Obtaining a License: Its Substance to Foreign Corporations doing Business in the Philippines

Patrick Mabbagu2 Prologue

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Corporations, both domestic and foreign have been considered partners of the State in its economic progression and stability. In our jurisdiction, a number of Supreme Court decisions support the view that business corporations are not organized solely as profitmaking enterprises but also as economic and social institutions corresponding public responsibility to aid in the betterment of economic and social conditions in the community in which such corporations are doing business. Recognizing their economic and social import, the State in the exercise of its police powers, has enacted legislations which regulate and promote the establishment of corporate institutions and the means and manner by which these corporations perform, use or exercise their corporate powers. With the growing trends of economic globalization and trade liberalization, which former Chief Justice Artemio V. Panganiban considers ³the millennium buzz words3´, the existence of foreign corporations doing business here in our archipelago are hence inevitable. Definition and Nature of Foreign Corporations Under the Corporation Code of the Philippines,4 a foreign corporation is done, formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with the provisions of the Corporation Code and a certificate of authority from the appropriate government agency. With respect to a particular state, a foreign corporation is a corporation created by or under the laws of another State or country. This is the traditional definition of the term. In the incorporating State, it is a domestic corporation. Thus: ³X corporation organized under the laws of the Philippines is a domestic corporation with respect to the Philippines and a foreign corporation with
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Attributed to the discussions of and cases assigned by Judge Dante Vittorio D. Dalman in the subject Private Corporation 2 Bachelor of Arts in Political Science, Andres Bonifacio College; College Instructor; Freelance columnist-The Mindanao Observer; Former Governor-Supreme Law Council; Former President-Lex Deo (Debate and Oratorical) Club; Editor in Chief and Chairman of the Editorial Board-Bonifacio Law Journal 3 Tañada vs. Angara, G.R. No. 118295, May 2, 1997 4 Section 123, Batas Pambansa Bilang 68; took effect on the date of its approval on May 1, 1980; supplants Act No. 1459 as amended

has no legal existence within the state in which it is foreign. Under the incorporation test. January 19. only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. that is. it depends on the nationality of the stockholders who owns the controlling interest. 2006. Nationality of Foreign Corporations As cited by de Leon7. the nationality of a corporation is that of the state of incorporation regardless of the nationality of its stockholders.´5 In the 1997 case of Avon Insurance PLC vs. the control test and not the incorporation test shall determine the nationality of a corporation. there are two rules for determining the corporate nationality of a corporation. Court of Appeals. of which belong to Filipino citizens. a foreign corporation can have no legal existence or status beyond the bounds of the State or sovereignty by which it is created or incorporated and organized. It exists only in contemplation of law and by force of the law and where the law ceases to operate. it is domestic with reference to Y and a foreign corporation under the Corporation Code.6 the Supreme Court described a foreign corporation as one which owes its existence to the laws of another state and generally. H. Ninth Edition. if organized under the laws of Y country.reference to any other State. 8 Filipinas Cia de Suguros vs. Under the control test. 1993 11 Republic Act No. During wartime. 7042 5 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 61 . The application of either test depends however on the particular situation. Christern Huenefeld and Company. has laid down the rule adopted by the Securities and Exchange Commission10 and now expressly embodied in the Forein Investments Act11 in the determination of the nationality of corporations formed or organized under Philippine law with alien equity as follows: ³Shares belonging to corporations or partnerships at least 60% of the capital of which are owned by Filipino citizens shall be considered as of Philippine nationality but if the percentage of Filipino ownership in the corporation or partnership is less than 60%. Manila: Rex Bookstore Inc. 1989 10 SEC opinion. if 100. for reasons of national security. the corporation can have no existence. The Department of Justice in an opinion9 applying the control test. The Corporation Code of the Philippines Annotated. Thus. 89 Phil 53 (1951) 9 Opinion No. 18. respectively. December 7. 6 278 SCRA 312 7 De Leon. ibid. all of said shares shall be recorded as De Leon.000 shares are registered in the name of corporation or partnership at least 60% of the capital stock or capital. a domestic corporation controlled by enemy aliens shall be deemed a foreign corporation with a nationality identical with that of its controlling stockholders8. As a rule.

Ltd. Elser & Co. Vs. they cannot transact business in the country. foreign corporations shall not be permitted to transact or do business in the Philippines until they have secured a license for the purpose from the Securities and Exhange Commission and a certificate of authority from the appropriate government agency.. and 3. Requirements to be Complied before Foreign Corporations Can Transact Business As provided under Section 123.. 13 12 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 62 . Under existing laws.000 shares shall be recorded as belonging to aliens. what the law seeks to prevent is a foreign corporation doing business in the Philippines without a license from gaining access to Philippine courts14. The objectives of the statutory provisions prescribing conditions under which foreign corporations are permitted to do business in a State other than that of their creation have been stated as follows12: 1. De Leon. citing Eriks Pte. Vs. CA 79 SCAD 70. irrespective of the amount of the par value of the shares.. 46 Phil 71 (1924) 14 Ibid. but instead. the basis for the computation is the total outstanding capital stock or number of shares.000 shares shall be counted as owned by Filipinos and the other 50. only 50. a foreign corporation gives assurance that it will abide by the decisions of our courts even if adverse to it. it seeks to bar foreign corporations from acquiring domicile for the purpose of business without taking steps necessary to render it amenable to suit in the local courts13. citing Marshall-Wells Co. vs.15 In Avon Insurance PLC case. 2.) to place them on an equality with domestic corporations. 201 SCRA 137 (1991 15 Ibid. Saulog. 267 SCRA 567 (1997) 16 Ibid. In other words. SEC does not have rules and regulations governing the activities of foreign corporations in the Philippines before they are granted a license. But if less than 60% or say only 50% of the capital stock or capital belong to Filipino citizens. The license requirement does not prevent the foreign corporation from performing single or isolated acts.owned by Filipinos.16 the Supreme Court ratiocinated as follows: De Leon. ibid. the reason being that until they have obtained a license. Ltd.) to protect the residents of the State doing business with them by subjecting them to the courts of the state.) to subject them to inspection so that their condition may be known. citing Hang Lung Bank. ibid. The requirement enables our government to exercise jurisdiction over foreign corporations doing business in the Philippines for the regulation of their activities in the country. By securing license..

pending the establishment of a local office. 7. if necessary. A statement of its authorized capital stock and the aggregate number of shares which the corporation has authority to issue. 5. we shall now examine what are the requisites for the grant of such license. The name and address of its resident agent authorized to accept summons and process in all legal proceedings and. and series. the existence of a foreign law allowing Filipino citizens and corporations to do business in the country of the foreign corporation is prescribed as a condition for securing a license to transact business in the Philippines. par value of shares. The address. The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: Provided. For licensing purposes. and their translation to an official language of the Philippines. 3. certified in accordance with law. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has issued. and series. itemized by classes. The date and term of incorporation. all notices affecting the corporation. 8. par value of shares. Under the Corporation Code. It is to be noted however that it is not an essential element of being a foreign corporation. 4. The place in the Philippines where the corporation intends to operate. of the principal office of the corporation in the country or state of incorporation. 2. shares without par value. if any. That said purpose or purposes are those specifically stated in the certificate of authority issued by the appropriate government agency. if any. shares without par value. shall specifically set forth the following: ³1. 6. The names and addresses of the present directors and officers of the corporation. Section 125 of the Corporation Code clearly provides that a foreign corporation applying for a license to transact business in the Philippines shall submit to the Securities and Exchange Commission a copy of its articles of incorporation and by-laws. including the street number. Requisites for the Grant of License Since securing a license is imperative before foreign corporations can engage in business in the Philippines. Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 63 . plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts´. otherwise. The application shall be under oath and. Section 123 also requires reciprocity. unless already stated in its articles of incorporation.³The purpose of the law requiring that foreign corporations doing business in the country be licensed to do so is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts. itemized by classes. a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully. though unfairly.

) must establish an office in the Philippines. financial and insurance corporations shall. whenever required by law.´ Attached to the application for license shall be a duly executed certificate under oath by the authorized official or officials of the jurisdiction of its incorporation. LlM-Harvard University. Cesar Villanueva17 enumerated the following conditions which must be met before SEC will issue a license to the foreign corporation to do business in the Philippines: ³a. e. no application for license to transact business in the Philippines shall be accepted by the Securities and Exchange Commission without previous authority from the appropriate government agency. In the case of all other foreign corporations. A statement of the amount actually paid in.) must prove that the foreign corporation¶s country grants reciprocal rights to Filipinos and Philippine corporation. 17 Dean. d. and that the applicant is an existing corporation in good standing. Such additional information as may be necessary or appropriate in order to enable the Securities and Exchange Commission to determine whether such corporation is entitled to a license to transact business in the Philippines. g. Ateneo de Manila School of Law. and to determine and assess the fees payable. The application for a license to transact business in the Philippines shall likewise be accompanied by a statement under oath of the president or any other person authorized by the corporation. showing to the satisfaction of the Securities and Exchange Commission and other governmental agency in the proper cases that the applicant is solvent and in sound financial condition. ii. Member-MCLE Governing Board. either a Filipino or domestic corporation. Philippine Judicial Academy. DJS-San Beda Graduate School of Law. In summary. a translation thereof in English under oath of the translator shall be attached thereto.) appointment of a resident agent: i. in addition to the above requirements.9. and setting forth the assets and liabilities of the corporation as of the date not exceeding one (1) year immediately prior to the filing of the application. comply with the provisions of existing laws applicable to them. c. Chairman-Commercial Law Department. attesting to the fact that the laws of the country or state of the applicant allow Filipino citizens and corporations to do business therein. LlB-Ateneo de Manila. Author: Commercial Law Reviewer Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 64 . f.) notice in six months should there be a desire to terminate operations. Foreign banking. and 10. BSC-Holy Angel University. an undertaking that Filipino creditors will be preferred.) in the event of insolvency.) franchise and patents must remain belonging to the Philippines if this is possible.) must bring in its assets. power of attorney for SEC to receive process b. If such certificate is in a foreign language.

surety bond.) must file a bond of Php 100. residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines. 2009 Edition. A resident agent could be an individual. executed by the proper authorities of said corporation. shares of stock of registered enterprises with SEC. or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served.000. ii. government securities.´18 Necessity of a Resident Agent It is also important to note that a resident agent is also required by the Corporation Code19 before license could be issued.00 of the gross. the Commission shall. iv. summons and other legal processes in connection with actions against such corporation. In case of a change of address of the resident agent.The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission a written power of attorney designating some person who must be a resident of the Philippines. securities of political subdivisions. 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. p. SEC shall require the deposit of additional securities equivalent to 2% of the amount in excess of Php 5. designated in a written power of attorney by a foreign corporation authorized to do business in the Philippines. in consideration of its being granted by the Securities and Exchange Commission a license to transact business in the Philippines. service of any summons or other legal process may be made upon the Securities and Exchange Commission and that such service shall have the same force and effect as if made upon the duly-authorized officers of the corporation at its home office. within ten (10) days thereafter. 19 18 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 65 . . iii. That within six months after each fiscal year. Any such foreign corporation shall likewise execute and file with the Securities and Exchange Commission an agreement or stipulation. Resident agent.h. in form and substance as follows: ³The (name of foreign corporation) does hereby stipulate and agree. Villanueva.00. Commercial Law Review. which may be in the following form: i. on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation. who must be of good moral character and of sound financial standing. service of process. v. All expenses incurred by the Commission for such service shall be paid in advance by the party at whose instance the service is made.000. that if at any time said corporation shall cease to transact business in the Philippines. then in any action or proceeding arising out of any business or transaction which occurred in the Philippines. 766 Section 128. it shall be his or its duty to immediately notify in writing the Securities and Exchange Commission of the new address. shares of stock of any corporation being sold at the stock exchange.´ Whenever such service of summons or other process shall be made upon the Securities and Exchange Commission. The sole function of a resident agent is to receive in behalf of the corporation notices. transmit by mail a copy of such summons or other legal process to the corporation at its home or principal office. The sending of such copy by the Commission shall be necessary part of and shall complete such service.000.

152392. However. there have been recognized jurisprudential and statutory tests which would determine as to what activities amount to ³doing business´. such foreign corporation may commence to transact business in the Philippines and continue to do so for as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation. Despite such silence. unless such license is sooner surrendered. CA. suspended or annulled in accordance with the Corporation Code or other special laws. 21. Integrated Silicon Technology Phil. When License Issued Under Section 126. it provides that if the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of the Corporation Code and other special laws. The substance test component involves the determination of whether the foreign corporation is maintaining or continuing in the Philippines the body or substance of the business for which it was organized or whether it has substantially retired from it and turned it over another.) What Constitutes Doing Business Upon the grant of license. viz: ³There is no definitive rule on what constitutes doing business in the Philippines as this Court observed in the case of Mentholathum v. Mangaliman. May 26. rules and regulations. revoked. it is precisely on the conduct of doing business that foreign corporations become involve in court litigations and proceedings.R. Jurisprudential Tests First we have the so called Twin Characterization Test which is comprised of the Substance Test and the Continuity Test components. the Supreme Court stressed. Upon issuance of the license. 2005 427 SCRA 593 (2004) Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 66 . Vs. vs. the law provides that the foreign corporation may then start engaging business in the Philippines. the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license. If the 20 21 G. The Corporation Code itself is silent as to what acts constitute doing or transacting business in the Philippines´. Corp.It is to be noted however that in the case of Expert Travel and Tours Inc. In the case of Agilent Technologies Singapore (PTE) Ltd.20 the Supreme Court ruled that a resident agent cannot sign the certificate of non-forum shopping that is a requirement for the filing of an initiatory pleading in court because while a resident agent maybe aware of the actions filed against the principal.(Emphases supplied. No. he may not be aware of the actions initiated by the principal. It is to be noted that the Corporation Code is silent on what constitutes ³transacting business´.

b. the foreign corporation must actually transact business in the Philippines.substance of the business has been maintained and continued.) Appointing representatives or distributors operating under full control of foreign corporation who: i. 147905. May 28. the Corporation Code does not offer a provision enumerating what constitutes doing business. opening offices. in any calendar year stay in the country for a period or periods totalling 180 days or more. Ltd. In the case of B. entity or corporation in Philippines. Inc. To be ³doing or transacting business in the Philippine´ for purposes of Section 13323 of the Corporation Code. Statutory Tests As already mentioned by this writer.24 doing business in the Philippines is deemed to include the following acts: a. Special laws however tend to fill in the blanks. then this writer holds that the activities done constitute business. whether liaison offices or branches. that is.R. The said test involves the determination of whether the contracts entered into by the foreign corporation or by an agent acting under the control and direction of the foreign corporation are consummated in the Philippines. c.) Any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to the extent the performance of acts or works or the exercise of some of the functions normally incident to and 22 23 G. vs. If such continuity is seen. are domiciled in the Philippines.) Participating in management. firm. as amended by Republic Act 8179 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 67 .(d) of the Foreign Investments Act of 1991. The continuity test component on the other hand seeks to identify whether there is continuity of commercial dealings and arrangements contemplating to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of the purpose and objectives of its organization.. 22 the Supreme Court enunciated the so called Contract Test. Under Section 3. 2007 See succeeding paragraphs 24 Republic Act 7042. Van Zuiden Bros. GTVL Manufacturing Industries. or ii. supervision or control of any domestic business. service contracts. perform specific business transactions within the Philippine territory on a continuing basis on its own name and for its own account.) Soliciting orders. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus requires the foreign corporation to secure a Philippine business license. and d.. then that is a positive indication that the corporation is doing business.

) Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines. the Supreme Court however noted that the question of whether or not a foreign corporation is doing business is dependent principally upon the facts and circumstances of each particular case.) Consignment by the foreign corporation of equipment with a local company to be used in the processing of products for export. c. shall be permitted to maintain or intervene in any action. suit or proceeding in any court or administrative agency of the Philippines.25 it was held that by and large. Ltd. Effect of Lack of License to the Capacity of Foreign Corporations to Sue As cited above. d..) Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. In the case of MR Holdings.) Collecting information in the Philippines. Section 133 of the Corporation Code provides: No foreign corporation transacting business in the Philippines without a license. Integrated Silicon Technology Phil. Bajar26. compliance of the license requirement is necessary. Under the implementing rules of Republic Act 7042.) Publication of a general advertisement through any print or broadcast media. e. the activity to be undertaken in the Philippines is one that is for profit-making. 25 26 Supra. 380 SCRA 617 (2002) Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 68 . b. considered in the light of the purposes and language of the pertinent statute or statutes involved and of the general principles governing the jurisdictional authority of the state over such corporations. vs. and g. 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. But the most important reason perhaps to this compliance lies on the fact that license has bearing on the corporation¶s capacity to sue. Corp. to constitute µdoing business¶. In Agilent Technologies Singapore (PTE) Ltd.in progressive prosecution of commercial gain or of the purpose or object of the business organization. the following are NOT considered acts constituting ³doing business´: a. f.) Mere investment as a shareholder in a domestic corporation and/or the exercise of rights as such investor. Vs. or its successors or assigns.) Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis.

Microwave Systems Inc. or proceeding in any court or administrative agency in the Philippines. Suit BY foreign corporation ±The foreign corporation transacting business without a license or its successors or assigns shall not be permitted. It should be stressed however that it is not the lack of the prescribed license (to transact business in the Philippines) but doing business WITHOUT such license which bars a foreign corporation from access to our courts as held in MR Holdings.V. Intermediate Appellate Court32.Basing on this section. to invoke its lack of license to impugn their jurisdiction. 28 b. Ltd vs. 32 188 SCRA 178 (1990) 27 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 69 . vs. The Corporation Code of the Philippines Annotated. Doing business in the Philippines a. Villanueva summarizes the effect in the following wise. Manila: Rex Bookstore Inc.2) Maybe sued De Leon. January 10. it is only just that it be not allowed to invoke them in our courts when it should need them later for its protection. NOT doing business in the Philippines c. Doing business in the Philippines b. Suit AGAINST foreign corporation ± Such corporation may. 1995 31 Supra. Bajar31 and in Universal Shipping Lines. subject to certain exceptions to maintain or intervene in any action. the lack of license produces the following effects as pointed by De Leon. Inc. 189 SCRA 63 (1990) 29 Marubeni Nedeland B. Ninth Edition. If a foreign corporation operates in the Philippines without submitting to its laws.) May sue and can be sued in WITH LICENSE the Philippines B... 190 SCRA 105 (1990) 30 SEC Opinion. 2006. ibid. citing Granger Associates vs. which this writer will present in a tabular form: EFFECTS OF LICENSE TO THE CAPACITY TO SUE A. Tensuan. vs. suit. be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws under the doctrine of quasi-estoppel by acceptance of benefits.27 a. H. It shall not be allowed under any circumstances. 28 De Leon.1) May sue On ISOLATED TRANSACTIONS c. however.) Cannot sue but may be sued WITHOUT LICENSE in the Philippines C.29 It is against justice and equity for an unlicensed foreign corporation to execute contracts with domestic firms and then repudiate their obligations thereunder or plead immunity to Philippine jurisdiction just because it has not obtained license in the Philippines30.

Some legal scholars including the SEC34 submit the view that since Article 5 of the Civil Code provides that ³acts executed against the provisions of mandatory or prohibitory laws shall be void except when the law itself authorizes their validity´. CA33 case. In the antique case of Bough vs. Indeed. with no express or implied declaration respecting the validity or enforceability of contracts made by qualified foreign corporations. subsequent compliance with legal requirement will not cure the defect of the contract. Therefore. However. to subject such foreign corporation to the court¶s jurisdiction would violate the essence of sovereignty. 40 Phil.In Avon Isurance PLC vs. there would be no reason for it to be subjected to State¶s regulation. in so far as the State is concerned. March 12. Cantiveros. vs. 1975 35 Bough vs. Effect of Lack of License to Contracts Entered by Foreign Corporations If the Corporation Code is silent on what constitutes doing business. Section 144) there is a prohibition with a penalty. the contracts xxx are enforceable upon compliance with the law´ ³The failure to obtain a license by a foreign corporation doing business in the Philippines does not affect the validity of contracts entered into by such foreign corporation. the Supreme Court explained that a foreign corporation NOT doing business in the Philippines is not required to obtain a license since the same dangers do not pertain to them as in the case of foreign corporations actually engaged in business in the Philippines. in the case of Home Insurance Co. As observed. However the defect may even be cured by subsequent 33 34 Supra. such foreign corporation has no legal existence. but merely removes its legal standing to sue in local tribunals. thus: ³The better reason.35it was held that such contracts shall prejudice only the guilty corporation and not the innocent parties who may have dealt with said corporation in good faith for it is unjust that the non-complying foreign corporation and persons standing in its shoes should escape liability on contracts had by it by setting up its non-compliance. the same silence is felt with regards to the validity of contracts entered by unlicensed corporations. the High Court ruled that the contracts are unenforceable at first but can be cured by subsequent compliance with the law. the contracts are void and therefore. SEC Opinion. the wiser and fairer policy and the greater weight lie with those decisions which hold that where (as in our Corporation Code. if a foreign corporation does not do business here. Eastern Shipping Lines36. Cantiveros. 209 (1919) 36 123 SCRA 424 (1983) Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 70 .

The Corporation Code37 so provides: ³Section 144. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. Neither can the right to set up the defense of illegality be waived.00) pesos but not more than ten thousand (P10. failure to comply with the said license requirement subjects the corporation under the pain of punishment. public order or public policy. The lack of capacity at the time of the execution of the contract is cured by the subsequent registration of the unlicensed foreign corporation.00) pesos or by imprisonment for not less than thirty (30) days but not more than five (5) years. morals. .000. Those which contemplate an impossible service. 7. This writer however opines that the ruling which states that contracts entered into by foreign corporations without the requisite license are uneforceable (but however curable) does not apply if the contract or agreement is contrary to law. 2. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained. public order and public policy. in the discretion of the court. Those whose object is outside the commerce of men. after notice and hearing. This is consonant to Article 1409 of the Civil Code which provides: ³The following contracts are inexistent and void from the beginning: 1.Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1. Those expressly prohibited or declared void by law. good customs. Violations of the Code. good customs. If the violation is committed by a corporation. the same may. Those which are absolutely simulated or fictitious. 6. 3. be dissolved in 37 See Section 144 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 71 .´ Penal Sanction for Failure to Obtain License Apart from the effects of having no license to the capacity to sue and to the contracts entered into by foreign corporations. or both. 5.000. object or purpose is contrary to law. These contracts cannot be ratified. Those whose cause or object did not exist at the time of the transaction. morals. 4. Those whose cause.´ The Court continued that it is not necessary to declare the contract null and void as against the erring foreign corporation.registration by the foreign corporation to obtain the necessary license to do business in the Philippines.

Doctrine of Isolated Transaction In the case of Eriks Pte. incidental and casual²not of a character to indicate a purpose to engage in business²do not constitute the doing or engaging in business as contemplated by law. no foreign corporation transacting business in the Philippines without a license shall be permitted to maintain or intervene in any action. That such dissolution shall not preclude the institution of appropriate action against the director.39 The law does not prohibit foreign corporations from performing single acts of business. vs. suit or proceeding in any court or administrative agency of the Philippines. Even a series of transactions which are occasional. contracts or transactions of foreign corporations are not regarded as a doing or carrying on of business. trustee or officer of the corporation responsible for said violation: Provided. Ltd. sale with the taking of a note and a mortgage of real estate to secure payment thereof. citing Lorenzo Shipping vs. Court of Appeals. 38 39 G. 1997 Villanueva. further. purchase or note or the mere commission of a tort.appropriate proceedings before the Securities and Exchange Commission: Provided. 380 SCRA 617 (2002) 40 Villanueva. citing MR Holdings. foreign corporations can sue or be sued on a transaction or series of transactions set apart from their common business in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of business transaction.40 Suit is also possible even if license is wanting if the same is stipulated in a contract. That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code. However.38 the Supreme Court enunciated the doctrine of isolated transaction. there are recognized exceptions to such rule. vs. February 6. Under the said doctrine. Intermediate Appellate Court. such stipulation shall be considered to be consent to being sued in the Philippines even when the foreign corporation does no business in the Philippines. Bajar. Single or isolated acts. Ltd. In these instances. A foreign corporation needs no license to sue before Philippine courts on isolated transactions.R. Inc.41 the Supreme Court held that when a contract between a local and a foreign corporation stipulates the venue to be within the proper courts in the Philippines. sale.´ When Contracts Valid and when Suits allowed despite absence of license As already pointed out. Typical examples of these are the making of a single contract. Chubb and Sons. In the 1983 case of Linger and Fisher GMBH vs. 118843. there is no purpose to do any other business within the country. 431 SCRA 266 (2004) 41 125 SCRA 522 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 72 . The contracts entered into by them on the other hand are deemed unenforceable. No.

NLRC. Estoppel Doctrine Also an interesting exception is the estoppel doctrine which was applied in Merill Lynch Futures Inc. De la Osa. vs. the Philippine corporation cannot ask our courts to prohibit the foreign corporation from terminating their contract and givng the license to produce and market its products to another. 978160. 5455. 89 SCRA 131 (1979). In Signestics Corp. No. July 24. ECED.´ In Pari Delicto Rule Another recognized exception is the so-called in pari delicto rule which was articulated by the Supreme Court in Top Weld Manufacturing vs. Court of Appeals. and Royal Crown Internationale vs. quasi in rem or in personam. a person is presumed to be more knowledgeable about his own state law than his alien or foreign contemporary.45 The Supreme Court sustained the idea that a party is estopped from questioning the capacity of the foreign corporation to institute an Villanueva. that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines42. 156 SCRA 44 (1987). S. 211 SCRA 824 (1992) 42 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 73 . is not barred from seeking redress from courts in the Philippines a fortiori. S. 1992. For being in pari delicto. citing Facilities Management Corporation vs. Court of Appeals.The Supreme Court also in one case reiterated that if a foreign corporation. August 9. Morevoer. it was ruled that ³a contract entered into by a Philippine corporation with a foreign corporation for manufacture and marketing of the latter¶s product is illegal if the same was not previously licensed with the BOI under Republic Act 5455.A.44. reciprocally. it would not be impossible for court processes to reach the foreign corporation²a matter that can later be consequential in the proper execution of judgment. No. 178 SCRA 569 (1989). vs. Provided that in the latter case.43 it was held that ³even when a foreign corporation is not engaged in business in the Philippines. xxxx The parties in this case being equally guilty of violating R.R. 42 225 SCRA 737 (1993) 44 G. Verily. Wang Laboratories. Mendoza. they are in pari delicto in which case it follows as a consequence that petitioner is not entitle to the relief prayed for in this case. Zosa 110 SCRA 1 (1981). vs. In that case.A. a State may not exercise jurisdiction in the absence of some good basis (and not offensive to traditional notions of fair play and substantial justice) for effectively exercising it whether the proceedings are in rem.R.´ The High Court reiterated that the ³parties are charged with knowledge of the existing law at the time they enter into the contract and at the time it is to become operative. since it may still look upon local courts for relief. 1985 45 G. The ruling making foreign corporations not doing business in the Philippines subject to suits in local courts has been reiterated in FBA Aircraft. not engaged in business in the Philippines.A vs. L-44944. such corporation may likewise be sued in Philippine courts for aacts done against a person or persons in the Philippines. Inc.

then they are estopped from using the lack of license to avoid their obligations´ A foreign corporation doing business in the Philippines may sue in Philippine courts although not authorized to do business here against a Philippine citizen or entity who had contracted with and benefited by the said corporation. The rule relating to estoppel is deeply rooted in the axiom of commodum ex injuria sua non habere debet ± no person ought to derive any advantage from his own wrong. 47 After contracting with a foreign corporation. Oriental Wood Processing Corp. vs. 41 SCRA 50 (1997) 50 147 SCRA 153 (1987) 47 46 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 74 .action in our courts where it had obtained benefits from its dealings with such foreign corporations and thereafter committed a breach or sought to renege on its obligations: ³Although foreign corporation has engaged in business in the Philippines WITHOUT license. Director of Patents. 260 SCRA 673 (1996) European Resources and Technologies Inc. against tresspass or conversion. Court of Appeals. in any of the courts of the world²even in jurisdictions where it does not transact business²just the same as it may protect its tangible property real or personal.49 In Converse Rubber vs. 166. Ingenieuburo Birkhanh+ Nolte. One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. Protection of Corporate Names. Communication Materials and Design Inc.50 the Supreme Court ruled that a foreign corporation has a right to maintain an action in Philippine courts even if it is not licensed to do business and is not actually doing business on its own therein to protect its corporate and tradenames since it is a property right in rem which it may assert to protect against all the world. a party is estopped to challenge the personality of the corporation after having acknowledged the same by entering into a contract with it. 435 SCRA 246 (2004) 48 Rimbunan Hijau Group of Companies vs. And the doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations. 470 SCRA 650 (2005) 49 General Garments vs. pursuant to the terms of Section 21-A of R. To put it another way. Universal Rubber Products.A. vs. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefy in cases where such persons has received the benefits of the contract46.. a domestic corporation can no longer deny the former¶s capacity to sue48. Tradenames and marks A foreign corporation although not doing business in the Philippines has personality to sue to oppose the registration of trademark when it is shown that its products using such trademark are being imported and sold in the Philippines. the dismissal of the suit would not be proper on the ground that if the local investors knew that the foreign corporation had no license to do business in the Philippines.

to submit to the Securities and Exchange Commission a statement of such change as required by [Section 128]. 2. Failure to submit to the Securities and Exchange Commission an authenticated copy of any amendment to its articles of incorporation or by-laws or of any articles of merger or consolidation within the time prescribed by [the Corporation Code]. Failure to appoint and maintain a resident agent in the Philippines as required by [Sections 125-128]. otherwise known as the Trademark Law. Revocation or suspension of license Having examined the importance of a license to foreign corporations. this writer also includes the grounds by which license maybe revoked or suspended by the Securities and Exchange Commission. Failure to pay any and all taxes. Any other ground as would render it unfit to transact business in the Philippines. 3. The mandate of the Convention finds its implementation in Section 37 of Republic Act 166. Upon the revocation of any such license to transact business in the Philippines. Corporation Code of the Philippines Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 75 . lawfully due to the Philippine Government or any of its agencies or political subdivisions. Failure. affidavit or other document submitted by such corporation pursuant to [Section 125]. 7. furnishing a copy thereof to the appropriate government agency in the proper cases. 6. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized under its license. Article 8 thereof provides that ³a trade name shall be protected in all the countries of the Union without the obligation of filing or registration whether or not it forms part of the trademark´. the Securities and Exchange Commission shall issue a corresponding certificate of revocation. The Securities and Exchange Commission shall also mail to the corporation at its registered office in the Philippines a notice of such revocation accompanied by a copy of the certificate of revocation51. after change of its resident agent or of his address. Failure to file its annual report or pay any fees as required by this Code. Section 134 of the Corporation Code enumerates the grounds without prejudice to other grounds that maybe provided by special laws: 1. Transacting business in the Philippines as agent of or acting for and in behalf of any foreign corporation or entity not duly licensed to do business in the Philippines. report. 8. A misrepresentation of any material matter in any application. assessments or penalties.This is in consonance with the Convention of the Union of Paris for the Protection of Industrial Property to which the Philippines became a party on September 1965. or 9. 5. 4. 51 Section 135. imposts. if any.

imposts. All taxes. compromised or settled. provided it gets the sanction of the SEC. As to contracts. Merchants¶ Coal Co. the effect is the same as if a license had never been granted to the foreign corporation. Consequently. compromised or settled. All claims which have accrued in the Philippines have been paid. assessments. assessments. 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. and 3. All claims which have accrued in the Philippines have been paid. The withdrawal can be effected by filing a petition for withdrawal of the license complying the following requisites: 1. the corporation is placed in the same situation in that State as De Leon. 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. vs. citing Scottish Union and National Insurance Co. 1073 Ibid. 53 55 56 52 De Leon. if any. Macadaeg.E. and penalties. 2. 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. 69 S. To ascertain that the foreign corporation has no outstanding liabilities to residents in the Philippines. 89 (1952) Ibid. lawfully due to the Philippine Government or any of its agencies or political subdivisions have been paid. for the law shall not be interpreted as to permit the foreign corporation to escape the results of pending action against it by withdrawing from the Philippines with all the securities it has deposited. 1.53 Withdrawal of a foreign corporation Section 13654 of the Corporation Code also allows foreign corporations to withdraw doing business in the Philippines. and 3. All taxes.52 But contracts entered into by it AFTER revocation are invalid and uneforceable. Withdrawal of foreign corporations. . if any. If the Commission is aware of pending cases against the foreign corporation. the Securities and Exchange Commission shall have to make an examination and inspection of its books and records. and penalties. 54 Section 136. imposts. citing Billmeyer Lumber Co. No certificate of withdrawal shall be issued by the Securities and Exchange Commission unless all the following requirements are met. the cessation of its business works a quasi-dissolution of the foreign corporation. Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 76 . vs. lawfully due to the Philippine Government or any of its agencies or political subdivisions have been paid. 91 Phil.Subject to existing laws and regulations.The revocation of the license of a foreign corporation cannot affect the validity of contracts entered into by it BEFORE the revocation nor its right to maintain an action to enforce them. it may not declare that such corporation has no outstanding liabilities in the Philippines.56 When the right to do business of a foreign corporation duly licensed to do so in another State is revoked or such foreign corporation subsequently withdraws its business from that State.55 The courts may review the action of the Commission approving the withdrawal of a foreign corporation. 2.

comments on the Corporation Code of the Philippines. They complement our domestic enterprises in order strenghten the socio-economic fibers of the Philippines. We hold on to the idea that the provisions of the Corporation Code must be enforced and upheld to regulate the conduct of foreigners who desire to do business in our country. in connection with its business transactions done in the Philippines59. Steel and Tube (W. March 5. We learned that generally. contracts are unenforceable and that foreign corporations are dispossessed of the capacity to sue. Second. 1963 De Leon. Va. there is still a need to subject them to State regulation. insofar as suits by or against it are concerned.57 It is subject to the rules of law governing expired foreign corporations in respect to action against it58. To sum up. citing Frazier vs. Accordingly. we are reminded also that there will always be another side of the fence. Reason and economic interdependence dictate us that rigid application of laws may only hamper the development of trade relations to the prejudice of our image as a member of the economic global village. But as we stick to that line of thinking. the provisions of Section 122 on corporate dissolution applies to a branch of a foreign corporation withdrawing from doing business in the Philippines. to protect its corporate reputation. Undeniably. As discussed. 723. But important as they are. Epilogue Foreign corporations are vital to our economy. the unenforceability of contracts is curable and foreign corporations can invoke the protection of our courts whether or not they are licensed to do business in the Philippines under any of the following grounds: First. The corporate license clearly is a factor that cannot be discounted with respect to the enforceability of contracts entered into by foreign corporations and with respect to such corporations¶ right to maintain a suit or to intervene in any action or proceeding in Philippine courts or administrative tribunals. name and goodwill. doctrines and rulings have been pronounced to give a liberal and open-minded view of the situation. In our jurisdiction. citing SEC Opinion. pp. However.) 132 S. if the license required by law has not been complied. 57 58 De Leon. to seek redress for an isolated business transaction. 807 Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 77 . a license is imperative and necessary before foreign corporations can engage and transact business in our country.E. they can contribute much in our country¶s desire to accelerate economic growth.if its charter had expired or terminated. 45 ALR 1442 59 De Leon. we are taught at the same time that laws must not always be given an unduly harsh interpretation.

Fourth. it would only disastrously embarass trade. when the parties have contractually stipulated that Philippines is the venue of the actions. But if we would consider the challenges of rapidly changing global economy and if we would incline to give a reasonable mindset through accepted doctrinal rules over the possession of a corporate license. such mindset would markedly help in the development of trade and the stimulation and expansion of foreign investment and economic viability. and Fifth. Bonifacio law journal | Obtaining License: Its Substance to Foreign Corporations doing business in the Philippines 78 . If we lean on the option of giving our corporation laws harsh and callous interpretation. to enforce a right not arising out of business transaction as in cases of torts that occured in the Philippines and of recovery of misdelivered properties.Third. when the party sued is barred by principle of estoppel and/or principle of unjust enrichment from questioning the capacity of the foreign corporation.

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