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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 funda ental 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 judg ents or decrees, directly bind or affect property or persons beyond the li its of that state.# $owe%er, under the doctrine of co ity 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.&' (he legal standing of foreign corporations in the host state therefore is founded on international law on the basis of consent,) and the extent by which a hosting state can enforce its laws and jurisdiction o%er corporations created by other states has been the subject of jurisprudential rules and unicipal * legislations, especially in the fields of taxation, foreign in%est ents, and capacity to obtain reliefs in local courts and ad inistrati%e bodies. +onsent, as a re,uisite for jurisdiction o%er foreign corporations, is founded on considerations of due process and fair play. As held in Pennoyer v. Neff,- the jurisdiction of courts to render judg ent in personam is grounded on their de facto power o%er the defendant.s person. (herefore his presence within
(his chapter is based on the article entitled Philippine Doctrine of Doing Business' for Foreign Corporations,/ published in two0part series in ($1 2A34156 517I13, 8art I 0 7ol. 7II !9o. #, April, 1::3", 8art II 0 7ol. 7II !9o. ), ;une, 1::3". 2 Marshall- ells Co. v. !enry . "lser # Co.$ #) 8hil. *<, at p. *# !1:2#". 3 %von &nsurance P'C v. Court of %ppeals$ 2*- 6+5A 312, -) 6+A= #<1 !1::*". # (imes$ &nc. v. )eyes, 3: 6+5A 3<3 !1:*1", citing Per*ins v. Di+on , ): 8hil. 1-) !1:3:". ' &,id, citing Paul v. -irginia, - 3all. 1)- !1-):"; .iou/ )emedy Co. v. Cgpe and Cope, 23' >.6. 1:* !1:1#"; Cyclone Mining Co. v. Ba*er 'ight # Po0er Co., 1)' ?ed. ::) !1:<-". ) 6A2@9AA, 85I7A(1 I9(159A(I@9A2 2A3, 1:*: ed., p. 3##. * (he chapter does not co%er nor discuss the concept of &doing business& in the field of taxation, as the subject is itself a technical atter that deser%es a separate discussion. :' >.6. *1#, *33, 2# 2.1d. ')' !1-**".
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the territorial jurisdiction of a court is prere,uisite to its rendition of judg ent personally binding hi . &nternational .hoe Co. v. .tate of ashington : expanded the co%erage by stating that due process re,uires only that in order to subject a defendant to a judg ent in personam, if he not be present within the territory of the foru , he ust ha%e certain ini u contacts with it such that the aintenance of the suit does not offend &traditional notions of fair play and substantial justice.& &nternational .hoe Co. held that &BsCince 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 indi%idual its DpresenceE without, as well as within, the 6tate of its origin can be anifested only by acti%ities carried on in its behalf by those who are authoriFed to act for it. (o say that a corporation is so DpresentE there as to satisfy due process re,uire ents . . . is to beg the ,uestion to be decided. ?or the ter s DpresentE or DpresenceE are erely used to sy boliFe those acti%ities of the corporation.s agent with the 6tate which courts will dee to be sufficient to satisfy the de ands of due process.& (hus, it dee ed that &presence& in a foru state will not be doubted when the acti%ities of the corporation there ha%e not only been continuous and syste atic, but also gi%e rise to liabilities sued on, e%en though no consent to be sued or authoriFation to an agent to accept ser%ice of process has been gi%en. A foreign corporation ay be subjected to jurisdiction by reason of consent, ownership of property within the 6tate, or by reason of acti%ities within or ha%ing an effect within the state. 1< ?or exa ple, the filing of an action by a foreign corporation before 8hilippine courts would ean that by %oluntary appearance, the local courts ha%e actually obtained jurisdiction o%er the &person& of the foreign corporation.11 Another basis by which a host state is dee ed to ha%e authority o%er 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 acti%ities 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 sa e anner, in order to regulate the basis by which a foreign corporation seeks to do business and the anner by which it would seek redress within the judicial and ad inistrati%e authorities within the host state, ha%e gi%en rise to the re,uire ent that a license be obtained under the penalty that failure to do so would not gi%e it legal standing to sue in local courts and ad inistrati%e bodies exercising ,uasi0judicial powers. @n the other hand, when a foreign corporation.s acti%ities within the host state do not fall within the concept of &doing business,& the re,uire ents of obtaining a license to engage in business are generally not applicable to it, and it
32) >.6. 31<, )) 6.+t. 1'#, :< 2.1d. :' !1:#'". 6A2@9AA$ supra, citing Aoodrich !6coles", 13). 11 Communication Materials and Design$ &nc. v. Court of %ppeals , 2)< 6+5A )*3, *3 6+A= 3*# !1::)".
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would still ha%e legal standing to sue in local courts and ad inistrati%e agencies to obtain relief. In such an instance, the jurisdiction by local courts and ad inistrati%e bodies o%er a foreign corporation seeking relief would be the clear consent anifested by the filing of the suit. (he 8hilippine 6upre e +ourt has held that &the recognition of the legal status of a foreign corporation is a atter affecting the policy of the foru , and distinction drawn in our +orporation 2aw between the standing of a corporation which does not engage in business in the 8hilippines and does not re,uire a license to sue, and a foreign corporation which engages in business in the 8hilippines, and is re,uired to obtain a license to sue, is an expression of that policy.&12 A state ay therefore restrict the right of a foreign corporation to engage in business within its li its, and to sue in its courts. 13 @utside of consent, the concept of &doing business& therefore beco es the crucial point to deter ine whether foreign corporations and ultinational enterprises ha%e co e within the territorial jurisdictions of the host countries and conse,uently to deter ine to what extent they are bound to obtain licenses within %arious host countries before they can sue with local courts and ad inistrati%e bodies.

DEFINITION OF "FOREIGN CORPORATIONS"


6ection 123 of +orporation +ode defines a &foreign corporation& as &one for ed, organiFed or existing under any laws other than those of the 8hilippines and whose laws allow ?ilipino citiFens and corporation to do business in its own country or state.& It is unfortunate that the present 8hilippine definition of foreign corporation contains the policy of reciprocity as part of the definition, since it leads to an absurd i plication that corporate entities organiFed in countries that do not grant reciprocity rights to ?ilipinos and 8hilippine entities are not &foreign corporations.& It is clear that despite the language of 6ection 123, all corporations organiFed other than under 8hilippine laws are foreign corporations, irrespecti%e of the issue of reciprocity. Although wrongly placed, the inclusion of the ele ent of reciprocity in the definition of foreign corporations e phasiFes the 8hilippines. 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 8hilippine territory. (his is clear in the succeeding sentence of 6ection 123 that pro%ides that foreign corporations fro state that grant reciprocity rights to 8hilippine nationals &shall ha%e the right to transact business in the 8hilippines after it shall ha%e obtained a license to transact business in this country in accordance with this +ode and a certificate of authority fro the appropriate go%ern ent agency.&
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Mentholatum Co.$ &nc. v. Mangaliman , *2 8hil. '2#, '3< !1:#1". Marshall- ells Co. v. !enry . "lser # Co.$ #) 8hil. *<, *#.

REQUISITES FOR OBTAINING LICENSE DO BUSINESS IN PHILIPPINES

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A foreign corporation shall be granted a license to transact business by filing a %erified application with the 61+ setting forth specifically re,uired data, including certified copies of its articles of incorporation and by0laws. 1# 1. Designation of Lo a! Agent A ong the things to be stated in the %erified application are the na e and address of the foreign corporation.s resident agent authoriFed to accept su ons and process in all legal proceedings and, pending the establish ent of a local office, all notices affecting the corporation. 1' @b%iously, this re,uire ent insures that proper jurisdiction ay be obtained o%er a foreign corporation in the e%ent of suits and other proceedings. A written power of attorney ust be filed by the foreign corporation with the 61+ designating so e person who ust be a resident of the 8hilippines, on who any su ons and other legal processes ay be ser%ed in all actions or other legal proceedings against such corporation, and consenting that ser%ice upon such resident agent shall be ad itted and held as %alid as if ser%ed upon the duly authoriFed officers of the foreign corporation at its ho e office. 1) ". Ag#ee$ent on Se#%i e of S&$$ons 'it( SEC In consideration of its being granted a license to do business in the 8hilippines, the foreign corporation shall execute and file with the 61+ an agree ent or stipulation agreeing that if at any ti e said corporation shall cease to transact business in the 8hilippines or shall be without any resident agent in the 8hilippines on who any su ons or other legal processes ay be ser%ed, then in any action or proceeding arising out of any business or transaction which occurred in the 8hilippines, ser%ice of any su ons or other legal process ay be ade upon the 61+ and that such ser%ice shall ha%e the sa e force and effect as if ade upon the duly authoriFed officers of the foreign corporation at its ho e office.1* 3hene%er such ser%ice of su ons or other process shall be ade upon the 61+, it ust, within ten !1<" days thereafter, trans it by ail a copy of such su ons or other legal process to the corporation at its ho e or principal office. (he sending of such copy by the 61+ shall be a necessary part of and shall co plete such ser%ice.16ec. 12', +orporation +ode. &,id. 6ec. 12* of the +orporation +ode pro%ides that the resident agent ay either be an indi%idual residing in the 8hilippines who ust be of good oral character and sound financial standing or a do estic corporation lawfully transacting business in the 8hilippines. 1) 6ec. 12-, +orporation +ode. 1* &,id. 1&,id.
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). Effe t of Fai!&#e to A**oint o# +aintain Agent (he failure to appoint and aintain a resident agent in the 8hilippines or failure, after change of its resident agent or of his address, to sub it to the 61+ a state ent of such change, are grounds for re%ocation of a license granted to a foreign corporation to do business.1: ,. Oat( on Re i*#o it- Co$*!ian e Attached to the application shall also be a duly executed certificate under oath by the authoriFed official or officials of the jurisdiction of incorporation, attesting to the fact that the laws of the country or state of the applicant allow ?ilipino citiFens and corporations to do business therein. 2< .. De*osit of Se &#ities 3ithin sixty !)<" days fro issuance of the license to do business, such foreign corporation shall deposit with the 61+, for the benefit of its present and future creditors, 8hilippine securities 21 in the actual arket %alue of at least 81<<,<<<.<<, subject to further deposit of additional securities e%ery six onths after each fiscal year e,ui%alent in actual arket %alue to two percent !2G" of the a ount by which the foreign corporation.s gross inco e for that fiscal year exceeds 8',<<<,<<<.<<. ?urther ore, the 61+ ay re,uire further securities in the e%ent the deposit has decreased by at least ten percent !1<G" of the actual arket %alue at the ti e they were deposited.22 /. Effe ts of Being Iss&e0 Li ense 3hen a foreign corporation is issued the license to do business in the 8hilippines, it ay co ence to transact its business in the 8hilippines 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, re%oked, suspended, or annulled. 23 (he +orporation +ode therefore takes pain to ensure that in allowing a foreign corporation to engage in business acti%ities in the 8hilippines, proper safeguards are taken to allow obtaining jurisdiction o%er such foreign corporation in case of suit and that proper securities are present within 8hilippine jurisdiction to answer for a foreign corporation.s obligations to locals. (he 6upre e +ourt
6ec. 13#, +orporation +ode. 6ec. 12-, +orporation +ode. 21 6ec. 12), +orporation +ode enu erates the to consist of bonds or other e%idence of indebtedness of the 8hilippine Ao%ern ent, its political subdi%isions and instru entalities, or go%ern ent0owned or controlled corporations and entities, shares of stocks in &registered enterprises,& shares of stocks of listed do estic entities, or shares of stock in do estic insurance co panies and banks, or any co bination of these kinds of securities 0 22 6ec. 12), +orporation +ode. 23 6ec. 12), +orporation +ode.
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has heldH &(he purpose of the law is to subject the foreign corporation doing business in the 8hilippines to the jurisdiction of our courts. It is not to pre%ent the foreign corporation fro perfor ing single or isolated acts, but to bar it fro ac,uiring a do icile for the purpose of business without first taking steps necessary to render it a enable to suits in the local courts.& 2# 6uch strict rules are necessary since a foreign corporation doing business in the 8hilippines is bound by all laws, rules and regulations applicable to do estic corporations of the sa e class, except for atters that go into creation, for ation, organiFation or dissolution of corporations or such as to fix relations, liabilities, responsibilities or duties of stockholders, e bers, or officers of corporation to each other or to the corporation, or si ple intra0corporate disputes.2' a. Licensed Foreign Corporation Deemed Domesticated (he har ony and balance sought to be achie%ed by our &doing business& re,uire ents for obtaining license are best exe plified by the fact that once a foreign corporation has obtained a license to do business, then it is dee ed do esticated, and should be subject to no harsher rules that is re,uired of do estic corporations. 6uch policy is exe plified in the case of Claude Neon 'ights$ Fed. &nc. v. Phil. %dv. Corp.,2) where the 6upre e +ourt refused the issuance of a writ of attach ent on properties in the 8hilippines of a foreign corporation licensed to do business in the 8hilippines on the ere allegation that &it is not residing in the 8hilippine Islands.& (he +ourt held that ha%ing regard for the reason of the law allowing issuance of writs of attach ents for the protection of creditors of a non0 resident, the sa e reason does not apply to a foreign corporation doing business in the 8hilippines and licensed to do so by 8hilippine authority. (he +ourt held that unlike a natural person who does not reside in the 8hilippines, such foreign corporation is re,uired by law to appoint a resident agent for ser%ice of process; ust pro%e to the satisfaction of the Ao%ern ent before it does business here, that it is sol%ent and in sound financial condition; has had to pay license fee and its business subject at anyti e to in%estigation by the Ao%ern ent authorities; and that his right to continue do business is subject to re%ocation by the Ao%ern ent; and books and papers subject to exa ination at any ti e by the Ao%ern ent; and is bound by all laws, rules and regulations
"ri*s Pte. 'td. v. Court of %ppeals , 2)* 6+5A ')*, *) 6+A= *< !1::*". (he +ourt also held in that caseH &It was ne%er 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 8hilippines. 9either, did it intend to shield debtors fro their legiti ate liabilities or obligations. Iut it cannot allow foreign corporations or entities which conduct regular business any access to courts without the fulfill ent by such corporation of the necessary re,uisites to be subjected to our go%ern ent.s regulation and authority. Iy securing a license, the foreign entity would be gi%ing assurance that it will abide by the decisions of our courts, e%en if ad%erse to it.& 2' 6ec. 12:, +orporation +ode. 2) '* 8hil. )<* !1:32".
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applicable to do estic corporations; all designed to protect the creditors and the public. (he +ourt further heldH
A natural person not residing in the 8hilippines can e%ade ser%ice of su ons and other legal processes, the foreign corporation licensed to do business in 8hilippines cannot. +orporations, as a rule, are less obile than indi%iduals. (his is specially true of foreign corporations that are carrying on business by proper authority in Bthe 8hilippinesC. (hey possess, as a rule, great capital which is seeking lucrati%e and ore or less per anent in%est ent in young and de%eloping countries like our 8hilippines.2*

CONSEQUENCES OF NOT OBTAINING A LICENSE TO DO BUSINESS


1. On Stan0ing to S&e an0 Be S&e0 >nder 6ection 133 of the +orporation +ode pro%ides that a foreign corporation doing business in the 8hilippines without first obtaining the license to do businessH !a" 6hall not be per itted to aintain or inter%ene in any action, suit or proceeding in any court or ad inistrati%e agency of the 8hilippines; !b" Iut such foreign corporation ay be sued or proceeded against before 8hilippine courts or ad inistrati%e tribunals on any %alid cause of action recogniFed under 8hilippine laws. In addition, 6ection 13# akes it a ground for re%ocation of license, when a foreign corporation transacts business in the 8hilippines as agent of or acting for and in behalf of any foreign corporation or entity not duly licensed to do business in the 8hilippines. It see s clearly i plied fro the languages of both 6ections 133 and 13#, that the failure of a foreign corporation to obtain a license to do business when one is re,uired, does not affect the %alidity of the transactions of such foreign corporation, but si ply re o%es the legal standing of such foreign corporation to sue. Although such foreign corporation ay still be sued, the +orporation +ode fails to indicate that once sued, if such foreign corporation can interpose counterclai s in the sa e suit. ". On 1a!i0it- of Cont#a t

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&,id, at p. )12.

!ome &nsurance Company v. "astern .hipping 'ines ,2- established the 8hilippine doctrine on the legal effect on the contract itself when a foreign corporation engages in business in the 8hilippines without obtaining the re,uired license. In that case, $o e Insurance +o pany, a foreign corporation, which ad ittedly had engaged in business in the 8hilippines, had issued the subject insurance contracts in the 8hilippines without obtaining the necessary license. 6ubse,uently, it obtained the license before filing the cases for collection under the insurance contracts. (he lower court dis issed the co plaint and declared that pursuant to its understanding of the basic public policy reflected in the +orporation 2aw, the insurance contracts executed before a license was secured ust be held null and %oid, and the subse,uent procure ent of the license did not %alidate the contracts. (he 6upre e +ourt, although it recogniFed there were conflicting schools of thought both here and abroad which are di%ided on whether such contracts are %oid or erely %oidable, took its cue fro the doctrine laid down in Marshallells Co. v. "lser2: that the doctrine under 6ection ): of the then +orporation 2aw &was to subject the foreign corporation doing business in the 8hilippines to the jurisdiction of our courts . . . and not to pre%ent the foreign corporation fro perfor ing single acts, but to pre%ent it fro ac,uiring do icile for the purpose of business without taking the necessary steps to render it a enable to suit in the local courts.& In addition, the +ourt took into consideration the philosophy discussed in 1eneral Corporation of the Philippines v. 2nion &nsurance .ociety of Canton 'td.,3< that the fact of doing business in the 8hilippines, and not the non0obtaining of the license, is the ore crucial pointH
(he test is whether a foreign corporation was actually doing business here. @therwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the corresponding license and authority to do business ay successfully though unfairly plead such neglect or illegal act so as to a%oid ser%ice and thereby i pugn the jurisdiction of the local courts. It would indeed be ano alous and ,uite prejudicial, e%en disastrous, to the citiFens in this jurisdiction who in all good faith and in the regular course of business accept and pay for ship ents of goods fro A erica, relying for their protection on duly executed foreign arine insurance policies ade payable in Janila and duly endorsed and deli%ered to the , that when they go to court to enforce said policies, the insurer who all along has been engaging in this business of issuing si ilar arine policies, serenely pleads i unity to local jurisdiction because of its refusal or neglect
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123 6+5A #2# !1:-3". #) 8hil. *< !1:2#". 3< -* 8hil. 313 !1:'<".

to obtain the corresponding license to do business here thereby co pelling the consignee or purchasers of the goods insured to go to A erica and sue in its courts for redress.

!ome &nsurance Company therefore held that contracts entered into by a foreign corporation doing business in the 8hilippines without the re,uisite license re ain %alid and enforceable and &BtChe re,uire ent of registration affects only the re edy,&31 and that &the lack of capacity at the ti e of the execution of the contracts was cured by the subse,uent registration.& 32 (he +ourt also noted that under both 6ections )- and ): of the old +orporation 2aw !now 6ections 133 and 1## of the +orporation +ode", penal sanctions are i posed for failure to co ply with the registration re,uire ents, then &BtChe penal sanction for the %iolation and the denial of access to our courts and ad inistrati%e bodies are sufficient fro the %iewpoint of legislati%e policy.& 33 (he !ome &nsurance Company doctrine was reiterated in "ri*s Pte. 'td. v. Court of %ppeals,3# where the 6upre e +ourt expressly held &subse,uent ac,uisition of the license will cure the lack of capacity at the ti e of the execution of the contract.&

CONFLICTING RULINGS OF SUPRE+E COURT


Iased on the foregoing, it is therefore with serious doubt that we consider the doctrinal pronounce ents of the 6upre e +ourt on the legal effects of non0 obtaining of the license when a foreign corporation engages in business in the 8hilippines. 1. Pari Delicto R&!ing In (op- eld Manufacturing v. "C"D$ ..%. ,3' a local co pany entered into separate licensing and technical assistance agree ents with two 6wiss corporations, by %irtue of which the local co pany was constituted a licensee to anufacture welding products under specifications, with raw aterials to be purchased fro suppliers designated by the licensors. In addition, distributorship agree ents were entered into with another 8ana anian co pany. 3hen the local co pany 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 fro negotiating with third persons or fro actually carrying out the transfer of their distributorship
.upra, at p. #3-. &,id, at p. #3:. 33 &,id. (he feasibility of i posing the cri inal penalty under 6ection 1## of the +orporation +ode against the officers of the foreign corporation see s of doubtful application. 6ee discussions on the atter in +hapter 1:. 3# 2)* 6+5A ')*, *) 6+A= *< !1::*". 3' 13- 6+5A 11- !1:-'".
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and franchising rights, and fro ter inating the existing contracts. (he local co pany in%oked the pro%isions of 6ection #!:" of 5ep. Act 9o. '#'', known as the ?oreign Iusiness 5egulation Act, which prohibited aliens or foreign fir s fro ter inating any franchise, licensing or other agree ents that they ha%e with a resident of the 8hilippines except for %iolation thereof or other just cause and upon pay ent of just co pensation and rei burse ent and other expenses incurred by the licensee in de%eloping a arket for the products. (he 6upre e +ourt held that although the foreign corporations did not obtain the necessary license, it did not exe pt the fro I@I re,uire ents under the law for &BtCo accept this %iew would open the way for an interpretation that by doing business in the country without first securing the re,uired written certificate fro the Ioard of In%est ents, a foreign corporation ay %iolate or disregard the safeguards which the law, by its pro%isions, seeks to establish.& 3) $owe%er, the +ourt ne%ertheless decreed that the local co pany could not in%oke the pro%isions of 5ep. Act 9o. '#'', thusH
As between the parties the sel%es, 5.A. 9o. '#'' does not declare as %oid or in%alid the contracts entered into without first securing a license or certificate to do business in the 8hilippines. 9either does it appear to intend to pre%ent the courts fro enforcing contracts ade in contra%ention of its licensing pro%isions. (here is no denying$ though$ that an illegal situation$3 as the appellate court has put it$ 0as created 0hen the parties voluntarily contracted 0ithout such license. (he parties are charged with knowledge of the existing law at the ti e they enter into the contract and at the ti e it is to beco e operati%e. . . In this case, the record shows that, at least, petitioner had actual knowledge of the applicability of 5.A. 9o. '#'' at the ti e the contract was executed and at all ti es thereafter. . . . (he %ery purpose of the law was circu %ented and e%aded when the petitioner entered into said agree ents despite the prohibition of 5.A. 9o. '#''. (he parties in this case ,eing e4ually guilty of violating ).%. No. 5655$ they are in pari delicto$ in 0hich case it follo0s as a conse4uence that petitioner is not entitled to the relief prayed for in this case.3*

(he result in (op- eld Manufacturing would be that a contract or transaction between a local and foreign corporation that would ,ualify the latter to be doing business in the 8hilippines without obtaining the re,uisite license 0ould not ,e actiona,le at all in Philippine courts or administrative ,odies . If the foreign corporation brings an action on said contract or transaction, it will be dis issed under 6ection 133 of the +orporation +ode as a conse,uence of not obtaining the license. @n the other hand, if the local counterpart brings an action on the contract, it would also be dis issed on grounds of pari delicto$ under (op- eld
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&,id, at p. 13<. &,id$ at p. 131. "mphasis supplied.

which held that &the law will not aid either party to an illegal agree ent. It lea%es the parties where it finds the .&3Although the +ourt acknowledged that &BaCs between the parties the sel%es, ).%. No. 5655 does not declare as void or invalid the contracts entered into 0ithout first securing a license or certificate to do ,usiness in the Philippines,& yet at the sa e ti e it would apply the pari delicto doctrine because it would &not aid either party to an illegal agreement. & (he effect is to hold such a contract void. 6uch pronounce ents in (op- eld contra%ene the clear language in 6ection 133 that &a foreign corporation doing business in the 8hilippines without first obtaining the license to do business . . . may ,e sued or proceeded against ,efore Philippine courts or administrative tri,unals on any valid cause of action recogni+ed under Philippine la0s.& Also, the pronounce ents fail to consider the crucial point that obtaining the license is a duty i posed upon the foreign corporation doing business in the 8hilippines, not on the locals who deal with it, and precisely it is a duty i posed on foreign corporations in order to protect the locals. ". Do t#ine of Esto**e! In Merrill 'ynch Futures$ &nc. v. Court of %ppeals ,3: the 6upre e +ourt ca e out with a dia etrically opposed ruling to the pari delicto principle of (opeld Manufacturing. In that case, Jerrill 2ynch ?utures, Inc., through a do estic corporation, was found to be engaging in business !co odity futures" in the 8hilippines without obtaining the proper license. It brought a suit in 8hilippine courts to enforce a clai against local in%estors. Although the +ourt found the foreign corporation to ha%e engaged in business in the 8hilippines without the re,uisite license, it o%erturned the dis issal of the suit, on the ground that if the local in%estors knew that the foreign corporation had no license to do business in the 8hilippines, then they are estopped fro using the lack of license to a%oid their obligations, thusK
(he rule is that a party is estopped to challenge the personality of a corporation after ha%ing acknowledged the sa e by entering into a contract with it. And the &doctrine of estoppel to deny corporate existence applies to foreign as well as to do estic corporations;& Lone who has dealt with a corporation of foreign origin as corporate entity is estopped to deny its corporate existence and capacity.& (he principle &will be applied to pre%ent a person contracting with a foreign corporation fro later taking ad%antage of its nonco pliance

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&,id, at p. 131, citing Bough v. Cantiveros, #< 8hil. 21< !1:1:". 211 6+5A -2# !1::2".

with the statutes, chiefly in cases where such person has recei%ed the benefits of the contract . . .#<

(he Merrill 'ynch doctrine of estoppel has been reiterated in National .ugar (rading Corporation v. Court of %ppeals .#1 In that case a co plaint for specific perfor ance and partial rescission of contract and da ages was brought by a foreign corporation against the 9ational 6ugar (rading +orporation !9A6>(5A" with the 5egional (rial +ourt. Although the co plaint alleged that the foreign corporation was not engaged in business in the 8hilippines, 9A6>(5A, after filing an answer, had o%ed to dis iss the co plaint on the ground that the foreign corporation was actually engaged in business in the 8hilippines and had not obtained a license, and thereby has no standing to sue in 8hilippine courts. Although the issue brought before the 6upre e +ourt was whether the foreign corporation was engaged in business in the 8hilippines without a license, and in fact the +ourt held that &BwChether a foreign corporation is doing business in the 8hilippine ust be deter ined in the light of the peculiar circu stances of each case . . . BandC is essentially a ,uestion of fact,& ne%ertheless the resolution of such issue was rendered irrele%ant because the +ourt applied the Merrill 'ynch estoppel doctrine. It held 0
8etitioners do not dispute pri%ate respondent.s clai that 9A6>(5A entered into the +ontract of 8urchase and 6ale of 6ugar with the latter in 1:-< . . . In fact, in its Jotion to =is iss filed below, petitioner 65A ad its the partial deli%ery of the sugar and the issuance of 65A 5esolution 9o. )-0-*0A recogniFing pay ent and receipt by 9A6>(5A of the purchase price for the said sugar, and 9A6>(5A.s existing obligation o%er the undeli%ered portion . . . Ai%en these preli inary facts and assu ing that petitioner 9A6>(5A was aware fro the outset that pri%ate respondent had no license to do business in this country, it would appear ,uite ine,uitable for 9A6>(5A, a state0owned corporation, to e%ade pay ent of an otherwise legiti ate indebtedness due and owing to pri%ate respondent upon the plea that the latter should ha%e obtained a license first before perfecting a contract with the 8hilippine go%ern ent.#2

In addition, the +ourt took into serious consideration the fact that the foreign corporation did not actually &sell sugar and deri%e inco e fro the 8hilippines,& but actually ,ought sugar fro the 8hilippine go%ern ent and allegedly paid for it in full. (he theory therefore would see that the acti%ity to be
#< &,id$ at p. -3*. (he &estoppel& doctrine was also reiterated in 1eorg 1rot7ahn 1MB! # Co. v. &snani, 23' 6+5A 21), '# 6+A= 2-: !1::#". #1 2#) 6+5A #)', )3 6+A= 31 !1::'" #2 &,id, at pp. #):0#*< citing Merrill 'ynch Futures$ &nc. v. Court of %ppeals$ 211 6+5A -2# !1::2".

undertaken in the 8hilippines to be considered engaged in business is one that is for profit0 aking acti%ity and not one where the foreign corporation erely seeks to enter into a purchase or ac,uisition transaction which by itself it does not deri%e profit. (he +ourt then went on to ,uote fro %ntam Consolidated$ &nc. v. Court of %ppeals,#3 which it dee ed si ilar in facts and held that the doctrine of lack of capacity to sue based on failure to ac,uire a local license is based on considerations of sound public policy. (he license re,uire ent was i posed to subject the foreign corporation doing business in the 8hilippines to the jurisdiction of its courts and ne%er intended to fa%or do estic corporation who enter into solitary transactions with unwary foreign fir s and then repudiate their obligations si ply because the latter are not licensed to do business in the country. (he rulings of the 6upre e +ourt would also i ply that when a foreign corporation doing business in the 8hilippines has not obtained the re,uisite license is sued, then by the principle of estoppel, it ay interpose the proper counterclai s. ). Re%o2ing Pa#i3De!i to R&!ing Fa%o# of Esto**e! Do t#ine in

5ecently, the (op- eld doctrine of pari delicto see s to ha%e been re%oked in fa%or of the estoppel doctrine in Communication Materials and Design$ &nc. v. Court of %ppeals ,## where the 6upre e +ourt in applying directly the (op- eld doctrine found that the contract of a foreign corporation with a local broker or agent as ha%ing highly restricti%e ter s and conditions as to constitute the foreign corporation as doing business in the 8hilippines. In that case, although the foreign corporation was held doing business in the 8hilippines, the +ourt refused to allow the plea of the local co pany that not ha%ing been licensed to do business in the 8hilippines, the foreign corporation has no standing to sue. (he +ourt, in%oking the Merrill 'ynch doctrine heldH
A foreign corporation doing business in the 8hilippines ay sue in 8hilippine courts although not authoriFed to do business here against a 8hilippine citiFen or entity who had contracted with and benefited by said corporation. (o put it another way, a party is estopped to challenge the personality of a corporation after ha%ing acknowledged the sa e by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to a foreign as well as to do estic corporations. @ne who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. (he principle will be applied to pre%ent a person contracting with a foreign corporation fro later taking ad%antage of its nonco pliance with the statutes
#3 ##

1#3 6+5A 2-- !1:-)". 2)< 6+5A )*3, *3 6+A= 3*# !1::)".

chiefly in cases where such person has recei%ed the benefits of the contract.

(he +ourt held that the doctrine of lack of capacity to sue based on the failure to ac,uire a local license is based on considerations of sound public policy. (he license re,uire ent was i posed to subject the foreign corporation doing business in the 8hilippines to the jurisdiction of its courts. It was ne%er intended to fa%or do estic corporations who enter into solitary transactions with unwary foreign fir s and then repudiate their obligations si ply because the latter are not licensed to do business in this country. #' ,. P#o4!e$s 'it( Esto**e! Do t#ine (he proble with the Merrill 'ynch estoppel doctrine is that it basically lacks one of the essential ingredients that constitutes the ele ent of estoppel, which is that by the action or representation of one party ! i.e., the local entity or indi%idual", the other party !i.e.$ the foreign corporation", has been held to belie%e that he would be entitled to relief on the contract entered into in the course of doing business in the 8hilippines without a license. 3hen a foreign entity engages in business in the 8hilippines and fails to obtain the re,uisite license, then the si ple act of a local entering into a contract with such foreign corporation cannot reasonably gi%e rise to estoppel or the belief therefore on the part of the foreign entity that he would be allowed to secure reliefs fro local courts since the pro%isions of 6ection 133 of the +orporation +ode, which is dee ed to be part of such contract, pre%ents such belief fro ha%ing a reasonable basis. (he Merrill 'ynch estoppel doctrine effecti%ely re o%es the sanction pro%ided for by law on the failure of a foreign corporation to obtain a license before it engages in business in the 8hilippines, and therefore there would be less oti%e on the part of such foreign corporation to obtain the license since it can always sue in 8hilippine courts. "ri*s Pte. 'td. v. Court of %ppeals ,#) has answered the issue that to pre%ent a foreign corporation to sue on a contract would be unjust enrich ent for the local counterpart, al,eit not in express reference to the estoppel doctrine. In that case it was argued by the foreign corporation that its denial of access to 8hilippine courts would afford unjust enrich ent to the defendant. (he +ourt heldH &a judg ent denying a foreign corporation relief fro our courts for failure to obtain the re,uisite license to do business, should not be construed as an atte pt to foreclose the ulti ate right to collect on an obligation. . . )es 7udicata does not set in a case dis issed for lack of capacity to sue, because there has been no deter ination on the erits. Joreo%er, this +ourt has ruled that subse,uent ac,uisition of the license will cure the lack of capacity at the ti e of the execution of the contract.&
8uoting from National .ugar (rading Corp. v. Court of %ppeals, 2#) 6+5A #)', )3 6+A= 31 !1::'". #) 2)* 6+5A ')*, *) 6+A= *< !1::*".
#'

CONCEPT OF "DOING BUSINESS" UNDER FOREIGN IN1EST+ENT ACT OF 1551


(he ?oreign In%est ent Act of 1::1 #* now go%erns foreign in%est ents in the 8hilippines that do not seek I@I incenti%es. (he Act has repealed Iook II of the @ nibus In%est ents +ode of 1:-*.#1. Stat&to#- Definition of "Doing B&siness" Instead of defining a &foreign corporation,& the Act refers to a &non0 8hilippine national& as an entity not falling within the definition of &8hilippine 9ational.& A 8hilippine national eans
a corporation organiFed under the laws of the 8hilippines of which at least sixty percent !)<G" of the capital stock outstanding and entitled to %ote is owned and held by citiFens of the 8hilippines . . . Provided, (hat where a corporation and its non0?ilipino stockholders own stocks in a 61+ registered enterprise, at least sixty percent !)<G" of the capital stock outstanding and entitled to %ote of both corporations ust be owned and held by citiFens of the 8hilippines and at least sixty percent !)<G" of the e bers of the Ioard of =irectors of both corporations ust be citiFens of the 8hilippines, in order that the corporation shall be considered a 8hilippine national.#:

>nder the negati%e list concept of the Act, a non08hilippine national, upon registration with the 61+, ay do business in the 8hilippines or in%est in a do estic enterprise up to one hundred percent !1<<G" of its capital, unless participation of non08hilippine nationals in the enterprise is prohibited or li ited to a s aller percentage by existing law andMor under the negati%e lists of the Act. '< Although the Act has re o%ed the re,uire ent of registration with the I@I for foreign in%estors to do business in the 8hilippines outside the negati%e lists, ne%ertheless it confir s the need for such foreign corporation, before engaging in business in the 8hilippines, to register with, and obtain a license to do business fro , the 61+. >nder the I ple enting 5ules and 5egulations issued by the =epart ent of (rade and Industry, a foreign corporation is defined as &one which is for ed, organiFed or existing under laws other than those of the 8hilippines.& '1 (he Act defines &doing business& to include the following by express enu erationH

#* #-

5ep. Act 9o. *<#2. 1xecuti%e @rder 9o. 22). #: 6ec. 3!a", ?oreign In%est ent Act of 1::1. '< 6ec. ', ?oreign In%est ent Act of 1::1. '1 6ec. 1!c", I ple enting 5ules and 5egulations of ?IA D:1.

!a" 6oliciting orders, ser%ice contracts, opening offices, whether called Lliaison/ offices or branches; !b" Appointing representati%es or distributors do iciled in the 8hilippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty !1-<" days or ore; !c" 8articipating in the anage ent, super%ision or control of any do estic business, fir , entity or corporation in the 8hilippines; and !d" %ny other act or acts that imply a continuity of commercial dealings or arrangements$ and contemplate to that e/tent the performance of acts or 0or*s$ or the e/ercise of some of the functions normally incident to$ and in progressive prosecution of$ commercial gain or of the purpose or o,7ect of the ,usiness organi+ation .'2 @n the other hand, the Act akes clear that &doing business& does not include the following acts and acti%itiesH !a" Jere in%est ent as a shareholder by a foreign entity in a do estic corporation duly registered to do business, andMor the exercise of rights as such in%estor; !b" $a%ing a no inee director or officer to represent its interests in such corporation; and !c" Appointing a representati%e or distributor do iciled in the 8hilippines which transacts business in its own na e and for its own account.'3 (he =(I I ple enting 5ules and 5egulations, in defining &doing business,& not only carries the sa e language as appearing in the Act, but also includes the following ite s as not being included in the ter &doing business&H !a" (he publication of a general ad%ertise ent through any print or broadcast edia; !b" Jaintaining a stock of goods in the 8hilippines solely for the purpose of ha%ing the sa e processed by another entity in the 8hilippines; !c" +onsign ent by a foreign entity of e,uip ent with a local co pany to be used in the processing of products for export; !d" +ollecting infor ation in the 8hilippines; and
'2 '3

6ec. 3!d", ?oreign In%est ent Act of 1::1; emphasis supplied. &,id.

!e" 8erfor ing ser%ices auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the 8hilippines achinery it has anufactured or exported to the 8hilippines, ser%icing the sa e, training do estic workers to operate it, and si ilar incidental ser%ices.'# A re%iew of the enu erated instances of acti%ities not constituting doing business shows a co on deno inator that by the sel%es the acti%ities do not bring any direct receipts or profits to the foreign corporation. (his would be consistent with the ruling of the 6upre e +ourt in National .ugar (rading Corporation v. Court of %ppeals$ '' that acti%ities within 8hilippine jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing business in the 8hilippines. 6uch exceptions to the doing business concept are not found in the statutory definition of doing business, and do not confor to the public policy behind the re,uire ent of getting a license, i.e.$ that foreign corporation are pre%ented fro conducting acti%ities in the 8hilippine before steps are taken to ensure that both the state and the locals would ha%e a %alid eans of obtaining jurisdiction o%er their persons !which is achie%ed by the process of obtaining a license to do business". (hus, it has been held in %von &nsurance P'C v. Court of %ppeals, ') thusH
(he purpose of the law in re,uiring that foreign corporations doing business in the country be licensed to do so, it to subject the foreign corporations doing business in the 8hilippines to the jurisdiction of the courts, otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the re,uired license and authority to do business ay successfully though unfairly plead such neglect or illegal act so as to a%oid ser%ice and thereby i pugn the jurisdiction of the local courts. (he sa e danger does not exist a ong foreign corporations that are indubitably not doing business in the 8hilippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the 6tateEs regulation. As we obser%ed, in so far as the 6tate is concerned, such foreign corporation has no legal existence. (herefore, to subject such foreign corporation to the courtsE jurisdiction would %iolate the essence of so%ereignty.

". R&!ing on In0ento#s an0 B#o2e#s


'# ''

6ec. 1!f", I ple enting 5ules and 5egulations of ?IA D:1. 2#) 6+5A #)', )3 6+A= 31 !1::'". ') 2*- 6+5A 312, -) 6+A= #<1 !1::*".

(he 6upre e +ourt in (op- eld Manufacturing$ &nc. v. "C"D ..%.$ '* has ruled on operati%e function of exe ption of a foreign corporation fro obtaining a license to do business under 6ection 1!f"!1" and 1!f"!2" of the 5ules and 5egulations I ple enting the @ nibus In%est ents +ode of 1:-*, when it transacts business through iddle en, acting in their own na es, such as indentors, co ercial brokers or co ercial erchants. In (op- eld, the licensing and representati%e agree ents entered into by the foreign corporation with locals were dee ed to be &highly restricti%e& in nature as to reduce the locals to being ere conduits or extension of the foreign corporation in the 8hilippines. (he +ourt held that the foreign corporations were doing business in the 8hilippine because the disputed contracts with the locals were entered into to carry out the purposes for which they were created, i.e., to anufacture and arket welding products and e,uip ent. (he ter s and conditions of the contracts as well as the conduct of the foreign corporations indicate that they established within the 8hilippines a continuous business, and not erely one of a te porary character. (he +ourt in (op- eld did indicate that the foreign corporations could be exe pted fro the re,uire ents of 5epublic Act '#'' if the local co pany were an independent entity which buys and distributes products not only of the foreign corporation, but also of other anufactures or transacts business in its na e and for its account and not in the na e or for the account of the foreign principal. It held that a reading of the agree ents between the foreign corporations and the local co pany shows that they are highly restrict in nature, thus aking the local co pany a ere conduit or extension of the foreign corporations. In spite of the pro%isions of the Act and the I ple enting 5ules and 5egulations, therefore, e%en when the local agents, brokers, or indentors of foreign corporation transact sales in their own na es, but the co%ering licensing or representati%e agree ents with foreign corporations contain highly restricti%e ter s as to render the locals erely conduits or extensions of foreign corporations, the latter would still be considered as &doing business& in the 8hilippines. (he doctrine was reiterated in Communication Materials and Design$ &nc. v. Court of %ppeals,'- which found the following pro%isions in the Jaster 6er%ice Agree ent of the foreign corporation with the local co pany as highly restricti%e as to ake the latter erely a conduit or extension of the foreign co panyH !a" It re,uired the local technical representati%e to pro%ide the e ployees of the technical and ser%ice center with the foreign corporation identification cards, and to correspond only on the foreign corporation.s letterhead;

'* '-

13- 6+5A 11- !1:-'". 2)< 6+5A )*3, *3 6+A= 3*# !1::)".

!b" 2ocal e ployees were instructed to answer telephone using the foreign corporation.s na e, and all calls being recorded and forwarded to the foreign co pany on a weekly basis; !c" (he local co pany was obliged to pro%ide the foreign co pany with a onthly report detailing the failure and repair of the products and to re,uisition aterials and co ponents fro the foreign corporation; and !d" (he agree ent pro%ided for a &no co peting product& clause.

LA6 ON REGIONAL OR AREA HEADQUARTERS


(he acts of a foreign corporation registered under 8res. =ecree 9o. 21as a regional or area head,uarter, which includes acting as super%ision, coordination, co unications and coordination center for its ho e office.s affiliates, the na ing of its local agent and e ploy ent of 8hilippine national are acts pursuant to its pri ary purposes and functions as a regionalMarea head,uarters for its ho e office, and are dee ed to be &doing business& in the country, as defined under the @ nibus In%est ent +ode of 1:-*, and would gi%e it standing to sue in 8hilippine courts e%en without a separate license to do business.': 5egional head,uarters are not regulated nor licensed under 6ection 123 of the +orporation +ode, but under 1xecuti%e @rder 9o. 22) !otherwise known as the @ nibus In%est ent +ode of 1:-*", and therefore do not need a separate license fro the 61+ in order to operate as an area or regional head,uarters in the 8hilippines for a ultinational co pany. 9o license is re,uired since area or regional head,uarters are established only to super%ise, coordinate and co unicate with their own affiliates, subsidiaries or branches in the Asia 8acific region, and are not allowed to do business in the 8hilippines like the branch or representati%e offices of foreign corporations licensed pursuant to the +orporation +ode.)< 5epublic Act 9o. -*'), which a ended the @ nibus In%est ent +ode, has pro%ided for the establish ent within 8hilippine jurisdiction of Lregional operating head,uarters,/ which eans Lforeign entity which is allowed to deri%e inco e in the 8hilippines by perfor ing ,ualifying ser%ices to its affiliates, subsidiaries or branches in the 8hilippines, in the Asia08acific 5egion and in other foreign arkets./ @nce is has obtained the appropriate license as a regional operating head,uarters, it does not need to ac,uire a separate license to do business in the 8hilippines.

': )<

1eorg 1rot7ahn 1MB! # Co. v. &snani, 23' 6+5A 21), '# 6+A= 2-: !1::#". 61+ 2etter reply to Atty. +esar 2. 7illanue%a, dated 31 ;anuary 1::).

7URISPRUDENTIAL TESTS OF "DOING BUSINESS"


1. Defining 8Iso!ate0 T#ansa tions9 3hether a foreign corporation needs to obtain a license, and fails to do so, whether it should be denied legal standing to obtain re edies fro local courts and ad inistrati%e agencies, depends therefore on the issue whether it will engage in business in the 8hilippines. 9ot e%ery acti%ity undertaken in the 8hilippines a ounts to doing business as to re,uire the foreign corporation to obtain such license. (he issue is exactly what &doing business& co%ers. 9o definition is offered under the +orporation +ode as to what constitutes doing business. Marshall- ells Co. v. !enry . "lser # Co. ,)1 was the earliest case decided by the 6upre e +ourt directly in point . In that case, an @regon corporation sued a do estic corporation in the then court of first instance of Janila, to reco%er the unpaid balance on a bill on sale of goods. (he co plaint was dis issed by the trial court on de urrer by the defendant since the co plaint did not show that the plaintiff, being a foreign corporation, had co plied with the legal re,uire ent of foreign corporations obtaining the license to do business. Marshall- ells 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 8hilippines; it had no application to foreign corporations not doing business in the 8hilippine. In construing what is not included in the ter &doing business,& Marshall- ells did indicate that an &isolated& transaction would not place a foreign corporation within the ter &doing business.& (he 6upre e +ourt in Marshall- ells discussed the rationale behind then 6ection ): of the +orporation 2aw !now 6ection 133 of the +orporation +ode", thusH
(he object of the statute was to subject the foreign corporation doing business in the 8hilippines to the jurisdiction of its courts. (he object of the statute was not to pre%ent the foreign corporation fro perfor ing single act, but to pre%ent it fro ac,uiring a do icile for the purpose of business without taking the steps necessary to render it a enable to suit in the local courts. (he implication of the la0 is that it 0as never the purpose of the 'egislature to e/clude a foreign corporation 0hich happens to o,tain an isolated order for ,usiness from the Philippines$ from securing redress in the Philippine courts$ and thus$ in effect$ to permit persons to avoid their contracts made 0ith such foreign corporations.&)2

)1 )2

#) 8hi. *< !1:2#". &,id, at p. *'. "mphasis supplied.

6ubse,uently, the +ourt rendered a decision in estern "4uipment and .upply Co. v. )eyes,)3 where fro the stipulation of facts of the parties they had agreed that the foreign corporation, &had ne%er engaged in business in the 8hilippine Islands.& >nder such an ad itted fact it was easy for the +ourt to hold that a foreign corporation which has ne%er done any business in the 8hilippines and which is unlicensed and unregistered to do business here, but is widely and fa%orably known in the 8hilippines through the use therein of its products bearing its corporate and trade na e, has a legal right to aintain an action in the 8hilippines to restrain the residents and inhabitants fro organiFing a corporation bearing the sa e na e as the foreign corporation. estern "4uipment did not define what constitutes &doing business& since it was stipulated by the parties that the foreign corporation has done no business in the 8hilippines. It supported the doctrine that foreign corporation can bring an action in the 8hilippines to protect its reputation, corporate na e and goodwill which ha%e been established through the natural de%elop ent of its trade o%er a long period of years, in the doing of which it does not seek to enforce any legal or contract rights arising fro , or growing out of, any business which it has transacted in the 8hilippines.)# ". T'in C(a#a te#i:ation Test In 1:#1, the 6upre e +ourt in Mentholatum Co.$ &nc. v. Mangaliman ,)' began to fashion a jurisprudential test of what constitutes &doing business& in the 8hilippines for foreign corporations. In that case, Jentholatu +o pany, an A erican corporation, and its exclusi%e 8hilippine distributing agent, 8hilippine0 A erican =rug +o pany, instituted an action for infringe ent of trade ark and unfair co petition against defendants Jangali an. Jentholatu had in pre%ious years registered the trade ark &Jentholatu & for its products consisting of edica ent and sal%e. (he defendants Jangali an had prepared a edica ent and sal%e na ed &Jentholi an& which they sold to the public packed in containers of the sa e siFe, color and shape as &Jentholatu &. Although the trial court found for the plaintiffs, on appeal the +ourt of Appeals re%ersed the decision, holding that the acti%ities of Jentholatu were business transactions in the 8hilippines, and that, by 6ection ): of the +orporation 2aw, it could not aintain any action. In a petition for certiorari filed with the 6upre e +ourt, the plaintiffs0 petitioners clai ed that although Jentholatu ay be co%ered by the pro%ision of then 6ection ): of the +orporation 2aw on the effects of doing business without a license, the co plaint was also filed by 8hilippine0A erican =rug +o pany, a do estic corporation, which had sufficient interest and standing to aintain the co plaint. In addition, it was shown that Jentholatu itself had not sold any of its products in the 8hilippines, and it was 8hilippine0A erican =rug
)3 )#

'1 8hil. 11' !1:2*". &,id, at p. 12-. )' *2 8hil. '2# !1:#1".

+o., Inc. and fifteen other local entities which i ported the products and sold the locally. It deter ining whether Jentholatu fell under the category of doing business in the 8hilippines, which thereby re,uired it to obtain a license to do business, the +ourt heldH
9o general rule or go%erning principle can be laid down as to what constitutes Ldoing/ or Lengaging in/ or Ltransacting/ business. Indeed, each case ust be judged in the light of its peculiar en%iron ental circu stances. (he true test$ ho0ever$ seems to ,e 0hether the foreign corporation is continuing a ,ody or su,stance of the ,usiness or enterprise for 0hich it 0as organi+ed or 0hether it has su,stantially retired from it and turned it over to another. . . (he term implies a continuity of commercial dealings and arrangements$ and contemplates$ to that e/tent$ the performance of acts or 0or*s or the e/ercise of some of the functions normally incident to$ and in progressive prosecution of$ the purpose and o,7ect of its organi+ation.))

In deciding that Jentholatu was indeed engaged in business in the 8hilippines, the 6upre e +ourt took cogniFance of the allegation in the co plaint that clearly stated that the &8hilippine0A erican =rug +o., Inc., is the exclusi%e distributing agent in the 8hilippine Islands of the Jentholatu +o., Inc., in the sale and distribution of its products known as the Jentholatu .& (he +ourt therefore concluded that whate%er transactions the 8hilippine0A erican =rug +o pany had executed in %iew of the law, the Jentholatu did itself. (he +ourt held therefore that since Jentholatu is a foreign corporation doing business in the 8hilippine without a license, it ay not prosecute the action for %iolation of trade ark and unfair co petition. In addition, neither ay the 8hilippine0 A erican =rug +o pany aintain the action for the reason that the distinguishing features of the agent being its representati%e character and deri%ati%e authority, and could not, to the ad%antage of its principal, clai an independent standing in court apart fro Jentholatu . 3hat is significant in Mentholatum is its drawing of the two tests to deter ine whether a foreign corporation is engaged in business in the 8hilippinesH First, it considered as the &true test& of doing business in the 8hilippines as to whether a foreign corporation is aintaining or continuing in the 8hilippines &the body or substance of the business or enterprise for which it was organiFed or whether is has substantially retired fro it and turned it o%er to another.&
&,id, at pp. '2-0'2:, citing (raction Cos. v. Collectors of &nt. )evenue 9C.C.%. :hio; 223 ?. :-#, :-*; 1riffin v. &mplement Dealer's Mut. Fire &ns. Co.$ 2#1 9.3. *', **; Pauline :il # 1as Co. v. Mutual (an* 'ine Co.$ 2#) 8. -'1, -'2, 11- @kl. 111; %utomotive Material Co.$ v. %merican .tandard Metal Products Corp., 1'- 9.1. ):-, *<3, 32* Ill. 3)*". "mphasis supplied.
))

.econd, it defined &doing business& to necessarily i ply &a continuity of co ercial dealings and arrange ents, and conte plates, to that extent, the perfor ance of acts or works or the exercise of so e of the functions nor ally incident to, and in progressi%e prosecution of, the purpose and object of its organiFation.& (aken together, the characteriFation by Mentholatum of &doing business& in the 8hilippines co%ers transactions or series of transactions in pursuit of the ain business goals of the corporation, and done with intent to continue the sa e in the 8hilippines. It re0affir ed the early characteriFation of Marshallells that an &isolated transaction& by a foreign corporation cannot ,ualify as &doing business& since it lacks the ele ent of continuity. 9otice that the ele ent of profit results did not figure into the test. Commissioner of &nternal )evenue v. British :verseas %ir0ays Corp. ,)* held that when an international airline aintains a general sales agent in the 8hilippines, which engaged in the selling and issuing of tickets, breaking down the whole trip into series of tripKeach trip in the series corresponding to a different airline co pany, recei%ing the fare fro the whole trip, and allocating to the %arious airline co panies on the basis of their participation in the ser%ices rendered through the ode of interline settle ent, then those acti%ities constitute doing business in the 8hilippines for which it could be held liable for inco e tax liabilities as a resident foreign corporation under the 8hilippine (ax +ode. )(op- eld Manufacturing$ &nc. v. "C"D$ ..%. ,): su held thatH ariFed it well when it

(here is no general rule or go%erning principle laid down as to what constitutes &doing& or &engaging in& or &transacting& business in the 8hilippines. 1ach case ust be judged in the light of its peculiar circu stances. !Jentholatu +o. %. Jangali an, *2 8hil. '2#". (hus, a foreign corporation with a settling agent in the 8hilippines which issues twel%e arine policies co%ering different ship ents to the 8hilippines !Aeneral +orporation of the 8hilippines %. >nion Insurance 6ociety of +anton, 2td. -* 8hil 313" and a foreign corporation which had been collecting pre iu s on outstanding policies !Janufacturing 2ife Insurance +o., %. Jeer, -: 8hil. 3'1" were regarded as doing business here. (he acts of these corporations should be distinguished fro a single or isolated business transaction or occasional, incidental and casual transactions which do not co e within the eaning of the law. 3here a single act or transaction, howe%er, is not erely incidental or casual but indicates the foreign corporation.s intention to do other business in the 8hilippines, said single act or transaction constitutes &doing& or &engaging in& or
)* )-

1#: 6+5A 3:' !1:-*". )eiterated in Commissioner of &nternal )evenue v. <apan %ir 'ines$ &nc. , 2<2 6+5A #'< 13- 6+5A !1:-'".

!1::1".
):

&transacting& business in the 8hilippines !?ar 1ast International I port and 1xport +orporation %. 9ankai Nogyo, +o., ) 6+5A *2'".

In (op- eld Manufacturing the +ourt considered the foreign corporation as doing business in the 8hilippines when it entered into the disputed contracts which were in accordance with the purpose for which it was created, na ely, to anufacture and arket welding products and e,uip ent. (he ter s and conditions of the contracts, as well as the conduct thereof, indicate the establish ent within the country of a continuous business, and not erely one of a te porary character. ). Essen e of Intent to P&#s&e Contin&it- of T#ansa tions (he lack of intent to pursue with continuity transactions in the 8hilippines has been found crucial by the 6upre e +ourt in deter ining whether the foreign corporation is engaged in business in the 8hilippines. 'itton Mills$ &nc. v. Court of %ppeals ,*< clearly held that it is not really the fact that there is only a single act done that is aterial for deter ining whether a corporation is engaged in business in the 8hilippines, since other circu stances ust be considered. 3here a single act or transaction of a foreign corporation is not erely 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. ,. E;tension of C#e0it as Essentia! In0i ation of Intent "ri*s Pte. 'td. v. Court of %ppeals ,*1 found the extension of credit ter s to be indicati%e of intent to do business in the 8hilippines for an indefinite period, thusH &Jore than the sheer nu ber of transactions entered into, a clear and un istakable intention on the part of petitioner to continue the body of its business in the 8hilippines is ore than apparent. . . ?urther, its grant and extension of :<0day credit ter s to pri%ate respondent for e%ery purchase ade, unarguably shows an intention to continue transaction with pri%ate respondent, since in the usual course of co ercial transactions, credit is extended only to custo ers in good standing or to those on who there is an intention to aintain long0ter relationship. . . 3hat is deter inati%e of Ldoing business/ is not really the nu ber or the ,uantity of the transactions, but ore i portantly, the intention of an entity to continue the body of its business in the country. (he nu ber and ,uantity are erely e%idence of such intention.& In the case of foreign o%ie co panies who ha%e registered intellectual property rights o%er their o%ies in the 8hilippines, it was held that the appoint ent of local lawyer to protect such rights for piracy is not dee ed to be
*<

*1

2') 6+5A ):), *' 6+A= 1)< !1::)". 2)* 6+5A ')*, *) 6+A= *< !1::*".

doing business.*2 (he +ourt heldH &3e fail to see how exercising one.s legal and property rights and taking steps for the %igilant protection of said rights, particularly the appoint ent of an attorney0in0fact, can be dee ed by and of the sel%es to be doing business here.&*3 .. Cont#a t Test In 1:'', in Pacific -egeta,le :il Corp. v. .ing+on ,*# the 6upre e +ourt began fashion what see ed like a second branch of judicial characteriFation 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 reco%er da ages suffered as a conse,uence of the failure of the defendant to deli%er copra which was ordered through a contract negotiated and perfected in the >nited 6tates, under &c.i.f. 8acific +oast& ter s. (he lower court dis issed the co plaint holding that plaintiff had no personality to institute the case because at the ti e the case was filed the plaintiff had no license to do business in the 8hilippines, and e%en it afterwards obtained such license, the belated act did not ha%e the effect of curing the defect that existed when the case was instituted. @n appeal, the 6upre e +ourt held that the plaintiff was not doing business in the 8hilippines under the contract, and there was no necessity for it to obtain a license before it can aintain the suit. In holding that the plaintiff foreign corporation was not doing business in the 8hilippines by %irtue of the contract co%ering copra to be processed and deli%ered fro the 8hilippines, the 6upre e +ourt took cogniFance of the fact that the subject contract was entered into in the >nited 6tates by the parties; that pay ent of the price was to be ade at 6an ?rancisco, +alifornia, through a letter of credit to be opened at a bank thereat; and with respect to the deli%ery of the copra, it was stipulated to be at &c.i.f., 8acific +oast& which eant that deli%ery is to be ade only at the port of destination since the seller !defendant" obliged hi self to take care of the freight until the goods ha%e reached destination. (hus, although it was found by the 6upre e +ourt that the plaintiff foreign corporation had also bought copra fro other exporters in the 8hilippines, it took note of the fact that those transactions were undertaken under si ilar circu stances. (he Pacific -egeta,le :il doctrine does not consider the twin characteriFation tests of Mentholatum of substance of the transactions pertaining to the ain business of the corporation and the continuity or intent to continue such acti%ities. It would see that e%en if the twin characteriFation tests of Mentholatum obtained in a case, under the Pacific -egeta,le :il doctrine, so long as the perfection and consu ation of a series of transactions are done outside 8hilippine territorial jurisdiction, the sa e would not constitute doing

*2 *3

Colum,ia Pictures$ &nc. v. Court of %ppeals$ 2)1 6+5A 1##, *3 6+A= )*# !1::)". &,id. *# Ad%anced =ecisions 6upre e +ourt, April 1:'' 7ol., p. 1<<0A.

business in the 8hilippines, e%en if the products the sel%es should be anufactured or processed in the 8hilippines by locals. (he i plication of this doctrine is that if the salient points of a contract do not find the sel%es in the 8hilippines, 8hilippine authorities ha%e no business subjecting the parties to local registration and licensing re,uire ents. (he doctrine had a follow0up in %etna Casualty # .urety Company v. Pacific .tar 'ine.*' In that case, a foreign insurance co pany, as subrogee of the insured, instituted ci%il actions in the then court of first instance of Janila to reco%er su s pertaining to da ages on stolen cargo it insured, against local co panies which handled the goods. In their a ended answers, the defendants alleged that plaintiff is a foreign corporation not duly licensed to do business in the 8hilippines and, therefore, without capacity to sue. >pon stipulation of facts showing that plaintiff was not licensed to engage in business in the 8hilippines, and that in fact it had filed thirteen !13" other ci%il cases in the 8hilippines of si ilar nature, the trial court dis issed the co plaint ruling that although a foreign corporation ay file a suit in the 8hilippines in isolated cases, but where the plaintiff has been filing actions in the 8hilippines not just in isolated instances, but in nu erous cases and therefore has been doing business in the country without obtaining a license. @n appeal, the 6upre e +ourt held that the foreign insurance co pany was not doing business in the 8hilippines, and therefore was not prohibited fro aintaining a suit in 8hilippine courts. (he +ourt found that the contract of insurance was entered into in 9ew 4ork; that pay ent was ade to the consignee in its 9ew 4ork branch and that since the corporation &was erely collecting a clai assigned to it by the consignee, it is not barred fro filing the instant case although it has not secured a license to transact insurance business in the 8hilippines.&*) 6ubse,uently, in 2niversal .hipping 'ines$ &nc. v. &ntermediate %ppellate Court,** it was held that a foreign insurance co pany ay sue in 8hilippine courts upon the arine insurance policies issued by it abroad to co%er international0bound cargoes shipped by a 8hilippine carrier, e%en if it has no license to do business in the 8hilippines, &for it is not the lack of the prescribed license !to do business in the 8hilippines" but doing business without such license, which bars a foreign corporation fro access to our courts.& *- (he 6upre e +ourt considered the acti%ities as not doing business in the 8hilippines. (he 5ules and 5egulations i ple enting the @ nibus In%est ents +ode of 1:-*,*: expressly included in the definition of &doing business& the &soliciting of orders, purchases !sales" or ser%ice contracts.& In fact, it pro%ided that &+oncrete and specific solicitations by a foreign fir or by an agent of such foreign fir , not
*' *)

-< 6+5A )3' !1:**". &,id, at p. )##. ** 1-- 6+5A 1*< !1::<" *&,id, at p. 1*3. *: 1xecuti%e @rder 9o. 22).

acting independently of the foreign fir , a ounting to negotiations or fixing of the ter s and conditions of sales or ser%ice contracts, regardless of 0here the contracts are actually reduced to 0riting , shall constitute doing business e%en if the enterprise has no office or fixed place of business in the 8hilippines.& In addition, the 5ules and 5egulations expressly pro%ided that & (he arrangements agreed upon as to manner$ time and terms of delivery of the goods or the transfer of title thereto is immaterial. & 1ffecti%ely therefore, the Ioard of In%est ents, by the i ple enting 5ules and 5egulations, had atte pted to o%erride the Pacific -egeta,le doctrine. (he I ple enting 5ules and 5egulations to the ?oreign In%est ent Act of 1::1, while retaining &soliciting orders& as doing business in the 8hilippines has dropped entirely the explicit pro%isions seeking to o%erride the Pacific -egeta,le doctrine. $owe%er, its retaining &soliciting orders& as constituting doing business in the 8hilippines indicates a bias against the Pacific -egeta,le doctrine. In addition, the 6upre e +ourt in Communication Materials and Design$ &nc. v. Court of %ppeals,-< has held that &BiCn deter ining whether a corporation does business in the 8hilippines, or not, aside fro their acti%ities within the foru , reference ay be ade to the contractual agree ents entered into by it with other entities in the country.& It referred to the case of (op- eld Manufacturing, &nc. v. "C"D ..%.,-1 where the highly restricti%e ter s in the 2icense and (echnical Agree ent and the =istributor Agree ent with locals beca e the basis of treating the foreign corporations as doing business in the country; and to the case of Merill 'ynch Futures$ &nc. v Court of %ppeals ,-2 where the futures contract entered into by the foreign corporation with locals weighed hea%ily in the +ourt.s ruling finding it engaging in business in the 8hilippines. /. E%o!%ing Ro!e of Cont#a t Test As the contract test is e%ol%ing in 8hilippine jurisprudence, it see s to pro%ide a pre ise upon which the twin characteriFation test of Jentholatu should be applied, re,uiring that the transactions or series of transactions that should be the basis for deter ining whether a foreign corporation is transacting business in the 8hilippines, would re,uire that the salient features of such contract ust find their fulfill ent within 8hilippine shores. (his clearly was the i plication in the ore recent case of Colum,ia Pictures$ &nc. v. Court of %ppeals.-3 In that case, the +ourt re%iewed the general concept of doing business by applying the twin characteriFation testsH
9o general rule or go%erning principles can be laid down as to what constitutes &doing& or &engaging in& or &transacting& business. 1ach case ust be judged in the light of its own
-< -1

2)< 6+5A )*3, *3 6+A= 3*# !1::)". 13- 6+5A 11- !1:-'". -2 211 6+5A -2# !1::2". -3 2)1 6+5A 1##, *3 6+A= )*# !1::)".

peculiar en%iron ental circu stances. (he true test, howe%er, see s to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organiFed whether it has substantially retired fro it and turned it o%er to another. As a general proposition upon which any authorities agree in principle, subject to such odifications as ay be necessary in %iew of the particular issue or of the ter s of the statute in%ol%ed, it is recogniFed that a foreign corporation is &doing,& &transacting,& &engaging in,& or &carrying on& business in the 6tate when, and ordinarily only when, it has entered the 6tate by its agents and is there engaged in carrying on and transacting through the so e substantial part of its ordinary or custo ary business, usually continuous in the sense that it ay be distinguished fro erely casual, sporadic, or occasional transitions and isolated acts.

(he +ourt held that although 6ection 1!g" of the I ple enting 5ules and 5egulations of the @ nibus In%est ents +ode lists a ong others the &soliciting orders, purchases !sales" or ser%ice contracts, and the appointing of representati%e or distributor who is do iciled in the 8hilippines,& as constituting doing business, the ere fact that foreign o%ie co panies are copyright owners or owners of exclusi%e distribution rights in the 8hilippines of otion pictures or fil s did &not con%ert such ownership into an indiciu of doing business which would re,uire the 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.& (he +ourt stressed that as a general rule, a foreign corporation will not be regarded as doing business in the 6tate si ply because it enters into contracts with residents of the 6tate, where such contracts are consu ated outside the 6tate. In fact, a %iew is taken that a foreign corporation is not doing business in the 6tate erely because sales of its products are ade there or other business furthering its interest is transacted there by an alleged agent, whether a corporation or a natural person, whether such acti%ities 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 ade to custo ers in the 6tate by an independent dealer who has purchased and obtained title fro the corporation of the products sold are not a doing of business by the corporation. 2ikewise, a foreign corporation which sells its products to person styled &distributing agents& in the 6tate, for distribution by the , is not doing business in the 6tate so as to render it subject to ser%ice of process therein, where the contract with these purchasers is that they shall buy exclusi%ely fro the foreign corporation such goods as it anufactures and shall sell the 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 8hilippines to the jurisdiction of local courts on isolated contracts that ha%e been entered into or perfor ed within 8hilippine territorial jurisdiction. -# <. Reins&#an e Not Pe# Se Doing B&siness %von &nsurance P'C v. Court of %ppeals ,-' held that the nature of the reinsurance business cannot not necessarily ean that a foreign reinsurance co pany can be dee ed being engaged in business in the 8hilippines. (he 6upre e +ourt recogniFed existence of authority to the effect that a reinsurance co pany is not doing business in a certain state erely because the property or li%es which are insured by the original insurer co pany are located in that state, -) thusH L(he reason for this is that a contract of reinsurance is generally a separate and distinct arrange ent for the original contract of insurance, whose contracted risk is insured in the reinsurance agree ent. $ence, the original insured has generally no interests in the contract of reinsurance./

DOCTRINE ON ISOLATED TRANSACTIONS


(he doctrine is that for isolated transactions, foreign corporation are not re,uired to obtain a license in order to obtain relief fro local courts or agencies. In one case,-* the +ourt held that the phrase &isolated transaction& has a definite and fixed eaning, i.e., &a transaction or series of transactions set apart fro the co on business of a foreign enterprise in the sense that there is no intention to engage in a progressi%e pursuit of the purpose and object of the business organiFation.& (he +ourt held that it was ne%er 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 8hilippines. &9either, did it intend to shield debtors fro their legiti ate liabilities or obligations. Iut it cannot allow foreign corporations or entities which conduct regular business any access to courts without the fulfill ent by such corporation of the necessary re,uisites to be subjected to our go%ern ent.s regulation and authority. Iy securing a license, the foreign entity would be gi%ing assurance that it will abide by the decisions of our courts, e%en if ad%erse to it.&-In "ast,oard Navigation$ 'td. v. <uan =smael and Co.$ &nc. ,-: it was held that when a foreign shipping co pany entered into a charter party arrange ent with a local co pany for a %essel to load cargo of scrap iron in the 8hilippines for Iuenos Aires, the transaction entered into in the 8hilippines was held not to
!yopsung Maritime Co.$ 'td. v. Court of %ppeals , 1)' 6+5A 2'- !1:--"; .ignetics Corporation v. Court of %ppeals, 22' 6+5A *3*, ## 6+A= 3'* !1::3". -' 2*- 6+5A 312 !1::*". -) Citing Moris Co. v. .candinavia &ns. Co., 2*: >.6. #<' !1:2:". -* "ric*s Pte. 'td. v. Court of %ppeals, 2)* 6+5A ')*, *) 6+A= *< !1::*". -"ric*s Pte. 'td. v. Court of %ppeals, 2)* 6+5A ')*, *) 6+A= *< !1::*". -: 1<2 8hil. 1 !1:'*".
-#

,ualify it to be considered as being engaged in business, although on a pre%ious occasion its %essel was chartered by the 9ational 5ice and +orn +orporation to carry rice cargo fro abroad to the 8hilippines, since the two transactions were not related. It was held therefore, that such foreign corporation had capacity to sue in the 8hilippines e%en without a license. In %ntam Consolidated$ &nc. v. Court of %ppeals ,:< the 6upre e +ourt sustained the lower court in not dis issing a co plaint filed by a foreign corporation on the basis of three contracts of purchase and sale of coconut oil fro local co panies. (he +ourt found that fro the facts alone it could be deduced that there was only one agree ent between the petitioners and the respondent and that was the deli%ery by the for er of '<< long tons of crude coconut oil to the latter, who in turn, ust pay the corresponding price for the sa e. (he only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to reco%er the loss it sustained fro the failure of the petitioners to deli%er the crude coconut oil under the first transaction and in order to gi%e the latter a chance to ake good on their obligation. (he +ourt discussed the policy behind the ruleH
(he doctrine of lack of capacity to sue based on failure to first ac,uire a local license is based on consideration of sound public policy. It was ne%er intended to fa%or do estic corporations who enter into solitary transactions with unwary foreign fir s and then repudiate their obligations si ply because the latter are not licensed to do business in this country.:1

(he auxiliary rule in %ntam Consolidated is si ilar in principle to the pro%ision of 6ection 1!f"!-" of the I ple enting 5ules to the ?oreign In%est ent Act that does not consider as &doing business& the perfor ance of ser%ices auxiliary to an existing isolated contract of sale which are not on a continuing basis. (he principle that a foreign corporation not engaged in business in the 8hilippines ay not be denied the right to file an action in 8hilippine courts for isolated transactions has been reiterated in other cases, such as !a" one in%ol%ing the collision of two %essels at the harbor of Janila in Dampfschieffs )hederei 2nion v. 'a Campa>ia (ransatlantica ;:2 !b" the loss of goods bound for $ongkong but erroneously discharged in Janila in (he .0edish "ast %sia Co.$ 'td. v. Manila Port, .ervice;:3 !c" infringe ent of trade na e in 1eneral 1arments Corporation v. Director of Patents :# and 2niversal )u,,er Products$ &nc. v. Court of %ppeals;:' !d" the reco%ery of da ages sustained by cargo
:< :1

1#3 6+5A 2-- !1:-)". &,id, at p. 2:*. :2 - 8hil. *)) !1:<*". :3 2' 6+5A )33 !1:)-". :# #1 6+5A '< !1:*1". :' 13< 6+5A 1<# !1:-#".

shipped to the 8hilippines in Bula*hidas v. Navarro;:) !e" the sale to the go%ern ent of road construction e,uip ent and spare parts with no intent of continuity of transaction in 1on+ales v. )a4ui+a ;:* and !f" the reco%ery on a $ongkong judg ent against a resident in Janila in !ang 'ung Ban*$ 'td. v. .aulog.:In !ang 'ung Ban*$ 'td. v. .aulog :: the 6upre e +ourt added a particular point in the rationale for the allowing foreign corporations not doing business in the 8hilippines to sue in our courtsH &@therwise we will be ha pering the growth and de%elop ent of business relations between ?ilipino citiFens and foreign nationals. 3orse, we will be allowing the law to ser%e as a protecti%e shield for unscrupulous ?ilipino citiFens who ha%e business relationships abroad.& 1<<

SPECIAL RULES PERTAINING TO ACTIONS ON CORPORATE NA+ES= TRADENA+ES AND TRADE+AR>S


;ustice Joran rendered a dissenting opinion in Mentholatum that the pro%isions of 6ection ): of the +orporation 2aw do not apply to suits brought by foreign corporations for infringe ent of trade arks and unfair co petition, the theory being that &the right to the use of the corporate na e and trade na e of a foreign corporation is a property right, a right in rem, which it ay assert and protect in any of the courts of the world e%en in countries where it does not personally transact any business,& and that &trade ark does not acknowledge any territorial boundaries but extends to e%ery ark where the traders. goods ha%e beco e known and identified by the use of the ark.& 1<1 Although estern "4uipment had pre%iously held that the right to the use of the corporate na e and trade na e of a foreign corporation is a property right, a right in rem, which it ay assert and protect in any of the courts of the world e%en in countries where it does not personally transact any business, the sa e ruling could not then apply in Mentholatum, since unlike in estern "4uipment where there was an expressed finding or stipulation that the foreign corporation ne%er engaged in business in the 8hilippines, in Mentholatum the foreign corporation was found to ha%e engaged in business in the 8hilippines without obtaining the re,uisite license; therefore, by public policy expressed in 6ection ): of the then +orporation 2aw, the +ourt declared In Mentholatum that it could not sue in 8hilippine courts. (he re arks of ;ustice Joran in his dissenting opinion state only the positi%e rule discussed in estern "4uipment that when a foreign corporation does not do business in the country, it needs no license to bring suit to enforce
:) :*

1#2 6+5A 1 !1:-)". 1-< 6+5A 2'# !1:-:". :2<1 6+5A 13* !1::1". :: 2<1 6+5A 13* !1::1". 1<< &,id, at p. *1#'. 1<1 at pp. '3<0'31.

its rights within the local courts. $owe%er, the re arks forget that the purpose of then 6ection ): of the +orporation 2aw was that when a foreign corporation indeed does business in the 8hilippines without obtaining a license, there is a public policy of prohibiting it fro seeking any re edy fro 8hilippine courts and ad inistrati%e bodies. $owe%er, the atter as to trade arks and tradena es had beco e oot with the adoption of 6ection 210A1<2 of then 5epublic Act 9o. 1)) !(he (rade ark 2aw", which expressly pro%ided that a foreign corporation, whether licensed to do business or not in the 8hilippines, with a ark or tradena e registered in the 8hilippines, ay bring an action before 8hilippine courts for infringe ent, unfair co petition, false designation of origin and false description, if the country of which the foreign corporation is a citiFen, or in which it is do iciled, by treaty, con%ention, or law, grants a si ilar pri%ilege to corporations or juristic persons of the 8hilippines. In 'eviton &ndustries v. .alvador1<3 the 6upre e +ourt held that pursuant to the ter s of 6ection 210A of 5ep. Act 9o. 1)), failure of a foreign corporation to allege in its co plaint two essential conditions, na ely, that the trade ark or tradena e has been registered with the 8hilippine 8atent @ffice and that the country of which the foreign corporation is a do iciliary grants si ilar pri%ileges to 8hilippine corporations, would be fatal to its cause of action and would subject the co plaint to dis issal. 8re%iously it was held in 1eneral 1arments Corporation v. Director of Patents,1<# that when the action brought by a foreign corporation is not one under 6ection 210A, but rather under 6ection 1* of 5ep. Act. 9o. 1)) for the ad inistrati%e cancellation of the trade ark which is alleged to ha%e been infringed, then registration of the trade ark with the 8hilippine 8atent @ffice would not be necessary. 6ubse,uently, in 'a Chemise 'acoste$ ..%. v. Fernande+$ 1<' it was held that a foreign corporation not doing business in the 8hilippines, has personality to co ence cri inal proceedings for %iolation of Article 1-: of the 5e%ised 8enal +ode for unfair co petition on the use of trade arks and tradena es, without ha%ing to allege the ,ualifying circu stances under 6ection 210A of 5ep. Act 9o. 1)). In that case, the +ourt also took judicial cogniFance of the 8hilippine duties and obligations under the 8aris +on%ention for the 8rotection of Industrial 8roperty to assure the nationals of &countries of the >nion& ha%e an effecti%e
6ec. 210A statesH &Any foreign corporation or juristic person to which a ark or tradena e has been registered or assigned under this Act ay bring an action hereunder for infringe ent, for unfair co petition, or false designation of origin and false description, whether or not it has been licensed to do business in the 8hilippines under Act nu bered ?ourteen $undred and ?ifty09ine, as a ended, otherwise known as the +orporation 2aw, at the ti e it brings the co plaint; 8ro%ided, (hat the country of which the said foreign corporation or juristic person is a citiFen, or in which it is do iciled, by treaty, con%ention or law, grants a si ilar pri%ilege to corporate or juristic persons of the 8hilippines.& 1<3 11# 6+5A #2< !1:-2". 1<# #1 6+5A '< !1:*1". 1<' 12: 6+5A 3*3 !1:-#".
1<2

protection against unfair co petition in the sa e way that they are obliged to si ilarly protect ?ilipino citiFens and fir s. (he current legislation is reflected in Converse )u,,er Corporation v. 2niversal )u,,er Products$ &nc.,1<) which struck down the reasoning of the =irector of 8atents 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 8hilippines, and therefore has no na e to protect in the foru . (he +ourt held that a foreign corporation has a right to aintain an action in the foru e%en if it is not licensed to do business and is not actually doing business on its own therein to protect its corporate and tradena es, since it is a property right in rem, which it ay assert to protect against all the world, in any of the courts of the worldKe%en in jurisdiction where it does not transact businessKjust the sa e as it ay protect its tangible property, real or personal, against trespass, or con%ersion.1<* Converse )u,,er Corporation recogniFed that such ruling is in consonance with the +on%ention of the >nion of 8aris for the 8rotection of Industrial 8roperty to which the 8hilippines beca e a party on 2* 6epte ber 1:)'. Article - thereof pro%ides that &A trade na e shall be protected in all the countries of the >nion without the obligation of filing or registration, whether or not it for s part of the trade ark.& 1<- (he andate of the +on%ention finds its i ple entation in 6ection 3* of 5ep. Act 9o. 1)). 9e%ertheless, the 6upre e +ourt has also held that when a foreign corporation seeks to obtain the extraordinary writ of preli inary injunction against a local co pany alleged to be using its tradena e, the fact that it is not engaged in business in the 8hilippines would show that the atter should be decided on the erits and that in the eanti e no preli inary injunction should be granted since, not being engaged in business in the 8hilippines, no gra%e or irreparable da age can be shown to be caused in the writ of injunction is not issued. 1<: In 1::*, the Intellectual 8roperty +ode was pro ulgated to consolidate all laws relating to intellectual properties. 6ection 1)< of the +ode, which effecti%ely replaced 6ection 210A of (he (rade ark 2aw, pro%ides that LAny foreign national or judicial person who eets the re,uire ents of 6ection 3 11< of this Act and
1#* 6+5A 1'# !1:-*". &,id, at pp. 1)#01)'. (his is a reiteration of the sa e doctrine held in Converse )u,,er Corporation v. <acinto )u,,er # Plastic Co.$ &nc. , :* 6+5A 1'- !1:-<" and 2niversal )u,,er Products$ &nc. v. Court of %ppeals., 13< 6+5A 1<# !1:-#". (o the sa e effect were the rulings in Puma .portschuhfa,ri*en )udolf Dassler$ ?.1. v. &ntermediate %ppellate Court , 1'- 6+5A 233 !1:--" and Philips "/port B.-. v. Court of %ppeals$ 2<) 6+5A #'* !1::2". 1<&,id, at p. 1)'. 1<: Philip Morris$ &nc. v. Court of %ppeals, 22# 6+5A '*), #3 6+A= #<< !1::3". 11< 6ection 3 pro%idesH L. . .Any person who is a national or who is do iciled or has a real and effecti%e industrial establish ent in a country which is a party to any con%ention, treaty or agree ent relating to intellectual property rights or the repression of unfair co petition, to which the 8hilippines is also a party, or extends reciprocal rights to nationals of the 8hilippines by law, shall be entitled to benefits to the extent necessary to gi%e effect to any pro%ision of such con%ention, treaty or reciprocal law, in addition to the rights to which any owner of an intellectual property right is otherwise entitled by this Act./
1<* 1<)

does not engage in ,usiness in the Philippines ay bring a ci%il or ad inistrati%e action hereunder for opposition, cancellation, infringe ent, unfair co petition, or false designation of origin and false description, 0hether or not it is licensed to do ,usiness in the Philippine under existing laws./ (he wordings of 6ection 1)< do not see to co prehend the thrust of 6ection 210A of (he (rade ark 2aw, and the new ,ualification that such foreign corporation ust not be engaged in business in the 8hilippines contradicts the pro%ision that dispenses with the need to obtain a license to do business in the 8hilippines to ,ualify a foreign corporation to seek re edy under the +ode. It can therefore be reasonably anticipated that the courts will e%entually interpret 6ection 1)< of the +ode to ha%e the sa e eaning and application as 6ection 210A of (he (rade ark 2aw, which would ,ualify any foreign corporation, e%en when doing business in the 8hilippines without appropriate license, to be able to obtain re edies and reliefs under the +ode.

TRANSACTIONS 6ITH AGENTS= INDENTORS

AND CONTRACTS BRO>ERS AND

In Mentholatum$ it was held that the sale of the products of a foreign corporation through a local co pany was e,ui%alent to the foreign corporation doing business in the 8hilippines, because the actions of the agent in the 8hilippines pertain to its foreign principal, and thereby without obtaining a license in the 8hilippines, both the foreign corporation and the agent ha%e no capacity to sue in 8hilippine courts. 'a Chemise 'acoste$ ..%. v. Fernande+,111 clarified that not e%ery sale to an exclusi%e agent in the 8hilippines by a foreign corporation would constitute the latter as doing business in the 8hilippines. It held that the principle in Mentholatum is applicable only when it is found that the local co pany or representati%e is selling the foreign co pany.s products in the latter.s na e or for the latter.s account. In that case, the arketing of the products of the ?rench co pany in the 8hilippines &is done through an exclusi%e distributor, 5ustan +o ercial +orporation. (he latter is an independent entity which buys and then arkets not only products of the petitioner but also any other products bearing e,ually well0known and established trade arks and tradena es. In other words, 5ustan is not a ere agent or conduit of the petitioner.& 112 In addition, the +ourt in 'a Chemise 'acoste took cogniFance of &the rules and regulations pro ulgated by the Ioard of In%est ents pursuant to its rule0 aking power under 8residential =ecree 9o. 1*-:, otherwise known as the @ nibus In%est ent +ode,& which define &doing business& as one which e/cludes &a foreign fir which does business through iddle en acting on their own na es, such as indentors, co ercial brokers or co ission
111 112

12: 6+5A 3*3 !1:-#". &,id, at p. 3-3.

erchants . . . Appointing BofC a representati%e or distributor who is do iciled in the 8hilippines BwhoC has an independent status, i.e., it transacts business in its na e and for its account, and not in the na e or for the account of a principal.& 113 In .chmid # :,erly$ &nc. v. )<' Martine+ Fishing Corp. 11# a local fishing co pany, 5;2 JartineF ?ishing +orp. filed an action against 6ch id O @berly, Inc. to reco%er the purchase prices of twel%e !12" generators it had bought on the theory that 6ch id was the %endor of the generators, as such %endor, was liable under its warranty against hidden defects. (he generators were ordered by 5;2 JartineF ?ishing +orp. fro 6ch id O @berly who arranged to ha%e the i ported fro abroad fro 9agata +o. of ;apan. 6ch id O @berly, Inc. by way of defense allege that being erely indentor in the sale between 9agata +o., the exporter and 5;2 JartineF, the i porter, it was not liable on the contract, uch less for warranty for hidden defects. (he +ourt took cogniFance of the fact that under the 5ules and 5egulations to I ple ent 8res. =ecree 1*-: !the @ nibus In%est ent +ode", &indentors. are defined together with &co ercial brokers& and &co ission erchants&H &A foreign fir which does business through the middlemen acting in their own na es, such as indentors$ co ercial brokers or co ission erchants, shall not be dee ed doing business in the 8hilippines. Iut such indentors, co ercial brokers or co ission erchants shall be the ones dee ed to be doing business in the 8hilippines.& (he +ourt therefore recogniFed that foreign corporations who sell their products in the 8hilippines through co ercial brokers, co ercial erchants or indentors, are not dee ed to be doing business in the 8hilippines, and are not re,uired to obtain a license to do business in the country. &(hus, the chief feature of a co ercial broker and a co ercial erchant is that in effecting a sale, they are erely inter ediaries or iddle en, 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, na ely, the buyer, the indentor, and the supplier who is usually a non0resident anufacturer residing in the country where the goods are to be bought. . . An indentor ay therefore be best described as one who, for co pensation, acts as a iddle en in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser.& 11' ?ro the reasoning in .chmid # :,erly it is clear therefore that the sales in an indent contract is between the local purchaser and the foreign seller, and the indentor erely is an agent for both. (hat would ean that, had it not been for the pro%isions of the I ple enting 5ules and 5egulations to the @ nibus In%est ent +ode, the foreign corporation is indeed doing business in the 8hilippines, 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 8hilippines for in such a
113 11#

&,id, at pp. 3-303-#. 1)) 6+5A #:3 !1:--". 11' &,id, at p. '<2.

case an i portant part of the contract !deli%ery of the subject atter" takes part within 8hilippine territory under the contract theory of Pacific -egeta,le. 2ikewise, such transactions confor to the twin characteriFation enunciated in Mentholatum. In fact, the 6upre e +ourt turned down the contention in .chmid # :,erly to hold the local indentor liable for the penal pro%isions of the then 6ection ): of the +orporation 2awH
?inally, the afore0,uoted penal pro%ision in the +orporation 2aw finds no application to 6+$JI= and its officers and e ployees relati%e to the transactions in the instant case. 3hat the law seeks to pre%ent, through said pro%ision, is the circu %ention by foreign corporations of licensing re,uire ents through the de%ice of e ploying local representati%es. An indentor, acting in his own na e, is not, howe%er, co%ered by the abo%e0,uoted pro%ision. In fact, the pro%ision of the 5ules and 5egulations i ple enting the @ nibus In%est ent +ode ,uoted abo%e, which was copied fro the 5ules i ple enting 5epublic Act 9o. '#'', recogniFes the distinct role of an indentor, such that when a foreign corporation does business through such indentor, the foreign corporation is not dee ed doing business in the 8hilippines.11)

In other words, had it not been for the i ple enting rule pro%ision, a foreign corporation selling its products in the 8hilippines would be doing business here for indeed the contract is strictly between the foreign exporter and the local buyer, with the indentor erely acting as agent for both. (he i ple enting rules has therefore afforded foreign corporations the route of &circu %ention by foreign corporations of licensing re,uire ents through the de%ice of e ploying local BindentorsC.& Indeed, this is the logic of .chmid # :,erly 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. 3hat is not explained in .chmid # :,erly, though, is how the 6upre e +ourt could accept that an ad inistrati%e rule and regulation pro%ision can o%erride clear statutory re,uire ents for foreign corporations engaging in business in the 8hilippines fro obtaining a license. It is a settled principle in our jurisdiction, that rules and regulations issued by ad inistrati%e agencies cannot a end the law or go beyond the li its of the law which they seek to i ple ent.11* ?urther, it is to be noted that the present applicable I ple enting 5ules and 5egulations of the ?oreign In%est ent Act of 1::1 ha%e totally dropped the pro%isions exe pting fro the definition of doing business transactions by foreign corporations done through indentors, co ercial brokers or co ission erchants. $owe%er, the rules and regulations ha%e retained the pro%ision
&,id, at p. '<'. 2... v. Barrias, 11 8hil. 32* !1:<-"; =oung v. )afferty, 33 8hil. 2*) !1:1)"; :lsen v. %ldenese, #3 8hil. )# !1:22" ; .antos v. "sten+o , 1<: 8hil. #1: !1:)<",
11* 11)

excluding fro &doing business& the appointing of a representati%e or distributor do iciled in the 8hilippines which transact business in the representati%e.s or distributor.s own na e and account. Ioth the 'a Chemise 'acoste and the .chmid # :,erly rulings o%erlooked the fact that although the sales ade by iddle en, distributors or representati%es &in their own na e or for their own accounts& in the 8hilippines do not pertain to the foreign principals abroad, ne%ertheless the purchase and i portation by such iddle en, distributors or representati%es of such products fro abroad undeniably constitute a body of transactions in the 8hilippines of which their foreign principals are direct parties. And yet in ang 'a,oratories$ &nc. v. Mendo+a ,11- the 6upre e +ourt treated differently a foreign corporation being represented in the 8hilippines by a independent distributor. In that case, although the foreign corporation 3ang 2aboratories, Inc. had an exclusi%e distributor in the 8hilippines, and a local fir had entered into direct contract with the local distributor, the 6upre e +ourt refused allow the otion to dis iss filed by the foreign corporation on the ground that not doing business in the 8hilippines, the court below had not obtained jurisdiction o%er the person of the foreign corporation, by ser%ing su ons on its local exclusi%e distributor. In finding that 3ang 2aboratories, Inc. was doing business in the 8hilippines, the court took into consideration the appoint ent of the local distributor as indicated of doing business, and %arious ad%ertise ents showing the local co pany to be the representati%e of the foreign corporation and that ad ission in the reply to the opposition to the otion to dis iss by the foreign corporation that &it deals exclusi%ely with Bthe local co panyC in the sale of its products in the 8hilippines,& 11: clearly indicating that the sales and deli%eries by foreign corporation to its distributor in the 8hilippines constitutes doing business, regardless of whether the distributor sells the sa e products to the public for its own account. (he subse,uent case of 1ranger %ssociates v. Micro0ave .ystems$ &nc., which did not expressly o%errule 'a Chemise 'acoste and .chmid # :,erly, offer us further insight.
12<

In that case, Aranger Associates, an A erican corporation with no license to do business in the 8hilippines, entered into a series of agree ents with the local co pany, Jicrowa%e 6yste s, Inc., principally constituting the local co pany as the licensee to anufacture and sell the licensor.s products in the 8hilippines, together with a loan extended to the licensee. An action was latter on brought by Aranger Associates against the local co pany to collect su s not paid on the agree ents. (he local co pany in%oked 6ection 133 of the +orporation +ode to dis iss the co plaint on the ground that Aranger Associates, ha%ing done business in the 8hilippines without obtaining a license, has no authority to aintain the suit. Aranger Associates argued that the %arious transactions with the local co pany &were ere facets of the basic agree ent
1111:

1') 6+5A ## !1:-*". &,id, at p. '1. 12< 1-: 6+5A )31 !1::<".

licensing J6I to anufacture and sell Aranger.s products in the 8hilippines BandC BaCll subse,uent agree ents were erely auxiliary to the first contract and should not be considered separate transactions co ing within the concept of Pdoing business in the 8hilippines..&121 Although the +ourt found that any agree ents entered into dealt on other atters as to constitute doing business, the +ourt went on to hold that &1%en if it be assu ed for the sake of argu ent that the subject atter of the first contract is of the sa e kind as that of the subse,uent agree ents, that fact alone would not necessarily signify that all such agree ents are erely auxiliary to the first. %s long as it can ,e sho0n that the parties entered into a series of agreements$ as in successive sales of the foreign company's regular products$ that company shall ,e deemed as doing ,usiness in the Philippines .&122 (he +ourt also found that Aranger Associates saw to it that it was assured of at least one seat in the board of directors of the local co pany, &without prejudice to the right of Aranger to re,uest additional seats as its interest ay re,uire.& (he fact that it was directly in%ol%ed in the business of the local co pany was also anifested in another stipulation where Aranger Associates &acknowledged and confir ed& the transfer of a block of stocks fro one shareholder to another group of in%estors. 6uch appro%al was considered by the +ourt as not nor ally gi%en except by a stockholder enjoying substantial participation in the anage ent of the business of the co pany. 123 Although the rules and regulations of the Ioard of In%est ents pro%ide that ere in%est ent in a local co pany by a foreign corporation should not be construed as doing business in the 8hilippines, howe%er the +ourt in 1ranger %ssociates found that the in%est ent of the foreign co pany was ,uite substantial, &enabling it to participate in the actual anage ent and control of J6I BandC it appointed a representati%e in the board of directors to protect its interest, and this director was so influential that, at his re,uest, the regular board eeting was con%erted into an annual stockholder.s eeting to take ad%antage of his presence.&12# 9oteworthy are the state ents of the +ourt that & %t any rate$ the administrative regulation$ 0hich is intended only to supplement the la0$ cannot prevail against the la0 itself as the court has interpreted it. &t is a/iomatic that the delegate$ in e/ercising the po0er to promulgate implementing regulations$ cannot contradict the la0 from 0hich the regulations derive their very e/istence . (he courts, for their part, interpret the ad inistrati%e regulations in har ony with the law that authoriFed the in the first place and a%oid as uch as possible any construction that would annul the as an in%alid exercise of legislati%e power.& 12' @n the argu ent that a foreign corporation ust be shown to ha%e dealt with the public in general to be considered as transacting business in the
121 122

&,id, at p. )3'. &,id, at p. )3*. "mphasis supplied. 123 &,id, at p. )3-. 12# &,id, at p. )3:. 12' &,id, at pp. )3:0)#<. "mphasis supplied.

8hilippines, the +ourt held that &it is the perfor ance by a foreign corporation of the acts for which it was created, regardless of volume of ,usiness , that deter ines whether a foreign corporation needs a license or not.& 12) ?inally, 1ranger %ssociates reiterated the rationale of the doctrineH
(he purpose of the rule re,uiring foreign corporations to secure a license to do business in the 8hilippines is to enable us to exercise jurisdiction o%er the for the regulation of their acti%ities in this country. If a foreign corporation operates in the 8hilippines without sub itting to our laws, it is only just that it no be allowed to in%oke the in our courts when it should need the later for its own protection. 3hile foreign in%estors are always welco e in this land to collaborate with use for our utual benefit, they ust be prepared as an indispensable condition to respect and be bound by 8hilippine law in proper cases, as in the one at bar.12*

1ranger %ssociates therefore does not consider it crucial that a foreign corporation does not deal with, or sell directly to, the public by using a iddle an, a co ercial broker, an indentor, or a distributor; rather, it considers crucial &the perfor ance by a foreign corporation of the acts for which it was created, regardless of volume of ,usiness.& Iy dealing with its products with local brokers, indentors, or distributors, regardless of what the latter do with the products subse,uently, a foreign corporation is perfor ing acts integral to its purpose. $owe%er, under the ?oreign In%est ent Act of 1::1, the policy of the 6tate !not by ad inistrati%e fiat" has been declared on the atter when the law itself pro%ided that not included in the definition of &doing business& is the act of &appointing a representati%e or distributor do iciled in the 8hilippines which transacts business in its own na e and for its own account.& 12(aking the rationale of the ruling in 1ranger %ssociates$ the following exceptions to &doing business& pro%ided for in the I ple enting 5ules and 5egulations to the Act are of doubtful %alidity and are beyond the language of the Act itselfH !a" Jaintaining stock of goods in the 8hilippines solely for the purpose of ha%ing the sa e processed by another entity in the 8hilippines; and !b" +onsign ent by a foreign entity of e,uip ent with a local co pany to be used in the processing of products for export.

&,id, at p. )#<, citing (abios, 6e%erino 6., Fundamentals of Doing Business ,y a Foreign Corporation in the Philippines, 1#2 6+5A 1<. 12* &,id, at p. )#2. 126ec. 3!d", 5ep. Act 9o. *<#2.

12)

Iy way of o,iter in Phil. Products Co. v. Primateria .ociete %nonyme Pour 'e Commerce "/terieur@ Primnaterial APhil.B$ &nc. 12: since the foreign corporation therein was held liable for the judg ent, it was held by the 6upre e +ourt that &BiCn the absence of express legislation,& agents or representati%es of foreign corporations ay be held personally liable for acts and contracts entered into in behalf of such corporations only when &pre ised on the inability to sue the principal or non0liability of such principal.& 13< 2ately, !anh v. Court of %ppeals,131 held that when a foreign car co pany has an agent or distributor in the 8hilippines, it will be considered doing business in the country, and the trial court ac,uired jurisdiction o%er the foreign corporation by %irtue of the ser%ice of su ons on the =epart ent of (rade and Industry. @therwise, if the representati%e is not the agent of the foreign co pany but an independent dealer, the foreign corporation is not considered doing business in the 8hilippines within the eaning of the ?oreign In%est ents Act of 1::1 an the 5ules and 5egulations i ple enting the @ nibus In%est ent +ode of 1:-*, 132 and the trial court did not ac,uire jurisdiction o%er the foreign corporation. (he +ourt found the following allegations in the co plaint to be sufficient to show that the foreign corporation was doing business in the 8hilippines through its local representati%eH the local representati%e took orders for the cars and trans itted the to the foreign co pany; that the foreign co pany upon receipt of the orders, fixed the downpay ent and pricing charges, notified the local representati%e of the scheduled production onth for the orders, and reconfir ed the orders by signing and returning to hi the acceptance sheets; all docu ents and in%oice being in the for s of the foreign co pany; pay ent was ade by the buyer directly to the foreign co pany; title to the cars purchased passed directly to the buyer and the local representati%e ne%er paid for the purchase price of the cars sold in the 8hilippines, and erely recei%ed co issions.

FOREIGN CORPORATIONS AS PARTIES DEFENDANTS


6ection 12, 5ule 1# of the 1::* 5ules of +i%il 8rocedure 133 pro%ides for the anner of ser%ice upon foreign corporations by allowing ser%ice of su ons to be ade on Lits resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the go%ern ent official designated by law to that effect, or on any of its officers or agents within the 8hilippines.& $owe%er, in order to obtain jurisdiction o%er a foreign corporation under the section, it specifically pro%ides that such foreign corporation ust ha%e &transacted business in the 8hilippines.& (he phrase would only e phasiFe the fact that as a atter of principle our laws take effect, and courts ha%e jurisdiction
12: 13<

1' 6+5A 3<1 !1:)'". &,id$ at p. 3<). 131 2)) 6+5A '3*, *- 6+A= 2< !1::*". 132 1.@. 9o. 22). 133 5eplaced 6ection 1#, 5ule 1# of the 5ules of +ourt.

o%er, foreign corporations, in the absence of consent, on the nexus of their doing business in the 8hilippines. Aenerally, our laws would ha%e no binding effect on foreign corporations who do not ha%e &presence& in the 8hilippines, otherwise any judg ent rendered would be a %iolation of due process. !anh v. Court of %ppeals,13# reiterated the rule that for purposes of ha%ing su ons ser%ed on a foreign corporation in accordance with 5ule 1#, 6ection 1# of the 5ules of +ourt, it is sufficient that it be alleged in the co plaint that the foreign corporation is doing business in the 8hilippines. (he court need not go beyond the allegations of the co plaint in order to deter ine whether it has jurisdiction. A deter ination that the foreign corporation is doing business is only tentati%e and is ade only for the purpose of enabling the local court to ac,uire jurisdiction o%er the foreign corporation through ser%ice of su ons. 6uch deter ination does not foreclose a contrary finding should e%idence later show that it is not transacting business in the country. 1. Ne;&s of "Doing B&siness in t(e P(i!i**ines" Per*ins v. Di+on ,13' had clearly discussed the general principle when it held that &when the defendant is a non0resident and refuses to appear %oluntarily, the court cannot ac,uire jurisdiction o%er his person e%en if the su ons be ser%ed by publication, for he is beyond the reach of judicial process. 9o tribunal established in one 6tate can extend its process beyond its territory so as to subject to its decisions either persons or property located in another 6tate . . . and a personal judg ent upon constructi%e or substituted ser%ice against a non0 resident who does not appear is wholly in%alid.& 13) (he basic pre ise as it applies to foreign corporation is laid down in (imes$ &nc. v. )eyes,13* that &a funda ental rule of international jurisdiction BisC that no state can by its laws, and no court which is only a creature of the state, can by its judg ents or decrees, directly bind or affect property or persons beyond the li its of that state.&13In addition, (imes$ &nc. held that a foreign corporation ay, by writ of prohibition, seek relief against the wrongful assu ption of jurisdiction by a trial court which refuses to dis iss 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 aintenance 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 otion to ,uash ser%ice of su ons, that it has jurisdiction.& 13: In Pacific Micronisian 'ine$ &nc. v. Del )osario ,1#< the then 3ork en.s +o pensation +o ission sought to obtain jurisdiction o%er the foreign
13# 13'

2)) 6+5A '3*, *- 6+A= 2#< !1::*". ): 8hil. 1-) !1:3:". 13) &,id, at p. 1-:. 13* 3: 6+5A 3<3 !1:*1". 13&,id, at p. 313, citing Per*ins v. Di+on$ ): 8hil. 1-) !1:3:"; 1# A 13: &,id, at p. 31'. 1#< :) 8hil. 23 !1:'#".

;ur. #1-.

corporation, 8acific Jicronisian 2ine, by ser%ice of su ons to its agent in the 8hilippines. (he foreign corporation filed a special appearance with the +o ission for the sole purpose of asking the dis issal of the clai on the ground that the +o ission had no jurisdiction o%er it because it is a foreign corporation not do iciled in this country, it is not licensed to engage and is not engaging in business therein, has no office in the 8hilippines, and is not represented by any agent authoriFed to recei%e su ons or any other judicial process in its na e and behalf. In construing the proper ser%ice of su ons for a foreign corporation under the old 6ection 1#, 5ule 1# of the 5ules of +ourt, the +ourt held that &in order that ser%ices ay be effected in the anner abo%e stated, said section also re,uires that the foreign corporation be one which is doing ,usiness in the Philippines. (his is a sine 4ua non re,uire ent. (his fact ust first be established in order that su ons can be ade and jurisdiction ac,uired. (his is not only clear in the rule but is reflected in a recent decision of this +ourt. 3e there said that Pas long as a foreign pri%ate corporation does or engages in business in this jurisdiction, it should and will be a enable to process and the jurisdiction of local courts..&1#1 Pacific Micronisian therefore recogniFed the doctrine that the law of a state cannot beco e operati%e upon a foreign corporation until it co es within the state to &do business.&1#2 In that case, the +ourt did not consider as doing business the act of the foreign corporation which is exclusi%ely engaged in the business of carrying goods and passengers by sea between Aua and the (rust (erritories of the 8acific Islands, in ha%ing a local agent in the 8hilippines secure the ser%ices of an indi%idual to act as cook and chief steward in one of the %essels. It was noted that the foreign corporation had ne%er sent its ships to the 8hilippines, nor has it transported nor e%en solicited the transportation of passengers and cargoes to and fro the 8hilippines, nor does it ha%e properties or office in the 8hilippines. 6ince 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 eaning of the rule, then it follows that the agent in the 8hilippines who recruited the indi%idual cannot be authoriFed to recei%e ser%ice of su ons. a. Valid Service of Summons Premised Upon Doing Business 1eneral Corporation. of the Philippines v. 2nion &nsurance .ociety. of Canton$ 'td.,1#3 clearly stated that the pro%isions of 6ection 1#, 5ule 1# of the old 5ules of +ourt pro%iding for the ethods of ser%ice of su ons e ploying the phrase &doing business in the 8hilippines& akes no distinction as to whether said business was being done or engaged in legally with the corresponding
&,id, at pp. 2*02-, 4uoting also 1eneral Corporation of the Philippines v. 2nion &nsurance .ociety of Canton$ 'td.,#: @ff. AaF., *3, 6epte ber 1#, 1:'<. 1#2 &,id, at p. 2-, 4uoting ($@J86@9 @9 +@58@5A(I@96, 7ol. -, 3rd 1d., pp. -#30-##. 1#3 -* 8hil. 313 !1:'<".
1#1

authority and license of the Ao%ern ent, or perhaps, illegally, without the benefit of any such authority or license. &As long as a foreign pri%ate corporation does or engages in business in this jurisdiction, it should and will be a enable to process and the jurisdiction of the local courts, this for the protection of the citiFens, and ser%ice upon any agent of said foreign corporation constitutes personal ser%ice upon the corporation and accordingly judg ent ay be rendered against said foreign corporation.&1## 1eneral Corporation of the Philippines held that where a foreign insurance corporation engages in regular arine insurance business here by issuing arine insurance policies abroad to co%er foreign ship ents to the 8hilippines, said policies being ade payable in the 8hilippines, and said insurance co pany appoints and keeps an agent in the 8hilippines to recei%e and settle clai s flowing fro said policies, then said foreign corporation will be regarded as doing business in the 8hilippines. 6ubse,uently, in .alonga v. arner Barnes # Co.$ 'td. 1#' the 6upre e +ourt without e%en discussing the issue of whether a foreign insurance was engaged in business in the 8hilippines or not held that under 6ection 1#, 5ule 1# of the 5ules of +ourt, &if the defendant is a foreign corporation and it has not designated an agent in the 8hilippines on who ser%ice ay be ade in case of litigation, such ser%ice ay be ade on any agent it ay ha%e in the 8hilippines . . . BincludingC a settling agent who ay ser%e the purpose.& 1#) b. Service of Summons on Counsel In <ohnlo (rading Co. v. Flores ,1#* and <ohnlo (rading Co. v. Culueta ,1#- the 6upre e +ourt held that when a foreign corporation does business in the 8hilippines, and has entered into certain contracts through its counsel and benefitted fro such contracts, a suit in local courts against such foreign corporation would justify the ser%ice of su ons upon such counsel e%en when said counsel has not been expressly authoriFed by the foreign corporation to recei%e su ons because &courts will not sanction a doctrine that a corporation can deny the power of an agent when an ad%antage 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.&1#: In those cases, it was found that the counsel had acted in a representati%e capacity in and outside of court, &so uch so that he undertook to settle clai s that had been filed against it.& 1'< $owe%er, it should be noted that in <ohnlo (rading Co. other than the counsel, there was no other representati%e or officer of the foreign corporation in the 8hilippines upon which su ons could be ser%e upon the foreign corporation, thusH
1## 1#'

&,id, at p. 31-, citing ?I6$15, 8$I2I88I91 2A3 @? 6(@+N +@58@5A(I@9, pp. #'1, #'). -- 8hil. 12' !1:'1". 1#) &,id, at p. 13#. 1#* -- 8hil. *#1 !1:'1". 1#-- 8hil. *'< !1:'1". 1#: &,id, at p. *'3. 1'< &,id, at p. *#).

Aranting, howe%er, for the sake of argu ent that Ialcoff erely acted as counsel for the petitioner, still we are of the opinion that, upon the strength of the authorities we ha%e ,uoted abo%e, the ser%ice ade upon hi of the su ons intended for the petitioner can be dee ed sufficient in conte plation of law, or within the eaning of 6ection 1#, 5ule *, of our 5ules of +ourt, to bind his client ;ohnlo (rading +o pany, upon the theory that, as the only person in the 8hilippines charged with the duty of settling clai s against it, he ust be presu ed . . . to co unicate to his client the ser%ice ade upon hi of any process that ay result in a judg ent and execution that ay depri%e it of its property, and the probabilities are, under such circu stances, that the corporation will be duly infor ed of the pendency of the suit. And this is a %ery realistic interpretation of the law, for it goes on the assu ption that en holding such relationship &will be pro pt to protect their own interest, and diligent in the discharged !sic" of their duties to those who ha%e reposed confidence in the .&1'1

In the absence of such special circu stance in <ohnlo (rading Co. then the general rule would apply that counsel has no authority erely by %irtue of his general e ploy ent as such, to wai%e or ad it ser%ice for his client of original process by which the court for the first ti e ac,uires jurisdiction of the client and that ser%ice upon an attorney representing a foreign corporation in the collection of other claims for which his ser%ice had not been engaged is in%alid. 1'2 c. Designating Local gents Conclusive on Service of Summons In Poi+at v. Morgan,1'3 the 6upre e +ourt ruled that where a foreign corporation has designated a person to recei%e ser%ice of su ons in judicial proceedings affecting the corporation, that designation is exclusi%e and ser%ice of su ons is without force and effect unless ade on hi . 1'# d. llegations on Dong Business !erel" Preliminar"

.ignetics Corporation v. Court of %ppeals ,1'' clarified that the ruling of Pacific Micronisian that doing business & ust first be established in order that su ons can be ade and jurisdiction ac,uired,& does not re,uire that e%idence ust first be adduced to pro%e doing business before su ons can be ser%ed upon the foreign corporation. (he +ourt held that the &fact of doing business
&,id$ at p. *#). &,id$ at pp. *#30*##, 4uoting ' AJ. ;>5. p. 313, and citing (aylor v. 1ranite .tate Provident %ssociation$ DEF N.=. E6E$ EG N.". HHGG$ EG %merican .t. )ep. I6H and Moore v. Freeman's National Ban*, :2 9.+. ':<". 1'3 2- 8hil. ':* !1:1#". 1'# (he doctrine was reiterated in !.B. Cachry Company &nternational v. Court of %ppeals , 232 6+5A 32:, '1 6+A= 2<* !1::#". 1'' 22' 6+5A *3*, ## 6+A= 3'* !1::3".
1'2 1'1

ust the, in the first place, be established by appropriate allegations in the co plaint.& 'itton Mills$ &nc. v. Court of %ppeals ,1') held that the trial court need not go beyond the allegations in the co plaint to deter ine whether or not a defendant foreign corporation is doing business for the purpose of 6ection 1#, 5ule 1# of the old 5ules of +ourt. !yopsung Maritime Co.$ 'td. v. Court of %ppeals ,1'* reiterated that the sine 4ua non re,uire ent for ser%ice of su ons and other legal processes or any such agent or representati%e is that the foreign corporation is doing business in the 8hilippines. It also ruled that the %oluntary appearance as a ode of ser%ice of su ons which confers jurisdiction o%er the person of a foreign corporation ust be one that has been authoriFed by the foreign corporation. 2ately, French :il Mills Machinery Co.$ &nc. v. Court of %ppeals ,1'- see s to ha%e declared the atter settled, thusH
3hen it is shown that a foreign corporation is doing business in the 8hilippines, su ons ay be ser%ed on !a" its resident agent designated in accordance with law; !b" if there is no resident agent, the go%ern ent official designated by law to that effect; or !c" any of its officers or agent within the 8hilippines. (he ere allegation in the co plaint that a local co pany is the agent of the foreign corporation is not sufficient to allow proper ser%ice to such alleged agent. Although there is no re,uire ent to first substantiate the allegation of agency, yet it is necessary that there ust be specific allegations in the co plaint that establishes the connection between the principal foreign corporation and its alleged agent with respect to the transaction in ,uestion. 9owhere in the case of .ignetics Corporation v. Court of %ppeals$ did the +ourt state that if the Lco plaint alleges that defendant has an agent in the 8hilippines, su ons can %alidly be ser%ed thereto e%en without prior e%idence of the truth of such factual allegation; it is only in the headnote of the reporter which is not part of the decision.

". Consent to 7&#is0i tion of Lo a! Co&#ts Although doing business is the nexus by which local courts are granted the right to obtain jurisdiction o%er the &person& of foreign corporation, consent ay also authoriFe local courts and ad inistrati%e agencies to exercise jurisdiction o%er foreign corporations e%en when they are not doing business in the 8hilippines. In Far "ast &nternational &mport and "/port Corp. v. Nan*ai ?ogyo Co.$ 'td.1': a suit was filed against a ;apanese corporation in 8hilippine courts for specific perfor ance, da ages and issuance of a writ of injunction. (he
1') 1'*

2') 6+5A ):), *' 6+A= 1)< !1::)". 1)' 6+5A 2'- !1:--". 1'2:' 6+5A #)2, :- 6+A= #<* !1::-". 1': ) 6+5A *2' !1:)2".

;apanese co pany, by special appearance, filed a otion to dis iss the co plaint and dissol%e the preli inary injunction on the ground that the court had no jurisdiction o%er said foreign corporation and o%er the subject atter and failure to state a cause of action. 3hen the otion to dis iss was o%erruled on the ground that it did not appear indubitable, an answer was filed and in%oked defenses and grounds for dis issal of the co plaint other than lack of jurisdiction. In deciding that proper jurisdiction was obtained o%er the defendant foreign corporation, the 6upre e +ourt held that when the defendant foreign corporation filed an answer which in%oked grounds other than lack of jurisdiction, the act %ested upon the trial court jurisdiction to take cogniFance of the case. (he rule in Far "ast &nternational therefore is that when a defendant foreign corporation objects to the jurisdiction of the court, but at the sa e ti e it alleges any non0jurisdictional grounds for dis issing the action, the court then ac,uires jurisdiction o%er the person of the defendant. 3hat was worse in Far "ast &nternational is that the defendant foreign corporation presented e%idence on the erits of the case. (his affir ed the ruling in 1eneral Corporation of the Philippines v. 2nion &nsurance .ociety of Canton$ 'td.,1)< that the participation of counsel for a foreign corporation in the trial process, including the cross0exa ination of witnesses, agree ent and objection to docu entary e%idence, and the introduction of witnesses and docu entary e%idence would pre%ent the plea of lack of jurisdiction o%er the person of such foreign corporation. 1)1 In addition, Far "ast &nternational discussed that the conse,uence of doing business in the 8hilippines would render a foreign corporation subject to jurisdiction of 8hilippine courts. It adopted the rule that a single act ay bring the corporation within the pur%iew 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 erely 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 ake the state a basis of operations for the conduct of a part of the corporation.s ordinary business.1)2 (he test therefore e bodies the second tier of the Mentholatum tests that an act within the ain purpose of the corporation which shows an intent to continue the business in the 8hilippines, would constitute doing business. In Far "ast &nternational it was shown that the defendant foreign corporation had sent an officer in the 8hilippines to look into the operation of ines, thereby re%ealing the desire to continue engaging in business in the 8hilippine, after recei%ing the ship ent of the scrap iron under consideration, aking the 8hilippines a base of operations. In %von &nsurance P'C v. Court of %ppeals ,1)3 it was reiterated that the appearance of a foreign corporation to a suit is precisely to ,uestion the
1)< 1)1

-* 8hil. 313 !1:'<". &,id, at p. 321. 1)2 &,id, at p. *3#, citing 1* ?21(+$15 +4+. @? +@58@5A(I@96, sec. -#*<, pp. '*20'*3. 1)3 2*- 6+5A 312, 32* !1::*".

jurisdiction of the said tribunal o%er the person of the defendant, then such appearance is not e,ui%alent to ser%ice of su ons, nor does it constitute an ac,uiescence to the courtEs jurisdiction. ). T(e Facilities !anagement St#ain Iased on the foregoing discussions, it is with serious reser%ation that we %iew the o,iter in Facilities Management Corporation v. De la :sa ,1)# where ;ustice Jakasiar had stated with logical si plicity that &Indeed, if a foreign corporation, not engaged in business in the 8hilippines, is not barred fro seeking redress fro courts in the 8hilippines a fortiori, that sa e corporation cannot clai exe ption fro being sued in 8hilippine courts for acts done against a person or persons in the 8hilippines.& 1)' (he logic is flawed because although the first part of the o,iter is correct, the second part did not necessarily flow as a logical conse,uent of the first part. Although a foreign corporation not doing business in the 8hilippines is beyond the jurisdiction of our courts, ne%ertheless by filing a co plaint in our courts, it %oluntarily surrenders jurisdiction o%er its &person& to the courts. Iut the re%erse does not necessarily follow. 6ince a foreign corporation is not doing business in the 8hilippines, short of %oluntary surrender to local jurisdiction, there can be no legal basis by which our local processes ay be ser%ed upon such corporation to allow local courts to ha%e jurisdiction o%er its &person& as a party defendant in a case. In addition, the ini u re,uire ent of &presence& as a notion of due process is not present in such a situation. After all, it was already held pre%iously by the 6upre e +ourt in Philippine Colum,ian "nterprises Co. v. 'antin ,1)) that &actions ,y foreign corporations are go%erned by rules different fro those in actions against the .&1)* In that case, when the trial court refused to rule on a otion to dis iss a co plaint filed by a ;apanese corporation on the ground that the ground relief upon !that the plaintiff was doing business in the 8hilippines without a license" did not appear indubitable, the defendants refused such defer ent and to file an answer since the filing of a counterclai would be recogniFing the legal capacity of the plaintiff corporation which they are precisely ,uestioning. In setting aside such argu ent, the +ourt held that &A counterclai partakes of the nature of a co plaint andMor cause of action against the plaintiff, so that if the petitioners0defendants should file a counterclai , the pri%ate respondent0plaintiff . . . would be a defendant thereto, in which case the said foreign corporation would not be aintaining a suit and, conse,uently, 6ection ): of the +orporation 2aw would not apply.& +learly, therefore, the restricti%e effects of 6ection ): !now section 133" on failure to obtain the necessary license to do business ha%e no application at all when a foreign corporation is sued as a defendant in 8hilippine courts.
1)# 1)'

-: 6+5A 131 !1:*:". &,id, at p. 13:. 1)) 3: 6+5A 3*) !1:*1". 1)* &,id, at p. 3-'.

?ortunately, the pronounce ents of ;ustice Jakasiar in Facilities Management were erely o,iter since the facts showed that the foreign corporation in that case was engaged in business in the 8hilippines without obtaining a license by the appoint ent of a liaison officer in the 8hilippines to recruit personnel. (he +ourt took cogniFance of the rules and regulations of the Ioard of In%est ents i ple enting 5ep. Act 9o. '#'' enu erating the appoint ent of liaison officers in the 8hilippines as indicati%e of doing business in the country. >nfortunately, FB% %ircraft$ ..%. v. Cosa,1)- subse,uently affir ed the o,iter in Facilities Management as its ratio decidendi in resol%ing the issue raised. In that case, a co plaint with prayer for issuance of a writ preli inary attach ent was filed against ?IA Aircraft, Inc., a foreign corporation not engaged in business in the 8hilippines. A writ of attach ent was issued and enforced against three aircrafts and engines in the 8hilippines. (he co plaint was subse,uently dis issed &for lack of jurisdiction o%er the persons of the defendant and the writ of attach ent dissol%ed.& @n the issue of whether a foreign corporation can be sued in the 8hilippines on the basis of an isolated transaction, the 6upre e +ourt held on appeal, ,uoting fro Facilities Management, that &if a foreign corporation, not engaged in business in the 8hilippines, is not barred fro seeking redress fro courts in the 8hilippines, a fortiori, that sa e corporation cannot clai exe ption fro being sued in 8hilippine courts for acts done against a person or persons in the 8hilippines.& In addition, the +ourt held that since the foreign corporation.s properties ha%e been attached within the 8hilippines, extraterritorial ser%ice of su ons clearly ay be effected under 5ule 1#, 6ection 1* of the 5ules of +ourt. (he logical juxtaposition in Facilities Management cannot be the basis for allowing suit against a foreign corporation not doing business in the 8hilippines, for that would be a denial of due process. $owe%er, FB% %ircraft was correct in its resolution since indeed a writ of attach ent has been obtained in the 8hilippines on properties of the foreign corporation, con%erting the action to one in rem. 2ater, in the case of ang 'a,oratories$ &nc. v. Mendo+a ,1): the 6upre e +ourt, relying upon the Facilities Management pronounce ent, held in sweeping ter s that &the issue on the suability of foreign corporation 0hether or not doing ,usiness in the Philippine has already ,een laid to rest. (he Court has categorically stated that although a foreign corporation is not doing ,usiness in the Philippines$ it may ,e sued for acts done against persons in the Philippines.J1*< $owe%er, since the +ourt found in ang 'a,oratories that the defendant foreign corporation was indeed engaged in business in the 8hilippines by ha%ing appointed an agent and installed its co puter products in %arious establish ents in the 8hilippines, the pronounce ent should be taken as o,iter.
1)1):

11< 6+5A 1 !1:-1". 1') 6+5A ## !1:-*". 1*< &,id, at pp. '20'3. "mphasis supplied.

5ecently in )oyal Cro0n &nternationale v. N')C ,1*1 the +ourt used the Facilities Management o,iter as though it were gospel truth. In that case, a foreign corporation, through a local place ent co pany, 5oyal +rown Internationale, hired the ser%ices on a ?ilipino architectural drafts an for work in 6audi Arabia. 3hen the ?ilipino was ter inated abroad, he brought a suit in the 8hilippines against both the foreign corporation and the place ent agency for illegal ter ination. 6er%ice of su ons upon the foreign corporation was ser%ed by extra0territorial ser%ice under 6ection 1*, 5ule 1# of the 5ules of +ourt. 1*2 ?ro a judg ent holding both the foreign corporation and the local place ent agency jointly and se%erally liable to the ?ilipino, a petition for certiorari was with 6upre e +ourt for nullification of such judg ent on the ground, a ong others, that it cannot be held liable solidarily with the foreign corporation since the 925+ had not ac,uired jurisdiction o%er the latter through an extra0territorial ser%ice of su ons. (he +ourt held that &It is well0settled that ser%ice upon any agent of a foreign corporation, whether or not engaged in business in the 8hilippines, constitutes personal ser%ice upon that corporation, and accordingly, judg ent ay be rendered against said foreign corporation,& 1*3 citing Facilities Management. (herefore we ha%e a situation where the doctrine that a foreign corporation not doing business in the 8hilippines can be sued in 8hilippine courts for an isolated contract entered into in the 8hilippines is found in three cases !Facilities Management$ FB% %ircraft and ang 'a,oratories" where indeed the doctrine was not at all essential for the 6upre e +ourt to resol%e the jurisdiction o%er the foreign corporation since it was either truly engaged in business in the 8hilippines or the action is an action in rem; and in one case !)oyal Cro0n &nternationale" where the affected foreign corporation was not the one raising the issue !for indeed it was not &present&" but a co0defendant local co pany. 2acking the nexus of &doing business& in the 8hilippines, and in the absence of consent, a foreign corporation cannot be ade a defendant in 8hilippine courts in an action personam and judg ent rendered against such foreign corporation would be %oid. a. ppl"ing Control #est

!yopsung Maritime Co.$ 'td. v. Court of %ppeals$ 1*# sought to ,ualify the Facilities Management rule. In that case which in%ol%ed the suit filed in local courts against a foreign corporation, the +ourt andated the principle that ser%ice of su ons under 6ection 1#, 5ule 1# of the old 5ules of +ourt &re,uires that the foreign corporation be one which is doing business in the

1*1 1*2

1*- 6+5A '): !1:-:". 9ow 6ec. 1', 5ule 1# o the 1::* 5ules of +i%il 8rocedure. 1*3 &,id, at p. '**. 1*# 1)' 6+5A 2'- !1:--".

8hilippines. (his is sine 4ua non re,uire ent. (his fact ust first be established in order that su ons can be ade and jurisdiction ac,uired.& 1*' (he +ourt then pro%ided that when the contract sued upon has entirely been executed outside of 8hilippine jurisdiction, the rule in Facilities Management is inapplicable, thusH
(he present case ust be distinguished fro ?acilities Janage ent +orp. %s. de la @sa which in%ol%ed the non0 pay ent by ?acilities Janage ent +orp !?J+ in short", a non0resident foreign corporation, of o%erti e co pensation, as well as swing shift and gra%eyard shift pre iu s to 2eonardo de la @sa, a ?ilipino, successi%ely e ployed as painter, houseboy, and cashier. Nota,ly$ de la :sa 0as hired in Manila ,y the Filipino agent of FMC and the contract of employment ,et0een him and FMC 0as originally e/ecuted and su,se4uently rene0ed in Manila. . . @n the other hand, the present suit is for the recovery of damages ,ased on a ,reach of contract 0hich appears to have ,een entirely entered into$ e/ecuted$ and consummated in ?orea. . . .imply put$ the petitioner is ,eyond the reach of our courts.1*)

!yopsung Maritime would therefore include the &contract test& of Pacific -egeta,les as a re,uisite ele ent for the application of the Facilities Management rule, i.e.$ that for a foreign corporation not doing business in the 8hilippines can be sued in local courts pro%ided it is based on a contract or transaction which would wholly or partially executed or fulfilled within 8hilippine territory. In 1::< in Maru,eni Nederland B.-. v. (ensuan 1** the 6upre e +ourt took a different approach. In that case, a suit was filed by a local against a ;apanese corporation, on the basis of the li ited and special appearance filed by counsel of the foreign corporation seeking dis issal of the co plaint on the ground that the court a 4uo had no jurisdiction o%er the person of the petitioner &since it is a foreign corporation neither doing nor licensed to do business in the 8hilippines.& (he +ourt then clearly laid the &pi%otal& issue to be &whether or not petitioner Jarubeni 9ederland I.7. can be considered as Pdoing business. in the 8hilippines and therefore subject to the jurisdiction of our courts,& i plying the ini u nexus to be &doing business& to allow our courts to ha%e jurisdiction o%er the person of the defendant foreign corporation. In any e%ent, the +ourt, relying on the pro%isions of rules and regulations i ple enting 5ep. Act 9o. '#'' which considered as &doing business& soliciting of orders, purchases !sales" or ser%ice contracts in the 8hilippines, held
1*'

&,id, at p. 2)3 ,uoting fro

Pacific Micronesian 'ine$ &nc. v. del )osario , :) 8hil. 23

!1:'#".
1*) 1**

&,id, at pp. 2)302)#. "mphasis supplied. 1:< 6+5A 1<' !1::<".

Jarubeni 9ederland I.7. to be doing business in the 8hilippines, and with or without a license, was subject to the jurisdiction of local courtsH
1%en assu ing for the sake of argu ent that Jarubeni 9ederlands I.7. is a different and separate business entity fro Jarubeni ;apan and its Janila branch, in this particular transaction, at least, Jarubeni 9ederland I.7. through the foregoing acts, had effecti%ely solicited Lorders, purchases !sales" or ser%ice contracts/ as well as constituted Jarubeni +orporation, (okyo, ;apan and its Janila Iranch as its representati%e in the 8hilippines to transact business for its account as principal. (hese circu stances, taken singly or in co bination, constitute Ldoing business in the 8hilippines/ within the conte plation of the law.1*-

It is ironical that in 1::< in Maru,eni Nederland B.-. the 6upre e +ourt was still struggling with the issue of whether the defendant foreign corporation was &doing business in the 8hilippines& to warrant jurisdiction of the trial court o%er the &person& of the defendant, when there existed already the Facilities Management doctrine which allows court jurisdiction o%er foreign corporation e%en not engaged in business in the 8hilippines on an isolated transaction done in the 8hilippines. (he logic of Facilities Management doctrine is that although an isolated transaction of a foreign corporation within 8hilippine jurisdiction does not a ount to doing business as to re,uire it to obtain a license and to sue on such isolated transaction, ne%ertheless, the entering by the foreign corporation of such isolated transaction within the 8hilippines is taken as a consent to be subject to the jurisdiction of 8hilippine courts. (herefore Facilities Management has reduced the &nexus& by which 8hilippine agencies and courts are dee ed to ha%e authority o%er foreign corporation fro &doing business& to &engaging in an isolated transaction& in the 8hilippines. b. #$e Signetics Clarification (he argu ent has reached full circle recently in .ignetics Corporation v. Court of %ppeals.1*: In that case, an A erican corporation, 6ignetic +orporation, through a wholly0owned subsidiary, entered into a lease contract o%er a piece of land with a local co pany. In a case subse,uently filed by a the local co pany against the A erican corporation for da ages arising fro the lease contract !there was a piercing of the %eil of corporate fiction treating the local subsidiary and the parent A erican co pany as one", 6ignetics filed, by way of special appearance, a otion to dis iss the co plaint on the ground of lack of jurisdiction o%er its person. It in%oked 6ection 1#, 5ule 1# of the 5ules of +ourt and the rule laid down in Pacific Micronisian 'ine$ &nc. v. Del )osario 1-< to the effect that the fact of doing business in the 8hilippines should first be established
1*1*:

&,id, at p. 11<. 22' 6+5A *3*, ## 6+A= 3'* !1::3". 1-< :) 8hil. 23 !1:'#".

in order that su ons could be %alidly court o%er a foreign corporation.

ade and jurisdiction ac,uired by the

In affir ing the denial of the otion to dis iss, the 6upre e +ourt held that the doctrine in Pacific Micronisian 'ine should be interpreted to ean the fact of doing business ust be established by appropriate allegations in the co plaint, and thereafter extraterritorial ser%ice of su ons ay be done pursuant to the pro%isions of 6ection 1*, 5ule 1#, of the 5ules of +ourt. In addition, the +ourt held that e%en if 6ignetics were not doing business in the 8hilippines, under the Facilities Management doctrine &a foreign corporation, although not engaged in business in the 8hilippines, ay still look up to our courts for relief; reciprocally, such corporation ay likewise be Psued in 8hilippine courts for acts done against a person or person in the 8hilippines.& (he +ourt went on to say that 6ignetics right to ,uestion the jurisdiction of the court o%er its person is now to be dee ed a foreclosed atter since 0
. . . If it is true, as 6ignetics clai s, that its only in%ol%e ent in the 8hilippines was through a passi%e in%est ent in 6igfil, which it e%en later disposed of, and that (1AJ 8acific is not its agent, then it cannot really be said to be doing business in the 8hilippines. &t is a defense$ ho0ever$ that re4uires the contravention of the allegations of the complaint$ as 0ell as full ventilation$ in effect$ of the main merits of the case$ 0hich should not thus ,e 0ithin the province of a mere motion to dismiss. . .1-1

(his was a curious proposition on the part of the +ourt, since by adopting the Facilities Management doctrine, whether or not a foreign corporation is engaged in business in the 8hilippines has now beco e legally irrele%ant, and the fact of not doing business in the 8hilippines is not a proper defense for a suit brought in 8hilippine courts against a foreign corporation. (he point that atters with the full adoption of the Facilities Management doctrine is whether the re,uire ents of due process and fair play could be co plied with against a foreign corporation not doing business in the 8hilippines, i.e., whether the proper process of obtaining jurisdiction o%er its &person& ha%e been co plied with. (his point at least was recogniFed in .ignetics Corporation when the +ourt went to stress that 0
. . . pro%ided that, in the latter case, it would not be i possible for court processes to reach the foreign corporation, a matter that can later ,e conse4uential in the proper e/ecution of 7udgment. 7erily, a 6tate ay not exercise jurisdiction in the absence of so e good basis !and not offensi%e to traditional notions of fair play and substantial

1-1

&,id, at p. *#).

justice" for effecti%ely exercising it, whether the proceedings are in rem, 4uasi in rem or in personam.1-2

c. Latest %ord on t$e !atter 2ately, in %von &nsurance P'C v. Court of %ppeals$ DKE the 6upre e +ourt see s to ha%e discounted the absolute suability rule of Facilities Management, thusH
In the alternati%e, pri%ate respondents sub its that foreign corporation not doing business in the 8hilippines are not exe pt fro suits le%eled against the in courts, citing the case of Facilities Management Corporation vs. 'eonardo Dela :sa$ et al.$. . . 3e are not persuaded by the position taken by the pri%ate respondent. In ?acilities Janage ent case, the principal issue presented was whether the petitioner had been doing business in the 8hilippines, so that ser%ice of su ons upon its agent as under 6ection 1#, 5ule 1# of the 5ules of +ourt can be ade in order that the +ourt of ?irst Instance could assu e jurisdiction o%er it. (he +ourt ruled that the petitioner was doing business in the 8hilippines, and that by ser%ing su ons upon its resident agent, the trial court had effecti%ely ac,uired jurisdiction. In that case, the court ade no prescription as the absolute suability of foreign corporations not doing business in the country, but erely discounts the absolute exe ption of such foreign corporations fro liabilities particularly arising fro acts done against a person or persons in the 8hilippines.

,. Cont#a t&a! Sti*&!ation on 1en&e 3hen a contract between a local and a foreign corporation stipulates %enue to be within the proper courts in the 8hilippines, the 6upre e +ourt has recogniFed the sa e to be a consent to being sued in the 8hilippines e%en when the foreign corporation does no business in the 8hilippines. In 'ingner # Fisher 1MB! v. &ntermediate %ppellate Court ,1-# a stipulation was pro%ided for in the licensing agree ent entered into between a foreign corporation and a local co pany that readH & %ll legal settlements 0ithin the compass of this %1)""M"N( shall fall under the 7urisdiction of Philippine courts.&1-' In a suit brought against the foreign corporation, where su ons was ser%ed upon its local counsel, the 6upre e +ourt held that no e%idence as to whether the foreign corporation was doing business in the 8hilippines was necessary to be adduced to ake it a enable to the jurisdiction of the trial court since whether or not the foreign corporation is doing business in the 8hilippines
1-2 1-3

&,id. 2*- 6+5A 312, 32#, -) 6+A= #<1, #12 !1::*". 1-# 12' 6+5A '22 !1:-3". 1-' &,id, at p. '2#.

&will not atter because the parties had expressly stipulated in the AA511J19( that all contro%ersies based on the AA511J19( Pshall fall under the jurisdiction of 8hilippine courts.. In other words, there was a co%enant on %enue to the effect that Bthe foreign corporationC can be sued by Bthe local co panyC before 8hilippine +ourts in regards to a contro%ersy related to the AA511J19(.& 1-) 9e%ertheless, the 6upre e +ourt found ser%ice of su ons upon the foreign corporation.s counsel as i proper, but directed that since there is no e%idence to show that the foreign corporation was engaged in business for the case to co e under 6ection 1#, 5ule 1# of the 5ules of +ourt where doing business &is a sine 4ua non re,uire ent,&1-* then ser%ice of su ons can be effected by extraterritorial ser%ice under 6ection 1*, 5ule 1#, in relation to 5ule # of the 5ules of +ourt, &which recogniFes the principle that %enue can be agreed upon by the parties.&1-'ingner # Fisher 1MB! therefore laid down the rule that &if a local plaintiff and a foreign corporation ha%e agreed on 8hilippine %enue, su ons by publication can be ade on the foreign corporation under the principle of liberal construction of the rules to pro ote just deter ination of actions.& 1-:

PROCEDURAL RULE ON PLEADING "DOING BUSINESS"


1arly on, in .prec*els v. ard,1:< which actually in%ol%ed the application of then 6ection ): of the +orporation 2aw to a partnership considered as an &unregistered foreign corporation,& the 6upre e +ourt held that the pro%isions of 6ection ): denying to unregistered foreign corporations the right to aintain suits for the reco%ery of any debt, clai or de and, &do not i pose on all plaintiff0 litigants the burden of establishing by affir ati%e proof that they are not unregistered foreign corporations. (he fact will not be presu ed by the courts without so e e%idence tending to establish its existence.& 1:1 In other words, the dis,ualification under 6ection ): of the then +orporation 2aw was considered a atter of defense with burden of proof on the part of the party raising it. Marshall- ells laid down the procedural doctrine that the nonco pliance of a foreign corporation doing business in the 8hilippines of the re,uire ent for it to obtain a license, ay be pleaded as an affir ati%e 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 8hilippines, and that it has not obtained the license as re,uired by law. 1:2 (he then rule that lack of authority of a foreign corporation to sue in 8hilippines courts for failure to obtain the license is a atter of affir ati%e
1-) 1-*

&,id, at p. '2*. &,id. 1-&,id, at p. '2-. 1-: &,id. 1:< 12 8hil. #1# !1:<:". 1:1 &,id, at p. #1:. 1:2 #) 8hil. *<, *) !1:2#".

defense and should be established by e%idence was subse,uently reiterated in &n re 'i4uidation of the Mercantile Ban* of ChinaL (he Fletcher %merican National Ban* of &ndianapolis v. %ng Cheng 'ian. 1:3 (he rule was re%ersed in %tlantic Mutual &ns. Co. v. Ce,u .tevedoring Co.$ &nc.,1:# which now pro%ides for the pre%ailing rule. In that case, two foreign insurance corporations sued +ebu 6te%edoring +o., Inc. for reco%ery of su of oney by way of subrogation o%er the insurance clai s on a local insured co pany for losses sustained on cargoes handled by the defendant. (he trial court, on otion, dis issed the co plaint for failing to state that the plaintiffs were duly licensed foreign corporation to transact business in the 8hilippines. @n appeal, the plaintiffs contended that the re,uire ent for allegation of licensed being obtained is re,uired only if the plaintiff foreign corporation is engaged in business in the 8hilippines; but that if a foreign corporation is not doing business in the 8hilippines, it is not barred fro seeking redress in 8hilippine courts in proper cases, as when it sues on an isolated transaction. $owe%er, although the 6upre e +ourt sustained the principle upon which the plaintiffs appealed the dis issal, it ne%ertheless upheld the dis issal since the co plaint filed with the lower court only alleged that the plaintiffs are foreign corporation, without further indicating that they are exe pt fro the re,uisite of a license because they are not engaged in business in the 8hilippinesH
Iut erely to say that a foreign corporation not doing business in the 8hilippines does not need a license in order to sue in our court does not co pletely resol%e the issue in the present case. (he proposition, as stated, refers to the right to sue; the ,uestion here refers to pleading and procedure. It should be noted that insofar as the allegations in the co plaint ha%e a bearing on appellants. capacity to sue, all that is a%erred is that they are both foreign corporations existing under the laws of the >nited 6tates. (his a%er ent conjures two alternati%e possibilitiesH either they are engaged in business in the 8hilippines or they are not so engaged. In the first, they ust ha%e been duly licensed in order to aintain this suit; if the second, if the transaction sued upon is singular and isolated, no such license is re,uired. In either case, the ,ualifying circu stances is an essential part of the ele ent of plaintiffs. capacity to sue and ust be affir ati%ely pleaded.1:'

%tlantic Mutual went on to say that where the law denies to a foreign corporation the right to aintain suit unless it has pre%iously co plied with a certain re,uire ent, then such co pliance, or the fact that the suing corporation is exe pt therefro , beco es a necessary a%er ent of the co plaint. &(hese are atters peculiarly within the knowledge of appellants alone, and it would be
1:3 1:#

)' 8hil. 3-' !1:3-". 1* 6+5A 1<3* !1:))". 1:' &,id, at p. 1<#<.

unfair to i pose upon appellee the burden of asserting and pro%ing the contrary. It is enough that foreign corporations are allowed by law to seek redress in our courts under certain conditionsH the interpretation of the law should not go so far as to include, in effect, an inference that those conditions ha%e been et fro the ere fact that the party suing is a foreign corporation.& 1:) Commissioner of Customs v. ?.M.?. 1ani ,1:* held that &BtChe fact that a foreign corporation is not doing business in the 8hilippines ust be disclosed if it desires to sue in 8hilippine courts under the Pisolated transactions rule.. 3ithout this disclosure, the court ay choose to deny it the right to sue.& 1:- In addition, it stated that the &isolated transaction rule& applies only to foreign corporations, and not a foreign partnership or a foreign &fir &. In any e%ent, 5ule -, 6ection #, of the 1::* 5ules of +i%il 8rocedure now re,uire that in case of foreign corporations, &facts showing the capacity of a party to sue or be sued . . . ust be a%erred.& Ne0 =or* Marine Managers$ &nc. v. Court of %ppeals ,1:: found occasion to reiterate the rule. (he +ourt therein found the co plaint filed by the foreign corporation to be fatally defecti%e for failing to allege its duly authoriFed representati%e or resident agent in B8hilippineC jurisdiction. It ruled that the signature of its counsel on the pleading was not enoughH &(he pleadings filed by counsel . . . do not suffice. (rue, a lawyer is generally presu ed to be properly authoriFed to represent any cause in which he appears . . . Iut the presu ption is disputable. 3here said authority has been challenged or attacked by the ad%erse party the lawyer is re,uired to show proof of such authority or representation in order to bind his client. (he re,uire ent of the production of authority is essential because the client will be bound by his ac,uiescence resulting fro his knowledge that he was being represented by said attorney.& 2<<

&,id$ at p. 1<#1. 1-2 6+5A ':1 !1::<". 1:&,id, at p. ':). 1:: 2#: 6+5A #1) !1::'". &(he issue on whether a foreign corporation can seek the aid of 8hilippine courts for relief recoils to the basic ,uestion of whether it is doing business in the 8hilippines or has erely entered into an isolated transaction. (his +ourt has held in a long line of cases that a foreign corporation not engaged in business in the 8hilippines ay exercise the right to file an action in 8hilippine courts for an isolated transaction. $owe%er . . . to say erely that a foreign corporation to doing business in the 8hilippines does not need a license in order to sue in our courts does not co pletely resol%e the issue. 3hen the allegation in the co plaint ha%e a bearing on the plaintiff.s capacity to sue and erely sate that the plaintiff is a foreign corporation existing under the laws of the >nited 6tates, such a%er ent conjures two alternati%e possibilitiesH either the corporation is engaged in business in the 8hilippines, or it is not so engaged. In the first, the corporation ust ha%e been duly licensed in order to aintain the suit; in the second, the transaction sued upon is singular and isolated, no such license is re,uired. In either case . . . BitC cannot be inferred fro the ere fact that the party suing is a foreign corporation. (he ,ualifying circu stance being an essential part of the plaintiff.s capacity to sue ust be affir ati%ely pleaded . . . ?ailing in this re,uire ent, the co plaint filed by the Bforeign corporationC with the trial court, it ust be said, fails to show its legal capacity to sue.& &,id. 2<< &,id. .ame ruling in !ahn v. Court of %ppeals$ 2)) 6+5A '3*, *- 6+A= 2#< !1::*".
1:*

1:)

IN SU++AR?
?ro all the foregoing, we can therefore su ariFe the current state of the 8hilippines doctrine of &doing business& as it applies to foreign corporationsH 1. Co%e#age &=oing business& in the 8hilippines co%ers transactions or series of transactions that ha%e the twin0characteriFation ofH !a" in pursuit of the ain business goals of the corporation; and !b" done with intent to continue the sa e in the 8hilippines; and in fact a single transaction showing such twin characteriFation would ,ualify as doing business. 1xcept that there is an isolated body of jurisprudence that holds that e%en when such twin characteriFation is present in a series of transaction, when the ain features of the contract, of perfection or execution, pay ent and effects of deli%ery are outside 8hilippine territorial jurisdiction, the sa e would not constitute doing business in the 8hilippines. $owe%er, the i ple enting rules of the I@I has tended to o%erco e such an isolated transaction doctrine by including in the definition of &doing business& the soliciting of orders in the 8hilippines. ". Iso!ate0 T#ansa tion Do t#ine A transaction !or e%en series of transactions" that do not fall within the &doing business& definition is considered an &isolated transaction& not re,uiring the obtaining of license to authoriFe a foreign corporation to bring suit in the 8hilippine courts and ad inistrati%e bodies to enforce the sa e or obtain relief. 3hile generally a foreign corporation not doing business in the 8hilippines is beyond the jurisdiction of local courts and ad inistrati%e bodies because of lack of &presence& to satisfy the re,uire ents of due process, there is a body of jurisprudence that hold that an &isolated transaction& would constitute &presence& to ake a foreign corporation a enable to local jurisdiction. 1%en when a foreign corporation is not engaged in business in the 8hilippines and is sued in the 8hilippine courts, although it ay by special appearance object to the obtaining of jurisdiction o%er its person, ne%ertheless, if it alleges any non0jurisdictional grounds for dis issing the action, or participates in the trial proper and cross0exa ines witness, or presents its own witnesses, the court then ac,uires jurisdiction o%er the person of the defendant. 2ikewise, stipulating that %enue of suits in%ol%ing a contract would be in the proper courts of the 8hilippines is considered &consent& to allow jurisdiction o%er the person of the foreign corporation e%en when not doing business in the 8hilippines. (he fact that a foreign corporation is not doing business in the 8hilippines ust be alleged if it desires to sue in 8hilippine courts under the &isolated

transactions rule.& 3ithout this disclosure, the court right to sue. ). Conse@&en es

ay choose to deny it the

(he conse,uences of failure of a foreign corporation to obtain a license when it conducts business in the 8hilippines would beH !a" (o be denied access in 8hilippine courts and ad inistrati%e bodies to obtain relief on the contracts and transactions it has entered into; !b" And yet to be a enable to suits on those contracts and transactions it has entered into; !c" Iut that the subse,uent 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 ad inistrati%e bodies on said contracts and transactions. >nfortunately, the 6upre e +ourt has e ployed the pari delicto doctrine and likewise held the local counterparts without re edy also in case it enters into a contract or transaction with a foreign corporation that does not obtain the necessary license. (he 6upre e +ourt has also applied to estoppel doctrine to authoriFed a foreign corporation that has engaged in business in the 8hilippines without the re,uisite license to bring a suit against the local counterpart to enforce on a contract or transaction. Iy way of lea%e0taking, we should re e ber the philosophical approach of the 6upre e +ourt in interpreting 6ection ): of then +orporation 2aw, now 6ection 133 of the +orporation +ode, that they & ust be gi%en a reasonable, not an unduly harsh, interpretation which does not ha per the de%elop ent of trade relations and which fosters friendly co ercial intercourse a ong countries.& 2<1 &(he objecti%es enunciated in the 1:2# decision Bin Marshall- ells Co. v. "lserC are e%en ore rele%ant today when we %iew co ercial relations in ter s of a world econo y, when the tendency is to re0exa ine the political boundaries separating one nation fro another insofar as they define the business re,uire ents or restrict arketing conditions.& 2<2

DO+ICILE AND RESIDENCE OF FOREIGN CORPORATIONS


(he do icile of a corporation belongs to the state where it was incorporated, and in a strict technical sense, such do icile as a corporation ay

2<1 2<2

!ome &nsurance Company v. "astern .hipping 'ines, 123 6+5A #2#, #3' !1:-3". &,id, at p. #3'.

ha%e is single in its essence and a corporation can ha%e only one do icile which is the state of its creation.2<3 (he residence of a corporation is necessarily where it exercises corporate functions or the place where its business is done. 2<# A foreign corporation licensed to do business in a state is a resident of any country where it aintains an office or agent for transaction of its usual and custo ary business for %enue purposes; that a corporation ay be do iciled in one state and resident in another; its legal do icile is the state of its creations presents no i pedi ent to its residence in a real and practical sense in the state of its business acti%ities. 2<' >nder our jurisprudence, pending extraterritorial ser%ice of su ons to a foreign corporation, an attach ent of a foreign corporation.s properties in the 8hilippines ay be aintained.2<)

RESIDENT AGENT
A resident agent ay be either an indi%idual residing in the 8hilippines, ust be of good oral character and of sound financial standing, or a do estic corporation lawfully transacting business in the 8hilippines. 2<* (he 61+ shall re,uire as a condition precedent to the issuance of the license that the foreign corporation file a written power of attorney designating so e person who ust be resident of the 8hilippines, on who any su ons and other legal processes ay be ser%ed in all actions or other legal proceedings against such corporation, and consenting that ser%ice upon such resident agent shall be ad itted and held as %alid as if ser%ed upon the duly authoriFed officers of the foreign corporation at its ho e.2<3hene%er such ser%ice of su ons or other process is ade upon the 61+, it ust, within ten !1<" days thereafter, trans it by ail a copy of such su ons or other legal process to the corporation at its ho e or principal office. (he sending of such copy by the 61+ is a necessary part of and shall co plete such ser%ice. All expenses incurred by the 61+ for such ser%ice shall be paid in
North0est :rient %irlines v. Court of %ppeals, 2#1 6+5A 1:2, '- 6+A= *:* !1::'". .tate &nvestment !ouse$ &nc. v. Citi,an*$ N.%. , 2<3 6+5A : !1::1"; North0est :rient %irlines v. Court of %ppeals, 2#1 6+5A 1:2, '- 6+A= 1:* !1::'". 2<' &,id. 2<) FB% %ircraft v. Cosa, 11< 6+5A 1 !1:-1". 2<* 6ec. 12*, +orporation +ode. 2<(he specific wordings re,uired under 6ec. 12- readsH &(he !na e of foreign corporation" does hereby stipulate and agree, in consideration of its being granted by the 6ecurities and 1xchange +o ission a license to transact business in the 8hilippines, that if at any ti e said corporation shall cease to transact business in the 8hilippines, or shall be without any resident agent in the 8hilippines, or shall be without any resident agent in the 8hilippines on who any su ons or other legal processes ay be ser%ed, then in any action or proceeding arising out of any business or transaction which occurred in the 8hilippines, ser%ice of any su ons or legal process ay be ade upon the 6ecurities and 1xchange +o ission and that such ser%ice shall ha%e the sa e force and effect as if ade upon the duly0authoriFed officers of the corporation at its ho e office.&
2<# 2<3

ad%ance by the party as whose instance the ser%ice is ade. In case of a change of address of the resident agent, it shall be his or its duty to i ediately notify in writing the 61+.2<:

LA6S APPLICABLE TO FOREIGN CORPORATIONS


Any foreign corporation lawfully doing business in the 8hilippines shall be bound by all laws, rules and regulations applicable to do estic corporations of the sa e class, sa%e and except such only pro%ide for the creation, for ation, organiFation or dissolution of corporations or such as fix the relations, liabilities, responsibilities, or duties of stockholders, e bers, or officers of corporations to each other or to the corporation.21< An illustration of this principle can be found in 1rey v. &nsular 'um,er Co.211 In that case, the foreign corporation doing business in the 8hilippines was organiFed under the laws of 9ew 4ork. According to the then 6tock +orporation 2aw of 9ew 4ork, only stockholders owning at least 3G of the shares of the corporation ay inspect the books and records of the corporation. 8laintiff Arey held less than 3G of defendant corporation stockholdings. Arey in%oked the pro%ision of 8hilippine laws which allowed stockholders owning less than 3G of shares to inspect books and records of a corporation. (he 6upre e +ourt held that intra ural atters such as the ,ualification to inspect corporate records are go%erned by the laws where the corporation was incorporated.

A+END+ENT OF ARTICLES OF INCORPORATION


3hene%er the articles of incorporation or the by0laws of a foreign corporation authoriFed to transact business in the 8hilippines are a ended, such foreign corporation shall, within sixty !)<" days after such a end ent beco es effecti%e, file with the 61+, and in the proper cases with the appropriate go%ern ent agency, a duly authenticated copy of the articles of incorporation or by0laws, as a ended, indicating clearly in capital letters or by underscoring the change or changes ade, duly certified by the authoriFed official or officials of the country or state of incorporation.212 (he filing thereof shall not itself enlarge or alter the purpose or purposes for which such corporation is authoriFed to transact business in the 8hilippines. 213

2<: 21<

6ec. 12-, +orporation +ode. 6ec. 12:, +orporation +ode. 211 )* 8hil. 13: !1:3-". 212 6ec. 13<, +orporation +ode. 213 &,id.

+ERGER AND CONSOLIDATION


@ne or ore foreign corporations authoriFed to transact business in the 8hilippines ay erge or consolidate with any do estic corporation or corporations if such is per itted under 8hilippine laws and by the law of its incorporation. $owe%er the re,uire ents on erger or consolidation as pro%ided in the +orporation +ode ha%e to be co plied with. 21# 3hene%er a foreign corporation authoriFed to transact business in the 8hilippines shall be a party to a erger or consolidation in its ho e country or state as per itted by the law of its incorporation, such foreign corporation shall, within sixty !)<" days after such erger or consolidation beco es effecti%e, file with the 61+, and in proper cases with the appropriate go%ern ent agency, a copy of the articles of erger or consolidation duly authenticated by the proper officials or officials of the country or state under the laws of which such erger or consolidation was effected. If the absorbed corporation is the foreign corporation doing business in the 8hilippine, the latter shall at the sa e ti e file a petition for withdrawal of its license in accordance with this (itle. 21'

RE1OCATION OF LICENSE TO DO BUSINESS


(he license of a foreign corporation 61+ upon any of the following groundsH ay be re%oked or suspended by the

!a" ?ailure to file its annual report or pay any fees as re,uired by the +ode; !b" ?ailure to appoint and aintain a resident agent in the 8hilippines as re,uired by this (itle; !c" ?ailure, after change of its resident agent or of his address, to sub it to the 61+ a state ent of such change as re,uired by the +ode; !d" ?ailure to sub it to the 61+ an authenticated copy of any a end ent to its articles of erger or consolidation within the ti e prescribed by the +ode; !e" A isrepresentation of any aterial atter in any application, report, affida%it or other docu ent sub itted by such corporation pursuant to the +ode; !f" ?ailure to pay any and all taxes, i post, assess ents or penalties, if any, lawfully due to the 8hilippine Ao%ern ent or any of its agencies or political subdi%isions;

21# 21'

6ec. 132, +orporation +ode. &,id.

!g" (ransacting business in the 8hilippines outside of the purpose or purposes for which such corporation is authoriFed under its license; !h" (ransacting business in the 8hilippines as agent of or acting for and in behalf of any foreign corporation or entity not duly licensed to do business in the 8hilippines; or !i" Any other ground as would render it unfit to transact business in the 8hilippines.21) >pon the re%ocation of any such license to transact business in the 8hilippines, the 61+ shall issue a corresponding certificate of re%ocation, furnishing a copy thereof to the appropriate go%ern ent agency in the proper cases. (he 61+ shall also ail to the corporation at its registered office in the 8hilippines a notice of such re%ocation acco panied by a copy of the certificate of re%ocation.21*

6ITHDRA6AL

OF

FOREIGN CORPORATION

A foreign corporation licensed to transact business in the 8hilippines by filing a petition for withdrawal of license. (he petition for withdrawal or license has been published once a week for three !3" consecuti%e weeks in a newspaper of general circulation in the 8hilippines. $owe%er, the 61+ will not issue the certificate of withdrawal unless all clai s which ha%e accrued in the 8hilippines ha%e been paid, co pro ised or settled and all taxes, i posts, assess ents and penalties, if any, lawfully due to the 8hilippine Ao%ern ent or any of its agencies or political subdi%isions ha%e been paid. 21-

AoOoA
1-0?@51IA9 +@58@5A(I@96Q<)02202<<1

21) 21*

6ec. 13#, +orporation +ode. 6ec. 13', +orporation +ode. 216ec. 13), +orporation +ode.