COMMERCIAL LAW REVIEW

TOPIC Foreign Corporations

CASE Top-Weld Manufacturing, Inc. v. ECED, SA

TITLE

GR. NO. G.R. No L-44944 DATE August 9, 1955, 138 SCRA 118

FACTS Top-weld Manufacturing, a Philippine corporation, entered into two

separate contracts with two foreign corporations: a License and
Technical Assistance Agreement with IRTI, a Swiss corporation, and a
Distributorship Agreement with ECED, a Panama corporation.

Top-weld eventually learned that the two corporations were searching

for Top-weld’s replacement as their licensee and distributor. Top-weld
then filed an injunction suit, invoking RA 5455, Sec. 4(9) which prohibits
foreign corporations doing business in the Philippines from terminating
existing contacts with Philippine residents except for just cause.

IRTI and ECED raised the defense that since they were not required to
apply for certification from the Board of Investments when they entered
into the contracts with Top-weld, the condition stated in Sec. 4(9) does
not apply to them.

The Court held IRTI and ECED are foreign corporations doing business
in the Philippines, and pursuant to RA 5455, Sec. 4, they should have
secured a certification with the BOI before they commenced their
business transactions in the Philippines. However, given the
circumstance that Top-weld knew of the requirements of RA 5455 yet it
failed to compel IRTI and ECED to comply with the same, and following
the doctrine of in pari delicto, Top-weld does not have a cause of action
against the two corporations and cannot therefore enjoin them from
terminating the said contracts pursuant to Sec. 4(9).

To rule otherwise would be to use the law to perpetuate an illegal

situation. Moreover, based on their allegations that Top-weld committed
 multifarious violations of the contract, IRTI and ECED is justified in
terminating the contracts.

ISSUE Whether or not IRTI and ECED are foreign corporations “doing
business in the Philippines” who should comply with the requirements
of Sec. 4(9) RA 5455

RULING YES, they are foreign corporations doing business in the Philippines, but
given the circumstances present in the instant case, they are NOT
obligated to follow Sec. 4(9) of RA 5455.
What constitutes “doing” or “engaging in” or “transacting” business in
the Philippines depends on the peculiar circumstances of each case. 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.
When the foreign corporation extends the business for which it is
organized here in the Philippines, then it can be considered as doing
business in the Philippines.
The term implies a continuity of commercial dealings and arrangements,
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.
Where a single act or transaction 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.
In this case, When IRTI and ECED entered into the disputed contracts
with Top-weld, they were carrying out the purpose for which they were
created, i.e. to manufacture and market welding products and
equipment. The contracts actually stipulate that they were carrying out
in the Philippines a continuous business, not a mere temporary
transaction. Therefore, they can be considered as doing business in the
Philippines.