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CORPORATION

LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

FOREIGN CORPORATIONS

branch with regard to external matters, but the


governing law for internal matters would be the law of
their home country (e.g. where foreign company
decides to sell all its Philippine assets, such cannot be
questioned because it is an internal matter that is
governed by the laws of the home country of the


I. Definition; Nature of a Foreign Corporation

A. Definition (Section 123)

Section 123. Definition and rights of foreign corporations.
For the purposes of this Code, a foreign corporation is one 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 this
Code and a certificate of authority from the appropriate government
agency. (n)

foreign corporation.)

B. Two requirements to be considered a foreign corporation:
1. Organized in another country.
o Regardless of the ownership (e.g. a corporation
organized under foreign laws even if wholly owned by
Filipinos)
2. The laws of the corporations home state allows for Filipino
citizens and corporations to do business thereat (policy of
reciprocity).
o The presence of absence of reciprocity affects its
capacity to do business in the Philippines.

A foreign corporation is one which owes its existence to the


laws of another state, and generally, has no legal existence
within the State in which it is foreign. Avon Insurance PLC v.
Court of Appeals, 278 SCRA 312 (1997)


C. Nature of the Corporate Creature

Atty. Hofilea this part of the Corporation Code deals with


foreign corporations who establish a presence here on their
own as such (i.e. branch), thereby, there is only one juridical
entity. This does not contemplate situations wherein the foreign
corporation establishes a domestic corporation as its subsidiary,
thereby, there are two juridical entities.
o Foreign Corporations who apply for a license would
thereby establish a branch. It does not acquire a new
personality. The Corporation Code will apply on the

A corporation is essentially a creature of the state under the


laws of which it has been granted its juridical personality; and
strictly speaking, beyond the territories of such creating state, a
corporation has no legal existence, since the powers of the
creating laws do not extend beyond the territorial jurisdiction of
the state under which it is created.1

Marshall-Wells Co. v. Henry W. Elser & Co., 46 Phil. 70, at p. 74 (1924).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

A foreign corporation is one which owes its existence to the


laws of another state, and generally, has no legal existence

within the state in which it is foreign.1

It is a fundamental rule of international jurisdiction that no state


can by its laws, and no court (which is only a creature of the
state) can by its judgments or decrees, directly bind or affect

effect within the state.7 For example, the filing of an


action by a foreign corporation before Philippine courts
would mean that by voluntary appearance, the local
courts have actually obtained jurisdiction over the
"person" of the foreign corporation.8
2. Doctrine of "doing business" within the territorial jurisdiction
of the host state. It is an established doctrine that when a

property or persons beyond the limits of that state.2 However,


under the doctrine of comity in international laws, "a
corporation created by the laws of one state is usually allowed
to transact business in other states and to sue in the courts of
the forum."3
1. Consent. The legal standing of foreign corporations in the host
state therefore is founded on international law on the basis of
consent,4 and the extent by which a hosting state can enforce its

foreign corporation undertakes business activities within the


territorial jurisdiction of a host state, then it ascribes to the host
states laws, rules and regulations. In the same manner, in order
to regulate the basis by which a foreign corporation seeks to do
business and the manner by which it would seek redress within
the judicial and administrative authorities within the host state,
have given rise to the requirement that a license be obtained

laws and jurisdiction over corporations created by other states


has been the subject of jurisprudential rules and municipal
legislations, especially in the fields of taxation, 5 foreign
investments, and capacity to obtain reliefs in local courts and
administrative bodies.6

under the penalty that failure to do so would not give it legal


standing to sue in local courts and administrative bodies
exercising quasi-judicial powers.9

Avon Insurance PLC v. Court of Appeals, 278 SCRA 312, 86 SCAD 401 (1997).
Times, Inc. v. Reyes, 39 SCRA 303 (1971), citing Perkins v. Dizon, 69 Phil. 186
(1939).
3
Times, Inc. v. Reyes, 39 SCRA 303 (1971), citing Paul v. Virginia, 8 Wall. 168
(1869); Sioux Remedy Co. v. Cape and Cope, 235 U.S. 197 (1914); Cyclone
Mining Co. v. Baker Light & Power Co., 165 Fed. 996 (1908).
4
SALONGA, PRIVATE INTERNATIONAL LAW, 1979 ed., p. 344.
5
The chapter does not cover nor discuss the concept of "doing business" in the
field of taxation, as the subject is itself a technical matter that deserves a
separate discussion.
6
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.

Consent, as a requisite for jurisdiction over foreign


corporations, is founded on considerations of due
process and fair play.
A foreign corporation may be subjected to jurisdiction
by reason of consent, ownership of property within the
State, or by reason of activities within or having an

SALONGA, supra, citing Goodrich (Scoles), 136.


Communication Materials and Design, Inc. v. Court of Appeals, 260 SCRA 673,
73 SCAD 374 (1996).
9
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.
8


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

On the other hand, when a foreign corporation's


activities within the host state do not fall within the
concept of "doing business," the requirements of
obtaining a license to engage in business are generally
not applicable to it, and it would still have legal standing
to sue in local courts and administrative agencies to
obtain relief. In such an instance, the jurisdiction by
local courts and administrative bodies over a foreign
corporation seeking relief would be the clear consent
manifested by the filing of the suit.1


II. License to Do Business in the Philippines

A. Application for License (Sections 124 and 125; Art. 48, Omnibus
Investment Code)

Section 124. Application to existing foreign corporations.
Every foreign corporation which on the date of the effectivity of this
Code is authorized to do business in the Philippines under a license

copy of its articles of incorporation and by-laws, certified in


accordance with law, and their translation to an official language of
the Philippines, if necessary. The application shall be under oath and,
unless already stated in its articles of incorporation, shall specifically
set forth the following:

1. The date and term of incorporation;

2. The address, including the street number, of the principal office of
the corporation in the country or state of incorporation;

3. The name and address of its 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;

4. The place in the Philippines where the corporation intends to
operate;

5. The specific purpose or purposes which the corporation intends to

therefore issued to it, shall continue to have such authority under the
terms and condition of its license, subject to the provisions of this
Code and other special laws. (n)

Section 125. Application for a license.
A foreign corporation applying for a license to transact business in the
Philippines shall submit to the Securities and Exchange Commission a

pursue in the transaction of its business in the Philippines: Provided,


That said purpose or purposes are those specifically stated in the
certificate of authority issued by the appropriate government agency;

6. The names and addresses of the present directors and officers of the
corporation;

7. A statement of its authorized capital stock and the aggregate

number of shares which the corporation has authority to issue,


itemized by classes, par value of shares, shares without par value, and

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


series, if any;

8. A statement of its outstanding capital stock and the aggregate
number of shares which the corporation has issued, itemized by
classes, par value of shares, shares without par value, and series, if

and liabilities of the corporation as of the date not exceeding one (1)
year immediately prior to the filing of the application.

Foreign banking, financial and insurance corporations shall, in addition
to the above requirements, comply with the provisions of existing laws

any;

9. A statement of the amount actually paid in; and

10. 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

applicable to them. In the case of all other foreign corporations, 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, whenever
required by law. (68a)

in the Philippines, and to determine and assess the fees payable.



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, attesting to the fact that the laws of
the country or state of the applicant allow Filipino citizens and
corporations to do business therein, and that the applicant is an

B. Rationale for Requiring License:

existing corporation in good standing. If such certificate is in a foreign


language, a translation thereof in English under oath of the translator
shall be attached thereto.

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, and setting forth the assets

Section 69 of old Corporation Law was intended to subject the


foreign corporation doing business in the Philippines to the
jurisdiction of our courts and not to prevent the foreign
corporation from performing single acts, but to prevent it from
acquiring domicile for the purpose of business without taking
the necessary steps to render it amenable to suit in the local
courts. Marshall-Wells v. Elser, 46 Phil. 71 (1924).

Marshall-Wells v. Elser


Facts: Marshall-Wells Company (an Oregon, U.S. corporation) sued
Henry W. Elser & Co., Inc. (a domestic corporation) in CFI Manila for the
unpaid balance on goods it sold to the latter. Henry W. Elser & Co., Inc.
averred that Marshall-Wells Company has no legal capacity to sue since
there is no showing that it has complied with the laws of Philippines,
particularly Section 69 of the Corporation Law where it states: No


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


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.

Issue: Whether or not the obtaining of the license prescribed in section
68, as amended, of the Corporation Law is a condition precedent to the
maintaining of any kind of action in the courts of the Philippine Islands
by a foreign corporation.

Held: NO. The SC decided in favor of Marshall Wells Co. The implication
of the law is that it was never the purpose of the Legislature to exclude
a foreign corporation which happens to obtain an isolated order for
business from the Philippines, from securing redress in the Philippine
courts, and thus, in effect, to permit persons to avoid their contracts
made with such foreign corporations.

Doctrine: The effect of the statute preventing foreign corporations from
doing business and from bringing actions in the local courts, except on
compliance with elaborate requirements, must not be unduly extended
or improperly applied. It should not be construed to extend beyond the
plain meaning of its terms, considered in connection with its object, and
in connection with the spirit of the entire law.

Otherwise, a foreign corporation illegally doing business here


because of its refusal or neglect to obtain the required license
to do business may successfully though unfairly plead such
neglect or illegal act so as to avoid service and thereby impugn
the jurisdiction of the local courts. Avon Insurance PLC v. Court
of Appeals, 278 SCRA 312 (1997).

The same danger does not exist among foreign corporations


that are indubitably not doing business in the Philippines: there
would be no reason for it to be subject to the States regulation;
for in so far as the State is concerned, such foreign corporation
has no legal existence. Therefore, to subject such foreign
corporation to the local courts jurisdiction would violate the
essence of sovereignty of the creating state. Avon Insurance
PLC v. Court of Appeals, 278 SCRA 312 (1997).


C. Appointment of a Resident Agent (Section 127 and 128)

Section 127. 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 in the case of an individual, he must be of
good moral character and of sound financial standing. (n)

Section 128. Resident agent; service of process.
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, 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. Any such foreign corporation
shall likewise execute and file with the Securities and Exchange


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


Commission an agreement or stipulation, executed by the proper
authorities of said corporation, in form and substance as follows:

"The (name of foreign corporation) does hereby stipulate and agree, in
consideration of its being granted by the Securities and Exchange

against forum shoppingwhile 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 or abroad.
Expertravel & Tours, Inc. v. Court of Appeals, 459 SCRA 147
(2005).

Commission a license to transact business in the Philippines, that if at


any time said corporation shall cease to transact business in the
Philippines, or shall be without any resident agent in the Philippines
on whom any summons or other legal processes may be served, then
in any action or proceeding arising out of any business or transaction
which occurred in the Philippines, service of any summons or other
legal process may be made upon the 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."

Whenever such service of summons or other process shall be made
upon the Securities and Exchange 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
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.

In case of a change of address of the resident agent, it shall be his or
its duty to immediately notify in writing the Securities and Exchange
Commission of the new address. (72a; and n)

Being a resident agent of a foreign corporation does not mean


that he is authorized to execute the requisite certification

A complaint filed by a foreign corporation is fatally defective for


failing to allege its duly authorized representative or resident
agent in Philippine jurisdiction. New York Marine Managers,
Inv. c. Court of Appeals, 249 SCRA 416 (1995).

When a corporation has designated a person to receive service


of summon pursuant to the Corporation Code, the designation
is exclusive and service of summons on any other person is
inefficacious. H.B. Zachry Company Intl v. Court of Appeals,
232 SCRA 329 (1994)


D. Issuance of License (Section 126; Art. 49, Omnibus Investment
Code)

Section 126. Issuance of a license.
If the Securities and Exchange Commission is satisfied that the
applicant has complied with all the requirements of this Code and
other special laws, rules and regulations, the Commission shall issue a
license to the applicant to transact business in the Philippines for the
purpose or purposes specified in such license. Upon issuance of the
license, such foreign corporation may commence to transact business
in the Philippines and continue to do so for as long as it retains its


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


authority to act as a corporation under the laws of the country or state
of its incorporation, unless such license is sooner surrendered,
revoked, suspended or annulled in accordance with this Code or other
special laws.

additional securities deposited with it if the gross income of the


licensee has decreased, or if the actual market value of the total
securities on deposit has increased, by more than ten (10%) percent of
the actual market value of the securities at the time they were
deposited. The Securities and Exchange Commission may, from time to

Within sixty (60) days after the issuance of the license to transact
business in the Philippines, the license, except foreign banking or
insurance corporation, shall deposit with the Securities and Exchange
Commission for the benefit of present and future creditors of the
licensee in the Philippines, securities satisfactory to the Securities and
Exchange Commission, consisting of bonds or other evidence of
indebtedness of the Government of the Philippines, its political

time, allow the licensee to substitute other securities for those already
on deposit as long as the licensee is solvent. Such licensee shall be
entitled to collect the interest or dividends on the securities deposited.
In the event the licensee ceases to do business in the Philippines, the
securities deposited as aforesaid shall be returned, upon the licensee's
application therefor and upon proof to the satisfaction of the
Securities and Exchange Commission that the licensee has no liability

subdivisions and instrumentalities, or of government-owned or


controlled corporations and entities, shares of stock in "registered
enterprises" as this term is defined in Republic Act No. 5186, shares of
stock in domestic corporations registered in the stock exchange, or
shares of stock in domestic insurance companies and banks, or any
combination of these kinds of securities, with an actual market value
of at least one hundred thousand (P100,000.) pesos; Provided,

to Philippine residents, including the Government of the Republic of


the Philippines. (n)

however, That within six (6) months after each fiscal year of the
licensee, the Securities and Exchange Commission shall require the
licensee to deposit additional securities equivalent in actual market
value to two (2%) percent of the amount by which the licensee's gross
income for that fiscal year exceeds five million (P5,000,000.00) pesos.
The Securities and Exchange Commission shall also require deposit of
additional securities if the actual market value of the securities on
deposit has decreased by at least ten (10%) percent of their actual

A foreign corporation licensed to do business should be


subjected to no harsher rules that is required of domestic
corporation and should not generally be subject to attachment
on the pretense that such foreign corporation is not residing in
the Philippines. Claude Neon Lights v. Phil. Advertising Corp.,
57 Phil. 607 (1932).


E. Effects of Being Issued License

market value at the time they were deposited. The Securities and
Exchange Commission may at its discretion release part of the


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

The Corporation Code therefore takes pain to ensure that in


allowing a foreign corporation to engage in business activities in
the Philippines, proper safeguards are taken to allow obtaining
jurisdiction over such foreign corporation in case of suit and
that proper securities are present within Philippine jurisdiction
to answer for a foreign corporation's obligations to locals. The

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


Supreme Court has held: "The purpose of the law is to subject
the foreign corporation doing business in the Philippines to the
jurisdiction of our courts. It is not to prevent the foreign
corporation from performing single or isolated acts, but to bar it
from acquiring a domicile for the purpose of business without
first taking steps necessary to render it amenable to suits in the
1

local courts."
1. Licensed Foreign Corporation Deemed Domesticated

The harmony and balance sought to be achieved by our "doing


business" requirements for obtaining license are best
exemplified by the fact that once a foreign corporation has
obtained a license to do business, then it is deemed
domesticated, and should be subject to no harsher rules that is
required of domestic corporations.2


F. Amendment of License (Section 131)

Section 131. Amended license.
A foreign corporation authorized to transact business in the

Eriks Pte. Ltd. v. Court of Appeals, 267 SCRA 567, 76 SCAD 70 (1997). The
Court also held in that case: "It was never the intent of the legislature to bar
court access to a foreign corporation or entity which happens to obtain an
isolated order for business in the Philippines. Neither, did it intend to shield
debtors from their legitimate liabilities or obligations. But it cannot allow
foreign corporations or entities which conduct regular business any access to
courts without the fulfillment by such corporation of the necessary requisites
to be subjected to our government's regulation and authority. By securing a
license, the foreign entity would be giving assurance that it will abide by the
decisions of our courts, even if adverse to it."
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.

Philippines shall obtain an amended license in the event it changes its


corporate name, or desires to pursue in the Philippines other or
additional purposes, by submitting an application therefor to the
Securities and Exchange Commission, favorably endorsed by the
appropriate government agency in the proper cases. (n)

G. Effects of Failure to Obtain License:
1. On the Contract Entered Into: Home Insurance Co. v. Eastern
Shipping Lines, 123 SCRA 424 (1983).

Home Insurance Co. v. Eastern Shipping Lines

Facts: S. Kajita & Co., on behalf of Atlas Consolidated Mining &
Development Corporation, shipped on board the SS Eastern Jupiter
(owned by Eastern Shipping Lines) from Osaka, Japan, 2,361 coils of
Black Hot Rolled Copper Wire Rods. The shipment was insured with the
Home Insurance Company against all risks in favor of the recipient of the
shipment, Phelps Dodge Copper Products Corporation of the Philippines
at Manila. The coils discharged from the ship were in bad order. Home
Insurance paid the Phelps Dodge under its insurance policy by virtue of
which Home Insurance became subrogated to the rights and actions of
the Phelps Dodge. Home Insurance made demands for payment against
the Eastern Shipping and the Angel Jose Transportation for
reimbursement of the aforesaid amount but each refused to pay.

Issue: Whether or not Home Insurance, a foreign corporation licensed
to do business at the time of the filing of the case, has the capacity to
sue for claims on contracts made when it has no license yet to do
business in the Philippines.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


"[t]he requirement of registration affects only the remedy," and
that "the lack of capacity at the time of the execution of the
contracts was cured by the subsequent registration." 1
2. Standing to Sue (Section 133)


Held: YES. The lack of capacity at the time of the execution of the
contracts was cured by the subsequent registration is also strengthened
by the procedural aspects of these cases. Home Insurance averred in its
complaints that it is a foreign insurance company, that it is authorized to

do business in the Philippines, that its agent is Mr. Victor H. Bello, and
that its office address is the Oledan Building at Ayala Avenue, Makati.
These are all the averments required by Section 4, Rule 8 of the Rules of
Court. Home Insurance sufficiently alleged its capacity to sue.

Doctrine: The Corporation Law is silent on whether or not the contract
executed by a foreign corporation with no capacity to sue is null and

Section 133. 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

void ab initio. Still, there is no question that the contracts are


enforceable. The requirement of registration affects only the remedy.
Significantly, Batas Pambansa 68, the Corporation Code of the
Philippines has corrected the ambiguity caused by the wording of
Section 69 of the old Corporation Law.

laws. (69a)

license to do business when one is required, does not affect the


validity of the transactions of such foreign corporation, but
simply removes the legal standing of such foreign corporation to
sue. Although such foreign corporation may still be sued, the
Corporation Code fails to indicate that once sued, if such foreign
corporation can interpose counterclaims in the same suit.2
3. Criminal Liability under Section 144: Home Insurance Co. v.

Section 133 of the present Corporation Code provides that: 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 in 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.

Home Insurance Company therefore held that contracts entered


into by a foreign corporation doing business in the Philippines
without the requisite license remain valid and enforceable and

It seems clearly implied from the languages of both Sections 133


and 134, that the failure of a foreign corporation to obtain a

Eastern Shipping Lines, 123 SCRA 424 (1983).


Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


Section 144. Violations of the Code.
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 (P1,000.00) pesos but not more than ten
thousand (P10,000.00) pesos or by imprisonment for not less than
thirty (30) days but not more than five (5) years, or both, in the
discretion of the court. If the violation is committed by a corporation,
the same may, after notice and hearing, be dissolved in appropriate
proceedings before the Securities and Exchange Commission:
Provided, That such dissolution shall not preclude the institution of
appropriate action against the director, trustee or officer of the
corporation responsible for said violation: Provided, further, That
nothing in this section shall be construed to repeal the other causes
for dissolution of a corporation provided in this Code. (190 1/2 a)

license, it can sue before Philippine courts on any transaction.


MR. Holdings, Ltd. V. Bajar, 380 SCRA 617 (2002).1

III. Concepts of Doing Business in the Philippines; Effects of Not
Obtaining the License

A. Statutory Concept of Doing Business (R.A. No. 7042, Foreign
Investment Act of 1991).

FOREIGN INVESTMENT ACT OF 1991
Section 3. Definitions.
x x x

4. Summary of Rulings on Doing Business: The principles


regarding the right of a foreign corporation to bring suit in
Philippine courts may thus be condensed in four statements: (1)
if a foreign corporation does business in the Philippines without

d) The praise "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 totalling 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

a license, it cannot sue before Philippine courts; (2) if a foreign


corporation is not doing business in the Philippines, it needs no
license to sue before Philippine courts on an isolated
transaction or on a cause of action entirely independent of any
business transaction; (3) if a foreign corporation does business
in the Philippines without a license, a Philippine citizen or entity
which has contracted with said corporation may be estopped

any other act or acts that imply a continuity of commercial dealings or


arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase "doing business: shall not be deemed to
include mere investment as a shareholder by a foreign entity in

from challenging the foreign corporations corporate personality


in a suit brought before the Philippine courts; and (4) if a foreign
corporation does business in the Philippines with the required

Agilent Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology


Phil. Corp., 427 SCRA 593 (2004).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account;

x x x

what constitutes doing business. Case law provides


for the proper interpretation.

Under Section 123 of Corporation Code, a foreign corporation


must first obtain a license and a certificate from the appropriate
government agency before it can transact business in the
Philippines. Where a foreign corporation does business in the
Philippines without the proper license, it cannot maintain any
action or proceeding before Philippine courts as provided in
Section 133 of the Corporation Code. Cargill, Inc. v. Intra Strata
Assurance Corp., 615 SCRA 304 (2010).

The DTI Implementing Rules and Regulations, in defining "doing


business," not only carry the same language as appearing in the
Act, but also includes the following items as not being included
in the term "doing business":
a. The publication of a general advertisement through any
print or broadcast media;
b. Maintaining a stock of goods in the Philippines solely for
the purpose of having the same processed by another
entity in the Philippines;

The Foreign Investments Act of 1991, repealed Articles 44-56 of


Book II of the Omnibus Investments Code of 1987, enumerated
in Section 3(d) not only the acts or activities which constitute
doing business but also those activities which are not deemed
doing business. Cargill, Inc. v. Intra Strata Assurance Corp.,

c. Consignment by a foreign entity of equipment with a


local company to be used in the processing of products
for export;
d. Collecting information in the Philippines; and
e. Performing services auxiliary to an existing isolated
contract of sale which are not on a continuing basis,
such as installing in the Philippines machinery it has

615 SCRA 304 (2010).


o Under Section 3(d) of the Foreign Investments Act of
1991, as supplemented by Rule I, Section 1(f) of its
Implementing Rules and Regulations, the appointment
of a distributor in the Philippines is not sufficient to
constitute doing business unless it is under the full
control of the foreign corporation. In the same manner,
if the distributor is an independent entity which buys
and distributes products, other than those of the

foreign corporation, for its own name and its own


account, the latter cannot be considered to be doing
business in the Philippines. Steelcase, Inc. v. Design
International Selections, Inc., 670 SCRA 64 (2012).
Atty. Hofilea The Foreign Investments Act of 1991
provided the standards and/or guidelines for identifying

manufactured or exported to the Philippines, servicing


the same, training domestic workers to operate it, and
similar incidental services.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


B. Jurisprudential Concepts of Doing Business: It implies a continuity
of commercial dealings and arrangements and the performance of acts
or works or the exercise of some of the functions normally incident to
the purpose or object of a foreign corporations organization.
Mentholatum v. Mangaliman, 72 Phil. 525 (1941).

The characterization by Mentholatum of "doing business" in the


Philippines covers transactions or series of transactions in
pursuit of the main business goals of the corporation, and done
with intent to continue the same in the Philippines. 1


1. Twin Characterization Test.2
a. Nature of the act or transaction: 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 and
considered as the true test of doing business in the
Philippines is whether a foreign corporation is
maintaining or continuing in the Philippines "the body
or substance of the business or enterprise for which it
was organized or whether is has substantially retired
from it and turned it over to another.
b. Existence of Continuing Intent: In doing the act or
transaction there was an intent on the part of the
foreign corporation to undertake a continuity of

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.

commercial dealings and arrangement in the Philippines


as to distinguish it from an isolated transaction.

Mentholatum v. Mangaliman

Facts: The Mentholatum Co., Inc., is a Kansas corporation which
manufactures "Mentholatum," a medicament and salve for the
treatment of irritation and other external ailments of the body. The
Philippine-American Drug Co., Inc. is its exclusive distributing agent in
the Philippines authorized by it to look after and protect its interests. On
26 June 1919 and on 21 January 1921, the Mentholatum Co., Inc.,
registered with the Bureau of Commerce and Industry the word,
"Mentholatum", as trademark for its products.

The Mangaliman brothers prepared a medicament and salve named
"Mentholiman" which they sold to the public packed in a container of
the same size, color and shape as "Mentholatum." As a consequence,
Mentholatum, etc. suffered damages from the diminution of their sales
and the loss of goodwill and reputation of their product in the market.
On 1 October 1935, the Mentholatum Co., Inc., and the Philippine-
American Drug, Co., Inc. instituted an action in the Court of First
Instance (CFI) of Manila against Anacleto Mangaliman, Florencio
Mangaliman and the Director of the Bureau of Commerce for
infringement of trademark and unfair competition.

Issue: Whether or not Mentholatum, etc. could prosecute the instant
action without having secured the license required in Section 69 of the
Corporation Law.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


activity undertaken in the Philippines amounts to doing business
as to require the foreign corporation to obtain such license.1
o Isolated transactions, even when perfected and/or
consummated within Philippine territory, do not
constitute doing business in the Philippines, and do
not constitute the essential element of presence

Held: NO. 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, it cannot now, to the advantage of
its principal, claim an independent standing in court.

Doctrine: 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

required under due process considerations. The legal


basis by which local courts can legally obtain jurisdiction
over the person of a foreign corporation on an isolated
transaction would be consent or the voluntary
surrender of tis person to the jurisdiction of the courts.2

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. 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

incidental or casual but indicates the foreign corporation's


intention to do other business in the Philippines, said single act
or transaction constitutes doing business. Far East Int'l. v.
Nankai Kogyo, 6 SCRA 725 (1962).
o It is not really the fact that there is only a single act
done that is material for determining whether a
corporation is engaged in business in the Philippines,
since other circumstances must be considered. Where a
single act or transaction of a foreign corporation is not
merely incidental or casual but is of such character as
distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state,

progressive prosecution of, the purpose and object of its organization.



2. Single Transaction Whether a foreign corporation needs to
obtain a license, and fails to do so, whether it should be denied
legal standing to obtain remedies from local courts and
administrative agencies, depends therefore on the issue
whether it will engage in business in the Philippines. Not every

Where a single act or transaction, however, is not merely

such act will be considered as constituting business.

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


Litton Mills, Inc. v. Court of Appeals, 256 SCRA 696
(1996).

Participating in a bidding process constitutes doing business


because it shows the foreign corporations intention to engage
in business in the Philippines. 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.
European Resources and Technologies, Inc. v. Ingenieuburo
Birkhanh + Nolte, 435 SCRA 246 (2004).

Atty. Hofilea At the moment, the Court has ruled


that at the time one bids, you need to have a license
under the presumption that you bid because you want
to pursue your business here. Disagrees, because the
act of doing business begins when you actually win the
bidding.
3. Territoriality Rule (Contract Test1)
o

To be doing business in the Philippines requires that the


contract must be perfected or consummated in Philippine soil. A
c.i.f. West Coast arrangement makes delivery outside of the
Philippines. Pacific Vegetable Oil Corp. v. Singson, Advanced
Decision Supreme Court, April 1955 Vol., p. 100-A; Aetna
Casualty & Surety Co. v. Pacific Star Line, 80 SCRA 635 (1977).2


Pacific Vegetable Oil Corp. v. Singson

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
2
Universal Shipping Lines, Inc. v. IAC, 188 SCRA 170 (1990).

Facts: Pursuant to a contract, Angel Singzon promised to sell to Pacific


Vegetable Oil Corporation, a foreign corporation, copra. Singzon failed
to deliver, but promised to do so in the amicable settlement it executed
with Pacific. Failure would entitle Pacific to damages from Singzon.
However, Singzon again failed to deliver and announced by telegram
that he would not be able to ship said copra. As such, Pacific filed for
damages but Singzon filed a motion to dismiss on the ground that
Pacific failed to obtain a license to transact business in the Philippines
and consequently, it had no personality to file the action. The trial court
held that Pacific had no personality to institute the present case even if
it afterwards obtained a license to transact business upon the theory
that this belated act did not have the effect of curing the defect that
existed when the case was instituted.

Issue: Whether or not Pacific can maintain the present action

Held: YES. The agreement between Singzon and Pacific was c.i.f. Pacific
Coast. This means that the vendor was to pay not only the cost of the
goods, but also the freight and insurance expenses and, as it was
judicially interpreted, this is to indicate that the delivery is to be made
at the port of destination. It follows that the appellant corporation has
not transacted business in the Philippines in contemplation of Section
68 and 69 of the Corporation Law. It appearing that appellant
corporation has not transacted business in the Philippines and as such is
not required to obtain a license before it could have personality to bring
a court action, it may be stated that said appellant, even if a foreign
corporation, can maintain the present action because as aptly said by
this Court, it was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order for


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


business from the Philippines, from securing redress in the Philippine
courts, and this, in effect, to permit persons to avoid their contracts
made with such foreign corporation.

Doctrine: CLV OPINION: The Pacific Vegetable Oil doctrine does consider

Defendants refused to pay for the damage, so the surety company paid.

Defendants Manila Port Service and Manila Railroad Company, Inc.
alleged that the plaintiff, Aetna casualty & Surety Company, is a foreign
corporation not duly licensed to do business in the Philippines and,

the twin characterization tests of Mentholatum of substance of the


transactions pertaining to the main business and the continuity or intent
to continue such activities. It would seem that even if the twin
characterization tests of Mentholatum obtained in a case, under the
Pacific Vegetable doctrine, so long as the perfection and consummation
of a series of transactions are done outside the Philippine jurisdiction,
the same would not constitute doing business in the Philippines, even if

therefore without capacity to sue and be sued. This was supported by


certifications from the Office of the Insurance Commission and the
Securities and Exchange Commission showing that the Aetna Casualty
and Surety Company has not been licensed nor incorporated to do
business in the Philippines as foreign corporation. The trial court ruled
against surety company on the ground that it has been doing business in
numerous the Philippines contrary to Philippine laws.

the products themselves should be manufactured or processed in the


Philippines by locals. The implication of this doctrine is that if the salient
points of a contract do not find themselves in the Philippines, Philippine
authorities have no business subjecting the parties to local registration
and licensing requirements.


Issue: Whether or not the appellant, Aetna Casualty & Surety Company,
has been doing business in the Philippines.

Held: NO. It 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. While plaintiff


Aetna Casualty & Surety Co. v. Pacific Star Line

Facts: I. Shalom & Co. Inc. were supposed to receive a shipment of
goods carried on board SS Ampal whose operator was Pacific Star Line.
The Bradman Co. Inc., was the ship agent in the Philippines for the SS
Ampal, while the Manila Railroad Co. Inc. and Manila Port Service were
the arrastre operators in the port of Manila and were authorized to
delivery cargoes discharged into their custody. Aetna Surety Casualty &
Surety Co. Inc. insured the cargo in for I. Shalom. The SS Ampal arrived
in Manila but due to the negligence of the defendants, the shipment
sustained damages representing pilferage and seawater damage.

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.

Doctrine: 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


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


business. standard in the FIA requires physical
presence
Issue: What about in the time of internet and
telephone solicitations where there is no
physical presence in the state?
4. Transactions Seeking Profit Although each case must be

corporation which happens to obtain an isolated order for business


from the Philippines, from securing redress in the Philippine courts.

o

To be transaction business in the Philippines for


purposes of Section 133 of the Corporation Code, the
foreign corporation must actually transact business in
the Philippines, that is, perform specific business
transactions within the Philippine territory on a
continuing basis in its own name and for its own
account. B. Van Zuiden Bros., Ltd v. GTVL
Manufacturing Industries, Inc., 523 SCRA 233 (2007),
citing VILLANUEVA, PHILIPPINE CORPORATE LAW 813

judged in light of its attendant circumstances, jurisprudence has


evolved several guiding principles for the application of these
tests. By and large, to constitute doing business, the activity
to be undertaken in the Philippines is one that is for profit-
making. Agilent Technolgies Singapore (PTE) Ltd. v. Integrated
Silicon Technology Phil. Corp., 427 SCRA 593 (2004), citing
VILLANUEVA, PHILIPPINE CORPORATE LAW 596 et seq. (1998

(2001).

ed.); Cargill, Inc. v. Intra Strata Assurance Corp., 615 SCRA 304
(2010), citing VILLANUEVA, PHILIPPINE CORPORATE LAW 801-
802 (2001).

Exception: Acts of Solicitations Solicitation of business


contracts constitutes doing business in the Philippines.
Marubeni Nederland B.V. v. Tensuan, 190 SCRA 105.
Examples: (Atty. Hofilea)
o Where a domestic corporation initiated a supply
agreement with a foreign corporation and all of it was
executed abroad, there is no doing business because
there no act of solicitation on the part of the foreign
company and in accordance with the territoriality rule,
none of it happened here.
o

Where the negotiations happened here upon request of


the domestic corporation, that is still not doing
business within the contemplation of the law.
Where the foreign corporation sends a representative
to approach a domestic corporation to offer a
transaction, such would be considered as doing

Agilent Technolgies Singapore (PTE) Ltd. v. Integrated Silicon


Technology Phil. Corp

Facts: Integrated Silicon entered into a Value Added Assembly Services
Agreement ("VAASA"), with HP-Singapore. Under the contract,
Integrated Silicon was to locally manufacture and assemble fiber optics
for export to HP-Singapore, who in turn would provide raw materials
and machinery and pay Integrated Silicon the purchase price of the
finished products. The VAASA had a five-year term, with a provision for
annual renewal by mutual written consent. In 1999, with the consent of
Integrated Silicon, HP-Singapore assigned all its rights and obligations in
the VAASA to Agilent. Agilent is not licensed to do business here.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA



In 2001, Integrated Silicon filed a complaint for "Specific Performance
and Damages" against Agilent, alleging that Agilent breached the
parties oral agreement to extend the VAASA. Agilent filed a separate
replevin case against Integrated Silicon, praying that the defendants be

transaction or on a cause of action entirely independent of any


business transaction;
3. If a foreign corporation does business in the Philippines without
a license, a Philippine citizen or entity which has contracted
with said corporation may be estopped from challenging the

ordered to immediately return its equipment, machineries and the


materials to be used for fiber-optic components which were left in the
plant of Integrated Silicon. Integrated Silicon argues that since Agilent is
an unlicensed foreign corporation doing business in the Philippines, it
lacks the legal capacity to file suit. The replevin case was dismissed.

Issue: Whether or not the Agilent has legal capacity to sue.

foreign corporations corporate personality in a suit brought


before Philippine courts; and
4. If a foreign corporation does business in the Philippines with the
required license, it can sue before Philippine courts on any
transaction.


Held: YES. By the clear terms of the VAASA, Agilents activities in the
Philippines were confined to (1) maintaining a stock of goods in the
Philippines solely for the purpose of having the same processed by
Integrated Silicon; and (2) consignment of equipment with Integrated
Silicon to be used in the processing of products for export. As such, we
hold that, based on the evidence presented thus far, Agilent cannot be
deemed to be "doing business" in the Philippines. As a foreign
corporation not doing business in the Philippines, it needed no license
before it can sue before our courts.

Doctrine: The principles regarding the right of a foreign corporation to
bring suit in Philippine courts may be condensed in four statements:
1. If a foreign corporation does business in the Philippines without
a license, it cannot sue before the Philippine courts;
2. If a foreign corporation is not doing business in the Philippines,
it needs no license to sue before Philippine courts on an isolated


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

Examples:
o

Insurance Business A foreign corporation with a


settling agent in the Philippines which issues twelve
marine policies covering different shipments to the
Philippines is doing business in the Philippines. General
Corp. of the Phil. v. Union Insurance Society of Canton,
Ltd., 87 Phil. 313 (1950).
A foreign corporation which had been collecting
premiums on outstanding policies is doing business in
the Philippines. Manufacturing Life Ins. v. Meer, 89
Phil. 351 (1951).
Air Carriers Off-line air carriers having general sales
agents in the Philippines are engaged in business in the
Philippines and that their income from sales of passage
here (i.e., uplifts of passengers and cargo occur to or
from the Philippines) is income from within the
Philippines. South African Airways v. Commissioner of
Internal Revenue, 612 SCRA 665 (2010).

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

Exception: Transactions with Agents and Brokers Granger


Associates v. Microwave Systems, Inc., 189 SCRA 631 (1990).1


Granger Associates v. Microwave Systems, Inc.

Facts: Granger Associates (foreign corporation) sued Microwave
Systems, Inc. (domestic corporation) for recovery of a sum of money
arising from a series of agreements concluded between the two. In the
principal contract, Granger licensed MSI to manufacture and sell its
products in the Philippines and extended to the latter certain loans,
equipment and parts, a contract for the sale of equipment. Payment of
these contracts not having been made as agreed upon, Granger filed a
complaint against MSI and the other private respondents. In its answer,
MSI alleged the affirmative defense that the plaintiff had no capacity to
sue in accordance with Section 133 of the Corporation Code. Granger
insists that it has dealt only with MSI and not the general public and
contends that dealing with the public itself is an indispensable
ingredient of transacting business. It contends that its various
transactions with MSI were mere facets of the basic agreement licensing
MSI to manufacture and sell Granger's products in the Philippines. All
subsequent agreements were merely auxiliary to that first.

Issue: Whether Grangers agreements with MSI covered only one
isolated transaction for which it did not have to secure a license to be
able to file its complaint.

La Chemise Lacoste, S.A. v. Fernandez, 129 SCRA 373 (1984); Schmid & Oberly
v. RJL, 166 SCRA 493 (1988); Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44
(1974).

Held: NO. We are convinced from an examination of the terms and


conditions of the contracts and agreements entered into between
Granger and MSI 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 Granger
contends, but a succession of acts signifying the intent of Granger to
extend its operations in the Philippines.

Doctrine: The purpose of the rule requiring foreign corporations to
secure a license to do business in the Philippines is to enable us to
exercise jurisdiction over them for the regulation of their activities in
this country, If a foreign corporation operates in the Philippines without
submitting to our laws, it is only just that it not be allowed to invoke
them in our courts when it should need them later for its own
protection. While foreign investors are always welcome in this land to
collaborate with us for our mutual benefit, they must be prepared as an
indispensable condition to respect and be bound by Philippine law in
proper cases, as in the one at bar.

C. The Special Cases on Infringement of Business Names and
Trademarks: Western Equipment & Supply Co. v. Reyes, 51 Phil. 115
(1927).

Western Equipment & Supply Co. v. Reyes

Facts: Western Equipment and Western Electric are both foreign
corporation organized under the laws of the State of Nevada and New
York, respectively. Western Equipment is engaged in the selling and
importing electrical and telephone apparatus and supplies


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


manufactured by Western Electric.

Herman, OBrien, Diaz, Mapoy and Zamora (defendants) were residents
of the Philippines. They filed articles of incorporation of a domestic
corporation to be known as Western Electric Company, Inc. for the

manufactured articles, and it is very apparent that the whole purpose


and intent of the defendants in seeking to incorporate another
corporation under the identical name of Western Electric Company,
Inc., and for the same identical purpose as that of Western Electric, is
to trespass upon and profit by its good name and business reputation.

purpose of principally of manufacturing, buying, selling and generally


dealing in electrical and telephone apparatus and supplies. Smith, who
was authorized by the Board of Directors of Western Electric to process
all legal proceedings for the corporation, lodged a complaint with the
Bureau his protest against the attempted incorporation. It was alleged
that the corporate name by which said defendants desire to be known,
being identical with that of the plaintiff Western Equipment, will

The very fact that the defendants have sought the use of that particular
name for that identical purpose is conclusive evidence of the fraudulent
intent with which it is done.

Doctrine: It is well accepted that the right to the use of corporate name
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

deceive and mislead the public purchasing electrical and telephone


apparatus and supplies.

Issue: Whether or not Western Equipment has a right to maintain an
action to restrain residents of the Philippines from organizing a
corporation bearing the same name as such foreign corporation

jurisdictions where it does not transact business.

Held: YES. It is true that Western Electric had never done business in the
Philippines and had not obtained license to do business in the
Philippines. However, it 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 Philippines. The sole purpose of the action is to
protect its reputation, its corporate name and goodwill.

Western Electric has been in existence as a corporation for over fifty
years, during which time it has established a reputation all over the
world including the Philippine Islands, for the kind and quality of its

Infringement of trade name. General Garments Corp. v.


Director of Patens, 41 SCRA 50 (1971); Universal Rubber

Products, Inc. v. Court of Appeals, 130 SCRA 104 (1988).


1. Under the Trademark Law

The matter as to trademarks and tradenames had become moot


with the adoption of Section 21-A 1 of then Republic Act 166
(The Trademark Law), which expressly provided that a foreign

Section 21-A states: "Any foreign corporation or juristic person to which a


mark or tradename has been registered or assigned under this Act may bring an
action hereunder for infringement, for unfair competition, or false designation
of origin and false description, whether or not it has been licensed to do
business in the Philippines under Act numbered Fourteen Hundred and Fifty-
Nine, as amended, otherwise known as the Corporation Law, at the time it
brings the complaint; Provided, That the country of which the said foreign
corporation or juristic person is a citizen, or in which it is domiciled, by treaty,
convention or law, grants a similar privilege to corporate or juristic persons of
the Philippines."


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


corporation, whether licensed to do business or not in the
Philippines, with a mark or tradename registered in the
Philippines, may bring an action before Philippine courts for
infringement, unfair competition, false designation of origin and
false description, if the country of which the foreign corporation
is a citizen, or in which it is domiciled, by treaty, convention, or

Trademark Law, and the new qualification that such


foreign corporation must not be engaged in business in
the Philippines contradicts the provision that dispenses
with the need to obtain a license to do business in the
Philippines to qualify a foreign corporation to seek
remedy under the Code. It can therefore be reasonably

law, grants a similar privilege to corporations or juristic persons


of the Philippines.1
2. Under the Intellectual Property Code

anticipated that the courts will eventually interpret


Section 160 of the Code to have the same meaning and
application as Section 21-A of The Trademark Law,
which would qualify any foreign corporation, even when
doing business in the Philippines without appropriate
license, to be able to obtain remedies and reliefs under
the Code.

In 1997, the Intellectual Property Code was promulgated to


consolidate all laws relating to intellectual properties. Section
160 of the Code, which effectively replaced Section 21-A of The
Trademark Law, provides that Any foreign national or judicial
person who meets the requirements of Section 32 of this Act
and does not engage in business in the Philippines may bring a
civil or administrative action hereunder for opposition,
cancellation, infringement, unfair competition, or false


D. Doctrine on Unrelated or Isolated Transactions:

designation of origin and false description, whether or not it is


licensed to do business in the Philippine under existing laws.
o CLV Comment: The wordings of Section 160 do not
seem to comprehend the thrust of Section 21-A of The

transaction or series of transactions set apart from the common


business of a foreign enterprise in the sense that there is no
intention to engage in a progressive pursuit of the purpose and
object of the business organization."3

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
2
Section 3 provides: . . .Any person who is a national or who is domiciled or
has a real and effective industrial establishment in a country which is a party to
any convention, treaty or agreement relating to intellectual property rights or
the repression of unfair competition, to which the Philippines is also a party, or
extends reciprocal rights to nationals of the Philippines by law, shall be entitled
to benefits to the extent necessary to give effect to any provision of such
convention, treaty or reciprocal law, in addition to the rights to which any
owner of an intellectual property right is otherwise entitled by this Act.

In one case, the Court held that the phrase "isolated


transaction" has a definite and fixed meaning, i.e., "a

Antam Consolidated v. Court of Appeals, 143 SCRA 288 (1986).4


Antam Consolidated v. Court of Appeals

Facts: Stokely Van Camp and Capital City Product Company are foreign


3
4

Ericks Pte. Ltd. v. Court of Appeals, 267 SCRA 567, 76 SCAD 70 (1997).
Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1 (1957).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


corporations not engaged in business in the Philippines and not
licensed. Capital City entered into a contract with Coconut Oil
Manufacturing (Comphil) wherein Comphil undertook to sell and deliver
and Capital City agreed to buy 500 long tons of crude coconut oil to be
delivered at c.i.f. price. but Comphil failed to deliver the coconut oil so

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.1

Doctrine: The doctrine of lack of capacity to sue based on failure to first

that Capital City sustained a loss. As a result, herein respondents


entered into two more contracts in an attempt to recover the loss they
sustained from the first one. Stokely prayed that a writ of attachment
be issued against any and all the properties of the petitioners in an
amount sufficient to satisfy any lien of judgment that the respondent
may obtain in its action. Herein petitioners alleged that the respondent
has no personality to sue. Petitioners argue that to maintain the suit

acquire a local license is based on consideration of sound public policy.


It was never intended to favor domestic corporations who enter into
solitary transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in
this country.2

filed with the trial court, the respondent should have secured the
requisite license to do business in the Philippines because, in fact, it is
doing business.

Issue: Whether or not the respondent should have secured the requisite
license because it was doing business in the Philippines.

courts on an isolated transaction. Lorenzo Shipping v. Chubb


and Sons, Inc., 431 SCRA 266 (2004).

Held: NO. The Supreme Court sustained the lower court in not
dismissing a complaint filed by a foreign corporation on the basis of
three contracts of purchase and sale of coconut oil from local
companies. The Court found that from the facts alone it could be
deduced that there was only one agreement between the petitioners
and the respondent and that was the delivery by the former of 500 long
tons of crude coconut oil to the latter, who in turn, must pay the
corresponding price for the same. The only reason why the respondent
entered into the second and third transactions with the petitioners was
because it wanted to recover the loss it sustained from the failure of the

A foreign corporation needs no license to sue before Philippine

Single or isolated acts, contracts, or transactions of foreign


corporations are not regarded as a carrying on of business.
Typical examples of these are the making of a single contract,
sale with the taking of a note and mortgage in the state to
secure payment thereof, purchase, or note, or the mere
commission of a tort. In these instances, there is no purpose to
do any other business within the country. MR. Holdings, Ltd. V.
Bajar, 380 SCRA 617 (2002).
o Even a series of transactions which are occasional,
incidental and casualnot of a character to indicate a
purpose to engage in businessdo not constitute the

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


doing or engaging in business as contemplated by law.
Lorenzo Shipping v. Chubb and Sons, Inc., 431 SCRA 266
(2004).

sue in our courts: "Otherwise we will be hampering the


growth and development of business relations between
Filipino citizens and foreign nationals. Worse, we will be
allowing the law to serve as a protective shield for
unscrupulous Filipino citizens who have business
relationships abroad."1

Case-Law Examples of Isolated Transactions:


o

o
o

Recovery on the collision of two vessels at the Manila


Harbor. Dampfschieffs Rhederei Union v. La Campaia
Transatlantica, 8 Phil. 766 (1907).
Loss of goods bound for Hongkong but erroneously
discharged in Manila. The Swedish East Asia Co., Ltd. v.
Manila Port Service, 25 SCRA 633 (1968).


DOING BUSINESS SYNTHESIS: (Atty. Hofilea)

intent to pursue your line of business in the Philippines

Recovery of damages sustained by cargo shipped to the


Philippines. Bulakhidas v. Navarro, 142 SCRA 1 (1986).
Sale of construction equipment to the Government with
no intent of continuity of transaction. Gonzales v.
Raquiza, 180 SCRA 254 (1989).
Recovery on a Hong Kong judgment against a Manila
resident. Hang Lung Bak v. Saulog, 201 SCRA 137

Even if you intend to derive profit, there must be some


connection with your business. Just because youre being paid
for an activity does not mean you are doing business in the
Philippines.
o Doing business is generating income from the
Philippines (Agilent v. Integrated Silicon)
o If its a cost on the part of the foreign company, such
transaction is not considered as doing business

(1991).
Appointment of local lawyer by foreign movie
companies who have registered intellectual property
rights over their movies in the Philippines, to protect
such rights for piracy: We fail to see how exercising
one's legal and property rights and taking steps for the
vigilant protection of said rights, particularly the
appointment of an attorney-in-fact, can be deemed by
and of themselves to be doing business here. Columbia
Pictures Inc. v. Court of Appeals, 261 SCRA 144 (1996).
Rationale: rationale for the allowing foreign
corporations not doing business in the Philippines to

If you pursue your business in a continuous basis showing an

If you dont want to be accused of doing business, bring out as


much of the business abroad as much as possible.

Isolated Transaction v. Continuity of Actions


o
o

There are cases where the Court forgave the


corporations who did business at least once.
However, there are cases that due to the volume or
magnitude of the matter involved, that the Court has
ruled as constituting doing business

Where a corporation wants to do business in the Philippines, it

Hang Lung Bank, Ltd. v. Saulog, 201 SCRA 137 (1991).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


should get a license.
o Where a party contracts with a foreign corporation
which is without a license, and such party has derived
benefits, such party will be estopped from posing such
lack of license as a defense from a suit initiated by the

corporation has property here, you can attach the


property and thereby bind the FC.
What if hes gone completely or he has no
property at all in the Philippines you wont
be able to acquire jurisdiction over him. BUT

corporation.

If a foreign corporation is not considered doing business in the


Philippines, can the foreign corporation sue in Philippine
Courts?
o

YES. If youre not deemed to be doing business in the


Philippines, but you have certain transactions in the
country, such foreign corporation may still sue in
Philippine Courts. In this case, the corporations only
connection with the Philippines may be that it
contracted with a Philippine citizen.

Can suits against foreign corporations be filed and prosper in


Philippine Courts?
o YES. Foreign Corporations doing a business without a
can be sued regardless of whether they have a license
or not.

Service of Summons in order to acquire jursdiction


o FC doing business in the Philippines with a license
summons shall be served either on the resident agent
or in the absence thereof, to the SEC.
o

FC doing business in the Philippines with a license


summons shall be served either through an agent,
publication, or courts in the corporations home country
with the assistance of the DFA.
FC not doing business in the Philippines if the

you can go to the FCs home country and file an


action there subject to the rules of their
jurisdiction.
Jurisdiction may also be acquired if the FC voluntarily
submits to the jurisdiction of our Courts such as by
appearance through counsel.
Remember that not all appearances are
submissions to the jurisdiction, such as when
you appear precisely to question the jurisdiction
of the court.


IV. Suits Brought by Foreign Corporations

A. Need to Allege Capacity to Sue: The fact that a foreign corporation is
not doing business in the Philippines must be alleged if a foreign
corporation desires to sue in Philippines courts under the isolated
transactions rule. In this case, although the Supreme Court sustained
the principle upon which the plaintiffs appealed the dismissal, it
nevertheless upheld the dismissal since the complaint filed with the
lower court only alleged that the plaintiffs are foreign corporation,
without further indicating that they are exempt from the requisite of a


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


license because they are not engaged in business in the Philippines.
Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co., 17 SCRA 1037 (1966).1

Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co

Facts: Atlantic Mutual Insurance Company and Continental Insurance
Company (Atlantic), both foreign corporations sued Cebu Stevedoring
Co., Inc. (Cebu), a domestic corporation, for recovery of a sum of money
alleging that Cebu undertook to carry a shipment of copra and that
upon discharge, a portion of the copra was found damaged; that since
the copra had been insured with Atlantic they paid the shipper and/or
consignee; and that as subrogee to the shipper's and/or consignee's
rights, Atlantic demanded, but Cebu did not pay. Cebu moved to dismiss
based on: (a) that Atlantic had "no legal personality and with no
capacity to sue;" and (b) that the complaint did not state a cause of
action.

Issue: Whether or not Atlantic has the capacity to sue

Held: NO. But where as in the present case, the law denies to a foreign
corporation the right to maintain suit unless it has previously complied
with a certain requirement, then such compliance, or the fact that the
suing corporation is exempt therefrom, becomes a necessary averment
in the complaint. These are matters peculiarly within the knowledge of

This overturned the previous doctrine in Marshall-Wells (as well as in In re


Liquidation of the Mercantile Bank of China, etc., 65 Phil. 385 (1938), that the
lack of authority of foreign corporation to sue in Philippine courts for failure to
obtain the license is a matter of affirmative defense. Also Commissioner of
Customs v. K.M.K. Gani, 182 SCRA 591 (1990).

appellants alone, and it would be unfair to impose upon appellee the


burden of asserting and proving the contrary. It is enough that foreign
corporations are allowed by law to seek redress in our courts under
certain conditions: the interpretation of the law should not go so far as
to include, in effect, an inference that those conditions have been met
from the mere fact that the party suing is a foreign corporation.

Doctrine:

o

In any event, Rule 8, Section 4, of the 1997 Rules of Civil


Procedure now require that in case of foreign corporations,
"facts showing the capacity of a party to sue or be sued . . . must
be averred." 2


B. Estoppel Doctrine: Under the principle of estoppel, a foreign
corporation doing business in the Philippines may sue in Philippine
courts even without license to do business against a Philippine citizen
who had contracted with and been benefited by said corporation and
knew it to be without the necessary license to do business. Merrill
Lynch Futures, Inc. v. Court of Appeals, 211 SCRA 824 (1992).3

Merrill Lynch Futures, Inc. v. Court of Appeals

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
3
Georg Grotjahn GMBH & C. v. Isnani, 235 SCRA 216 (1994); Communications
Material and Design, Inc. v. Court of Appeals, 260 SCRA 673 (1996); Agilent
Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp.,
427 SCRA 593 (2004); Global Business Holdings, Inc. v. Surecomp Software,
B.V., 633 SCRA 470 (2010); Steelcase, Inc. v. Design International Selections,
Inc., 670 SCRA 64 (2012).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA



Facts: Merrill Lynch Futures, Inc., through a domestic corporation, was
found to be engaging in business (commodity futures) in the Philippines
without obtaining the proper license. It brought a suit in Philippine
courts to enforce a claim against local investors.

Issue: Whether or not Merril Lynch engaged in business in the
Philippines without the requisite license.

Held: YES. Although the Court found the foreign corporation to have
engaged in business in the Philippines without the requisite license, it
overturned the dismissal of the suit, on the ground that if the local
investors knew that the foreign corporation had no license to do
business in the Philippines, then they are estopped from using the lack
of license to avoid their obligations.

Doctrine: The rule is that a party is estopped to challenge the
personality of a corporation after having acknowledged the same by
entering into a contract with it. And the "doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic
corporations;" one who has dealt with a corporation of foreign origin
as corporate entity is estopped to deny its corporate existence and
capacity." The principle "will be applied to prevent a person contracting
with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such person has
received the benefits of the contract.1

The "estoppel" doctrine was also reiterated in Georg Grotjahn GMBH & Co. v.
Isnani, 235 SCRA 216, 54 SCAD 289 (1994).

Proper Doctrine: Eriks Ltd. v. Court of Appeals, 267 SCRA 567


(1997).


Eriks Ltd. v. Court of Appeals

Facts: Eriks Pte., Ltd. is a non resident foreign corporation engaged in
the manufacture and sale of elements used in sealing pumps. Delfin
Enriquez, Jr., doing business under the name and style of Delrene EB
Controls Center and/or EB Karmine Commercial, ordered and received
from petitioner various elements used in sealing pumps, valves, pipes
and control equipment, PVC pipes and fittings within a period of 4
months. The transfer of goods were perfected in Singapore for private
respondents account with a 90-day credit term. Subsequently,
demands were made by petitioner upon private respondent to settle his
account, but the latter failed/refused to do so. Eriks Pte., Ltd. filed with
the RTC a complaint for the recovery of US$41,939.63. Private
respondent responded with a Motion to Dismiss, contending that
petitioner corporation had no legal capacity to sue. The trial court
dismissed the action on the ground that Eriks Pte., Ltd. is a foreign
corporation doing business in the Philippines without a license.

Issue: Whether or not Eriks Pte., Ltd is deemed to be a foreign
corporation doing business in the Philippines without a license

Held: YES. The series of transactions in question could not have been
isolated or casual transactions. What is determinative of doing
business is not really the number or the quantity of the transactions,
but more importantly, the intention of an entity to continue the body of
its business in the country. Accordingly, petitioner must be held to be


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


to first go to the process of obtaining a license to do business
from the SEC, and then file the proper suits before the local
courts; otherwise, they run the risk, as it should be, that the suit
would be dismissed, but not on the merits, but as a
consequence of its failure to obtain a license, without prejudice
to obtaining such license and re-filing the suit.1

incapacitated to maintain the action a quo against private respondent.


By this judgment, we are not foreclosing petitioners right to collect
payment. Res judicata does not set in a case dismissed for lack of
capacity to sue, because there has been no determination on the
merits. Moreover, this Court has ruled that subsequent acquisition of
the license will cure the lack of capacity at the time of the execution of
the contract. By securing a license, a foreign entity would be giving
assurance that it will abide by the decisions of our courts, even if
adverse to it.

Doctrine: The test to determine whether a foreign company is doing
business in the Philippines, thus: x x x 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. 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 (Mentholaturn Co., Inc. v. Mangaliman). The purpose of
the law is to subject the foreign corporation doing business in the
Philippines to the jurisdiction of our courts. It is not to prevent the
foreign corporation from performing single or isolated acts, but to bar it
from acquiring a domicile for the purpose of business without first
taking the steps necessary to render it amenable to suits in the local
courts.

Under the Eriks doctrine, it would compel every foreign


corporation doing business in the Philippines without a license


C. On Isolated Transactions: A foreign corporation not licensed to do
business in the Philippines is not absolutely incapacitated from filing a
suit in local court. Aboitiz Shipping Corp. v. Insurance Company of
North America, 561 SCRA 262 (2008).

V. Suits Against Foreign Corporations:

A fundamental rule of international law on state jurisdiction is


that no state can by its laws, and no court which is only a
creature of the state, can by its judgments and decrees, directly
bind or affect property or persons beyond the limits of that
state. Times, Inc. v. Reyes, 39 SCRA 303 (1971).


A. Jurisdiction Over Foreign Corporations (Section 14, Rule 14, Rules of
Court; General Corp. of the Phil. v. Union Insurance Society of Canton,
Ltd., 87 Phil. 313 (1950).2

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.
2
Johnlo Trading Co., v Flores, 88 Phil. 741 (1951); Johnlo Trading Co. v. Zulueta,
88 Phil. 750 (1951); Pacific Micronisian Line, Inc. v. Del rosario, 96 Phil. 23
(1954); Far East Intl Import and Export Corp. v. Nankai Kogyo Co., Ltd., 6 SCRA
725 (1962).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


RULES OF COURT RULE 14
Section 14. Service upon defendant whose identity or whereabouts
are unknown.
In any action where the defendant is designated as an unknown
owner, or the like, or whenever his whereabouts are unknown and

shipment of merchandise from the United States to the Philippines. All


claims were forwarded to the courts in Seattle except for one, wherein
on appeal Fireman claims that the trial court did not acquire jurisdiction
over it. The summons to Fireman was served on Union which was then
the formers settling agent in PH because Fireman had not yet been

cannot be ascertained by diligent inquiry, service may, by leave of


court, be effected upon him by publication in a newspaper of general
circulation and in such places and for such time as the court may
order.

registered in the PH. Said registration came two months later. Union
claimed that Fireman was not doing business in the Philippines, and that
it had no authority from its co-defendant to receive summons on its
behalf.

Issue: Whether or not summons was validly served upon Fireman as
would confer jurisdiction over said corporation.

Atty. Hofilea The Rules of Court dont make a distinction


about the service of summons. As long as the foreign
corporation is doing business in the Philippines, whether it is
licensed or not, service of summons is sufficient to acquire
jurisdiction over the corporate entity.

General Corp. of the Phil. v. Union Insurance Society of Canton, Ltd.



Facts: General Corporation and Mayon Investment are domestic
corporations. Union Insurance is a foreign insurance corporation, duly
authorized to do business in the PH, with head office in Hong Kong, and
a branch office in Manila. Fireman's Fund Insurance is a foreign
insurance corporation organized under the laws of California, and duly
registered with the Insurance Commissioner of the Bureau of
Commerce. Union has been acting as a settling agent for claims against
Fireman's Fund Insurance.

General Corp and Mayon Investment Co. sued Union (HK) and Fireman
(USA) for the payment of 12 marine insurance policies arising from a


Held: YES. Service of summons for appellant Fireman on its settling
agent Union was legal and gave the court jurisdiction over Fireman.
"Doing business in the Philippines" makes no distinction as to whether
said business was being done legally or without authority from the
Government. As long as a foreign private corporation does or engages in
business in this jurisdiction, it should and will be amenable to process
and the jurisdiction of the local courts. Hence service upon any agent of
said foreign corporation constitutes personal service upon the
corporation and accordingly judgment may be rendered against said.

Even then, Fireman was adjudged of doing business in the Philippines.
The subject transactions were not casual or isolated business
transactions. According to the evidence, since before the war, the
Fireman's Fund Insurance Co. would appear to have engaged in this kind
of business and had employed its co-defendant Union as its settling
agent.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA



Doctrine: That service of summons on a foreign corporation may be
made only upon an agent of said corporation residing in the Philippines
refers to those doing business in the Philippines which has complied
with the law and obtained the corresponding license and not to those

functions or the place where its business is done. State


Investment House v. Citibank, 203 SCRA 9 (1991); Northwest
Orient Airlines v. Court of Apppeals, 241 SCRA 192 (1995).
2. Nexus of "Doing Business in the Philippines"

actually doing business here but without the corresponding license or


authority.

corporation under the old Section 14, Rule 14 of the Rules of


Court, the Court held that "in order that services may be
effected in the manner above stated, said section also requires
that the foreign corporation be one which is doing business in
the Philippines. This is a sine qua non requirement. This fact


1. Service of Summons under the Rules of Court Hinged Upon
Doing Business in the Philippines

must first be established in order that summons can be made


and jurisdiction acquired. This is not only clear in the rule but is
reflected in a recent decision of this Court. We there said that
`as long as a foreign private corporation does or engages in
business in this jurisdiction, it should and will be amenable to
process and the jurisdiction of local courts.'"1

For purpose serving summons a foreign corporation in


accordance with Rule 14, Section 14, it is sufficient that it be
alleged in the complaint that it is doing business in the
Philippines. Hahn v. Court of Appeals, 266 SCRA 537 (1997).

When it is shown that a foreign corporation is doing business in


the Philippines, summons may be served on (a) its resident
agent designated in accordance with law; (b) if there is no
resident agent, the government official designated by law to
that effect; or (c) any of its officers or agent within the
Philippines. The mere allegation in the complaint that a local
company is the agent of the foreign corporation is not sufficient
to allow proper service to such alleged agent; it is necessary
that there must be specific allegations that establishes the
connection between the principal foreign corporation and its
alleged agent with respect to the transaction in question.
French Oil Mills Machinery Co.v. Court of Appeals, 295 SCRA
462 (1998).

For purposes of venue involving a foreign corporation, its


residence includes the country where it exercises corporate

In construing the proper service of summons for a foreign


B. Objection to Jurisdiction: Appearance of a foreign corporation to a
suit precisely to question the tribunals jurisdiction over its person is not
equivalent to service of summons, nor does it constitute an
acquiescence to the courts jurisdiction. Avon Insurance PLC v. Court of
Appeals, 278 SCRA 312 (1997).

C. Discredited Pari Delicto Doctrine: The local party to a contract with a
foreign corporation that does business in the Philippines without license
cannot maintain suit against the foreign corporation just as the foreign

Pacific Micronisian Line, Inc. v. Del Rosario, 96 Phil. 23 (1954). quoting also
General Corporation of the Philippines v. Union Insurance Society of Canton,
Ltd.,49 Off. Gaz., 73, September 14, 1950.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


corporation cannot maintain suit, under the principle of pari delicto.
Top-Weld Mfg. v. ECED, 119 SCRA 118 (1985).


Held: YES. From the evidence, it is apparent that the 2 foreign
corporations are doing business in the Philippines. They were carrying
out here the purposes for their creation (manufacture and marketing of
welding products) and even negotiated with other groups for the

Facts: Top-weld entered into separate contracts with 2 different foreign


entities: (1) A license and technical assistance agreement with IRTI and
(2) distributor agreement with ECED. Upon learning that the 2 foreign
entities were negotiating with another group to replace the Top-weld as
their licensee and distributor, Top-weld instituted a civil case against
IRTI, ECED, EUTECTIC, and Gaerlan, a Filipino citizen alleged to be the
representative and employee of these 3 corporations. IRTI and ECED

transfer of franchising rights. HOWEVER, Top-Weld is not entitled to


relief. It does not come to court with clean hands. It is chargeable with
knowledge of the law, which by the way it in fact invokes before the
court. It was incumbent upon Top-Weld to know whether IRTI or ECED
are authorized to transact business. Since all are parties to an illegal
agreement, the court will leave them where it finds them.

later on terminated the agreement for breaches committed by Top-


Weld like failure to pay interest, use of substandard or wrong materials,
and re-labelling. Subsequently, Top-Weld asked for a preliminary
mandatory injunction to compel ECED to ship and deliver various items
covered by the distributorship contract, and to prohibit the corporations
from importing into the Philippines directly or indirectly any EUTECTIC
materials, supplies or equipment except to and through Top-Weld.

Doctrine: No remedy could be afforded to the parties because of their


presumptive knowledge that the transaction was tainted with illegality.
Equity cannot lend its aid to the enforcement of an alleged right claimed
by virtue of an agreement entered into in contravention of law.

Top-Weld Mfg. v. ECED


Top-Weld now invokes R.A. No. 5455 (Aliens doing business in the
Philippines) prohibiting foreign corporations from transacting business
and engaging in economic activity in the Philippines without permit and
from terminating any franchise or agreement with a resident unless for
just cause and upon compensation.

Issue: Whether or not respondent corporations can be considered as
"doing business" in the Philippines and, therefore, subject to the
provisions of R.A. No. 5455.

Atty. Hofilea the party in Top-Weld Mfg. v. ECED cannot


complain on the ground of pari delicto. Also, such contract was
void for being against public policy.
o It seems a little strange for the Court to go that length.
Despite the situation, the contracts were still valid. The
only limitation is that they cannot avail of remedies
through Philippine Courts.

BUT SEE: Communication Materials v. Court of Appeals, 260


SCRA 673 (1996).


Communication Materials v. Court of Appeals


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


Facts: CMDI and ASPAC are domestic corporations, while Francisco S.
Aguirre is their President and majority stockholder. Respondent ITEC
International is a foreign corporations from Alabama. There is no
dispute that ITEC is a foreign corporation not licensed to do business in
the Philippines.

raising this fact to bar ITEC from instituting this injunction case against
it.

Doctrine: A party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a


ITEC entered into a Representative Agreement with ASPAC whereby it
would be the exclusive representative in the Philippines for the sale of
ITECs products. Through a License Agreement entered into by the
same parties, ASPAC became legally and publicly known as ASPAC-ITEC
(Philippines). By virtue of said contracts, ASPAC sold electronic products,
exported by ITEC, to their sole customer, PLDT. ITEC decided to

contract with it.

terminate the same, because petitioner ASPAC allegedly violated its


contractual commitment as stipulated in their agreements. ITEC charges
the ASPAC and another Philippine Corporation, DIGITAL, the President
of which is also Aguirre, of using knowledge and information of ITECs
products specifications to develop their own line of equipment and
product support, which are similar, if not identical to ITECs.

Issue: Whether or not ITEC is doing business in the Philippines

Held: YES. The Court held that private respondent had been engaged
in or doing business in the Philippines for some time now. A perusal
of the agreements between petitioner ASPAC and the respondents
shows that there are provisions which are highly restrictive in nature,
such as to reduce petitioner ASPAC to a mere extension or instrument
of the private respondent. The No Competing Product provision of the
Representative Agreement. Notwithstanding such finding that ITEC is
doing business in the country, ASPAC is nonetheless estopped from

Atty. Hofilea the foreign company was found doing business


without a license with a Philippine party who was aware of
such. But the Court did not declare the contract void and pari
delicto. The suit was allowed.


D. Odd But Prevailing Doctrine:

Indeed, if a foreign corporation, not engaged in business in the


Philippines, is not barred from seeking redress from the courts
in the Philippines, a fortiori, that same corporation cannot claim
exemption from being sued in Philippine courts for acts done
against a person or persons in the Philippines. Facilities
Management Corp. v. De la Osa, 89 SCRA 131 (1979).1

Facilities Management Corp. v. De la Osa


Facts: Facilities Management Corporation and J. S. Dreyer are domiciled
in Wake Island while J. V. Catuira is an employee of FMC stationed in
Manila. Leonardo dela Osa was employed by FMC in Manila, but
rendered work in Wake Island, with the approval of the Department of

FBA Aircraft v. Zosa, 110 SCRA 1 (1981); Royal Crown Intl v. NLRC, 178 SCRA
569 (1989); Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


Labor of the Philippines. Dela Osa later filed for reinstatement with back
wages and recovery of his overtime compensation, swing shift and
graveyard shift differentials. FMC, et al. filed a motion to dismiss the
subject petition on the ground that the Court has no jurisdiction.

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

Issue: Whether the mere act by a non-resident foreign corporation of


recruiting Filipino workers for its own use abroad, in law doing business
in the Philippines.

Held: YES. FMC may be considered as "doing business in the Philippines"
within the scope of Section 14 (Service upon private foreign
corporations), Rule 14 of the Rules of Court. Indeed, FMC, in compliance

its own account, and not in the name or for the account of the principal;
xxx (4) Opening offices, whether called 'liaison' offices, agencies or
branches, unless proved otherwise. xxx (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

with Act 2486 as implemented by Department of Labor Order IV dated


20 May 1968 had to appoint Jaime V. Catuira, 1322 A. Mabini, Ermita,
Manila "as agent for FMC with authority to execute Employment
Contracts and receive, in behalf of that corporation, legal services from
and be bound by processes of the Philippine Courts of Justice, for as
long as he remains an employee of FMC." It is a fact that when the
summons for FMC was served on Catuira he was still in the employ of

objective of the business organization."

the FMC.

Doctrine: Under the rules and regulations promulgated by the Board of
Investments which took effect 3 February 1969, implementing RA 5455,
which took effect 30 September 1968, the phrase "doing business" has
been exemplified with illustrations, among them being as follows: ""(1)
Soliciting orders, purchases (sales) or service contracts. Concrete and
specific solicitations by a foreign firm, not acting independently of the
foreign firm, amounting to negotiation or fixing of the terms and
conditions of sales or service contracts, regardless of whether the

CONTRA: The sine qua non requirement for service of summons


and other legal processes or any such agent or representative is
that the foreign corporation is doing business in the Philippines.
Hyopsung Maritime Co., Ltd. v. Court of Appeals, 165 SCRA 258
1988); Signetics Corp. v. Court of Appeals, 225 SCRA 737
(1993).

Signetics Corp. v. Court of Appeals


Facts: Signetics was organized under the laws of the United States of
America. Through Signetics Filipinas Corporation (SigFil), a wholly-
owned subsidiary, Signetics entered into lease contract over a piece of
land with Fruehauf Electronics Phils., Inc. (Freuhauf). Freuhauf sued
Signetics for damages, accounting or return of certain machinery,
equipment and accessories, as well as the transfer of title and surrender


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


of possession of the buildings, installations and improvements on the
leased land. Service of summons was made on Signetics through
Technology Electronics Assembly & Management Pacific Corp. on the
basis of the allegation that Signetics is a subsidiary of US Philips Corp.,
and may be served summons at Philips Electrical Lamps, Inc.

Facts: Yupangco Cotton Mills engaged to secure with Worldwide


Security and Insurance Co. Inc., several of its properties totaling P200
Million. These contracts were covered by reinsurance treaties between
Worldwide Surety and Insurance, and several foreign reinsurance
companies including the petitioners through CJ Boatrwright acting as


Issue: Whether or not the lower court, had correctly assumed
jurisdiction over the petitioner, a foreign corporation, on its claim in a
motion to dismiss, that it had since ceased to do business in the
Philippines.

Held: YES. The term "agent", in the context it is used in Section 14,

agent of Worldwide Surety and Insurance. A Fire then razed the


properties insured. A Deed of Assignment made by Worldwide Surety
and Insurance acknowledged a remaining balance still due and assigned
to Yupangco all reinsurance proceeds still collectible from all the foreign
reinsurance companies. Yupangco then filed a collection suit on the
above petitioners. The service of summons were made through the
office of the Insurance Commissioner but since the international

refers to its general meaning, i.e., one who acts on behalf of a principal.
The allegations in the complaint have thus been able to amply convey
that not only is TEAM Pacific the business conduit of the petitioner in
the Philippines but that, also, by the charge of fraud, is none other than
the petitioner itself.

Doctrine: The rule is that, a foreign corporation, although not engaged

reinsurers question the jurisdiction the trial court the case has not
proceeded to trial on the merits. The reinsurer is questioning also the
service of summons through extraterritorial service under Sect 17 Rule
14 of the Rules of Court nor through the Insurance Commissioner under
Sec 14. Yupangco also contends that since the reinsurers question the
jurisdiction of the court they are deemed to have submitted to the
jurisdiction of the court.

in business in the Philippines, may still look up to our courts for relief;
reciprocally, such corporation may likewise be "sued in Philippine courts
for acts done against a person or persons in the Philippines" (Facilities
Management Corporation v. De la Osa).


Issue: Whether or not the international reinsurers are doing business in
the Philippines.

Held: NO. International reinsurers are not doing business in the
Philippines and the Philippine court has not acquired jurisdiction over
them. The reinsurance treaties between the petitioners and Worldwide
Surety and Insurance were made through an international insurance

BUT NOW SEE: Avon Insurance PLC v. Court of Appeals, 278


SCRA 312 (1997).


Avon Insurance PLC v. Court of Appeals

broker and NOT through any entity or means remotely connected with
the Philippines. Reinsurance company is not doing business in a certain


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


state even if the property or lives which are insured by the original
insurer company are located in that state. Reinsurance Contract is
generally separate and distinct arrangement from the original contract
of insurance. There was no allegation or demonstration of the existence
of petitioners domestic agent but avers simply that they are doing
business not only abroad but in the Philippines. Petitioners had not
performed any act which would give the general public the impression
that it had been engaging or intends to engage in its ordinary and usual
business undertaking in the country.

Doctrine: Reinsurance company is not doing business in a certain state
even if the property or lives which are insured by the original insurer
company are located in that state. Reinsurance Contract is generally
separate and distinct arrangement from the original contract of
insurance.

Atty. Hofilea Signetics Corp. v. Court of Appeals and Avon


Insurance PLC v. Court of Appeals established what is a
sufficient complaint in order for the Court to acquire
jurisdiction? The fact of doing business must be established by
appropriate allegations in the complaint, and thereafter,
extraterritorial service of summons may be done pursuant to
the provisions of Section 17, Rule 14, of the Rules of Court. The
propriety of such service however may be contravened by the
defense that the foreign corporation is not doing business in the
Philippines. It is a defense that requires the contravention of the
allegations of the complaint, as well as full ventilation, in effect,

of the main merits of the case, which should not thus be within
the province of a mere motion to dismiss.1

E. Stipulation on Venue: When the contract sued upon has a venue
clause within the Philippines, it is deemed a confirmation by the foreign
corporation, even though not doing business in the Philippines, to be
sued in local courts. Linger & Fisher GMBH v. IAC, 125 SCRA 522 (1983).

VI. Laws Applicable to Foreign Corps. (Section 129)

Section 129. Law applicable.
Any foreign corporation lawfully doing business in the Philippines shall
be bound by all laws, rules and regulations applicable to domestic
corporations of the same class, except such only as 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. (73a)

The provision in the New York law which allowed only


stockholders with a minimum number of shareholdings (3%) to
be entitled to exercise the right of inspection is valid in the case
of a foreign corporation licensed to do business in the
Philippines which in its internal relationship was bound by the
New York law. Grey v. Insular Lumber Co., 67 Phil. 139 (1938)


VII. Amendment of Articles of Incorporation (Section 130)

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.


(2013 ed.). Manila, Philippines: Rex Book Store.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA



Section 130. Amendments to articles of incorporation or by-laws of
foreign corporations.
Whenever the articles of incorporation or by-laws of a foreign
corporation authorized to transact business in the Philippines are

foreign corporation shall, within sixty (60) days after such merger or
consolidation becomes effective, file with the Securities and Exchange
Commission, and in proper cases with the appropriate government
agency, a copy of the articles of merger or consolidation duly
authenticated by the proper official or officials of the country or state

amended, such foreign corporation shall, within sixty (60) days after
the amendment becomes effective, file with the Securities and
Exchange Commission, and in the proper cases with the appropriate
government agency, a duly authenticated copy of the articles of
incorporation or by-laws, as amended, indicating clearly in capital
letters or by underscoring the change or changes made, duly certified
by the authorized official or officials of the country or state of

under the laws of which merger or consolidation was effected:


Provided, however, That if the absorbed corporation is the foreign
corporation doing business in the Philippines, the latter shall at the
same time file a petition for withdrawal of it license in accordance
with this Title. (n)

incorporation. The filing thereof shall not of itself enlarge or alter the
purpose or purposes for which such corporation is authorized to
transact business in the Philippines. (n)

branch, the SEC has authority to ensure requirements are met.


However, the law does not provide allowance of a merger
whereby the surviving corporation is that of the foreign
corporation without a branch in the Philippines.


VIII. Merger and Consolidation (Section 132; Art. 51, Omnibus Code)

Section 132. Merger or consolidation involving a foreign corporation
licensed in the Philippines.
One or more foreign corporations authorized to transact business in
the Philippines may merge or consolidate with any domestic
corporation or corporations if such is permitted under Philippine laws
and by the law of its incorporation: Provided, That the requirements
on merger or consolidation as provided in this Code are followed.

Whenever a foreign corporation authorized to transact business in the
Philippines shall be a party to a merger or consolidation in its home
country or state as permitted by the law of its incorporation, such

Atty. Hofilea where two corporations, one of which is a


IX. Revocation of License (Sections 134 and 135; Art. 50, Omnibus
Investment Code)

Section 134. Revocation of license.
Without prejudice to other grounds provided by special laws, the
license of a foreign corporation to transact business in the Philippines
may be revoked or suspended by the Securities and Exchange
Commission upon any of the following grounds:

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


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


2. Failure to appoint and maintain a resident agent in the Philippines
as required by this Title;

3. Failure, after change of its resident agent or of his address, to
submit to the Securities and Exchange Commission a statement of


Section 135. Issuance of certificate of revocation.
Upon the revocation of any such license to transact business in the
Philippines, the Securities and Exchange Commission shall issue a
corresponding certificate of revocation, furnishing a copy thereof to

such change as required by this Title;



4. 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 this Title;

the appropriate government agency in the proper cases.



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 revocation. (n)

5. A misrepresentation of any material matter in any application,


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

6. 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;


7. Transacting business in the Philippines outside of the purpose or
purposes for which such corporation is authorized under its license;

8. Transacting business in the Philippines as agent of or acting for and
in behalf of any foreign corporation or entity not duly licensed to do
business in the Philippines; or

9. Any other ground as would render it unfit to transact business in the
Philippines. (n)


X. Withdrawal of Foreign Corporation (Section 136)
Section 136. 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 Securities and
Exchange Commission unless all the following requirements are met;

1. All claims which have accrued in the Philippines have been paid,
compromised or settled;

2. 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

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


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)



circulation in the Philippines.

Atty. Hofilea foreign companies are allowed to withdraw,


but they must settle all credits, taxes and other obligations to
the satisfaction of the SEC.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

ATTY. JOSE MARIA G. HOFILEA