of "countries of the Union" have an effective
102

Sec. 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."
103
114 SCRA 420 (1982).
104
41 SCRA 50 (1971).
105
129 SCRA 373 (1984).

protection against unfair competition in the same way that they are obliged to
similarly protect Filipino citizens and firms.
The current legislation is reflected in Converse Rubber Corporation v.
Universal Rubber Products, Inc.,106 which struck down the reasoning of the
Director of Patents when he concluded that a foreign corporation not licensed to
do business in the country is actually not doing business on its own in the
Philippines, and therefore has no name to protect in the forum. The Court held
that a foreign corporation has a right to maintain an action in the forum even if it
is not licensed to do business and is not actually doing business on its own
therein to protect its corporate and tradenames, since it is a property right in rem,
which it may assert to protect against all the world, in any of the courts of the
worldeven in jurisdiction where it does not transact businessjust the same as
it may protect its tangible property, real or personal, against trespass, or
conversion.107
Converse Rubber Corporation recognized that such ruling is in
consonance with the Convention of the Union of Paris for the Protection of
Industrial Property to which the Philippines became a party on 27 September
1965. Article 8 thereof provides that "A trade name shall be protected in all the
countries of the Union without the obligation of filing or registration, whether or
not it forms part of the trademark." 108 The mandate of the Convention finds its
implementation in Section 37 of Rep. Act No. 166.
Nevertheless, the Supreme Court has also held that when a foreign
corporation seeks to obtain the extraordinary writ of preliminary injunction against
a local company alleged to be using its tradename, the fact that it is not engaged
in business in the Philippines would show that the matter should be decided on
the merits and that in the meantime no preliminary injunction should be granted
since, not being engaged in business in the Philippines, no grave or irreparable
damage can be shown to be caused in the writ of injunction is not issued. 109
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 3 110 of this Act and
106

147 SCRA 154 (1987).

Ibid, at pp. 164-165. This is a reiteration of the same doctrine held in Converse Rubber
Corporation v. Jacinto Rubber & Plastic Co., Inc., 97 SCRA 158 (1980) and Universal Rubber
Products, Inc. v. Court of Appeals., 130 SCRA 104 (1984). To the same effect were the rulings in
Puma Sportschuhfabriken Rudolf Dassler, K.G. v. Intermediate Appellate Court, 158 SCRA 233
(1988) and Philips Export B.V. v. Court of Appeals, 206 SCRA 457 (1992).
108
Ibid, at p. 165.
109
Philip Morris, Inc. v. Court of Appeals, 224 SCRA 576, 43 SCAD 400 (1993).
110
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.
107

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.
The wordings of Section 160 do not seem to comprehend the thrust of
Section 21-A of The 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.

TRANSACTIONS
WITH
AGENTS,
INDENTORS

AND
CONTRACTS
BROKERS AND

In Mentholatum, it was held that the sale of the products of a foreign

corporation through a local company was equivalent to the foreign corporation
doing business in the Philippines, because the actions of the agent in the
Philippines pertain to its foreign principal, and thereby without obtaining a license
in the Philippines, both the foreign corporation and the agent have no capacity to
sue in Philippine courts.
La Chemise Lacoste, S.A. v. Fernandez,111 clarified that not every sale to
an exclusive agent in the Philippines by a foreign corporation would constitute
the latter as doing business in the Philippines. It held that the principle in
Mentholatum is applicable only when it is found that the local company or
representative is selling the foreign company's products in the latter's name or for
the latter's account. In that case, the marketing of the products of the French
company in the Philippines "is done through an exclusive distributor, Rustan
Commercial Corporation. The latter is an independent entity which buys and then
markets not only products of the petitioner but also many other products bearing
equally well-known and established trademarks and tradenames. In other words,
Rustan is not a mere agent or conduit of the petitioner." 112
In addition, the Court in La Chemise Lacoste took cognizance of "the rules
and regulations promulgated by the Board of Investments pursuant to its rulemaking power under Presidential Decree No. 1789, otherwise known as the
Omnibus Investment Code," which define "doing business" as one which
excludes "a foreign firm which does business through middlemen acting on their
own names, such as indentors, commercial brokers or commission
111

129 SCRA 373 (1984).

Ibid, at p. 383.

112

merchants . . . Appointing [of] a representative or distributor who is domiciled in

the Philippines [who] has an independent status, i.e., it transacts business in its
name and for its account, and not in the name or for the account of a principal." 113
In Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp. 114 a local fishing
company, RJL Martinez Fishing Corp. filed an action against Schmid & Oberly,
Inc. to recover the purchase prices of twelve (12) generators it had bought on the
theory that Schmid was the vendor of the generators, as such vendor, was liable
under its warranty against hidden defects. The generators were ordered by RJL
Martinez Fishing Corp. from Schmid & Oberly who arranged to have them
imported from abroad from Nagata Co. of Japan. Schmid & Oberly, Inc. by way of
defense allege that being merely indentor in the sale between Nagata Co., the
exporter and RJL Martinez, the importer, it was not liable on the contract, much
less for warranty for hidden defects.
The Court took cognizance of the fact that under the Rules and
Regulations to Implement Pres. Decree 1789 (the Omnibus Investment Code),
"indentors' are defined together with "commercial brokers" and "commission
merchants": "A foreign firm which does business through the middlemen acting in
their own names, such as indentors, commercial brokers or commission
merchants, shall not be deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants shall be the ones
deemed to be doing business in the Philippines."
The Court therefore recognized that foreign corporations who sell their
products in the Philippines through commercial brokers, commercial merchants
or indentors, are not deemed to be doing business in the Philippines, and are not
required to obtain a license to do business in the country. "Thus, the chief feature
of a commercial broker and a commercial merchant is that in effecting a sale,
they are merely intermediaries or middlemen, and act in a certain sense as the
agent of both parties to the transaction. . . It would appear that there are three
parties to an indent transaction, namely, the buyer, the indentor, and the supplier
who is usually a non-resident manufacturer residing in the country where the
goods are to be bought. . . An indentor may therefore be best described as one
who, for compensation, acts as a middlemen in bringing about a purchase and
sale of goods between a foreign supplier and a local purchaser." 115
From the reasoning in Schmid & Oberly it is clear therefore that the sales
in an indent contract is between the local purchaser and the foreign seller, and
the indentor merely is an agent for both. That would mean that, had it not been
for the provisions of the Implementing Rules and Regulations to the Omnibus
Investment Code, the foreign corporation is indeed doing business in the
Philippines, and for which it needs to obtain the license.
It is with curiosity to note therefore why such a foreign corporation would
not be considered being engaged in business in the Philippines for in such a
113

Ibid, at pp. 383-384.

166 SCRA 493 (1988).
115
Ibid, at p. 502.
114

case an important part of the contract (delivery of the subject matter) takes part
within Philippine territory under the contract theory of Pacific Vegetable. Likewise,
such transactions conform to the twin characterization enunciated in
Mentholatum.
In fact, the Supreme Court turned down the contention in Schmid &
Oberly to hold the local indentor liable for the penal provisions of the then Section
69 of the Corporation Law:
Finally, the afore-quoted penal provision in the
Corporation Law finds no application to SCHMID and its
officers and employees relative to the transactions in the
instant case. What the law seeks to prevent, through said
provision, is the circumvention by foreign corporations of
licensing requirements through the device of employing local
representatives. An indentor, acting in his own name, is not,
however, covered by the above-quoted provision. In fact, the
provision of the Rules and Regulations implementing the
Omnibus Investment Code quoted above, which was copied
from the Rules implementing Republic Act No. 5455,
recognizes the distinct role of an indentor, such that when a
foreign corporation does business through such indentor, the
foreign corporation is not deemed doing business in the
Philippines.116

In other words, had it not been for the implementing rule provision, a
foreign corporation selling its products in the Philippines would be doing business
here for indeed the contract is strictly between the foreign exporter and the local
buyer, with the indentor merely acting as agent for both. The implementing rules
has therefore afforded foreign corporations the route of "circumvention by foreign
corporations of licensing requirements through the device of employing local
[indentors]." Indeed, this is the logic of Schmid & Oberly since it expressly found
the indentor not to be liable on the warranty on hidden defects since it was not
considered the seller of the products. What is not explained in Schmid & Oberly,
though, is how the Supreme Court could accept that an administrative rule and
regulation provision can override clear statutory requirements for foreign
corporations engaging in business in the Philippines from obtaining a license. It is
a settled principle in our jurisdiction, that rules and regulations issued by
administrative agencies cannot amend the law or go beyond the limits of the law
which they seek to implement.117
Further, it is to be noted that the present applicable Implementing Rules
and Regulations of the Foreign Investment Act of 1991 have totally dropped the
provisions exempting from the definition of doing business transactions by
foreign corporations done through indentors, commercial brokers or commission
merchants. However, the rules and regulations have retained the provision
116

Ibid, at p. 505.
U.S. v. Barrias, 11 Phil. 327 (1908); Young v. Rafferty, 33 Phil. 276 (1916); Olsen v.
Aldenese, 43 Phil. 64 (1922) ; Santos v. Estenzo, 109 Phil. 419 (1960),
117

excluding from "doing business" the appointing of a representative or distributor

domiciled in the Philippines which transact business in the representative's or
distributor's own name and account.
Both the La Chemise Lacoste and the Schmid & Oberly rulings overlooked
the fact that although the sales made by middlemen, distributors or
representatives "in their own name or for their own accounts" in the Philippines
do not pertain to the foreign principals abroad, nevertheless the purchase and
importation by such middlemen, distributors or representatives of such products
from abroad undeniably constitute a body of transactions in the Philippines of
which their foreign principals are direct parties.
And yet in Wang Laboratories, Inc. v. Mendoza,118 the Supreme Court
treated differently a foreign corporation being represented in the Philippines by a
independent distributor. In that case, although the foreign corporation Wang
Laboratories, Inc. had an exclusive distributor in the Philippines, and a local firm
had entered into direct contract with the local distributor, the Supreme Court
refused allow the motion to dismiss filed by the foreign corporation on the ground
that not doing business in the Philippines, the court below had not obtained
jurisdiction over the person of the foreign corporation, by serving summons on its
local exclusive distributor. In finding that Wang Laboratories, Inc. was doing
business in the Philippines, the court took into consideration the appointment of
the local distributor as indicated of doing business, and various advertisements
showing the local company to be the representative of the foreign corporation
and that admission in the reply to the opposition to the motion to dismiss by the
foreign corporation that "it deals exclusively with [the local company] in the sale
of its products in the Philippines," 119 clearly indicating that the sales and deliveries
by foreign corporation to its distributor in the Philippines constitutes doing
business, regardless of whether the distributor sells the same products to the
public for its own account.
The subsequent case of Granger Associates v. Microwave Systems,
Inc., which did not expressly overrule La Chemise Lacoste and Schmid &
Oberly, offer us further insight.
120

In that case, Granger Associates, an American corporation with no license

to do business in the Philippines, entered into a series of agreements with the
local company, Microwave Systems, Inc., principally constituting the local
company as the licensee to manufacture and sell the licensor's products in the
Philippines, together with a loan extended to the licensee. An action was latter
on brought by Granger Associates against the local company to collect sums not
paid on the agreements. The local company invoked Section 133 of the
Corporation Code to dismiss the complaint on the ground that Granger
Associates, having done business in the Philippines without obtaining a license,
has no authority to maintain the suit. Granger Associates argued that the various
transactions with the local company "were mere facets of the basic agreement
118

156 SCRA 44 (1987).

Ibid, at p. 51.
120
189 SCRA 631 (1990).
119

licensing MSI to manufacture and sell Granger's products in the Philippines [and]
[a]ll subsequent agreements were merely auxiliary to the first contract and should
not be considered separate transactions coming within the concept of `doing
business in the Philippines.'"121
Although the Court found that many agreements entered into dealt on
other matters as to constitute doing business, the Court went on to hold that
"Even if it be assumed for the sake of argument that the subject matter of the first
contract is of the same kind as that of the subsequent agreements, that fact
alone would not necessarily signify that all such agreements are merely auxiliary
to the first. As long as it can be shown that the parties entered into a series of
agreements, as in successive sales of the foreign company's regular products,
that company shall be deemed as doing business in the Philippines."122
The Court also found that Granger Associates saw to it that it was assured
of at least one seat in the board of directors of the local company, "without
prejudice to the right of Granger to request additional seats as its interest may
require." The fact that it was directly involved in the business of the local
company was also manifested in another stipulation where Granger Associates
"acknowledged and confirmed" the transfer of a block of stocks from one
shareholder to another group of investors. Such approval was considered by the
Court as not normally given except by a stockholder enjoying substantial
participation in the management of the business of the company.123
Although the rules and regulations of the Board of Investments provide
that mere investment in a local company by a foreign corporation should not be
construed as doing business in the Philippines, however the Court in Granger
Associates found that the investment of the foreign company was quite
substantial, "enabling it to participate in the actual management and control of
MSI [and] it appointed a representative in the board of directors to protect its
interest, and this director was so influential that, at his request, the regular board
meeting was converted into an annual stockholder's meeting to take advantage
of his presence."124
Noteworthy are the statements of the Court that "At any rate, the
administrative regulation, which is intended only to supplement the law, cannot
prevail against the law itself as the court has interpreted it. It is axiomatic that
the delegate, in exercising the power to promulgate implementing regulations,
cannot contradict the law from which the regulations derive their very existence.
The courts, for their part, interpret the administrative regulations in harmony with
the law that authorized them in the first place and avoid as much as possible any
construction that would annul them as an invalid exercise of legislative power." 125
On the argument that a foreign corporation must be shown to have dealt
with the public in general to be considered as transacting business in the
121

Ibid, at p. 635.
Ibid, at p. 637. Emphasis supplied.
123
Ibid, at p. 638.
124
Ibid, at p. 639.
125
Ibid, at pp. 639-640. Emphasis supplied.
122

Philippines, the Court held that "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." 126
Finally, Granger Associates reiterated the rationale of the 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
no 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 use 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.127

Granger Associates therefore does not consider it crucial that a foreign

corporation does not deal with, or sell directly to, the public by using a
middleman, a commercial broker, an indentor, or a distributor; rather, it considers
crucial "the performance by a foreign corporation of the acts for which it was
created, regardless of volume of business." By dealing with its products with local
brokers, indentors, or distributors, regardless of what the latter do with the
products subsequently, a foreign corporation is performing acts integral to its
purpose.
However, under the Foreign Investment Act of 1991, the policy of the State
(not by administrative fiat) has been declared on the matter when the law itself
provided that not included in the definition of "doing business" is the act of
"appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account." 128
Taking the rationale of the ruling in Granger Associates, the following
exceptions to "doing business" provided for in the Implementing Rules and
Regulations to the Act are of doubtful validity and are beyond the language of the
Act itself:
(a) Maintaining stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in
the Philippines; and
(b) Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for export.

126

Ibid, at p. 640, citing Tabios, Severino S., Fundamentals of Doing Business by a Foreign
Corporation in the Philippines, 142 SCRA 10.
127
Ibid, at p. 642.
128
Sec. 3(d), Rep. Act No. 7042.

By way of obiter in Phil. Products Co. v. Primateria Societe Anonyme Pour

Le Commerce Exterieur: Primnaterial (Phil.), Inc. 129 since the foreign corporation
therein was held liable for the judgment, it was held by the Supreme Court that
"[i]n the absence of express legislation," agents or representatives of foreign
corporations may be held personally liable for acts and contracts entered into in
behalf of such corporations only when "premised on the inability to sue the
principal or non-liability of such principal." 130
Lately, Hanh v. Court of Appeals,131 held that when a foreign car company
has an agent or distributor in the Philippines, it will be considered doing business
in the country, and the trial court acquired jurisdiction over the foreign corporation
by virtue of the service of summons on the Department of Trade and Industry.
Otherwise, if the representative is not the agent of the foreign company but an
independent dealer, the foreign corporation is not considered doing business in
the Philippines within the meaning of the Foreign Investments Act of 1991 an the
Rules and Regulations implementing the Omnibus Investment Code of 1987, 132
and the trial court did not acquire jurisdiction over the foreign corporation.
The Court found the following allegations in the complaint to be sufficient
to show that the foreign corporation was doing business in the Philippines
through its local representative: the local representative took orders for the cars
and transmitted them to the foreign company; that the foreign company upon
receipt of the orders, fixed the downpayment and pricing charges, notified the
local representative of the scheduled production month for the orders, and
reconfirmed the orders by signing and returning to him the acceptance sheets; all
documents and invoice being in the forms of the foreign company; payment was
made by the buyer directly to the foreign company; title to the cars purchased
passed directly to the buyer and the local representative never paid for the
purchase price of the cars sold in the Philippines, and merely received
commissions.

FOREIGN CORPORATIONS AS PARTIES DEFENDANTS

Section 12, Rule 14 of the 1997 Rules of Civil Procedure 133 provides for
the manner of service upon foreign corporations by allowing service of summons
to be made on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official designated by
law to that effect, or on any of its officers or agents within the Philippines."
However, in order to obtain jurisdiction over a foreign corporation under
the section, it specifically provides that such foreign corporation must have
"transacted business in the Philippines." The phrase would only emphasize the
fact that as a matter of principle our laws take effect, and courts have jurisdiction
129

15 SCRA 301 (1965).

Ibid, at p. 306.
131
266 SCRA 537, 78 SCAD 20 (1997).
132
E.O. No. 226.
133
Replaced Section 14, Rule 14 of the Rules of Court.
130

over, foreign corporations, in the absence of consent, on the nexus of their doing
business in the Philippines. Generally, our laws would have no binding effect on
foreign corporations who do not have "presence" in the Philippines, otherwise
any judgment rendered would be a violation of due process.
Hanh v. Court of Appeals,134 reiterated the rule that for purposes of having
summons served on a foreign corporation in accordance with Rule 14, Section
14 of the Rules of Court, it is sufficient that it be alleged in the complaint that the
foreign corporation is doing business in the Philippines. The court need not go
beyond the allegations of the complaint in order to determine whether it has
jurisdiction. A determination that the foreign corporation is doing business is only
tentative and is made only for the purpose of enabling the local court to acquire
jurisdiction over the foreign corporation through service of summons. Such
determination does not foreclose a contrary finding should evidence later show
that it is not transacting business in the country.
1. Nexus of "Doing Business in the Philippines"
Perkins v. Dizon,135 had clearly discussed the general principle when it held
that "when the defendant is a non-resident and refuses to appear voluntarily, the
court cannot acquire jurisdiction over his person even if the summons be served
by publication, for he is beyond the reach of judicial process. No tribunal
established in one State can extend its process beyond its territory so as to
subject to its decisions either persons or property located in another State . . .
and a personal judgment upon constructive or substituted service against a nonresident who does not appear is wholly invalid." 136
The basic premise as it applies to foreign corporation is laid down in
Times, Inc. v. Reyes,137 that "a fundamental rule of international jurisdiction [is]
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."138
In addition, Times, Inc. held that a foreign corporation may, by writ of
prohibition, seek relief against the wrongful assumption of jurisdiction by a trial
court which refuses to dismiss an action filed against said foreign corporation
where no proper jurisdiction has been obtained. "And a foreign corporation
seeking a writ of prohibition against further maintenance of a suit, on the ground
of want of jurisdiction, is not bound by the ruling of the court in which the suit was
brought, on a motion to quash service of summons, that it has jurisdiction." 139
In Pacific Micronisian Line, Inc. v. Del Rosario,140 the then Workmen's
Compensation Commission sought to obtain jurisdiction over the foreign
134

266 SCRA 537, 78 SCAD 240 (1997).

69 Phil. 186 (1939).
136
Ibid, at p. 189.
137
39 SCRA 303 (1971).
138
Ibid, at p. 313, citing Perkins v. Dizon, 69 Phil. 186 (1939); 14 Am Jur. 418.
139
Ibid, at p. 315.
140
96 Phil. 23 (1954).
135

corporation, Pacific Micronisian Line, by service of summons to its agent in the

Philippines. The foreign corporation filed a special appearance with the
Commission for the sole purpose of asking the dismissal of the claim on the
ground that the Commission had no jurisdiction over it because it is a foreign
corporation not domiciled in this country, it is not licensed to engage and is not
engaging in business therein, has no office in the Philippines, and is not
represented by any agent authorized to receive summons or any other judicial
process in its name and behalf.
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.'"141
Pacific Micronisian therefore recognized the doctrine that the law of a
state cannot become operative upon a foreign corporation until it comes within
the state to "do business."142
In that case, the Court did not consider as doing business the act of the
foreign corporation which is exclusively engaged in the business of carrying
goods and passengers by sea between Guam and the Trust Territories of the
Pacific Islands, in having a local agent in the Philippines secure the services of
an individual to act as cook and chief steward in one of the vessels. It was noted
that the foreign corporation had never sent its ships to the Philippines, nor has it
transported nor even solicited the transportation of passengers and cargoes to
and from the Philippines, nor does it have properties or office in the Philippines.
Since the act was considered an isolated one, incidental, or casual, and "not of a
character to indicate a purpose to engage in business" within the meaning of the
rule, then it follows that the agent in the Philippines who recruited the individual
cannot be authorized to receive service of summons.
a. Valid Service of Summons Premised
Upon Doing Business
General Corporation. of the Philippines v. Union Insurance Society. of
Canton, Ltd.,143 clearly stated that the provisions of Section 14, Rule 14 of the old
Rules of Court providing for the methods of service of summons employing the
phrase "doing business in the Philippines" makes no distinction as to whether
said business was being done or engaged in legally with the corresponding
141

Ibid, at pp. 27-28, quoting also General Corporation of the Philippines v. Union Insurance
Society of Canton, Ltd.,49 Off. Gaz., 73, September 14, 1950.
142
Ibid, at p. 28, quoting THOMPSON ON CORPORATIONS, Vol. 8, 3rd Ed., pp. 843-844.
143
87 Phil. 313 (1950).

authority and license of the Government, or perhaps, illegally, without the benefit
of any such authority or license. "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, this for the protection of the citizens, and
service upon any agent of said foreign corporation constitutes personal service
upon the corporation and accordingly judgment may be rendered against said
foreign corporation."144
General Corporation of the Philippines held that where a foreign insurance
corporation engages in regular marine insurance business here by issuing
marine insurance policies abroad to cover foreign shipments to the Philippines,
said policies being made payable in the Philippines, and said insurance company
appoints and keeps an agent in the Philippines to receive and settle claims
flowing from said policies, then said foreign corporation will be regarded as doing
business in the Philippines.
Subsequently, in Salonga v. Warner Barnes & Co., Ltd.145 the Supreme
Court without even discussing the issue of whether a foreign insurance was
engaged in business in the Philippines or not held that under Section 14, Rule 14
of the Rules of Court, "if the defendant is a foreign corporation and it has not
designated an agent in the Philippines on whom service may be made in case of
litigation, such service may be made on any agent it may have in the Philippines .
. . [including] a settling agent who may serve the purpose." 146
b. Service of Summons on Counsel
In Johnlo Trading Co. v. Flores,147 and Johnlo Trading Co. v. Zulueta,148 the
Supreme Court held that when a foreign corporation does business in the
Philippines, and has entered into certain contracts through its counsel and
benefitted from such contracts, a suit in local courts against such foreign
corporation would justify the service of summons upon such counsel even when
said counsel has not been expressly authorized by the foreign corporation to
receive summons because "courts will not sanction a doctrine that a corporation
can deny the power of an agent when an advantage is to be obtained by such
denial, and share in the fruits of the contract when it is to its interest to consider
such contract binding."149 In those cases, it was found that the counsel had acted
in a representative capacity in and outside of court, "so much so that he
undertook to settle claims that had been filed against it." 150
However, it should be noted that in Johnlo Trading Co. other than the
counsel, there was no other representative or officer of the foreign corporation in
the Philippines upon which summons could be serve upon the foreign
corporation, thus:
144

Ibid, at p. 318, citing FISHER, PHILIPPINE LAW OF STOCK CORPORATION, pp. 451, 456.
88 Phil. 125 (1951).
146
Ibid, at p. 134.
147
88 Phil. 741 (1951).
148
88 Phil. 750 (1951).
149
Ibid, at p. 753.
150
Ibid, at p. 746.
145

Granting, however, for the sake of argument that Balcoff

merely acted as counsel for the petitioner, still we are of the
opinion that, upon the strength of the authorities we have
quoted above, the service made upon him of the summons
intended for the petitioner can be deemed sufficient in
contemplation of law, or within the meaning of Section 14,
Rule 7, of our Rules of Court, to bind his client Johnlo Trading
Company, upon the theory that, as the only person in the
Philippines charged with the duty of settling claims against it,
he must be presumed . . . to communicate to his client the
service made upon him of any process that may result in a
judgment and execution that may deprive it of its property, and
the probabilities are, under such circumstances, that the
corporation will be duly informed of the pendency of the suit.
And this is a very realistic interpretation of the law, for it goes
on the assumption that men holding such relationship "will be
prompt to protect their own interest, and diligent in the
discharged (sic) of their duties to those who have reposed
confidence in them."151

In the absence of such special circumstance in Johnlo Trading Co. then

the general rule would apply that counsel has no authority merely by virtue of his
general employment as such, to waive or admit service for his client of original
process by which the court for the first time acquires jurisdiction of the client and
that service upon an attorney representing a foreign corporation in the collection
of other claims for which his service had not been engaged is invalid. 152
c. Designating Local Agents Conclusive
on Service of Summons
In Poizat v. Morgan,153 the Supreme Court ruled that where a foreign
corporation has designated a person to receive service of summons in judicial
proceedings affecting the corporation, that designation is exclusive and service of
summons is without force and effect unless made on him. 154
d. Allegations on Dong Business Merely Preliminary
Signetics Corporation v. Court of Appeals,155 clarified that the ruling of
Pacific Micronisian that doing business "must first be established in order that
summons can be made and jurisdiction acquired," does not require that evidence
must first be adduced to prove doing business before summons can be served
upon the foreign corporation. The Court held that the "fact of doing business
151

Ibid, at p. 746.
Ibid, at pp. 743-744, quoting 5 AM. JUR. p. 313, and citing Taylor v. Granite State
Provident Association, 136 N.Y. 343, 32 N.E. 9922, 32 American St. Rep. 749 and Moore v.
Freeman's National Bank, 92 N.C. 590).
153
28 Phil. 597 (1914).
154
The doctrine was reiterated in H.B. Zachry Company International v. Court of Appeals,
232 SCRA 329, 51 SCAD 207 (1994).
155
225 SCRA 737, 44 SCAD 357 (1993).
152

must the, in the first place, be established by appropriate allegations in the

complaint." Litton Mills, Inc. v. Court of Appeals,156 held that the trial court need
not go beyond the allegations in the complaint to determine whether or not a
defendant foreign corporation is doing business for the purpose of Section 14,
Rule 14 of the old Rules of Court.
Hyopsung Maritime Co., Ltd. v. Court of Appeals,157 reiterated that 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. It also ruled that the voluntary appearance as a mode of service
of summons which confers jurisdiction over the person of a foreign corporation
must be one that has been authorized by the foreign corporation.
Lately, French Oil Mills Machinery Co., Inc. v. Court of Appeals,158 seems
to have declared the matter settled, thus:
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. Although there is
no requirement to first substantiate the allegation of agency,
yet it is necessary that there must be specific allegations in the
complaint that establishes the connection between the
principal foreign corporation and its alleged agent with respect
to the transaction in question. Nowhere in the case of
Signetics Corporation v. Court of Appeals, did the Court state
that if the complaint alleges that defendant has an agent in
the Philippines, summons can validly be served thereto even
without prior evidence of the truth of such factual allegation; it
is only in the headnote of the reporter which is not part of the
decision.

2. Consent to Jurisdiction of Local Courts

Although doing business is the nexus by which local courts are granted
the right to obtain jurisdiction over the "person" of foreign corporation, consent
may also authorize local courts and administrative agencies to exercise
jurisdiction over foreign corporations even when they are not doing business in
the Philippines.
In Far East International Import and Export Corp. v. Nankai Kogyo Co.,
Ltd.159 a suit was filed against a Japanese corporation in Philippine courts for
specific performance, damages and issuance of a writ of injunction. The
156

256 SCRA 696, 75 SCAD 160 (1996).

165 SCRA 258 (1988).
158
295 SCRA 462, 98 SCAD 407 (1998).
159
6 SCRA 725 (1962).
157

Japanese company, by special appearance, filed a motion to dismiss the

complaint and dissolve the preliminary injunction on the ground that the court had
no jurisdiction over said foreign corporation and over the subject matter and
failure to state a cause of action. When the motion to dismiss was overruled on
the ground that it did not appear indubitable, an answer was filed and invoked
defenses and grounds for dismissal of the complaint other than lack of
jurisdiction. In deciding that proper jurisdiction was obtained over the defendant
foreign corporation, the Supreme Court held that when the defendant foreign
corporation filed an answer which invoked grounds other than lack of jurisdiction,
the act vested upon the trial court jurisdiction to take cognizance of the case.
The rule in Far East International therefore is that when a defendant
foreign corporation objects to the jurisdiction of the court, but at the same time it
alleges any non-jurisdictional grounds for dismissing the action, the court then
acquires jurisdiction over the person of the defendant. What was worse in Far
East International is that the defendant foreign corporation presented evidence
on the merits of the case.
This affirmed the ruling in General Corporation of the Philippines v. Union
Insurance Society of Canton, Ltd.,160 that the participation of counsel for a foreign
corporation in the trial process, including the cross-examination of witnesses,
agreement and objection to documentary evidence, and the introduction of
witnesses and documentary evidence would prevent the plea of lack of
jurisdiction over the person of such foreign corporation. 161
In addition, Far East International discussed that the consequence of
doing business in the Philippines would render a foreign corporation subject to
jurisdiction of Philippine courts. It adopted the rule that a single act may bring the
corporation within the purview of the statute where it is an act of the ordinary
business of the corporation. In such a case, the single act or transaction 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,
and to make the state a basis of operations for the conduct of a part of the
corporation's ordinary business.162 The test therefore embodies the second tier of
the Mentholatum tests that an act within the main purpose of the corporation
which shows an intent to continue the business in the Philippines, would
constitute doing business.
In Far East International it was shown that the defendant foreign
corporation had sent an officer in the Philippines to look into the operation of
mines, thereby revealing the desire to continue engaging in business in the
Philippine, after receiving the shipment of the scrap iron under consideration,
making the Philippines a base of operations.
In Avon Insurance PLC v. Court of Appeals,163 it was reiterated that the
appearance of a foreign corporation to a suit is precisely to question the
160

87 Phil. 313 (1950).

Ibid, at p. 321.
162
Ibid, at p. 734, citing 17 FLETCHER CYC. OF CORPORATIONS, sec. 8470, pp. 572-573.
163
278 SCRA 312, 327 (1997).
161

jurisdiction of the said tribunal over the person of the defendant, then such
appearance is not equivalent to service of summons, nor does it constitute an
acquiescence to the courts jurisdiction.
3. The Facilities Management Strain
Based on the foregoing discussions, it is with serious reservation that we
view the obiter in Facilities Management Corporation v. De la Osa,164 where
Justice Makasiar had stated with logical simplicity that "Indeed, if a foreign
corporation, not engaged in business in the Philippines, is not barred from
seeking redress from 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." 165
The logic is flawed because although the first part of the obiter is correct,
the second part did not necessarily flow as a logical consequent of the first part.
Although a foreign corporation not doing business in the Philippines is beyond
the jurisdiction of our courts, nevertheless by filing a complaint in our courts, it
voluntarily surrenders jurisdiction over its "person" to the courts. But the reverse
does not necessarily follow. Since a foreign corporation is not doing business in
the Philippines, short of voluntary surrender to local jurisdiction, there can be no
legal basis by which our local processes may be served upon such corporation to
allow local courts to have jurisdiction over its "person" as a party defendant in a
case. In addition, the minimum requirement of "presence" as a notion of due
process is not present in such a situation.
After all, it was already held previously by the Supreme Court in Philippine
Columbian Enterprises Co. v. Lantin,166 that "actions by foreign corporations are
governed by rules different from those in actions against them."167 In that case,
when the trial court refused to rule on a motion to dismiss a complaint filed by a
Japanese corporation on the ground that the ground relief upon (that the plaintiff
was doing business in the Philippines without a license) did not appear
indubitable, the defendants refused such deferment and to file an answer since
the filing of a counterclaim would be recognizing the legal capacity of the plaintiff
corporation which they are precisely questioning.
In setting aside such argument, the Court held that "A counterclaim
partakes of the nature of a complaint and/or cause of action against the plaintiff,
so that if the petitioners-defendants should file a counterclaim, the private
respondent-plaintiff . . . would be a defendant thereto, in which case the said
foreign corporation would not be maintaining a suit and, consequently, Section 69
of the Corporation Law would not apply." Clearly, therefore, the restrictive effects
of Section 69 (now section 133) on failure to obtain the necessary license to do
business have no application at all when a foreign corporation is sued as a
defendant in Philippine courts.
164

89 SCRA 131 (1979).

Ibid, at p. 139.
166
39 SCRA 376 (1971).
167
Ibid, at p. 385.
165

Fortunately, the pronouncements of Justice Makasiar in Facilities

Management were merely obiter since the facts showed that the foreign
corporation in that case was engaged in business in the Philippines without
obtaining a license by the appointment of a liaison officer in the Philippines to
recruit personnel. The Court took cognizance of the rules and regulations of the
Board of Investments implementing Rep. Act No. 5455 enumerating the
appointment of liaison officers in the Philippines as indicative of doing business in
the country.
Unfortunately, FBA Aircraft, S.A. v. Zosa,168 subsequently affirmed the
obiter in Facilities Management as its ratio decidendi in resolving the issue
raised. In that case, a complaint with prayer for issuance of a writ preliminary
attachment was filed against FBA Aircraft, Inc., a foreign corporation not engaged
in business in the Philippines. A writ of attachment was issued and enforced
against three aircrafts and engines in the Philippines. The complaint was
subsequently dismissed "for lack of jurisdiction over the persons of the defendant
and the writ of attachment dissolved." On the issue of whether a foreign
corporation can be sued in the Philippines on the basis of an isolated transaction,
the Supreme Court held on appeal, quoting from Facilities Management, that "if a
foreign corporation, not engaged in business in the Philippines, is not barred from
seeking redress from 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." In addition, the Court held that
since the foreign corporation's properties have been attached within the
Philippines, extraterritorial service of summons clearly may be effected under
Rule 14, Section 17 of the Rules of Court.
The logical juxtaposition in Facilities Management cannot be the basis for
allowing suit against a foreign corporation not doing business in the Philippines,
for that would be a denial of due process. However, FBA Aircraft was correct in
its resolution since indeed a writ of attachment has been obtained in the
Philippines on properties of the foreign corporation, converting the action to one
in rem.
Later, in the case of Wang Laboratories, Inc. v. Mendoza,169 the Supreme
Court, relying upon the Facilities Management pronouncement, held in sweeping
terms that "the issue on the suability of foreign corporation whether or not doing
business in the Philippine has already been laid to rest. The Court has
categorically stated that although a foreign corporation is not doing business in
the Philippines, it may be sued for acts done against persons in the
Philippines."170 However, since the Court found in Wang Laboratories that the
defendant foreign corporation was indeed engaged in business in the Philippines
by having appointed an agent and installed its computer products in various
establishments in the Philippines, the pronouncement should be taken as obiter.
168

110 SCRA 1 (1981).

156 SCRA 44 (1987).
170
Ibid, at pp. 52-53. Emphasis supplied.
169

Recently in Royal Crown Internationale v. NLRC,171 the Court used the

Facilities Management obiter as though it were gospel truth. In that case, a
foreign corporation, through a local placement company, Royal Crown
Internationale, hired the services on a Filipino architectural draftsman for work in
Saudi Arabia. When the Filipino was terminated abroad, he brought a suit in the
Philippines against both the foreign corporation and the placement agency for
illegal termination. Service of summons upon the foreign corporation was served
by extra-territorial service under Section 17, Rule 14 of the Rules of Court. 172
From a judgment holding both the foreign corporation and the local placement
agency jointly and severally liable to the Filipino, a petition for certiorari was with
Supreme Court for nullification of such judgment on the ground, among others,
that it cannot be held liable solidarily with the foreign corporation since the NLRC
had not acquired jurisdiction over the latter through an extra-territorial service of
summons.
The Court held that "It is well-settled that service upon any agent of a
foreign corporation, whether or not engaged in business in the Philippines,
constitutes personal service upon that corporation, and accordingly, judgment
may be rendered against said foreign corporation," 173 citing Facilities
Management.
Therefore we have a situation where the doctrine that a foreign
corporation not doing business in the Philippines can be sued in Philippine courts
for an isolated contract entered into in the Philippines is found in three cases
(Facilities Management, FBA Aircraft and Wang Laboratories) where indeed the
doctrine was not at all essential for the Supreme Court to resolve the jurisdiction
over the foreign corporation since it was either truly engaged in business in the
Philippines or the action is an action in rem; and in one case (Royal Crown
Internationale) where the affected foreign corporation was not the one raising the
issue (for indeed it was not "present") but a co-defendant local company.
Lacking the nexus of "doing business" in the Philippines, and in the
absence of consent, a foreign corporation cannot be made a defendant in
Philippine courts in an action personam and judgment rendered against such
foreign corporation would be void.
a. Applying Control Test
Hyopsung Maritime Co., Ltd. v. Court of Appeals, 174 sought to qualify the
Facilities Management rule. In that case which involved the suit filed in local
courts against a foreign corporation, the Court mandated the principle that
service of summons under Section 14, Rule 14 of the old Rules of Court
"requires that the foreign corporation be one which is doing business in the

171

178 SCRA 569 (1989).

Now Sec. 15, Rule 14 o the 1997 Rules of Civil Procedure.
173
Ibid, at p. 577.
174
165 SCRA 258 (1988).
172

Philippines. This is sine qua non requirement. This fact must first be established
in order that summons can be made and jurisdiction acquired." 175
The Court then provided that when the contract sued upon has entirely
been executed outside of Philippine jurisdiction, the rule in Facilities
Management is inapplicable, thus:
The present case must be distinguished from Facilities
Management Corp. vs. de la Osa which involved the nonpayment by Facilities Management Corp (FMC in short), a
non-resident foreign corporation, of overtime compensation, as
well as swing shift and graveyard shift premiums to Leonardo
de la Osa, a Filipino, successively employed as painter,
houseboy, and cashier. Notably, de la Osa was hired in Manila
by the Filipino agent of FMC and the contract of employment
between him and FMC was originally executed and
subsequently renewed in Manila. . . On the other hand, the
present suit is for the recovery of damages based on a breach
of contract which appears to have been entirely entered into,
executed, and consummated in Korea. . . Simply put, the
petitioner is beyond the reach of our courts.176

Hyopsung Maritime would therefore include the "contract test" of Pacific

Vegetables as a requisite element for the application of the Facilities
Management rule, i.e., that for a foreign corporation not doing business in the
Philippines can be sued in local courts provided it is based on a contract or
transaction which would wholly or partially executed or fulfilled within Philippine
territory.
In 1990 in Marubeni Nederland B.V. v. Tensuan177 the Supreme Court took
a different approach. In that case, a suit was filed by a local against a Japanese
corporation, on the basis of the limited and special appearance filed by counsel
of the foreign corporation seeking dismissal of the complaint on the ground that
the court a quo had no jurisdiction over the person of the petitioner "since it is a
foreign corporation neither doing nor licensed to do business in the Philippines."
The Court then clearly laid the "pivotal" issue to be "whether or not petitioner
Marubeni Nederland B.V. can be considered as `doing business' in the
Philippines and therefore subject to the jurisdiction of our courts," implying the
minimum nexus to be "doing business" to allow our courts to have jurisdiction
over the person of the defendant foreign corporation.
In any event, the Court, relying on the provisions of rules and regulations
implementing Rep. Act No. 5455 which considered as "doing business" soliciting
of orders, purchases (sales) or service contracts in the Philippines, held
175

Ibid, at p. 263 quoting from Pacific Micronesian Line, Inc. v. del Rosario, 96 Phil. 23

(1954).
176
177

Ibid, at pp. 263-264. Emphasis supplied.

190 SCRA 105 (1990).

Marubeni Nederland B.V. to be doing business in the Philippines, and with or

without a license, was subject to the jurisdiction of local courts:
Even assuming for the sake of argument that Marubeni
Nederlands B.V. is a different and separate business entity
from Marubeni Japan and its Manila branch, in this particular
transaction, at least, Marubeni Nederland B.V. through the
foregoing acts, had effectively solicited orders, purchases
(sales) or service contracts as well as constituted Marubeni
Corporation, Tokyo, Japan and its Manila Branch as its
representative in the Philippines to transact business for its
account as principal. These circumstances, taken singly or in
combination, constitute doing business in the Philippines
within the contemplation of the law.178

It is ironical that in 1990 in Marubeni Nederland B.V. the Supreme Court

was still struggling with the issue of whether the defendant foreign corporation
was "doing business in the Philippines" to warrant jurisdiction of the trial court
over the "person" of the defendant, when there existed already the Facilities
Management doctrine which allows court jurisdiction over foreign corporation
even not engaged in business in the Philippines on an isolated transaction done
in the Philippines.
The logic of Facilities Management doctrine is that although an isolated
transaction of a foreign corporation within Philippine jurisdiction does not amount
to doing business as to require it to obtain a license and to sue on such isolated
transaction, nevertheless, the entering by the foreign corporation of such isolated
transaction within the Philippines is taken as a consent to be subject to the
jurisdiction of Philippine courts. Therefore Facilities Management has reduced
the "nexus" by which Philippine agencies and courts are deemed to have
authority over foreign corporation from "doing business" to "engaging in an
isolated transaction" in the Philippines.
b. The Signetics Clarification
The argument has reached full circle recently in Signetics Corporation v.
Court of Appeals.179 In that case, an American corporation, Signetic Corporation,
through a wholly-owned subsidiary, entered into a lease contract over a piece of
land with a local company. In a case subsequently filed by a the local company
against the American corporation for damages arising from the lease contract
(there was a piercing of the veil of corporate fiction treating the local subsidiary
and the parent American company as one), Signetics filed, by way of special
appearance, a motion to dismiss the complaint on the ground of lack of
jurisdiction over its person. It invoked Section 14, Rule 14 of the Rules of Court
and the rule laid down in Pacific Micronisian Line, Inc. v. Del Rosario 180 to the
effect that the fact of doing business in the Philippines should first be established
178

Ibid, at p. 110.
225 SCRA 737, 44 SCAD 357 (1993).
180
96 Phil. 23 (1954).
179

in order that summons could be validly made and jurisdiction acquired by the
court over a foreign corporation.
In affirming the denial of the motion to dismiss, the Supreme Court held
that the doctrine in Pacific Micronisian Line should be interpreted to mean 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.
In addition, the Court held that even if Signetics were not doing business
in the Philippines, under the Facilities Management doctrine "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 person in the Philippines."
The Court went on to say that Signetics right to question the jurisdiction of
the court over its person is now to be deemed a foreclosed matter since . . . If it is true, as Signetics claims, that its only
involvement in the Philippines was through a passive
investment in Sigfil, which it even later disposed of, and that
TEAM Pacific is not its agent, then it cannot really be said to
be doing business in the Philippines. It is a defense, however,
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. . .181

This was a curious proposition on the part of the Court, since by adopting
the Facilities Management doctrine, whether or not a foreign corporation is
engaged in business in the Philippines has now become legally irrelevant, and
the fact of not doing business in the Philippines is not a proper defense for a suit
brought in Philippine courts against a foreign corporation. The point that matters
with the full adoption of the Facilities Management doctrine is whether the
requirements of due process and fair play could be complied with against a
foreign corporation not doing business in the Philippines, i.e., whether the proper
process of obtaining jurisdiction over its "person" have been complied with.
This point at least was recognized in Signetics Corporation when the
Court went to stress that . . . provided that, in the latter case, it would not be
impossible for court processes to reach the foreign
corporation, a matter that can later be consequential in the
proper execution of judgment. Verily, a State may not exercise
jurisdiction in the absence of some good basis (and not
offensive to traditional notions of fair play and substantial

181

Ibid, at p. 746.

justice) for effectively exercising it, whether the proceedings

are in rem, quasi in rem or in personam.182

c. Latest Word on the Matter

Lately, in Avon Insurance PLC v. Court of Appeals, 183 the Supreme Court
seems to have discounted the absolute suability rule of Facilities Management,
thus:
In the alternative, private respondents submits that
foreign corporation not doing business in the Philippines are
not exempt from suits leveled against them in courts, citing the
case of Facilities Management Corporation vs. Leonardo Dela
Osa, et al.,. . . We are not persuaded by the position taken by
the private respondent. In Facilities Management case, the
principal issue presented was whether the petitioner had been
doing business in the Philippines, so that service of summons
upon its agent as under Section 14, Rule 14 of the Rules of
Court can be made in order that the Court of First Instance
could assume jurisdiction over it. The Court ruled that the
petitioner was doing business in the Philippines, and that by
serving summons upon its resident agent, the trial court had
effectively acquired jurisdiction. In that case, the court made
no prescription as the absolute suability of foreign corporations
not doing business in the country, but merely discounts the
absolute exemption of such foreign corporations from liabilities
particularly arising from acts done against a person or persons
in the Philippines.

4. Contractual Stipulation on Venue

When a contract between a local and a foreign corporation stipulates
venue to be within the proper courts in the Philippines, the Supreme Court has
recognized the same to be a consent to being sued in the Philippines even when
the foreign corporation does no business in the Philippines.
In Lingner & Fisher GMBH v. Intermediate Appellate Court,184 a stipulation
was provided for in the licensing agreement entered into between a foreign
corporation and a local company that read: "All legal settlements within the
compass of this AGREEMENT shall fall under the jurisdiction of Philippine
courts."185 In a suit brought against the foreign corporation, where summons was
served upon its local counsel, the Supreme Court held that no evidence as to
whether the foreign corporation was doing business in the Philippines was
necessary to be adduced to make it amenable to the jurisdiction of the trial court
since whether or not the foreign corporation is doing business in the Philippines
182

Ibid.
278 SCRA 312, 324, 86 SCAD 401, 412 (1997).
184
125 SCRA 522 (1983).
185
Ibid, at p. 524.
183

"will not matter because the parties had expressly stipulated in the AGREEMENT
that all controversies based on the AGREEMENT `shall fall under the jurisdiction
of Philippine courts.' In other words, there was a covenant on venue to the effect
that [the foreign corporation] can be sued by [the local company] before
Philippine Courts in regards to a controversy related to the AGREEMENT." 186
Nevertheless, the Supreme Court found service of summons upon the
foreign corporation's counsel as improper, but directed that since there is no
evidence to show that the foreign corporation was engaged in business for the
case to come under Section 14, Rule 14 of the Rules of Court where doing
business "is a sine qua non requirement,"187 then service of summons can be
effected by extraterritorial service under Section 17, Rule 14, in relation to Rule 4
of the Rules of Court, "which recognizes the principle that venue can be agreed
upon by the parties."188
Lingner & Fisher GMBH therefore laid down the rule that "if a local plaintiff
and a foreign corporation have agreed on Philippine venue, summons by
publication can be made on the foreign corporation under the principle of liberal
construction of the rules to promote just determination of actions." 189

PROCEDURAL RULE ON PLEADING "DOING BUSINESS"

Early on, in Spreckels v. Ward,190 which actually involved the application of
then Section 69 of the Corporation Law to a partnership considered as an
"unregistered foreign corporation," the Supreme Court held that the provisions of
Section 69 denying to unregistered foreign corporations the right to maintain suits
for the recovery of any debt, claim or demand, "do not impose on all plaintifflitigants the burden of establishing by affirmative proof that they are not
unregistered foreign corporations. The fact will not be presumed by the courts
without some evidence tending to establish its existence." 191 In other words, the
disqualification under Section 69 of the then Corporation Law was considered a
matter of defense with burden of proof on the part of the party raising it.
Marshall-Wells laid down the procedural doctrine that the noncompliance
of a foreign corporation doing business in the Philippines of the requirement for it
to obtain a license, may be pleaded as an affirmative defense; and the burden of
proof is on the party relying on such defense to show that the plaintiff is a foreign
corporation, that it is doing business in the Philippines, and that it has not
obtained the license as required by law.192
The then rule that lack of authority of a foreign corporation to sue in
Philippines courts for failure to obtain the license is a matter of affirmative
186

Ibid, at p. 527.
Ibid.
188
Ibid, at p. 528.
189
Ibid.
190
12 Phil. 414 (1909).
191
Ibid, at p. 419.
192
46 Phil. 70, 76 (1924).
187

defense and should be established by evidence was subsequently reiterated in

In re Liquidation of the Mercantile Bank of China; The Fletcher American
National Bank of Indianapolis v. Ang Cheng Lian.193
Inc.,

194

The rule was reversed in Atlantic Mutual Ins. Co. v. Cebu Stevedoring Co.,
which now provides for the prevailing rule.

In that case, two foreign insurance corporations sued Cebu Stevedoring

Co., Inc. for recovery of sum of money by way of subrogation over the insurance
claims on a local insured company for losses sustained on cargoes handled by
the defendant. The trial court, on motion, dismissed the complaint for failing to
state that the plaintiffs were duly licensed foreign corporation to transact
business in the Philippines. On appeal, the plaintiffs contended that the
requirement for allegation of licensed being obtained is required only if the
plaintiff foreign corporation is engaged in business in the Philippines; but that if a
foreign corporation is not doing business in the Philippines, it is not barred from
seeking redress in Philippine courts in proper cases, as when it sues on an
isolated transaction.
However, 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:
But merely to say that a foreign corporation not doing
business in the Philippines does not need a license in order to
sue in our court does not completely resolve the issue in the
present case. The proposition, as stated, refers to the right to
sue; the question here refers to pleading and procedure. It
should be noted that insofar as the allegations in the complaint
have a bearing on appellants' capacity to sue, all that is
averred is that they are both foreign corporations existing
under the laws of the United States. This averment conjures
two alternative possibilities: either they are engaged in
business in the Philippines or they are not so engaged. In the
first, they must have been duly licensed in order to maintain
this suit; if the second, if the transaction sued upon is singular
and isolated, no such license is required. In either case, the
qualifying circumstances is an essential part of the element of
plaintiffs' capacity to sue and must be affirmatively pleaded.195

Atlantic Mutual went on to say that where 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 of the complaint. "These
are matters peculiarly within the knowledge of appellants alone, and it would be
193

65 Phil. 385 (1938).

17 SCRA 1037 (1966).
195
Ibid, at p. 1040.
194

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." 196
Commissioner of Customs v. K.M.K. Gani,197 held that "[t]he fact that a
foreign corporation is not doing business in the Philippines must be disclosed if it
desires to sue in Philippine courts under the `isolated transactions rule.' Without
this disclosure, the court may choose to deny it the right to sue." 198 In addition, it
stated that the "isolated transaction rule" applies only to foreign corporations, and
not a foreign partnership or a foreign "firm".
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."
New York Marine Managers, Inc. v. Court of Appeals,199 found occasion to
reiterate the rule. The Court therein found the complaint filed by the foreign
corporation to be fatally defective for failing to allege its duly authorized
representative or resident agent in [Philippine] jurisdiction. It ruled that the
signature of its counsel on the pleading was not enough: "The pleadings filed by
counsel . . . do not suffice. True, a lawyer is generally presumed to be properly
authorized to represent any cause in which he appears . . . But the presumption
is disputable. Where said authority has been challenged or attacked by the
adverse party the lawyer is required to show proof of such authority or
representation in order to bind his client. The requirement of the production of
authority is essential because the client will be bound by his acquiescence
resulting from his knowledge that he was being represented by said attorney." 200

196

Ibid, at p. 1041.
182 SCRA 591 (1990).
198
Ibid, at p. 596.
199
249 SCRA 416 (1995). "The issue on whether a foreign corporation can seek the aid of
Philippine courts for relief recoils to the basic question of whether it is doing business in the
Philippines or has merely entered into an isolated transaction. This Court has held in a long line
of cases that a foreign corporation not engaged in business in the Philippines may exercise the
right to file an action in Philippine courts for an isolated transaction. However . . . to say merely
that a foreign corporation to doing business in the Philippines does not need a license in order to
sue in our courts does not completely resolve the issue. When the allegation in the complaint
have a bearing on the plaintiff's capacity to sue and merely sate that the plaintiff is a foreign
corporation existing under the laws of the United States, such averment conjures two alternative
possibilities: either the corporation is engaged in business in the Philippines, or it is not so
engaged. In the first, the corporation must have been duly licensed in order to maintain the suit; in
the second, the transaction sued upon is singular and isolated, no such license is required. In
either case . . . [it] cannot be inferred from the mere fact that the party suing is a foreign
corporation. The qualifying circumstance being an essential part of the plaintiff's capacity to sue
must be affirmatively pleaded . . . Failing in this requirement, the complaint filed by the [foreign
corporation] with the trial court, it must be said, fails to show its legal capacity to sue." Ibid.
200
Ibid. Same ruling in Hahn v. Court of Appeals, 266 SCRA 537, 78 SCAD 240 (1997).
197

IN SUMMARY
From all the foregoing, we can therefore summarize the current state of
the Philippines doctrine of "doing business" as it applies to foreign corporations:
1. Coverage
"Doing business" in the Philippines covers transactions or series of
transactions that have the twin-characterization of: (a) in pursuit of the main
business goals of the corporation; and (b) done with intent to continue the same
in the Philippines; and in fact a single transaction showing such twin
characterization would qualify as doing business.
Except that there is an isolated body of jurisprudence that holds that even
when such twin characterization is present in a series of transaction, when the
main features of the contract, of perfection or execution, payment and effects of
delivery are outside Philippine territorial jurisdiction, the same would not
constitute doing business in the Philippines.
However, the implementing rules of the BOI has tended to overcome such
an isolated transaction doctrine by including in the definition of "doing business"
the soliciting of orders in the Philippines.
2. Isolated Transaction Doctrine
A transaction (or even series of transactions) that do not fall within the
"doing business" definition is considered an "isolated transaction" not requiring
the obtaining of license to authorize a foreign corporation to bring suit in the
Philippine courts and administrative bodies to enforce the same or obtain relief.
While generally a foreign corporation not doing business in the Philippines
is beyond the jurisdiction of local courts and administrative bodies because of
lack of "presence" to satisfy the requirements of due process, there is a body of
jurisprudence that hold that an "isolated transaction" would constitute "presence"
to make a foreign corporation amenable to local jurisdiction.
Even when a foreign corporation is not engaged in business in the
Philippines and is sued in the Philippine courts, although it may by special
appearance object to the obtaining of jurisdiction over its person, nevertheless, if
it alleges any non-jurisdictional grounds for dismissing the action, or participates
in the trial proper and cross-examines witness, or presents its own witnesses, the
court then acquires jurisdiction over the person of the defendant.
Likewise, stipulating that venue of suits involving a contract would be in
the proper courts of the Philippines is considered "consent" to allow jurisdiction
over the person of the foreign corporation even when not doing business in the
Philippines.
The fact that a foreign corporation is not doing business in the Philippines
must be alleged if it desires to sue in Philippine courts under the "isolated

transactions rule." Without this disclosure, the court may choose to deny it the
right to sue.
3. Consequences
The consequences of failure of a foreign corporation to obtain a license
when it conducts business in the Philippines would be:
(a) To be denied access in Philippine courts and
administrative bodies to obtain relief on the contracts and
transactions it has entered into;
(b) And yet to be amenable to suits on those contracts and
transactions it has entered into;
(c) But that the subsequent obtaining of a license prior to
filing of a suit would cure the defect and allow the foreign
corporation to sue in local courts and administrative
bodies on said contracts and transactions.
Unfortunately, the Supreme Court has employed the pari delicto doctrine
and likewise held the local counterparts without remedy also in case it enters into
a contract or transaction with a foreign corporation that does not obtain the
necessary license.
The Supreme Court has also applied to estoppel doctrine to authorized a
foreign corporation that has engaged in business in the Philippines without the
requisite license to bring a suit against the local counterpart to enforce on a
contract or transaction.
By way of leave-taking, we should remember the philosophical approach
of the Supreme Court in interpreting Section 69 of then Corporation Law, now
Section 133 of the Corporation Code, that they "must be given a reasonable, not
an unduly harsh, interpretation which does not hamper the development of trade
relations and which fosters friendly commercial intercourse among countries." 201
"The objectives enunciated in the 1924 decision [in Marshall-Wells Co. v. Elser]
are even more relevant today when we view commercial relations in terms of a
world economy, when the tendency is to re-examine the political boundaries
separating one nation from another insofar as they define the business
requirements or restrict marketing conditions." 202

DOMICILE AND RESIDENCE OF FOREIGN CORPORATIONS

The domicile of a corporation belongs to the state where it was
incorporated, and in a strict technical sense, such domicile as a corporation may

201
202

Home Insurance Company v. Eastern Shipping Lines, 123 SCRA 424, 435 (1983).
Ibid, at p. 435.

have is single in its essence and a corporation can have only one domicile which
is the state of its creation.203
The residence of a corporation is necessarily where it exercises corporate
functions or the place where its business is done.204 A foreign corporation licensed
to do business in a state is a resident of any country where it maintains an office
or agent for transaction of its usual and customary business for venue purposes;
that a corporation may be domiciled in one state and resident in another; its legal
domicile is the state of its creations presents no impediment to its residence in a
real and practical sense in the state of its business activities. 205
Under our jurisprudence, pending extraterritorial service of summons to a
foreign corporation, an attachment of a foreign corporation's properties in the
Philippines may be maintained.206

RESIDENT AGENT
A resident agent may be either an individual residing in the Philippines,
must be of good moral character and of sound financial standing, or a domestic
corporation lawfully transacting business in the Philippines. 207
The SEC shall require as a condition precedent to the issuance of the
license that the foreign corporation file a written power of attorney designating
some person who must be 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.208
Whenever such service of summons or other process is made upon the
SEC, it must, 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 SEC is a necessary part of and shall complete
such service. All expenses incurred by the SEC for such service shall be paid in
203

Northwest Orient Airlines v. Court of Appeals, 241 SCRA 192, 58 SCAD 797 (1995).
State Investment House, Inc. v. Citibank, N.A., 203 SCRA 9 (1991); Northwest Orient
Airlines v. Court of Appeals, 241 SCRA 192, 58 SCAD 197 (1995).
205
Ibid.
206
FBA Aircraft v. Zosa, 110 SCRA 1 (1981).
207
Sec. 127, Corporation Code.
208
The specific wordings required under Sec. 128 reads: "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, 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 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."
204

advance by the party as 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 SEC.209

LAWS APPLICABLE TO FOREIGN CORPORATIONS

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, save and except such only provide for the creation, formation,
organization or dissolution of corporations or such as fix the relations, liabilities,
responsibilities, or duties of stockholders, members, or officers of corporations to
each other or to the corporation.210
An illustration of this principle can be found in Grey v. Insular Lumber
Co.211 In that case, the foreign corporation doing business in the Philippines was
organized under the laws of New York. According to the then Stock Corporation
Law of New York, only stockholders owning at least 3% of the shares of the
corporation may inspect the books and records of the corporation. Plaintiff Grey
held less than 3% of defendant corporation stockholdings. Grey invoked the
provision of Philippine laws which allowed stockholders owning less than 3% of
shares to inspect books and records of a corporation. The Supreme Court held
that intramural matters such as the qualification to inspect corporate records are
governed by the laws where the corporation was incorporated.

AMENDMENT OF ARTICLES OF INCORPORATION

Whenever the articles of incorporation or the by-laws of a foreign
corporation authorized to transact business in the Philippines are amended, such
foreign corporation shall, within sixty (60) days after such amendment becomes
effective, file with the SEC, 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.212
The filing thereof shall not itself enlarge or alter the purpose or purposes
for which such corporation is authorized to transact business in the Philippines. 213

209

Sec. 128, Corporation Code.

Sec. 129, Corporation Code.
211
67 Phil. 139 (1938).
212
Sec. 130, Corporation Code.
213
Ibid.
210

MERGER AND CONSOLIDATION

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. However the requirements on merger or consolidation as provided
in the Corporation Code have to be complied with. 214
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 SEC, and in proper cases with the appropriate government agency, a
copy of the articles of merger or consolidation duly authenticated by the proper
officials or officials of the country or state under the laws of which such merger or
consolidation was effected. If the absorbed corporation is the foreign corporation
doing business in the Philippine, the latter shall at the same time file a petition for
withdrawal of its license in accordance with this Title. 215

REVOCATION OF LICENSE TO DO BUSINESS

The license of a foreign corporation may be revoked or suspended by the
SEC upon any of the following grounds:
(a) Failure to file its annual report or pay any fees as
required by the Code;
(b) Failure to appoint and maintain a resident agent in the
Philippines as required by this Title;
(c) Failure, after change of its resident agent or of his
address, to submit to the SEC a statement of such
change as required by the Code;
(d) Failure to submit to the SEC an authenticated copy of
any amendment to its articles of merger or consolidation
within the time prescribed by the Code;
(e) A misrepresentation of any material matter in any
application, report, affidavit or other document submitted
by such corporation pursuant to the Code;
(f) Failure to pay any and all taxes, impost, assessments or
penalties, if any, lawfully due to the Philippine
Government or any of its agencies or political
subdivisions;

214
215

Sec. 132, Corporation Code.

Ibid.

(g) Transacting business in the Philippines outside of the

purpose or purposes for which such corporation is
authorized under its license;
(h) 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
(i) Any other ground as would render it unfit to transact
business in the Philippines.216
Upon the revocation of any such license to transact business in the
Philippines, the SEC shall issue a corresponding certificate of revocation,
furnishing a copy thereof to the appropriate government agency in the proper
cases. The SEC 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.217

WITHDRAWAL

OF

FOREIGN CORPORATION

A foreign corporation licensed to transact business in the Philippines by

filing a petition for withdrawal of license. The petition for withdrawal or license
has been published once a week for three (3) consecutive weeks in a newspaper
of general circulation in the Philippines. However, the SEC will not issue the
certificate of withdrawal unless all claims which have accrued in the Philippines
have been paid, compromised or settled and 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. 218

oOo
18-FOREIGN CORPORATIONS\06-22-2001

216

Sec. 134, Corporation Code.

Sec. 135, Corporation Code.
218
Sec. 136, Corporation Code.
217