1.

Piercing the veil of corporate fiction

Umali v. CA: This case held that when the piercing doctrine is
applied in a case, the consequences would be that the members or
stockholders of the corporation will be considered as the
corporation, that is, liability will attach directly to the officers
and stockholders.

Koppel (Phil.) v. Yatco: The application of the piercing doctrine is

not a contravention of the principle that the corporate personality
of a corporation cannot be collaterally attacked. In this case, it
was held that when the piercing doctrine is applied against a
corporation in a particular case, the court does not deny legal
personality for any and all purposes. The application of the piercing
doctrine is therefore within the ambit of the principle of res
judicata that binds only the parties to the case and only to the
matters actually resolved therein.

Tantongco v. Kaisahan: Even when a corporation‘s legal personality

has been pierced in one case, it was held in the instant case, that
such corporation still possessed such separate juridical personality
in any other case, or with respect to the other issues.

Robledo v. NLRC: The doctrine of piercing the veil of corporate

entity is used whenever a court finds that the corporate fiction is
being used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or to confuse legitimate issues, or that a
corporation is the mere alter ego or business conduit of a person or
where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation. 5 It is apparent,
therefore, that the doctrine has no application to this case where
the purpose is not to hold the individual stockholders liable for the
obligations of the corporation but, on the contrary, to hold the
corporation liable for the obligations of a stockholder or
stockholders. Piercing the veil of corporate entity means looking
through the corporate form to the individual stockholders composing
it. Here there is no reason to pierce the veil of corporate entity
because there is no question that petitioners' claims, assuming them
to be valid, are the personal liability of the late Felipe Bacani. It
is immaterial that he was also a stockholder of BASEC.

A.Fraud cases

Gregorio Araneta, Inc., v. Tuazon: This case held that the piercing
doctrine is employed to prevent the commission of fraud and cannot be
employed to perpetuate a fraud. In this case, Tuason sold lots to G.
Araneta, Inc. Subsequently, the corporation filed a case against
Tuason to compel delivery of clean title to said lots. Tuason claimed
that the sale was made to her agent, Jose Araneta, president of the
buying corporation, and therefore the corporate fiction should be
disregarded, the sale being not valid as it was made to an agent of
the seller. 32 The Court ruled that the corporate fiction will not be
disregarded because the corporate entity was not used to perpetuate
fraud not circumvent the law, and the disregard of the technicality
would pave the way for the evasion of a legitimate and binding
commitment, especially since Tuason was fully aware of the position
of Mr. Araneta in the corporation at the time of sale.

Palacio v. Fely Transportation Co.: Here it was found that an

incorporator‘s main purpose in forming the corporation was to evade
his subsidiary civil liability resulting from the conviction of his
driver, the corporation was made liable for such subsidiary liability
by denial of the plea that it had a separate juridical personality
and could not be held liable for the personal liabilities of its
stockholder. The Court took into consideration as part of the attempt
to do fraud that the only property of the corporation was the jeep
owned by the main stockholder involved in the accident.

Villa Rey Transit v. Ferrer: The Court held here that when the
fiction of legal entity is ―urged as a means of perpetrating a fraud
or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or
crime,30 the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of
individuals.‖ In this case, the Court pierced the veil of corporate
fiction to enforce a non-competition clause entered into by its
controlling stockholder in his personal capacity.

Palay, Inc. v. Clave: The general rule laid down in this case is
unless sufficient proof exists on record that an officer (here, a
President and controlling stockholder) has used the corporation to
defraud private respondent, he cannot be made personally liable just
because he "appears to be the controlling stockholder". Mere
ownership by a single stockholder or by another corporation is not of
itself sufficient ground for disregarding the separate corporate
personality.

Pabalan v. NLRC: In the instant case, the Court ruled that The
settled rule is that the corporation is vested by law with a
personality separate and distinct from the persons composing it,
including its officers as well as from that of any other legal entity
to which it may be related. Thus, a company manager acting in good
faith within the scope of his authority in terminating the services
of certain employees cannot be held personally liable for damages.
Pabalan refused to hold the officers of the corporation personally
liable for corporate obligations on employees‘ wages, since ―in
this particular case complainants did not allege or show that
petitioners, as officers of the corporation deliberately and
maliciously designed to evade the financial obligation of the
corporation to its employees, or used the transfer of the employees
as a means to perpetrate an illegal act or as a vehicle for the
evasion of existing obligations, the circumvention of statutes, or to
confuse the legitimate issues‖

Paradise Sauna v. Ng: It was held that an officer-stockholder who is

a party signing in behalf of the corporation to a fraudulent contract
cannot claim the benefit of separate juridical entity. Del Rosario v.
NLRC: The doctrine laid here is in order for a corporate officer to
be held liable for corporate debts, it must be clearly shown that he
had participated in the fraudulent or unlawful act.

b. Alter ego cases

Arnold v. Willets and Paterson, Ltd.: In this case the creditors‘

committee of the corporation opposed the payment compensation due to
the plaintiff,. Arnold, under a contract-letter signed by Willits,
the controlling stockholder, without board approval. The signing
president was the controlling stockholder of the corporation. The
Court held the validity of the contract and ―although the plaintiff
was the president of the local corporation, the testimony is
conclusive that both of them were what is known as a one man
corporation, and Willits, the owner of all the stocks was the force
and dominant power which controlled them. The Court expressed that
language of piercing doctrine when applied to alter-ego cases, as
follows: "Where the stock of a corporation is owned by one person
whereby the corporation functions only for the benefit of such
individual owner, the corporation and the individual should be deemed
to be the same."

La Campana Coffee v. Kaisahan: In the instant case, Tan Tong and his
family owned and controlled two corporations, one engaged in the sale
of coffee and the other in starch. Both corporations had one office,
one management and one payroll; and the laborers of both corporations
were interchangeable. The 60-member labor association in the coffee
and starch factories demanded for higher wages addressed to ―La
Campana Starch and Coffee Factor.‖ The La Campana Coffee Factory
sought dismissal of the petition on the ground that the starch and
coffee factory are two distinct juridical persons. The Court
disregarded the fiction of corporate existence and treated the 2
companies as one. Note: It should be remembered that cases like La
Campana where the issue was the jurisdiction of the CIR to hear the
matter, show that unlike in fraud cases where there must be a
pecuniary claim, in alter ego cases, no such pecuniary claim need not
be involved to allow the courts to apply the piercing doctrine.

Yutivo Sons Hardware v. CTA: Yutivo Sons and Hardware Co., imported
cars and trucks, which it sold to Southern Motors Inc. Sales taxes
were paid by Yutivo on his first sale. Southern Motors sold the
vehicles to the public. The Collector of Internal Revenue sought to
impose sales tax not on the basis of Yutivo‘s sales to Southern
Motors but on the latter‘s higher sales to the public. To this, the
Court agreed. Although it found that Southern Motors was indeed
actually owned and controlled by Yutivo as to make it a mere
subsidiary or branch of the latter. Yutivo, through common officers
and directors exercised full control over Southern Motor‘s cash
funds, policies, expenditures, and obligations.

Liddell & Co., v. Collector: Lidell & Co., was engaged in importing
and retailing cars and trucks. Frank Lidell owned 98% of its stocks.
Later, Lidell Motors Inc., was organized to do the retailing for
Lidell & Co. Frank‘s wife owned almost all of its stocks. Since
then, Lidell & Co. paid sales tax on the basis of its sales to Lidell
Motors. But the Collector of Internal Revenue considered the sales by
Lidell Motors to the public as basis for the original sales tax. The
Court agreeing with the Collector, held that Frank owned both
corporations as his wife could not have had the money to pay her
subscriptions. Such fact alone though not sufficient to warrant
piercing, but under the proven facts of the case, Lidell Motors was
the medium created by Lidell & Co. to reduce its tax liability. A
taxpayer has the legal right to decrease, by means which the law
permits, the amount of what otherwise would be his taxes or
altogether avoid them; but a dummy corporation serving no business
purposes other than as a blind, will be disregarded. The legal right
of a taxpayer to decrease the amount of what otherwise would be his
taxes, or altogether avoid them, by means which the law permits,
cannot be doubted." But, as held in another case,"where a corporation
is a dummy, is unreal or a sham and serves no business purpose and is
intended only as a blind, the corporate form may be ignored for the
law cannot countenance a form that is bald and mischievous fiction."
Consistently with this view, the United States Supreme Court held
that "a taxpayer may gain advantage of doing business thru a
corporation if he pleases, but the revenue officers in proper cases,
may disregard the separate corporate entity where it serves but as a
shield for tax evasion and treat the person who actually may take the
benefits of the transactions as the person accordingly taxable." Thus
we repeat: to allow a taxpayer to deny tax liability on the ground
that the sales were made through another and distinct corporation
when it is proved that the latter is virtually owned by the former or
that they are practically one and the same is to sanction a
circumvention of our tax laws.

Ramirez Telephone v. Bank of America: Ramirez had unpaid rents due to

Herbosa. The latter sought to garnish Ramirez‘s bank account no such
personal account existed, and only an account in the name of Ramirez
could be found and was garnished. The Court held that the corporate
bank account could not be garnished despite the fact that Ramirez
himself leased Herbosa‘s premises because: although Ramirez was the
tenant, the company in truth occupied the premises. Ramirez paid the
rents with the checks of the telephone company; and 75% of the shares
of the company belonged to Ramirez and his wife.

Guatson International v. NLRC: In this case, the other affiliated

corporations were also made liable by the NLRC for the separation pay
and backwages for which a corporate-employer was held liable. In
contesting the inclusion of the other corporations to the liability,
on the ground that they were separate and distinct legal
personalities, the Court took the following proven facts in
consideration in piercing the veil of corporate fiction: the three
companies were owned by one family, such that majority if the
officers of the companies are the same; the companies are located in
one building and use the same messengerial 34 services; the
terminated employee was not paid separation fee when he was absorbed
by the other affiliate company, nor was he made to resign from the
first corporation.

Concept Builders, Inc., v. NLRC: It is a fundamental principle of

corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be
connected. 8 But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical
personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation. The conditions under
which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule
can be accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the doctrine
of piercing the corporate veil, to wit: "1. Stock ownership by one or
common ownership of both corporations. 2. Identity of directors and
officers. 3. The manner of keeping corporate books and records. 4.
Methods of conducting the business." The SEC en banc explained the
"instrumentality rule" which the courts have applied in disregarding
the separate juridical personality of corporations as follows: "Where
one corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct
of the other, the fiction of the corporate entity of the
'instrumentality' may be disregarded. The control necessary to invoke
the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of
its own, and is but a conduit for its principal. It must be kept in
mind that the control must be shown to have been exercised at the
time the acts complained of took place. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for
which the complaint is made." The test in determining the
applicability of the doctrine of piercing the veil of corporate
fiction is as follows: "1. Control, not mere majority or complete
stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time
no separate mind, will or existence of its own; 2. Such control must
have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiff's legal
rights; and 3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of: The
absence of any one of these elements prevents 'piercing the corporate
veil'. In applying the 'instrumentality' or 'alter ego' doctrine, the
courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to
that operation." Thus, the question of whether a corporation is a
mere alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact.

c. Equity cases

TESCO v. WCC: The veil of corporate fiction was not allowed to be

availed of, and piercing was allowed when the corporation was made as
a scheme to confuse the legitimate issues, such when the defense of
separate juridical personality is interposed for the first time on
appeal.

A. D. Santos v. Vasquez: This case is a suit for workmen‘s

compensation filed by taxi driver Vasquez against A. D. Santos, Inc.
Vasquez testified that Amador Santos was his employer. A.D. Santos,
Inc. contended that Amador is the one liable. The Court held that AD
Santos, Inc., is liable. Indeed, Amador was at one time, the sole
owner and operator of the taxi business that employed Vasquez, which
was later transferred to A.D. Santos, Inc. But such testimony should
not be allowed to confuse the facts relating to 35 ER-EE
relationship, for when the veil of corporate fiction was made to
confuse legitimate issues, the same should be pierced. 4. Due Process

McConnnel v. CA: In this case, when the judgment debt could not be
satisfied from corporate assets, an entirely new case was filed by
the judgment creditor against both the corporation and the
controlling stockholders, and pleaded therein the application of the
piercing doctrine to make the stockholders liable for the judgment
debt of the corporation.

Emilio Cano Enterprises v. CIR: This case involved a suit for

reinstatement filed against Emilio Cano and Rodolfo Cano in their
capacities as officers of Emilio Cano Enterprises, Inc., which did
not include the corporation as defendant. The Court rendered judgment
against the two for reinstatement due to the fact that the
stockholders belong to a single family. A writ of execution of the
judgment debt was issued directed against the properties of the
corporation, instead of those of the properties of the respondents
officers. The Court denied the action to quash the writ of execution
on the ground that judgment sought to be enforced was not rendered
against the corporation which is a juridical personality separate and
distinct from its officers. The Court held that a factor that should
not be overlooked is that the officers were sued, not in their
private capacities, but as officers of the corporation, and ―having
been sued officially, their connection with the case must be deemed
to be impressed with the representation of the corporation. A
corporation is a fiction, it can only act through its officers, so
there would be no denial of due process in this case, even if the
corporation was not made a party defendant.

NAMARCO v. Associated Finance Co. Inc.: In the instant case, where

corporate liability was sought to be enforced against the President
who fraudulently entered into a contract in the name of the
corporation, the piercing of the veil of corporate fiction was sought
with the President being merely made a defendant at the onset
together with the corporation.

Jacinto v. CA: Here it was held that the piercing doctrine may be
applied by the courts even when the complaint does not seek its
enforcement, so long as evidence is adduced during trial as the basis
for its application can be had. In other words, there must be
evidential basis for application of the piercing doctrine during the
trial on the merits.
Arcilla v. CA: In this case, a judgment rendered against a person
―in his capacity as President‖ of the corporation was enforceable
against the assets of such officer when the decision itself found
that he merely used the corporation as his alter ego or business
conduit.

AC Ransom Labor Union v. NLRC (1984): Here the corporate officers

were sought to be made personally liable for a judgment for backwages
rendered against the corporation. In allowing judgment to be executed
against the officers who were not parties to the case filed against
the corporation, the Court relied upon the provisions on the Labor
Code that defined the liable ―employer‖ to ―include any person
acting in the interest of an employer, directly or indirectly.‖ The
Court held: ―Since RANSOM is an artificial person, it must have an
officer who can be presumed to be the employer, being the "person
acting in the interest of (the) employer" RANSOM. The corporation,
only in the technical sense, is the employer. The responsible officer
of an employer corporation can be held personally, not to say even
criminally, liable for non-payment of back wages. That is the policy
of the law.‖
 Lim v. NLRC (1989): Here, the Court clarified that the A.C. Ransom
doctrine applies only when the corporation no longer exists. ―The
case of Ransom v. NLRC is not in point because there the debtor
corporation actually ceased operations after the decision of the
Court of Industrial Relations was promulgated against it, making it
necessary to enforce it against its former president. Sweet Lines is
still existing and able to satisfy the judgment in favor of the
private respondent.‖ 36

De Guzman v. NLRC (1992): The Court further clarified in this case

that the A.C. Ransom doctrine is not applicable to all types of
officers, such as the general manager, even if he is the highest
ranking officer, when such officer is neither a stockholder or member
of the BOD.

2. Foreign Control

Mass Media: -(100%) Sec. 11 (1), Art. XVI of the Constitution: The
ownership and management of mass media shall be limited to citizens
of the Philippines, or to corporations, cooperatives or
associations,wholly-owned and managed by such citizens. The Congress
shall regulate or prohibit monopolies in commercial mass media when
the public interest so requires. No combinations in restraint of
trade or unfair competition therein shall be allowed.

Advertising Industry- (70%) Sec. 11(2), Art. XVI of the

Constitution: The advertising industry is impressed with public
interest, and shall be regulated by law for the protection of
consumers and the promotion of the general welfare. Only Filipino
citizens or corporations or associations at least seventy per centum
of the capital of which is owned by such citizens shall be allowed to
engage in the advertising industry. The participation of foreign
investors in the governing body of entities in such industry shall be
limited to their proportionate share in the capital thereof, and all
the executive and managing officers of such entities must be citizens
of the Philippines.

Manila Gas v. CIR: It held that a corporation has a personality

distinct from that of its stockholders, enabling the taxing power to
reach the latter when they receive dividends from the corporation. It
must be considered as settled in this jurisdiction that dividends of
a domestic corporation, which are paid and delivered in cash to
foreign corporations as stockholders, are subject to the payment of
the income tax, the exemption clause in the charter of the
corporation notwithstanding.

Asia Banking v. Standard Products: In this case, a collection suit

was brought by the bank on a PN issued in behalf of the corporate
borrower. At the trial, the bank failed to prove affirmatively the
corporate existence of the parties, and so the defendant corporate
borrower insisted on appeal that the judgment rendered against it was
wrong. In brushing aside the contention of the corporate borrower,
the Court held that the ―The general rule is that in the absence of
fraud a person who has contracted or otherwise dealt with an
association in such a way as to recognize and in effect admit its
legal existence as a corporate body is thereby estopped to deny its
corporate existence in any action leading out of or involving such
contract or dealing, unless its existence is attacked for cause which
have arisen since making the 30 contract or other dealing relied on
as an estoppel and this applies to foreign as well as to domestic
corporations.‖

GOKONGWEI v. CA In another petition filed by Gokongwei before the

SEC, it raised that SMC invested corporate funds in Hongkong Brewery
& Distellery, Ltd., a foreign corporation, without prior authority of
the stockholders thus violating the Corporation Law. SEC however
allowed the said investment made to Hongkong Brewery since the
stockholders ratified the same. Held: The Corporation Law allows a
corporation to ‗invest its funds in any other corporation or business
or for any purpose other than the main purpose for which it was
organized‘ provided that its BOD has been so authorized by the
affirmative vote of stockholders holding shares entitling them to
exercise at least 2/3 of the voting power. If the investment is made
in pursuance of the corporate purpose, it does not need the approval
of the stockholders. It is only when the purchase of shares is done
solely for investment and not to accomplish the purpose of its
incorporation that the vote of approval of the stockholders holding
shares entitling them to exercise at least 2/3 of the voting power is
necessary. 98 As stated by SMC, the purchase of beer manufacturing
facilities by SMC was an investment in the same business stated as
its main purpose in its AOI, which is to manufacture and market beer.
It appears that the original investment was made by SMC when they
purchased a beer brewery in Hongkong for the manufacture and
marketing of San Miguel beer thereat. And assuming that the BOD of
SMC had no authority to make the assailed investment, there is no
question that a corporation, like an individual, may ratify and
thereby render binding upon it the originally unauthorized acts of
its officers or other agents. This is true because the questioned
investment is neither contrary to law, morals, public order nor
public policy. It is a corporate transaction or contract which is
within the corporate powers, but which is defective from a purported
failure to observe in its execution the requirement of the law that
the investment and its ratification by said stockholders obliterates
any defect which it may have had at the outset. Mere ultra vires acts
of those which are not illegal and void ab initio but are not merely
within the scope of the AOI, are merely voidable and may become
binding and enforceable when ratified by the stockholders. Besides,
the investment was for the purchase of beer manufacturing and
marketing facilities which is apparently relevant to the corporate
purpose. The mere fact that SMC submitted the assailed investment to
the stockholders for ratification cannot be construed as an admission
that SMC had committed an ultra vires act, considering the common
practice of corporations of periodically submitting for ratification
of their stockholders the acts of their directors, officers and
managers.

Tan Tiong Bio v. Commissioner: This case would imply that even after
the 3 –year period of liquidation, corporate creditors can still
pursue their claims against corporate assets against the officers or
stockholders who have taken over the properties of the corporation.
In this case, the Commissioner wrote the corporation that the
investigations made by the Bureau revealed that it was the
corporation, not Dee Hong Lu, who was asking for a refund, that had
actually purchased the surplus goods from Foreign Liquidation
Commission and that the properties were invoiced in the name of Dee,
in trust for the corporation. The corporation was therefore assessed
a deficiency sales tax by the Collector. When the corporation
appealed the assessment of the CTA, the Solgen moved for the
dismissal of the appeal on the ground that the corporation no longer
had the capacity to sue because the 3 year term of liquidation had
expired. The Court held that the State cannot insist on making tax
assessment against a corporation that no longer exists and then turn
around and oppose the appeal questioning the legality of the
assessment precisely on the ground that the corporation is non-
existent and has no longer capacity to sue. The State cannot 125
adopt inconsistent stand and thereby deprive the officers and
directors of a defunct corporation of the remedy to question the
validity and correctness of the assessment for which, if sustained,
they would be held personally liable as successors in interest to the
corporate property. The Court observed that it may be true that in so
far as the corporation is concerned, it no longer exists and
therefore no suits can be maintained for and against it. In cases of
taxes, the law specifically says that responsible corporate officers
shall be personally liable for deficiencies. When a corporation has
distributed its properties, those who have received the properties
are in fact liable for corporate taxes. The answer therefore as what
remedy of the corporate assets have gone, wherever they rested, be he
a stockholder or a nonstockholder. The cause of action is to file an
action against that person who has control of the corporate assets.

Columbia Pictures inc vs CA

COMMERCIAL LAW; CORPORATION CODE; FOREIGN

CORPORATIONS NOT DOING BUSINESS IN THE PHILIPPINES
MAY SUE IN PHILIPPINE COURTS; LICENSE NOT NECESSARY.
— The obtainment of a license prescribed by Section 125 of the
Corporation Code is not a condition precedent to the maintenance of
any kind of action in Philippine courts by foreign corporation. However,
under the aforequoted provision, no foreign corporation shall be
permitted to transact business in the Philippines, as this phrase is
understood under the Corporation Code, unless it shall have the
license required by law, and until it complies with the law in
transacting business here, it shall not be permitted to maintain any suit
in local courts. As thus interpreted, any foreign corporation not doing
business in the Philippines may maintain an action in our courts upon
any cause of action, provided that the subject matter and the
defendant are within the jurisdiction of the court. It is not the absence
of the prescribed license but "doing business" in the Philippines
without such license which debars the foreign corporation from access
to our courts. In other words, although a foreign corporation is without
license to transact business in the Philippines, it does not follow that It
has no capacity to bring an action. Such license is not necessary if it is
not engaged in business in the Philippines. Based on Article 133 of
the Corporation Code and gauged by such statutory standards,
petitioners are not barred from maintaining the present action. There
is no showing that, under our statutory of case law, petitioners are
doing, transacting, engaging in or carrying on business in the
Philippines as would require obtention of a license before they can
seek redress from our courts. No evidence has been offered to show
that petitioners have performed any of the enumerated acts or any
other specific act indicative of an intention to conduct or transact
business in the Philippines.

FOREIGN CORPORATION; "DOING BUSINESS" OR

"TRANSACTING BUSINESS", CONSTRUED. — No general rule or
governing principle can be laid down as to what constitutes "doing" or
"engaging in" or "transacting" business. Each case must be judged in
the light of its own peculiar environmental circumstances. The true
tests, however, seem to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it
and turned it over to another. As a general proposition upon which
many authorities agree in principle, subject to such modifications as
may be necessary in view of the particular issue or of the terms of the
statute involved, it is recognized that a foreign corporation is "doing",
"transacting", "engaging in", or carrying on "business in the State
when, and ordinarily only when, it has entered the State by its agent
and is there engaged in carrying on and transacting through them
some substantial part of its ordinary or customary business, usually
continuous in the sense that it may be distinguished from merely
casual, sporadic, or occasional transactions and isolated acts. The
Corporation Code does not itself define or categorize what acts
constitute doing or transacting business in the Philippines.
Jurisprudence has, however, held that the term implies a continuity of
commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of
the functions normally incident to or in progressive prosecution of the
purpose and subject of its organization.

FACT THAT PETITIONERS ARE COPYRIGHT OWNERS OR

OWNERS OF EXCLUSIVE DISTRIBUTION RIGHTS OF FILMS, NOT
AN INDICATION OF "DOING BUSINESS." - The fact that petitioners
are admittedly copyright owners or owners of exclusive distribution
rights in the Philippines motion pictures or films does not convert such
ownership into an indicium of doing business which would require
them to obtain a license before they can sue upon a cause of action in
local court

Granger Associates vs Microwave System

On the other hand, if a corporation performs acts for which it was

created or exercises some of the functions for which it was organized,
the amount or volume of the business is immaterial and a single act of
that character may constitute doing business. Thus, an engineering
consulting firm that had entered into a single contract with a Philippine
government agency for the purpose of rendering services for a period
of three years as a technical consultant in engineering will be required
to obtain a license to do business. Similarly, a foreign company invited
to bid for IBRD and ADB international projects in the Philippines will
be considered as doing business in the Philippines for which a license
is required. In this regard, it is the performance by a foreign
corporation of the acts for which it was created, regardless of volume
of business, that determines whether a foreign corporation needs a
license or not. (Emphasis supplied.) 8

Finally, this case must be distinguished from Antam Consolidated, Inc.

v. Court of Appeals, 9 where this Court declared:

In the case at bar, the transactions entered into by the respondent

with the petitioners are not a series of commercial dealings which
signify an intent on the part of the respondent to do business in the
Philippines but constitute an isolated one which does not fall under the
category of "doing business". The records show that the only reason
why the respondent entered into the second and third transactions
with the petitioners was because it wanted to recover the loss it
sustained from the failure of the petitioners to deliver the crude
coconut oil under the first transaction and in order to give the latter a
chance to make good on their obligation. Instead of making an outright
demand on the petitioners, the respondent opted to try to push
through with the transactions to recover the amount of US$103,600.00
it lost. This explains why in the second transaction, the petitioners
were supposed to buy back the crude coconut oil they should have
delivered to the respondent in an amount which will earn the latter a
profit of US$103,600.00. When this failed the third transaction was
entered into by the parties whereby the petitioners were supposed to
sell crude coconut oil to the respondent at a discounted rate, the total
amount of such discount being US$103,600.00. Unfortunately, the
petitioners failed to deliver again, prompting the respondent to file the
suit below.

From these facts alone, it can be deduced that in reality, there was
only one agreement between the petitioners and the respondent and
that was the delivery by the former of 500 long tons of crude coconut
oil to the latter, who in turn, must pay the corresponding price for the
same. The three seemingly different transactions were entered into by
the parties only in an effort to fulfill the basic agreement and in no way
indicate an intent on the part of the respondent to engage in a
continuity of transactions with petitioners which will categorize it as a
foreign corporation doing business in the Philippines.

We are convinced from an examination of the terms and conditions of

the contracts and agreements entered into between petitioner and
private respondents indicate that they established within our country a
continuous business, and not merely one of a temporary character.
Such agreements did not constitute only one isolated transaction, as
the petitioner contends, but a succession of acts signifying the intent
of Granger to extend its operations in the Philippines.

In any event, it is now settled that even one single transaction may be
construed as transacting business in the Philippines under certain
circumstances, as we observed in Far East International Import and
Export Corporation v. Nankai Kogyo Co., Ltd., 10 thus:

The rule stated in the preceding section that the doing of a single act
does not constitute business within the meaning of statutes
prescribing the conditions to be complied with by foreign corporations
must be qualified to this extent, that a single act may bring the
corporation within the purview of the statute where it is an act of the
ordinary business of the corporation. In such a case, the single act or
transaction is not merely incidental or casual, but is of such character
as distinctly to indicate a purpose on the part of the foreign corporation
to do other business in the state, and to make the state a base of
operations for the conduct of a part of the corporations' ordinary
business. (17 Fletchers Cyc. of Corporations, sec. 8470, pp. 572, 573,
and authorities cited therein.)

The petitioner stresses that whoever makes affirmative averments has

the obligation to prove such averments and points out that the private
respondent has not established its allegation that the petitioner is
doing business in the Philippines. On the other hand, it is also the rule
that the factual findings of the lower court are binding on this Court in
the absence of any of those exceptional circumstances we have
enumerated in many cases that warrant a different conclusion. Having
assailed the finding of the respondent court that the petitioner is doing
business in the Philippines, the petitioner had the burden of showing
that such finding fell under the exception rather than the rule and so
should be reviewed and reversed. The petitioner has not done this.

Marubeni vs Tensuan

Contrary to petitioner's allegations, we hold that petitioner can be sued

in the regular courts because it is doing business in the Philippines.
The applicable law is Republic Act No. 5455 as implemented by the
following rules and regulations of the Board of Investments which took
effect on February 3, 1969. Thus:

(f) the performance within the Philippines of any act or combination of

acts enumerated in Section 1 (1) of the Act shall constitute "doing
business" therein. In particular, "doing business" includes:
1) Soliciting orders, purchases (sales) or service contracts. Concrete
and specific solicitations by a foreign firm amounting to negotiation or
fixing of the terms and conditions of sales or service contracts,
regardless of whether the contracts are actually reduced to writing,
shall constitute doing business even if the enterprise has no office or
fixed place of business in the Philippines. . . .

2) Appointing a representative or distributor who is domiciled in the

Philippines, unless said representative or distributor has an
independent status, i.e., it transacts business in its name and for its
own account, and not in the name or for the account of the principal.

4) Opening offices whether called "liaison" offices, agencies or

branches, unless proved otherwise.

10) Any other act or acts that imply a continuity of commercial

dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions
normally incident to, or in the progressive prosecution of, commercial
gain or of the purpose and objective of the business organization. 11

It cannot be denied that petitioner had solicited the lime plant business
from DBT through the Marubeni Manila branch. Records show that the
"turn-key proposal for the . . . 300 T/D Lime Plant" was initiated by the
Manila office through its Mr. T. Hojo. In a follow-up letter dated August
3, 1976, Hojo committed the firm to a price reduction of $200,000.00
and submitted the proposed contract forms. As reflected in the
letterhead used, it was Marubeni Corporation, Tokyo, Japan which
assumed an active role in the initial stages of the negotiation.
Petitioner Marubeni Nederland B.V. had no visible participation until
the actual signing of the October 28, 1976 agreement in Tokyo and
even there, in the space reserved for petitioner, it was the signature.
of "S. Adachi as General Manager of Marubeni Corporation, Tokyo on
behalf of Marubeni Nederland B.V." which appeared. 12

Even assuming for the sake of argument that Marubeni Nederland

B.V. is a different and separate business entity from Marubeni Japan
and its Manila branch, in this particular transaction, at least, Marubeni
Nederland B.V. through the foregoing acts, had effectively solicited
"orders, purchases (sales) or service contracts" as well as constituted
Marubeni Corporation, Tokyo, Japan and its Manila Branch as its
representative in the Philippines to transact business for its account as
principal. These circumstances, taken singly or in combination,
constitute "doing business in the Philippines" within the contemplation
of the law.

At this juncture it must be emphasized that a foreign corporation doing

business in the Philippines with or without license is subject to process
and jurisdiction of the local courts. If such corporation is properly
licensed, well and good. But it shall not be allowed, under any
circumstances, to invoke its lack of license to impugn the jurisdiction
of our courts. 13

Facilities Management vs Dela Osa

The main issue involved in the appeal is whether or not the plaintiff
appellant has been doing business in the Philippines, considering the
fact that it has no license to transact business in the Philippines as a
foreign corporation. WE ruled:

The object of Sections 68 and 69 of the Corporation Law was not to

prevent the foreign corporation from performing single acts, but to
prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the
local courts. It was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order for
business from the Philippines, from securing redress in the Philippine
courts (Marshall Co. vs. Elser & Co., 46 Phil 70,75).

In Mentholatum Co., Inc., et al vs- M Court rules that-

No general rule or governing principle can be laid down as to what

constitutes 'doing' or 'engaging in' or 'transacting' business. Indeed,
each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int Revenue [C.C.A Ohio], 223 F. 984, 987). The
term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization
(Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77;
Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118
Okl. III; Automotive Material Co. vs. American Standard Metal
Products Corp., 158 N.E. 698, 703, 327 III. 367)'. 72 Phil. 524, 528-
529.

And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc.,
this Court held:

(d) While plaintiff is a foreign corporation without license to transact

business in the Philippines, it does not follow that it has no capacity to
bring the present action. Such license is not necessary because it is
not engaged in business in the Philippines. In fact, the transaction
herein involved is the first business undertaken by plaintiff in the
Philippines, although on a previous occasion plaintiff's vessel was
chartered by the National Rice and Corn Corporation to carry rice
cargo from abroad to the Philippines. These two isolated transactions
do not constitute engaging in business in the Philippines within the
purview of Sections 68 and 69 of the Corporation Law so as to bar
plaintiff from seeking redress in our courts. (Marshall Wens Co. vs.
Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation
vs. Angel O. Singson, G.R. No. L-7917, April 29, 1955)'. 102 Phil., pp.
1, 18.

Based on the rulings laid down in the foregoing cases, it cannot be

said that the Aetna Casualty & Surety Company is transacting
business of insurance in the Philippines for which it must have a
license. The Contract of insurance was entered into in New York,
U.S.A., and payment was made to the consignee in its New York
branch. It appears from the list of cases issued by the Clerk of Court
of the Court of First Instance of Manila that all the actions, except two
(2) cases filed by Smith, Beer & Co., Inc. against the Aetna Casualty &
Surety Company, are claims against the shipper and the arrastre
operators just like the case at bar.

Top-Weld vs ECER

here is no general rule or governing principle laid down as to what

constitutes "doing" or engaging in" or "transacting" business in the
Philippines. Each case must be judged in the light of its peculiar
circumstances. (Mentholatum Co. V. Mangaliman, 72 Phil. 524). Thus,
a foreign corporation with a settling agent in the Philippines which
issued twelve marine policies covering different shipments to the
Philippines (General Corporation of the Philippines v. Union Insurance
Society of Canton, Ltd., 87 Phil. 313) and a foreign corporation which
had been collecting premiums on outstanding policies (Manufacturing
Life Insurance Co. v. Meer, 89 Phil. 351) were regarded as doing
business here. The acts of these corporations should be distinguished
from a single or isolated business transaction or occasional, incidental
and casual transactions which do not come within the meaning of the
law. Where a single act or transaction, however, is not merely
incidental or casual but indicates the foreign corporation's intention to
do other business in the Philippines, said single act or transaction
constitutes "doing" or "engaging in" or "transacting" business in the
Philippines. (Far East International Import and Export Corporation v.
Nankai Kogyo, Co., 6 SCRA 725).

In the Mentholatum Co. v. Mangaliman case earlier cited, this Court

held:

... The true test, however, seems to be whether the foreign corporation
is continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it
and turned it over to another. (Traction Cos. v. Collectors of Int.
Revenue [C.C.A. Ohio], 223 F. 984, 987.) The term implies a
continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization.
(Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77,
Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118
Okl. 111 Automotive Material Co. v. American Standard Metal
Products Corp., 158 N.E. 698, 703, 327 111. 367.)

Judged by the foregoing standards, we agree with the Court of

Appeals in considering the respondents as "doing business" in the
Philippines. When the respondents entered into the disputed contracts
with the petitioner, they were carrying out the purposes for which they
were created, i.e. to manufacture and market welding products and
equipment. The terms and conditions of the contracts as well as the
respondents' conduct indicate that they established within our country
a continuous business, and not merely one of a temporary character.
This fact is even more strengthened by the admission of the
respondents that they are negotiating with another group for the
transfer of the distributorship and franchising rights from the petitioner.

Respondents' acts enabled them to enter into the mainstream of our

economic life in competition with our local business interests. This
necessarily brings them under the provisions of R.A. No. 5455.

The respondents contend that they should be exempted from the

requirements of R.A. 5455 because the petitioner maintained an
independent status during the existence of the disputed contracts.

This may be true if the petitioner is an independent entity which buys

and distributes products not only of the petitioner but also of other
manufacturers or transacts business in its name and for its account
and not in the name or for the account of the foreign principal.

We agree, however, that there is a more compelling reason behind the

finding that the "corporations are not bound by the requirement on
termination, and TOP-WELD cannot invoke the same against the
former."

As between the parties themselves, R.A. No. 5455 does not declare
as void or invalid the contracts entered into without first securing a
license or certificate to do business in the Philippines. Neither does it
appear to intend to prevent the courts from enforcing contracts made
in contravention of its licensing provisions. There is no denying,
though, that an "illegal situation," as the appellate court has put it, was
created when the parties voluntarily contracted without such license.

Schmid vs Oberly

Mentholathum vs Mangaliman

No general rule or governing principle can be laid down as to what

constitutes "doing" or "engaging in" or "transacting" business. Indeed,
each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int. Revenue [C. C. A. Ohio], 223 F. 984, 987.)
The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the purpose and object
of its organization. (Griffin v. Implement Dealers' Mut. Fire Ins. Co.,
241 N. W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246
P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American
Standard Metal Products Corp., 158 N. E. 698, 703, 327 III. 367.)

In its decision of June 29, 1940, the Court of Appeals concluded that
"it is undeniable that the Mentholatum Co., through its agent, the
Philippine-American Drug Co., Inc., has been doing business in the
Philippines by selling its products here since the year 1929, at least."
This is assailed by petitioners as a pure conclusion of law. This finding
is predicated upon the testimony of Mr. Roy Springer of the Philippine-
American Drug Co., Inc., and the pleadings filed by petitioners. The
complaint filed in the Court of First Instance of Manila on October 1,
1935, clearly stated that the Philippine-American Drug Co., Inc., is the
exclusive distributing agent in the Philippine Islands of the
Mentholatum Co., Inc., in the sale and distribution of its product known
as the Mentholatum." The object of the pleadings being to draw the
lines of battle between litigants and to indicate fairly the nature of the
claims or defenses of both parties (1 Sutherland's Code Pleading,
Practice & Forms, sec. 83; Milliken v. Western Union Tel. Co., 110 N.
Y. 403, 18 N. E. 251; Eckrom v. Swenseld, 46 N. D. 561, 563, 179 N.
W. 920), a party cannot subsequently take a position contradictory to,
or inconsistent with, his pleadings, as the facts therein admitted are to
be taken as true for the purpose of the action. (46 C. J., sec. 121, pp.
122-124.) It follows that whatever transactions the Philippine-
American Drug Co., Inc., had executed in view of the law, the
Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc.,
being a foreign corporation doing business in the Philippines without
the license required by section 68 of the Corporation Law, it may not
prosecute this action for violation of trade mark and unfair competition.
Neither may the Philippine-American Drug Co., Inc., maintain the
action here for the reason that the distinguishing features of the agent
being his representative character and derivative authority (Mechem
on Agency, sec. 1; Sory on Agency, sec. 3; Sternaman v. Metropolitan
Life Ins. Co., 170 N. Y. 21), it cannot now, to the advantage of its
principal, claim an independent standing in court.

The appellees below, petitioners here, invoke the case of Western

Equipment and Supply Co. vs. Reyes (51 Phil., 115). The Court of
Appeals, however, properly distinguished that case from the one at
bar in that in the former "the decision expressly says that the Western
Equipment and Supply Co. was not engaged in business in the
Philippines, and significantly added that if the plaintiff had been doing
business in the Philippine Islands without first obtaining a license,
'another and a very different question would be presented'. " It is
almost unnecessary to remark in this connection that the recognition
of the legal status of a foreign corporation is a matter affecting the
policy of the forum, and the distinction drawn in our Corporation Law is
an expression of that policy. The general statement made in Western
Equipment and Supply Co. vs. Reyes regarding the character of the
right involved should not be construed in derogation of the policy-
determining authority of the State.

Aetna vs Pacific Star Line

(d) While plaintiff is a foreign corporation without license to transact

business in the Philippines, it does not follow that it has no to bring the
present action. Such license is not necessary because it is not
engaged in business in the Philippines. In fact, the transaction herein
involved is the first business undertaken by plaintiff the Philippines,
although on a previous occasion plaintiff's vessel was chartered by the
National Rice and Corn Corporation to carry cargo from abroad to the
Philippines. These two isolated transactions do not constitute
engaging in business in the Philippines within the Purview of Sections
68 and 69 of the Corporation Law so as to plaintiff from seeking
redress in our courts. (Marshall-Wells Co. vs. Henry W. Elser & Co. 49
Phil., 70; Pacific Vegetable Oil Corporation vs. Angle O. Singson, G.R.
No. L-7917, April 29,1955.) 14chanrobles virtual law library

Based on the rulings laid down in the foregoing cases, it cannot be

said that the Aetna Casualty & Surety Company is transacting
business of insurance in the P ' Philippines for which it must have a
license. The contract of insurance was entered into in New York,
U.S.A., and payment was made to the consignee in its New York
branch. It appears from the list of cases issued by the Clerk of Court
of the Court of First Instance of Manila that all the actions, except two
(2) cases filed by Smith, Bell & Co., Inc. against the Aetna Casualty &
Surety Company, are claims against the shipper and the arrastre
operators just like the case at
bar.chanroblesvirtualawlibrarychanrobles virtual law library

Consequently, since the appellant Aetna Casualty & Surety Company

is not engaged in the business of insurance in the Philippines but is
merely collecting a claim assigned to it by the consignee, it is not
barred from filing the instant case although it has not secured a
license to transact insurance business in the Philippines.

Agilent vs Integrated Silicon

The case law definition has evolved into a statutory definition, having
been adopted with some qualifications in various pieces of legislation.
The Foreign Investments Act of 1991 (the "FIA"; Republic Act No.
7042, as amended), defines "doing business" as follows:

Sec. 3, par. (d). The phrase "doing business" shall include soliciting
orders, service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in the
country for a period or periods totaling one hundred eighty (180) days
or more; participating in the management, supervision or control of
any domestic business, firm, entity, or corporation in the Philippines;
and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions
normally incident to, and in the progressive prosecution of,
commercial gain or of the purpose and object of the business
organization.

An analysis of the relevant case law, in conjunction with Section 1 of

the Implementing Rules and Regulations of the FIA (as amended by
Republic Act No. 8179), would demonstrate that the acts enumerated
in the VAASA do not constitute "doing business" in the Philippines.

Section 1 of the Implementing Rules and Regulations of the FIA (as

amended by Republic Act No. 8179) provides that the following shall
not be deemed "doing business":
 (1) Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of
rights as such investor;

(2) Having a nominee director or officer to represent its interest in

such corporation;

(3) Appointing a representative or distributor domiciled in the

Philippines which transacts business in the representative’s or
distributor’s own name and account;

(4) The publication of a general advertisement through any print or

broadcast media;

(5) Maintaining a stock of goods in the Philippines solely for the

purpose of having the same processed by another entity in the
Philippines;

(6) Consignment by a foreign entity of equipment with a local company

to be used in the processing of products for export;

(7) Collecting information in the Philippines; and

(8) Performing services auxiliary to an existing isolated contract of

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

By and large, to constitute "doing business", the activity to be

undertaken in the Philippines is one that is for profit-making.

Effects of Failure to Obtain Licensce

Section 150. Doing Business Without a License. – No foreign corporation

transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under
Philippine laws.

CONSEQUENCES OF NOT OBTAINING A LICENSE TO DO BUSINESS 

On Standing to Sue and Be Sued 
Section 133 of the Corporation Code provides that a foreign corporation doing
business in the Philippines without first obtaining the license to do business: 
(a) Shall not be permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines;
(b) But may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws. 
Section 134 makes it a ground for the revocation of such license, when the foreign
corporation transacts business in the Philippines as agent, or acting for and in behalf,
of another foreign corporation or entity not duly licensed to do business in the
Philippines. 
It is clearly implied from Sections 133 and 134 that the failure of a foreign corporation
to secure a license to do business when one is required to be obtained, does not
affect the validity of the transactions of such foreign corporation, but simply removes
the legal standing of such foreign corporation to sue. Although such foreign
corporation may still be sued, the provisions fail to indicate that if sued, whether such
foreign corporation can interpose counterclaims in the same suit. 
Conflicting Supreme Court Rulings 
Based on the foregoing, it is therefore with serious doubt that we consider the
doctrinal pronouncements of our Supreme Court on the transactional effects of a
foreign corporation that engages in business in the Philippines without obtaining the
necessary license. 
Pari Delicto Ruling 
In Top-Weld Manufacturing v. ECED, S.A.,40 under separate licensing and technical
assistance agreements with two Swiss corporations, a local company was
constituted a licensee to manufacture and to distribute welding products under
specifications, with raw materials to be purchased from suppliers designated by the
licensors. 
As discussed hereunder, the contract test has also been applied as part of the
jurisprudential ruling subjecting the foreign corporation not doing business in the
Philippines to the jurisdiction of local courts on isolated contracts that have been
entered into or performed within Philippine territorial jurisdiction. 
Commissioner vs KMK Gani

We are cognizant of the fact that under the "isolated transaction rule,"
only foreign corporations and not just any business organization or
entity can avail themselves of the privilege of suing before Philippine
courts even without a license. Counsel Armando S. Padilla stated
before the respondent Court of Tax Appeals that his clients are "suing
upon a singular and isolated transaction." But there is no proof to
show that K.M.K. and INDRAPAL are indeed what they are
represented to be. It has been simply stated by Attorney Padilla that
K.M.K. Gani is "a single proprietorship," while INDRAPAL is "a firm,"
and both are "doing business in accordance with the laws of
Singapore . . .," with specified addresses in Singapore. In cases of this
nature, these allegations are not sufficient to clothe a claimant of
suspected smuggled goods of juridical personality and existence. The
"isolated transaction rule" refers only to foreign corporations. Here the
petitioners are not foreign corporations. They do not even pretend to
be so. The first paragraph of their petition before the Court, containing
the allegation of their identities, does not even aver their corporate
character. On the contrary, K.M.K. alleges that it is a "single
proprietorship" while INDRAPAL hides under the vague identification
as a "firm," although both describe themselves with the phrase "doing
business in accordance with the laws of Singapore."cralaw virtua1aw
library

Absent such proof that the private respondents are corporations

(foreign or not), the respondent Court of Tax Appeals should have
barred their invocation of the right to sue within Philippine jurisdiction
under the "isolated transaction rule" since they do not qualify for the
availment of such right.

As we had stated before

But merely to say that a foreign corporation not doing business in the
Philippines does not need a license in order to sue in our courts does
not completely resolve the issue in the present case. The proposition,
as stated, refers to the right to sue; the question here refers to
pleading and procedure. It should be noted that insofar as the
allegations in the complaint have a bearing on appellant’s capacity to
sue, all that is averred is that they are both foreign corporations
existing under the laws of the United States. This averment conjures
two alternative possibilities: either they are engaged in business in the
Philippines or they are not so engaged. If the first, they must have
been duly licensed in order to maintain this suit; if the second, if (sic)
the transaction sued upon is singular and isolated, no such license is
required. In either case, the qualifying circumstance is an essential
part of the element of plaintiff’s capacity to sue and must be
affirmatively pleaded. 11

In this connection, we note also a fatal defect in the pleadings of the

private respondents. There is no allegation as to who is the duly
authorized representative or resident agent in our jurisdiction. All we
have on record are the pleadings filed by Attorney Armando S. Padilla
who represents himself as the counsel for the private respondents.

Marshal Wells vs Elser

No foreign corporation or corporation formed, organized, or existing

under any laws other that those of the Philippine Islands shall be
permitted to transact business in the Philippine Islands or maintain by
itself or assignee any suit for the recovery of any debt, claim, or
demand whatever, unless it shall have the license prescribed in the
section immediately preceding. Any officer, director, or agent of the
corporation not having the license prescribed shall be punished by
imprisonment for not less than six months nor more than two years or
by a fine of not less than two hundred pesos nor more than one
thousand pesos, or by both such imprisonment and fine, in the
discretion of the court.

Is the obtaining of the license prescribed in section 68, as amended,

of the Corporation Law a condition precedent to the maintaining of any
kind of action in the courts of the Philippine Islands by a foreign
corporation? The issue is framed to correspond with defendant's
theory of the case on appeal, although possibly somewhat at variance
with its stand in the lower court.
So far as we are informed, this is a question of first impression. The
case of Dampfschieffs Rhederei Union vs. Compañia Trasatlantica
([1907], 8 Phil., 766), relating to the provisions of the Code of
Commerce, only held that a foreign corporation which has not
established itself in the Philippines, nor engaged in business in the
Philippines, could, without filing its articles of incorporation in the
mercantile registry, maintain an action against another for damages.
The case of Spreckles vs. Ward ([1909], 12 Phil., 414), while making
reference to a point similar to the one before us, was merely authority
for the holding, that the provisions of section 69 of the Corporation
Law denying to unregistered foreign corporations the right to maintain
suits for the recovery of any debt, claim, or demand, do not impose on
all plaintiff-litigants the burden of establishing by affirmative proof that
they are not unregistered foreign corporations; that fact will not be
presumed without some evidence tending to establish its existence.
But the question is not alone new, but of prime importance, to the
consideration of which we have given mature thought.

Corporations have no legal status beyond the bounds of the

sovereignty by which they are created. A state may restrict the right of
a foreign corporation to engage in business within its limits, and to sue
in its courts. But by virtue of state comity, 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. (Paul vs. Virginia [1869], 8
Wall., 168; Sioux Remedy Co., vs. Cope and Cope [1914], 235 U. S.,
197; Cyclone Mining Co. vs. Baker Light & Power Co., [1908], 165
Fed., 996.)

But here we have present for resolution no question of constitutional

law. Article 4 of the United States Constitution and the Fourteenth
Amendment to the Constitution are not invoked. The issue is not
complicated with matters affecting interstate commerce under the
American Constitution. Nor are we concerned with a question of
private international law. It all simmers down to an issue of statutory
construction.

Defendant isolates a portion of one sentence of section 69 of the

Corporation Law and asks the court to give it a literal meaning.
Counsel would have the law read thus: "No foreign corporation shall
be permitted to maintain by itself or assignee any suit for the recovery
of any debt, claim, or demand whatever, unless it shall have the
license prescribed in section 68 of the law." Plaintiff, on the contrary,
desires for the court to consider the particular point under discussion
with reference to all the law, and thereafter to give the law a common
sense interpretation.

Western Equipment vs Reyes

The noncompliance of a foreign corporation with the statute may be

pleaded as an affirmative defense. Thereafter, it must appear from the
evidence, first, that the plaintiff is a foreign corporation, second, that it
is doing business in the Philippines, and third, that it has not obtained
the proper license as provided by the statute.
If it had been stipulated that the plaintiff, Western Electric Company,
Inc., had been doing business in the Philippine Islands without first
obtaining a license, another and a very different question would be
presented. That company is not here seeking to enforce any legal or
contract rights arising from, or growing out of, any business which it
has transacted in the Philippine Islands. The sole purpose of the
action:

"Is to protect its reputation, its corporate name, its goodwill, whenever
that reputation, corporate name or goodwill have, through the natural
development of its trade, established themselves." And it contends
that its rights to the use of its corporate and trade name:

Is a property right, a right in rem, which may assert and protect

against all the world, in any of the courts of the world — even in
jurisdictions where it does not transact business — just the same as it
may protect its tangible property, real or personal, against trespass, or
conversion. Citing sec. 10, Nims on Unfair Competition and Trade-
Marks and cases cited; secs. 21-22, Hopkins on Trade-Marks, Trade
Names and Unfair Competition and cases cited." That point is
sustained by the authorities, and is well stated in Hanover Star Milling
Co. vs. Allen and Wheeler Co. (208 Fed., 513), in which they syllabus
says:

Since it is the trade and not the mark that is to be protect, a trade-
mark acknowledges no territorial boundaries of municipalities or states
or nations, but extends to every market where the trader's goods have
become known and identified by the use of the mark.

In Walter E. Olsen & Co. vs. Lambert (42 Phil., 633, 640), this court
said:

In order that competition in business should be unfair in the sense

necessary to justify the granting of an injunction to restrain such
competition it must appear that there has been, or is likely to be, a
diversion of trade from the business of the complainant to that of the
wrongdoer, or methods generally recognized as unfair; . . . In most, if
not all, of the cases in which relief has hitherto been granted against
unfair competition the means and methods adopted by the wrongdoer
in order to divert the coveted trade from his rival have been such as
were calculated to deceive and mislead the public into thinking that
the goods or business of the wrongdoer are the goods or business of
the rival. Diversion of trade is really the fundamental thing here, and if
diversion of trade be accomplished by any means which according to
accepted legal canons are unfair, the aggrieved party is entitled to
relief.

In Shaver vs. Heller & Merz Co. (48 C.C. A., 48; 108 Fed., 821; 65 L.
R. A., 878,. 881), it is said:

The contention of counsel for the appellants here is a confusion of the

bases of two classes of suits, — those for infringements of trade-
marks, and those for unfair competition in trade. . . . In the former, title
to the trade-marks is indispensable to a good cause of action; in the
latter, no proprietary interest in the words, names, or means by which
 the fraud is perpetrated is requisite to maintain a suit to enjoin it. It is
sufficient that the complainant is entitled to the custom — the goodwill
— of a business, and that this goodwill is injured, or is about to be
injured, by the palming off of the goods of another as his.

The remaining question as to the jurisdiction of the courts over the

defendant Reyes, as Director of the Bureau of Commerce and
Industry, has been adversely decided to his contention in the case of
Asuncion vs. De Yriarte (28 Phil., 67), in which, among other things, it
is said:

If, therefore, the defendant erred in determining the question

presented when the articles were offered for registration, then that
error will be corrected by this court in this action and he will be
compelled to register the articles as offered. If, however, he did not
commit an error, but decided that question correctly, then, of course,
his action will be affirmed to the extent that we will deny the relief
prayed for.

It is very apparent that the purpose and intent of Herman and his
associates in seeking to incorporate under the name of Western
Electric Company, Inc., was to unfairly and unjustly compete in the
Philippine Islands with the Western Electric Company, Inc., in articles
which are manufactured by, and bear the name of, that company, all
of which is prohibited by Act No. 666, and was made known to the
defendant Reyes by the letter known in the record to the defendant
Reyes by the letter known in the record as Exhibit A.

c. Resident Agent Sec 144 and 145

Section 144. Who May be a Resident Agent. – A resident agent may be either
an individual residing in the Philippines or a domestic corporation lawfully
transacting business in the Philippines: Provided, That an individual resident
agent must be of good moral character and of sound financial standing:
Provided, further, That in case of a domestic corporation who will act as a
resident agent, it must likewise be of sound financial standing and must show
proof that it is in good standing as certified by the Commission.

Section 145. Resident Agent; Service of Process. – As a condition to the

issuance of the license for a foreign corporation to transact business in the
Philippines, such corporation shall file with the Commission a written power of
attorney designating a person who must be a resident of the Philippines, on
whom summons and other legal processes may be served in all actions or
other legal proceedings against such corporation, and consenting that service
upon such resident agent shall be admitted and held as valid as if served upon
the duly authorized officers of the foreign corporation at its home office. Such
foreign corporation shall likewise execute and file with the Commission an
agreement or stipulation, executed by the proper authorities of said
corporation, in form and substance as follows:

“The (name of foreign corporation) hereby stipulates and agrees, in

consideration of being granted a license to transact business in the
Philippines, that if the corporation shall cease to transact business in the
Philippines, or shall be without any resident agent in the Philippines on whom
any summons or other legal processes may be served, then service of any
summons or other legal process may be made upon the Commission in any
action or proceeding arising out of any business or transaction which occurred
in the Philippines and such service shall have the same force and effect as if
made upon the duly authorized officers of the corporation at its home office.”

Whenever such service of summons or other process is made upon the

Commission, the Commission shall, within ten (10) days thereafter, transmit by
mail a copy of such summons or other legal process to the corporation at its
home or principal office. The sending of such copy by the Commission shall be
a necessary part of and shall complete such service. All expenses incurred by
the Commission for such service shall be paid in advance by the party at
whose instance the service is made.

It shall be the duty of the resident agent to immediately notify the Commission
in writing of any change in the resident agent’s address.

Designation of Resident Agent 

Among the things to be stated in the verified application are the name and address of
the foreign corporation's resident agent authorized to accept summons and process
in all legal proceedings and, pending the establishment of a local office, all notices
affecting the corporation. Obviously, this requirement insures that proper service of
summons and other legal process may be effected on a foreign corporation in the
event of suits and other legal proceedings before local courts and tribunals. 
A resident agent may either be an individual residing in the Philippines, of good moral
character and of sound financial standing; or a domestic corporation lawfully
transacting business in the Philippines. 16 
A written power of attorney must be filed by the foreign corporation with the SEC
designating a person who must be a resident of the Philippines, on whom any
summons and other legal processes may be served in all actions or other legal
proceedings against such corporation, and consenting that service upon such
resident agent shall be admitted and held as valid as if served upon the duly
authorized officers of the foreign corporation at its home office.17 
In case of a change of address of the resident agent, it shall be his or its duty to
immediately notify in writing the SEC.18 
The position of being a resident agent does not necessarily confer plenary authority
to bind and act for the foreign corporation in all matters. Thus, in one case, 19 it was
held that the resident agent is not necessarily authorized to execute the required
certification against forum shopping, for "while a resident agent may be aware of
actions filed against his principal (a foreign corporation doing business in the
Philippines), he may not be aware of actions initiated by its principal, whether in the
Philippines against a domestic corporation or private individual, or in the country
where such corporation was organized and registered, against a Philippine registered
corporation or a Filipino citizen." 

d. Applicable Laws to Foreign Corporation 146

Section 146. Law Applicable. – A foreign corporation lawfully doing business in
the Philippines shall be bound by all laws, rules and regulations applicable to
domestic corporations of the same class, except those which provide for the
creation, formation, organization or dissolution of corporations or those which
fix the relations, liabilities, responsibilities, or duties of stockholders,
members, or officers of corporations to each other or to the corporation.

Transacting business in the Philippines: 

(a)Outside of the purpose or purposes for which such corporation is authorized under
its license;
(b)As agent acting for and in behalf of any foreign corporation not duly licensed to do
business in the Philippines; 4. Any other ground as would render it unfit to transact
business in the Philippines.229 
Upon the revocation of any such license to transact business in the Philippines, the
SEC shall issue a corresponding certificate of revocation, furnishing a copy thereof to
the appropriate government agency in the proper cases. The SEC shall also mail to
the corporation at its registered office in the Philippines a notice of such revocation
accompanied by a copy of the certificate of revocation.230 
THE CASE FOR THE NON-STOCK FOREIGN CORPORATIONS 
Although the definition of "foreign corporation" under Section 123 of the Corporation
Code does not exclude foreign corporations which are non-stock, nonetheless, the
operative provisions on reciprocity and on the obtaining of license to do business,
certainly have no application to non-stock foreign corporations. 
And yet, there is no doubt that often in the modern world, much of the international
work that is being pursued in the realm of eradicating serious diseases and poverty
are being carried on using NGOs and certainly non stock corporations. There is a
need therefore, to evolve a system of "standing in treating non-stock foreign
corporations. 
The issue of Reciprocity 
Like their for-profit counterparts. non-stock foreign corporate creatures of the laws
which grant to them a separate juridical personality, and that consequently, it is by
state comity that a non-stock and non-profit foreign corporation is recognized to be a
juridical person in a host county. Consequently, the host country has every right to
provide for the terms and conditions under which a non-stock and non-profit foreign
corporation shall be permitted to undertake its eleemosynary activities within the host
stale: 
In the Philippines, for example, the SEC has considered that the statutory
requirements on nationality do not apply to non-stock corporations, such as the
provisions against foreigners becoming trustees or officers of corporation engaged in
business do not apply to them.232 
Consequently, the reciprocity rule that is applicable to for-profit foreign corporations
can be expected to apply also to non-stock foreign corporation, i.e., as a condition for
standing of non-stock corporations to engage in their eleemosynary activities in the
country is that the laws under which they are incorporated would not expressly
prohibit Philippine nationals from engaging in such activities in such foreign forum. 
License to Engage in Eleemosynary Activities 079 The second area where it is most
appropriate to regulate non-stock foreign corporations is the registration requirement
by various administrative agencies which would have jurisdiction of the activities they
intend to carry on within Philippine territory. When domestic non-stock corporations
have to obtain necessary permits to engage in eleemosynary activities, it is expected
that non-stock foreign corporations should comply with the same requirements as
their domestic counterparts. 
The issue of "Presence” 
The really ticklish issue when it comes to non-stock foreign corporations is the issue
of their presence" in the host country for purposes of complying with notions of
international due process. There can be no doubt that in today's litigious world, that
non-stock foreign corporations would find themselves involved in suits and legal
proceedings before a host state. 
When it is the non-stock foreign corporation that files a suit before
local administrative tribunals, there is no doubt that the act of filing the complaint or
petition constitutes a voluntary surrender of personal jurisdiction before the tribunal,
and since there are no existing statutory rules on the requirement in general to obtain
any license or formal registration as in the case of for-profit foreign corporation, then
generally non-stock foreign corporations are entitled to obtain reliefs from local
tribunals. 
It is in the case where non-stock foreign corporations are sued before local courts
and administrative tribunals that the issue of presence" comes in for generally the
notions of international due process is that local tribunals have no power to render a
judgment against nationals that are not within their territorial jurisdiction. While
"engaging or transaction in business" in the host state has become the international
norm of determining whether a foreign corporation has presence within the territorial
jurisdiction of the host state, no counter-part doctrine has evolved for non-stock
foreign corporations. 
The most logical formulation for the "presence" of non-stock foreign corporations
would therefore be the Mentholatum twin-tests, albeit adopted to eleemosynary
activities, thus: a non-stock foreign corporation is deemed to be "present" in
Philippine jurisdiction as to be subject to our applicable laws, rules and regulations,
and within the jurisdiction-obtaining powers of local courts and administrative
tribunals: First, when the non-stock foreign corporation has undertaken within the
Philippines the eleemosynary activities for which it was organized: and second, such
undertaking show "a continuity of dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in pro gressive prosecution of, the purpose and object of its
organization.” 
Nonetheless, it must be anticipated that the Facilities Management ruling may be
extended to non-stock foreign corporations which have no “presence" in the country,
under the seemingly logical proposition that "if non stock corporations may sue and
obtain reliefs in local courts or administrative tribunals, then a fortiori, they may also
be sued locally for any contract or activity done within the Philippines.” 
The principles developed for for-profit foreign corporations have been applied by the
SEC for non-stock foreign corporations. Thus, in a 2004 opinion,233 the SEC held
that the hiring by a foreign corporation of the services of a Philippine auditing firm as
a regional internal auditor would not be considered as transacting business in the
Philippines since: first, the corporation will not directly undertake its main business
(child sponsorship program) in the country and neither will it solicit contributions
locally to support its operations; second, it also ruled that the function of internal
auditor is advisory and the act of monitoring and auditing donations is merely to
ensure that the grants are used in accordance with their purpose, and is just part of
the corporation's management control process and by no means transacting
business; and third, the object of a non-profit organization is something other than
earning profits. 

Grey vs CA

To this, defendant corporation answers, in the first place, that

stipulation of facts is finding upon both parties and cannot be altered
by either of them. (25 R. C. L., 1104, 1105.) In the second place, on
the strength of this principle, plaintiff-appellant is bound to adhere to
the agreement made by him with the defendant corporation in
paragraph four of the stipulation of facts, to the effect that the rights of
a stockholder, under the law of New York, to examine the books and
records of a corporation organized under the laws of said State, and
during the entire period material to this action, are only those provided
in section 77 Stock Corporation Law of New York. Under this law,
plaintiff has the right to be furnished by the treasurer or other fiscal
officer of the corporation with statement of its affairs embracing a
particular account of all its assets and liabilities. In the third place,
inasmuch as plaintiff, either at the hearing or in his motion for new
trial, did not ask to have the stipulation of facts altered or changed, he
cannot now, for the first time on appeal, raise the question that aside
from the right conferred upon him by section 77 of the Stock
Corporation Law of New York, he also entitled under the common law
to examine and inspect the books and records of the defendant
corporation. In the fourth place, neither can this right under the
common law be granted the defendant in the present case, since the
same can only be granted at the discretion of the court, under certain
conditions, to wit:

(a) That the stockholder of a corporation in New York has the right to
inspect its books and records if it can be shown that he seeks
information for an honest purpose (14 C. J., 853), or to protect his
interest as stockholder. (In re Steinway, 159 N. Y., 250; 53 N. E.,
1103; 45 L. R. A., 461 [aff. 31 App. Div., 70; 52 N. Y. S., 343]).

(b) That said right to examine and inspect the books of the corporation
must be exercised in good faith, for a specific and honest purpose,
and not to gratify curiosity, or for speculative or vexatious purposes.
(14 C. J., 854, 855.)

The appellant has made no effort to prove or even allege that the
information he desired to obtain through the examination and
inspection of defendant's books was necessary to protect his interests
as stockholder of the corporation, or that it was for a specific and
honest purpose, and not to gratify curiosity, nor for speculative or
vexatious purposes.
g. Revocation of License

Section 151. Revocation of License. – Without prejudice to other grounds

provided under special laws, the license of a foreign corporation to transact
business in the Philippines may be revoked or suspended by the Commission
upon any of the following grounds:

. (a)  Failure to file its annual report or pay any fees as required by this
Code;

. (b)  Failure to appoint and maintain a resident agent in the Philippines

as required by this Title;

. (c)  Failure, after change of its resident agent or address, to submit to

the Commission a
statement of such change as required by this Title;

. (d)  Failure to submit to the Commission an authenticated copy of any

amendment to its articles
of incorporation or bylaws or of any articles of merger or consolidation within
the time
prescribed by this Title;

. (e)  A misrepresentation of any material matter in any application,

report, affidavit or other document submitted by such corporation pursuant to
this Title;

. (f)  Failure to pay any and all taxes, imposts, assessments or penalties,
if any, lawfully due to the
Philippine Government or any of its agencies or political subdivisions;

. (g)  Transacting business in the Philippines outside of the purpose or

purposes for which such
corporation is authorized under its license;

. (h)  Transacting business in the Philippines as agent of or acting on

behalf of any foreign
corporation or entity not duly licensed to do business in the Philippines; or

. (i)  Any other ground as would render it unfit to transact business in

the Philippines.

Section 152. Issuance of Certificate of Revocation. – Upon the revocation of the

license to transact business in the Philippines, the Commission shall issue a
corresponding certificate of revocation, furnishing a copy thereof to the
appropriate government agency in the proper cases.

The Commission shall also mail the notice and copy of the certificate of
revocation to the corporation, at its registered office in the Philippines.

REVOCATION OF LICENSE TO DO BUSINESS 

Upon proper hearing, the SEC may revoke or suspend the license of a foreign
corporation upon any of the following grounds: 
Failure of the foreign corporation to: 
(a) File its annual report or pay any fees as required by law;
(b) Appoint and maintain a resident agent in the Philippines, or failure, after change
of its resident agent or of his address, to submit to the SEC a statement of such
change;
(c) Submit to the SEC a statement of the change of its resident on agent or of his
address;
(d) Submit to the SEC authenticated copy of amendments to its articles of
merger/consolidation within the time prescribed;
(e) Pay any and all taxes, impost, assessments or penalties, if any, lawfully due to
the Philippine Government or any of its agencies or political subdivisions; 
Misrepresentation of any material matter in any application, report, affidavit, or other
document submitted by such corporation pursuant to the Code;

h. Withdrawal of Foreign Corporation

Section 153. Withdrawal of Foreign Corporations. – Subject to existing laws

and regulations, a foreign corporation licensed to transact business in the
Philippines may be allowed to withdraw from the Philippines by filing a petition
for withdrawal of license. No certificate of withdrawal shall be issued by the
Commission unless all the following requirements are met:
. (a)  All claims which have accrued in the Philippines have been paid,
compromised or settled;

. (b)  All taxes, imposts, assessments, and penalties, if any, lawfully due
to the Philippine
Government or any of its agencies or political subdivisions, have been paid;
and

. (c)  The petition for withdrawal of license has been published once a
week for three (3)
consecutive weeks in a newspaper of general circulation in the Philippines.

WITHDRAWAL OF FOREIGN CORPORATIONS 

A foreign corporation licensed to transact business in the Philippines may withdraw

by filing a petition for withdrawal of license. The petition has to be published once a
week for three (3) consecutive weeks in a newspaper of general circulation in the
Philippines. 
SEC will not issue the certificate of withdrawal unless all claims which have accrued
in the Philippines have been paid, compromised or settled, and all taxes, imposts,
assessments and penalties, if any, lawfully due to the Government or any of its
agencies or political subdivisions have been paid.
3. . Franchise

J.R.S. Business Corp. v. Imperial Insurance: "For practical purposes,

franchises, so far as relating to corporations, are divisible into
(1) corporate or general franchises; and (2) special or secondary
franchises. The former is the franchise to exist as a corporation,
while the latter are certain rights and privileges conferred upon
existing corporations, such as the right to use the streets of a
municipality to lay pipes or tracks, erect poles or string wires."The
primary franchise of a corporation that is, the right to exist as
such, is vested "in the individuals who compose the corporation and
not in the corporation itself" and cannot be conveyed in the absence
of a legislative authority so to do, but the special or secondary
franchises of a corporation are vested in the corporation and may
ordinarily be conveyed or mortgaged under a general power granted to
a corporation to dispose of its property, except such special or
secondary franchises as are charged with a public use