Group 4 Reporters:

1. Janice Al-ag,
2. Renjie Sinajan,
3. Junerey Iba-oc,
4. Dr. Elmer Nuez,
5. Vilma Pagulong.

CHAPTER 20: FOREIGN CORPORATIONS AND THE DOCTRINE OF “DOING

BUSINESS”
Janice Al-ag – topic:
INTERNATIONAL LAW PRINCIPLES OF FOREIGN CORPORATIONS

❖ A corporation is a creature of the state under the laws of which it has been endowed its
juridical personality.

❖ Essentially, a corporation has no existence beyond the territories of such creating state,
since the power of the creating laws do not extend beyond the territorial jurisdiction of
the state under which it is created.

❖ In a particular forum, a “foreign corporation” is one that owes its existence to the laws
of another state, and strictly speaking, it has no legal existence within the state in which
it is foreign.
- It is 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 judgements or decrees, directly
bind or affect property or persons beyond the limits of that state.
- However, under the international law doctrine of state comity, “a corporation created
by the laws of one state is usually allowed to transact business in other states and to sue
in the courts of the forum.”

Overview
- International law consists of rules and principles governing the relations and
dealings of nations with each other, as well as the relations between states and
individuals, and relations between international organizations.

• The legal standing of a foreign corporation in the host state therefore is founded under
international law on the basis of “consent” through the voluntary surrender of
 jurisdiction over its person in a pending suit before the host state, or by establishing a
“presence” in the host state.
• It is on the basis of consent or presence by which a host state can enforce its laws and
acquire jurisdiction over corporations created by other states.
• Consent and presence, each as a separate requisite for exercising jurisdiction over the
“person of a foreign corporation”, are founded on considerations of due process and fair
play.

- A resident foreign corporation is one which establishes its physical presence in the
Philippines – e.g., through an office, branch, or a sales office.

- Foreign corporation or entities could do business in the Philippines as a domestic

corporation or as a resident corporation.

Pennoyer v. Neti,
- the jurisdiction of courts to render judgement in personam is grounded on their de facto
power over the defendants’ person; his presence within the territorial jurisdiction of a
court is a prerequisite to its rendition of judgement personally binding him.

- In actions in personam, the judgment is for or against a person directly.

- Jurisdiction over the parties is required in actions in personam because they seek to
impose personal responsibility or liability upon a person.

International Shoe Co. v. State of Washington,

- expanded the coverage by stating that due process requires only that in order to subject
a defendant to a judgement in personam, if he be not present within the territory of the
forum, he must have certain minimum contacts with it such that the maintenance of the
suit does not offend “traditional notions of fair play and substantial justice,” thus: “…
since the corporate personality is a fiction, although a fiction intended to be acted upon
as though it were a fact, it is clear that unlike an individual its “presence” without, as
well as within, the State of its origin can be manifested only by activities carried on in its
behalf by those who are authorized to act for it.

- To say that a corporation is so “present” there as to satisfy due process requirements…

is to beg the question to be decided.
- For the terms “present” or “presence” are merely used to symbolized those activities of
the corporations’ agent with the State which courts will deem to be sufficient to satisfy
the demands of due process.

• A foreign corporation may be subjected to the jurisdiction of the forum by reason of

consent, as for example, the filing by a foreign corporation of a suit before Philippine
courts would mean that by voluntary appearance, the local courts have actually
obtained jurisdiction over its person.
• On the other hand, presence in a forum state will not be doubted when the activities of
the foreign corporation there have not only been continuous and systematic, but also
give rise to abilities sued on, even though no consent to be sued or authorization to an
agent to accept service of process has been given.
• Therefore, outside voluntary appearance before a local court (consent), the basis by
which a host state has authority over the person of a foreign corporation is under the
doctrine of “doing or engaging business” within the territorial jurisdiction of the host
state.
• When a foreign corporation undertakes business activities within the territorial
jurisdiction of a host state, it ascribes to the host state standing to enforce its laws, rules
and regulations.

- In the same manner, in order to regulate the basis by which it would seek redress with
the judicial and administrative authorities within the host state, a license is required to
be obtained under the penalty that failure to do so would not give it legal standing to
sue in local courts and administrative tribunals.
- When a foreign corporation’s actual activities within the host state do not fall within the
concept of “doing or engaging in 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.

• Our Supreme Court has held that “the recognition of the legal status of a foreign
corporation is a matter affecting the policy of the forum, and distinction drawn in our
Corporation Law between the standing of a corporation which does not engage in
 business in the Philippines and does not require a license to sue, and a foreign
corporation which engages in business in the Philippines, and is required to obtain a
license to sue, is an expression of that policy.
• A state may therefore restrict the right of a foreign corporation to engage in business
within its limits, and to sue in its courts.
• Outside of consent by the voluntary surrender of jurisdiction over its person, the
presence of the element of “doing or engaging in business” becomes the crucial point
to determine whether a foreign corporation or multinational enterprise has come within
the jurisdiction of the host country, the extent by which it is bound to obtain a license
within such state before it can sue, and more critically, whether it can validly be sued
before local courts and administrative tribunals without the voluntary surrender of its
person.

- Foreign corporations intending to operate in the Philippines through the modes allowed
by law, should register with the Philippine Securities and Exchange Commission [SEC].
Such registration is necessary to give legal personality thereto.

- A foreign corporation lawfully doing business in the Philippines shall be bound by all
laws, rules and regulations applicable to domestic corporations of the same class, except
those which provide for the creation, formation, organization or dissolution of
corporations or those which fix relations, liabilities, ...

DEFINITION OF A “FOREIGN CORPORATION”

• Section 140 of the Revised Corporation Code defines a foreign corporation as “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 is unfortunate that the provision contains the policy of reciprocity as part of the
definition, since it leads to an unintended implication that corporate entities organized
in states that do not grant reciprocity rights to Filipino nationals are not “foreign
corporations”.
• Despite the provision’s language, it is clear that all corporations organized and existing
other than under Philippine laws are foreign corporations, irrespective of the issue of
reciprocity.
- Foreign corporations can secure a license to transact business in the Philippines. As
defined under the Revised Corporation Code, a foreign corporation is one formed,
organized or existing under laws other than those of the Philippines. Based on the
principle of reciprocity, a foreign corporation cannot secure a license if its country/state
of registration does not allow Filipino citizens/corporations to do business in said
country/state.

- No foreign corporation transacting business in the Philippines without a license, or its

successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.

- A foreign corporation must apply for a license to transact business in the Philippines. It
must submit the required documents, including the requisite application form, its
authenticated Articles of Incorporation, designation of Resident Agent, authenticated
certification that the applicant’s home country/state allows Filipino citizens and
corporations to do business therein.

- In lieu of securing a license to operate, foreign investors may also opt to register a 100%
foreign-owned corporation in the Philippines, subject to the limits provided by law.

a. Legal Implications of the Reciprocity Rule

⮚ Although wrongly placed, the inclusion of the element of reciprocity in the

definition of foreign corporations emphasizes our country’s policy that unless
our own nationals are granted business access in a foreign state, then the
corporate entities of such foreign state would likewise not be granted legal and
business access within Philippine territory.
- This is clear in the succeeding sentence of Section 140 that provides that foreign
corporations from states that grant reciprocity rights to Philippine nationals “shall have
the right to transact business in this country in accordance with this Code and a
certificate of authority from the appropriate government agency.”

- The principle of reciprocity involves permitting the application of the legal effects of
specific relationships in law when these same effects are accepted equally by foreign
 countries. In international law, reciprocity means the right to equality and mutual
respect between states.

⮚ We believe that since recognition of the very existence of a foreign corporation

within Philippine jurisdiction is based on the international law doctrine of state
comity, jurisprudential developments would follow the path that in the event the
home state of the foreign corporation renders contracts entered into by Filipino
nationals as void, the same characterization would be imputed by our courts on
the contracts entered by such foreign corporations, but only insofar as they do
not place local parties at a financial or contractual disadvantage.
- The “comity of nations” doctrine permits recognition of foreign proceedings to the
extent that such proceedings are determined to be orderly, fair, and not detrimental to
another nation's interests.
- Comity, in this connection, is neither a matter of absolute obligation on the one hand,
nor of mere courtesy and good will on the other; it is the recognition which one nation
allows within its territory to the acts of foreign governments and tribunals, having due
regard both to the international duty and convenience ...

LICENSE TO DO BUSINESS IN THE PHILIPPINES

• A foreign corporation intending to engage in business in the Philippines may be
granted a license to transact business by filing a verified application with the SEC
setting forth the required data, including the following:
(a) Certified or consularized copies of its articles of incorporation and bylaws;
(b) Duly executed certificate under oath by the authorized official of the
jurisdiction of 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
(c) Audited financial statements as of date not exceeding one year
immediately prior to the filing of the application; otherwise, the following
shall be submitted:
(1) Audited financial statements that are available as of the
date of filing of the application; and
(2) Unaudited financial statements as of the date not
exceeding one year immediately prior to the filing of the
application.
 - Foreign corporations intending to operate in the Philippines through the modes
allowed by law, should register with the Philippine Securities and Exchange
Commission [SEC]. Such registration is necessary to give legal personality
thereto.
Section 142, Revised Corporation Code provides: Application for a License. –
- A foreign corporation applying for a license to transact business in the
Philippines shall submit to the Commission a copy of its articles of incorporation
and bylaws, 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 in its articles of
incorporation, shall specifically set forth the following:
(a) The date and term of incorporation;
(b) The address, including in the country or State of incorporation;
(c) The name and address of its resident agent authorized to accept
summons and process in all legal proceedings and all notices affecting the
corporation, pending the establishment of a local office;
(d) The place in the Philippines where the corporation intends to operate;
(e) The specific purpose or purposes which the corporation intends to
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;
(f) The names and addresses of the present directors and officers of the
corporation;
(g) A statement of its authorized capital stock and the aggregate number of
shares which the corporation has authority to issue, itemized by class, par
value of shares, shares without par value, and series, if any;
(h) A statement of its outstanding capital stock and the aggregate number of
shares which the corporation has issued, itemized by class, par value of
shares, shares without par value, and series, if any;
(i) A statement of the amount actually paid in; and
(j) Such additional information as may be necessary or whether such
corporation is entitled to a license to transact business in the Philippines,
and determine and assess the fees payable.

- Attached to the application for license shall be a certificate under oath duly
executed 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 existing corporation in good standing.
- If the certificate is in a foreign language, a translation thereof in English under
oath of the translator shall be attached to the application.

- 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 Commission
and when appropriate, other governmental agencies that the applicant is solvent
and in sound financial condition, setting forth the assets and liabilities of the
corporation as of the date not exceeding one (1) year immediately prior to the
filing of the application.

- Foreign banking, financial, and insurance corporations shall, in addition to the

above requirements, comply with the provisions of existing laws 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 Commission without
previous authority from the appropriate government agency, whether required
by law.

Section 145. Resident Agent; Service of Process. –

- As a condition to the issuance of the license for a foreign corporation to transact
business in the Philippines, such corporation shall file with the Commission a
written power of attorney designating a person who must be a resident of the
Philippines, on whom summons and other legal processes may be served in all
actions or other legal proceedings against such corporation, and consenting that
service upon such resident agents shall be admitted and held as valid as if served
upon the duly authorized officers of the foreign corporation at its home office.
- Such foreign corporation shall likewise execute and file with the Commission an
agreement or stipulation, executed by the proper authorities of said corporation,
in form and substances as follows:
“The (name of the corporation) hereby stipulates and agrees, in
consideration of being granted a license to transact business in the
Philippines, that if the corporation shall cease to transact business in the
Philippines, or shall be without any resident agent in the Philippines on
whom any summons or other legal process may be served, then service
of any summons or other legal process may be made upon the
Commission in any action or proceeding arising out of any business or
transaction which occurred in the Philippines and such service shall have
the same force and effect as if made upon the duly authorized officers of
the corporation at its home office.”

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

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

It shall be the duty of the resident agent to immediately notify the

Commission in writing of any change in the resident agents’ address.
1. Designation of resident agent
● Among the things to be stated in the verified application are the name
and address of the foreign corporation’s resident agent authorized to
accept summons and process in all legal proceedings and, pending the
establishment of a local office, all notices affecting the corporation.

- Obviously, this requirement ensures that proper service of summons and other
legal process may be effected on a foreign corporation in the event of suits and
other legal proceedings before local courts and tribunals.

● A resident agent may either be

i. An individual residing in the Philippines, of good moral character and of

sound financial standing, or
ii. A domestic corporation lawfully transacting business in the Philippines,
be of sound financial standing, and must show proof that it is in good
standing as certified by the SEC.

• A written power of attorney must be filed by the foreign corporation with the SEC
designating a person who must be a resident of the Philippines, on whom any summons
and other legal processes may be served in all actions or other legal proceedings against
such corporation, and consenting that service upon such resident agent shall be
admitted and held as valid as if served upon the duly authorized officers of the foreign
corporation at its home office.
• In case of a change of address of the resident agent, it shall be his or its duty to
immediately notify in writing the SEC.

- The appointment of a resident agent does not necessarily confer plenary

authority to bind and act for the foreign corporation in all matters.
- In one case, it was held that the resident agent is not necessarily authorized to
execute the required certification against forum shopping, for “while a resident
agent may be aware of actions filed against his principal (a foreign corporation
doing business in the Philippines), he may not be aware of actions initiated by its
principal, whether in the Philippines against domestic corporation or private
individual, or in the country where such corporation was organized and
registered, against a Philippine registered corporation or a Filipino citizen.”
 - Under Article 145 of the Revised Corporation Code (RCC), the appointment of
resident agent is a condition to the issuance of license for a foreign corporation
to transact business in the Philippines. The resident agent is generally tasked to
receive notices on behalf of a non-resident entity.

- What is the role of a resident agent?

- Responsibilities of a Resident Agent

Receive summons and legal proceedings served to the local entity and transmit
them to the Board of Directors of the foreign corporation. Regularly
communicate with the Board of Directors for any updates on corporate
compliance and other related concerns.

Section 144. Who May be a Resident Agent. –

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

2. Agreement on service of summons with SEC

● In consideration of being granted a license to do business in the
Philippines, the foreign corporation shall execute and file with the SEC an
agreement or stipulation that if at any time the corporation shall cease to
transact business in the Philippines or shall be without any resident agent
in the Philippines on whom any summons or other legal processes may
be served, then in any action or proceeding arising out of any business or
transaction which occurred in the Philippines, service of summons or
other legal process may be made upon the SEC, which shall have the
same force and effect as if made upon the duly authorized officers of the
foreign corporation at its home office.

● Whenever such service of summons or other process shall be made upon

the SEC, as a necessary step to complete such service, it must, within 10
days thereafter, transmit by mail a copy thereof to the corporation at its
home or principal office.
 - What is the equivalent of service of summons?

- Voluntary appearance. - The defendant's voluntary appearance in the action

shall be equivalent to service of summons. The inclusion in a motion to dismiss
of other grounds aside from lack of jurisdiction over the person shall not be
deemed a voluntary appearance.

- The proof of service of a summons shall be made in writing by the server and
shall set forth the manner, place, and date of service; shall specify any papers
which have been served with the process and the name of the person who
received the same; and shall be sworn to when made by a person other than a
sheriff or his or her deputy.

3. Deposit of Securities
● Within 60 days from issuance of the license to do business, such foreign
corporation shall deposit with the SEC, for the benefit of its present and
future creditors, Philippine securities in the actual market value of at
least P500,000.00, or such other amount that may be set by the SEC,
subject to further deposit of additional securities every 6 months after
each fiscal year equivalent in actual market value of 2% of the amount by
which the foreign corporation’s gross income for that fiscal year exceeds
P10 million.

● SEC may require further securities if the deposit has decreased by at least
10% of the actual market value at the time they were deposited.

- What is Section 143 of the Revised corporation Code?

- Section 143.

– If the 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 transact business in the Philippines to the
applicant for the purpose or purposes specified in such license.

Section 143. Issuance of a license. –

- If the 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 transact business in the Philippines to the
applicant 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
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.
- Within sixty (60) days after the issuance of the license to transact business in the
Philippines, the licensee, except foreign banking or insurance corporations, shall
deposit with the Commission for the benefit of present and future creditors of
the licensee in the Philippines, securities satisfactory to the Commission,
consisting of bonds or other evidence of indebtedness of the Government of the
Philippines, its political subdivisions and instrumentalities, or of government-
owned or controlled corporations and entities, shares of stock or debt securities
that are registered under Republic Act No. 8799, otherwise known as “The
Securities Regulation Code”, shares of stock in domestic corporations listed in
the stock exchange, shares of stock in domestic insurance companies and banks,
and financial instrument determined suitable by the Commission, or any
combination thereof with an actual market value of at least Five hundred
thousand pesos (P500,000.00) or such other amount that may be set by the
Commission: Provided, however, That within 6 months after each fiscal year of
the licensee, the Commission shall require the licensee to deposit additional
securities or financial instruments equivalent in actual market value to 2% of the
amount by which the licensee’s gross income for that fiscal year exceeds 10
million pesos.
- The Commission shall also require the deposit of additional securities or financial
instruments if the actual market of the deposited securities or financial
instruments has decreased by at least 10% of their market value at the time they
were deposited.
- The Commission may, at its discretion, release part of the additional deposit if
the gross income of the licensee has decreased, or if the actual market value of
the total deposit has increased, by more than 10% of their actual market value at
the time they were deposited.
- The Commission, may from time to time, allow the licensee to make substitute
deposits of those already on deposit as long as the licensee is solvent.
- Such licensee shall be entitled to collect the interest or dividends on such
deposits.
- In the event the licensee ceases to do business in the Philippines, its deposits
shall be returned, upon the licensee’s application and upon proof to the
 satisfaction of the Commission that the licensee has no liability to the Philippine
residents, including the Government of the Republic of the Philippines.
- For purposes of computing the securities deposits, the composition of gross
income and allowable deductions therefrom shall be in accordance with the
rules of the Commission.

4. Effects of being issued the license

• When a foreign corporation intending to do business in the Philippines is
issued the necessary license, it may commence to transact its business in
the Philippines and continue to do so for as long as it retains its authority
to act as a corporation under the laws of the country or state of its
incorporation, unless such license is sooner surrendered, revoked,
suspended, or annulled.

- What is the effect of being issued a license to do business in the Philippines?

- Issuance of License to do Business

Upon the 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 authority to act as a corporation under the laws of the country or State of its
incorporation.

Marshall-Wells Co. v. Henry W. Iser & Co.,

- Established the doctrine that “The object of the statute was to subject the
foreign corporation doing business in the Philippines to the jurisdiction of its
courts.
- The object of the statute was not to prevent the foreign corporation from
performing a single act but to prevent it from acquiring a domicile for the
purpose of business without taking the steps necessary to render it amendable
to suit in the local courts.”

Erkis Pte. Ltd. v. Court of Appeals,

- Held that such strict rules are necessary since a foreign corporation doing
business in the Philippines is bound by all laws, rules and regulations applicable
to domestic corporations of the same class, except for matters that go into
 creation, formation, organization or dissolution of corporations or such as to fix
relations, liabilities, responsibilities or duties of shareholders, members, or
officers of corporation to each other or the corporation, or simple intra-
corporate disputes.

a. 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 are required of domestic corporations.

- What is domestic corporation from a foreign corporation?

- Key Takeaways. A domestic corporation conducts its affairs in its home country
or state. Businesses that are located in a country different from the one where
they originated are referred to as foreign corporations. Corporations also may be
deemed foreign outside of the state where they were incorporated.

- So, policy is exemplified in Claude Neon Lights, Fed. Inc. v. Phil. Adv. Corp.,
- Which refused the issuance of writ of attachment on properties in the country of
a foreign corporation licensed to do business in the Philippines on the mere
allegation that “it is not residing in the Philippine Islands.”
- It held that having regard for the reason of the law allowing issuance of writs of
attachments for the protection of creditors of a non-resident, the same reason
does not apply to a foreign corporation doing business in the Philippines and
licensed to do so by Philippine authorities.

• Claude Neon Lights, Fed. Inc. v. Phil. Adv. Corp.;

⮚ The Court held that unlike a natural person who does not reside in the
Philippines, such foreign corporation is required by law to appoint a resident
agent for service of process; must prove to the satisfaction of the Government
before it does business here, that it is solvent and in sound financial condition;
has had to pay license fee and its business subject at any time to investigation by
the Government authorities; its right to continue doing business is subject to
revocation by the Government; its books and papers subject to examination at
any time by the government; and is bound by all laws, rules and regulations
 applicable to domestic corporations; all designed to protect the creditors and the
public.

⮚ It further held that “A natural person not residing in the Philippines can evade
service of summons and other legal processes, the foreign corporation licensed
to do business in the Philippines cannot.

- Corporations, as a rule, are less mobile than individuals.

- This is especially true of foreign corporations that are carrying on business by
proper authority in the Philippines.
- They possess, as a rule, great capital which is seeking lucrative and more or less
permanent investment in young and developing countries like our Philippines.

5. Revocation of license to do business

• Under Section 151 of the Revised Corporation Code, upon proper
hearing, the SEC may revoke or suspend the license of a foreign
corporation upon any of the following grounds:

(a) Failure of the foreign corporation to:

i. File its annual report or pay any fees required by law;
ii. Appoint and maintain a resident agent in the Philippines;
iii. Submit to the SEC a statement of the change of its resident agent or of
his address;
iv. Submit to the SEC authenticated copy of amendments to its articles of
merger/consolidation within the time prescribed;
v. Pay any and all taxes, impost, assessments or penalties, if any lawfully
due to the Government or any of its agencies or political subdivisions;

(b) Misrepresentation of any material matter in any application, resort, affidavit or other
document submitted by such corporation pursuant to the Code;
(c) Transacting business in the Philippines:
(1) Outside of the purpose or purposes for which such corporation is authorized
under its license;
 (2) as agent acting for and in behalf of any foreign corporation not duly licensed
to do business in the Philippines;
(d) Any other ground as would render it unfit to transact business in the Philippines.

- Which section of the SEC may revoke or suspend the license of a foreign
corporation to transact business in the Philippines?
- Section 152.

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

- What is the meaning of revocation of license to operate?

- Revocation of a license means the Department has terminated the rights and
privileges associated with a license or a permit.

- Upon the revocation of any such license to transact business in the Philippines,
the SEC shall issue a corresponding certificate of revocation, furnishing a copy
thereof to the appropriate government agency in the proper cases.
- The SEC shall also mail to the corporation at its registered office in the
Philippines a notice of such revocation accompanied by a copy of the certificate
of revocation.

Section 152. issuance of Certificate of Revocation. –

- Upon the revocation of the license to transact business in the Philippines, the
Commission shall issue a corresponding certificate of revocation, furnishing a
copy thereof to the appropriate government agency in the proper cases.
- The Commission shall also mail the notice and copy of the certificate of
revocation to the corporation, at its registered office in the Philippines.

CONSEQUENCES OF DOING BUSINESS WITHOUT A LICENSE

1. On standing to Sue and Be Sued
 ● Section 150 of the Revised Corporation Code provides that a foreign corporation
doing business in the Philippines without first obtaining the license to do
business:
(a) shall not be permitted to maintain or intervene in any action, suit or proceeding in
any local court or administrative agency;
(b) but may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws.

• It is clearly implied from Section 150 of the Revised Corporation Code that the failure of
a foreign corporation to secure a license before engaging in business 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 corporation may still be sued, the provisions fail to indicate that if sued,
whether such foreign corporation can interpose counterclaims in the same suit.

- What is the effect if a foreign corporation does business in the Philippines but
without obtaining license in the Philippines?
- A foreign corporation found to be doing business in the Philippines without a license can
be sued in Philippine courts, but cannot sue or maintain suits to enforce its rights.

- An affirmative answer to such question may be deduced from Philippine Columbian

Enterprises Co. v. Lantin,
o Where the issue raised by the defendant local company was that unless the trial
court rules on the motion to dismiss (instead of deferring resolution thereof and
proceeding to trial on the merits), and it is compelled to file its answer that
raises counterclaims against the plaintiff foreign corporation, it “would be
recognizing the legal capacity of said foreign corporation which they are
precisely questioning.”
o In his ponencia, Justice JBL Reyes noted that such “fear is without legal basis, for
actions by foreign corporations are governed by rules different from those in
actions against them.
o A counterclaim partakes of the nature of a complaint and/or cause of action
against the plaintiff [foreign corporation], so that if the petitioners-defendants
should file a counterclaim, the private respondent plaintiff… would be a
defendant thereto, in which case the said foreign corporation would not be
 maintaining a suit and, consequently, [what is now Section 150 of the Revised
Corporation Code] would not apply.

Section 150. Doing Business Without a License. –

- No foreign corporation transacting business in the Philippines without a license or its
successor 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 the Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.

2. On the Validity of Contracts Entered Into

● Home Insurance Co. v. Eastern Shipping Lines, Inc., clarified the proper doctrine
applicable on the legal status of a contract entered into by a foreign corporation which
engages in business in the Philippines without obtaining the required license.

● In that case, the foreign corporation, Home Insurance Co. admitted that it had engaged
in business in the Philippines by issuing insurance contracts without obtaining the
necessary license; but that it subsequently obtained the license before filing the cases
for collection on the insurance contracts.

● The trial court dismissed the complaint and declared that pursuant to basic public policy
reflected in the Corporation Law, the insurance contracts executed before a license was
secured must be held null and void, and the subsequent procurement of the license did
not cure the defects.

- How can a foreign corporation be allowed to transact or to do business in the

Philippines?
- Issuance of License to do Business

- Upon the 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 authority to
act as a corporation under the laws of the country or State of its incorporation.

- Although recognizing that there were conflicting schools of thought on whether such
contracts are void or merely voidable (i.e., unenforceable), the Supreme Court took its
 cue from the Marshall-Wells doctrine that the purpose under what is now Section 150 of
the Revised Corporation Code “was not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring domicile for the purpose of
doing business without taking the necessary steps to render it amendable to suit in the
local courts.
- It also took into consideration the philosophy discussed in General Corporation of the
Philippines v. Union Insurance Society of Canton Ltd., that the fact of doing business, and
not the non-obtaining of the license, is more crucial point, thus:
o … The test is whether a foreign corporation was actually doing business here.
o Otherwise, a foreign corporation illegally doing business here because of its
refusal or neglect to obtain the corresponding license and authority 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.
o It would indeed be anomalous and quite prejudicial, even disastrous, to the
citizens in this jurisdiction who in all good faith and in the regular course of
business accept and pay for shipments of good from America, relying for their
protection on duly executed foreign marine insurance policies made payable in
Manila and duly endorsed and delivered to them, that when they go to court to
enforce said policies, the insurer who all along has been engaging in this business
of issuing similar marine policies, serenely pleads immunity to local jurisdiction
because of its refusal or neglect to obtain the corresponding license to do
business here thereby compelling the consignee or purchasers of the goods
insured to go to America and sue in its courts for redress.
o Home Insurance therefore ruled that contracts entered into by a foreign
corporation doing business in the Philippines without the requisite license
remain valid and enforceable, since the “requirement of resignation 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.”
o It noted that under what is now Section 170 of the Revised Corporation Code,
penal sanctions were imposed for failure to comply with the registration
requirements, then the “penal sanction for the violation and the denial of access
to our courts and administrative bodies are sufficient from the viewpoint of
legislative policy.”
Erik Pte. Ltd. v. Court of Appeals,
- Reiterated the doctrine and held that the “subsequent acquisition of the license will
cure the lack of capacity at the time of the execution of the contract.”

Section 170. Other Violations of the Code; Separate Liability. –

 - Violations of any of the other provisions of this Code or its amendments not otherwise
specifically penalized therein shall be punished by a fine not less than 10,000.00 pesos
but not more than 1 million pesos.
- If the violation is committed by a corporation, the same may, after notice and hearing,
be dissolved in 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.
- Liability for any of the foregoing offenses shall be separate from any other
administrative, civil or criminal liability under this Code and other laws.

(3) Conflicting Supreme Court Rulings

● Based on the foregoing, it is therefore with serious doubt that we consider the
doctrinal pronouncements of our Supreme Court on the legal effects when a
foreign corporation engages in business in the Philippines without obtaining the
necessary license.

In cases where foreign corporations are engaged in local activities without consenting to be
sued, the Supreme Court, in determining jurisdiction, has relied previously on three factors:
express or implied consent, "doing business," and "presence" within the jurisdiction."

(a) The Pari Delicto Ruling

● In Top Weld Manufacturing v. ECED, S.A., a local company was constituted a license
under separate licensing and technical assistance agreements with two Swiss
corporations, to manufacture and distribute welding products under specifications, with
raw materials to be purchased from suppliers designated by the licensors.

● When the local company learned that the foreign entities were negotiating with another
local group to replace it as their licensee and distributor, it instituted an action to enjoin
the foreign corporations from negotiating with third persons or from actually carrying
out the transfer of their licensing and distributorship rights, and from terminating the
existing contracts.
● The local company invoked the provisions of Section 4(9) of Rep. Act No. 5455, known as
the Foreign Business Regulation Act, which prohibited aliens or foreign firms from
terminating any franchise, licensing or other agreements that they have with a resident
of the Philippines, except for violation thereof or other just cause and upon payment of
just compensation and reimbursement and other expenses incurred by the licensee in
developing a market for the products.

- What is the pari delicto rule?

- The doctrine of in pari delicto bars a party that has been damaged as a result of its own
intentional wrongdoing from recovering those damages from “another party whose
equal or lesser fault contributed to the loss.

- R.A. No. 5455, Section 4(9) Not to terminate any franchise, licensing or
other agreement that applicant may have with a resident of the
Philippines, authorizing the latter to assemble, manufacture or sell within
the Philippines the products of the applicant, except for violation thereof or
other just cause and upon payment of compensation and reimbursement
of investment and other expenses incurred by the licensee in developing a
market for the said products: Provided, However, That in case of
disagreement, the amount of compensation or reimbursement shall be
determined by the court where the licensee is domiciled or has its principal
office who shall require the applicant to file a bond in such amount as, in
its opinion, is sufficient for this purpose.
- The Court decreed that although the foreign corporations did not obtain the
necessary certificate or license to do business as required under R.A. No. 5455, it
did not exempt them from BOI requirements since to “accept this view would
open the way for an interpretation that by doing business in the country without
first securing the required written certificate from the Board of Investments, a
foreign corporation may violate or disregard the safeguards which the law, by its
provisions, seeks to establish.
- The Court held that the local company could not invoke the provisions of R.A.
No. 5455, even though it was clear from its provisions that the obligation to
obtain a certificate or license to do business was placed on the foreign
corporation thus:

● As between the parties themselves, Rep. Act No. 5455 does not declare as void or
invalid the contracts entered into without first securing a license or certificate to do
 business in the Philippines. Neither does it appear to intend to prevent the courts from
enforcing contracts made in contravention of its licensing provisions.

● There is no denying, through, than an “illegal situation,” as the appellate court has put
it, was created when the parties voluntarily contracted without such license.

- The parties are charged with knowledge of the existing law at the time they
enter into the contract and at the time it is to become operative…
- In this case, the record shows that, at least, petitioner had actual knowledge of
the applicability of R.A. No. 5455 at the time the contract was executed and at all
times thereafter…
• The very purpose of the law was circumvented and evaded when the petitioner entered
into said agreements despite the prohibition of R.A. No. 5455.
• The parties in this case being equally guilty of violating R.A. No. 5455, they are in pari
delicto, in which case it follows as a consequence that petitioner is not entitled to the
relief prayed for in this case.

- The legal implication in Top-Weld Manufacturing is to the effect that a contract or

transaction between a local company and a foreign corporation that would qualify the
latter to be doing business in the Philippines without obtaining the requisite license
would not be actionable at all before the Philippine courts or administrative bodies.
- If the foreign corporation brings an action on said contract or transaction, it will be
dismissed under what is now Section 150 of the Revised Corporation Code as a
consequence of not obtaining the license.
- On the other hand, if the local counterpart brings an action on the contract, it would
also be dismissed on grounds of pari delicto.
- Although the Court acknowledged that as between the parties themselves, R.A. No.
5455 does not declare as void or invalid the contracts entered into without first securing
a license or certificate to do business in the Philippines,” it nonetheless applied the pari
delicto doctrine by holding that, “the law will not aid either party to an illegal
agreement.
- It leaves the parties where it finds them, which in effect found the resulting contract
void.

- The Top-Weld Manufacturing pronouncements were not in consonance with the clear
language of Section 4 of R.A. No. 5455, which imposed the obligation on the foreign
corporation, to obtain the certificate or license to do business.
 - They contravened the provision of what is now Section 150 of the Revised Corporation
Code that, “a foreign corporation doing business in the Philippines without first
obtaining the license to do business… may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.”

- They also fail to consider the crucial point that obtaining the license is a duty imposed
upon the foreign corporation doing business in the Philippines, not the locals who deal
with it; and that precisely it is a duty imposed on foreign corporations in order to
protect the locals.

Section 150. Doing Business Without a License. –

- No foreign corporation transacting business in the Philippines without a license or its
successor 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 the Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.

- Doctrine of Pari Delicto -

o Latin phrase commonly used in tort and contract law which means “in
equal fault.”
o This is doctrine states that there is a bar to a plaintiff's recovery of
damages for a wrong the plaintiff participated in and serves as an
equitable defense.

R.A. No. 5455, Section 4. Licenses to do business.— No alien, and no firm,

association, partnership, corporation or any other form of business organization formed,
organized, chartered or existing under any laws other than those of the Philippines, or
which is not a Philippine national, or more than thirty per cent of the outstanding capital
of which is owned or controlled by aliens shall do business or engage in any economic
activity in the Philippines, or be registered, licensed, or permitted by the Securities and
Exchange Commission or by any other bureaus, office, agency, political subdivision or
instrumentality of the government, to do business, or engage in any economic activity in
the Philippines, without first securing a written certificate from the Board of Investments
to the effect;
 (1) That the operation or activity of such alien, firm, association, partnership,
corporation or other form of business organization is not inconsistent with the
Investments Priorities Plan;
(2) That such business or economic activity will contribute to the sound and
balanced development of the national economy on a self-sustaining basis;
(3) That such business or economic activity by the applicant would not conflict
with the Constitution or laws of the Philippines;
(4) That the field of business or economic activity is not one that is being
adequately exploited by Philippine nationals; and
(5) That the entry of applicant therein will not pose a clear and present danger of
promoting monopolies or combinations in restraint of trade.
Upon granting said certificate, the Board shall impose the following requirements on the
alien or the firm, association, partnership, corporation or other form of business
organization that is not organized or existing under the laws of the Philippines
(1) To appoint a citizen of the Philippines, of legal age, good moral character and
reputation, and sound financial standing, as resident agent, who shall be
authorized to accept summons and other legal process in behalf of the applicant;
(2) To establish an office in the Philippines and to notify the Securities and
Exchange Commission in writing of the applicant’s exact address and of every
contemplated transfer thereof or of the opening of new offices, at least fifteen
days before the same are to be effected; and once effected, not later than ten
days afterwards;
(3) To bring assets into the Philippines to constitute the capital of the office or
offices, of such kind and value as the Board may deem necessary to protect
those who may deal with the applicant, and to maintain that capital unimpaired
during the period it does business in the Philippines;
(4) To present prior proof that citizens of the Philippines and corporations or
other business organizations organized or existing under the laws of the
Philippines are allowed to do business in the contrary or individual state within a
federal country of which applicant is a citizen or in which it is
domiciled: Provided, However, That if the state or country of domicile of the
applicant imposes on, or requires of, Philippine nationals other conditions,
requirements or restrictions besides those set forth in this Act, the Board of
Investments shall impose the said other conditions, requirements or restrictions
on the applicant if, in its judgment, the imposition thereof shall foster the sound
and balanced development of the national economy on a self-sustaining basis;
(5) To submit to the Securities and Exchange Commission certified copies of
applicant’s charter and by-laws and all amendments thereto, if any, with their
translation into an official language within twenty days after their adoption or after
the grant of the prescribed certificate by the Board of Investments; and annually,
 of applicant’s financial statements showing all assets, liabilities, and networth and
results of operations, setting out separately those pertaining to the branch office;
(6) To keep a complete set of accounting records with the resident agent, which
shall fully and faithfully reflect all transactions within the Philippines, and to permit
inspection thereof by the Securities and Exchange Commission, the Bureau of
Internal Revenue, the Board of Investments and, if a corporation, by the officers
mentioned in Section fifty-four of the Corporation Law;
(7) To give priority to resident creditors as against non-resident creditors and
owners or stockholders in the distribution of assets within the Philippines upon
insolvency, dissolution or revocation of the license;
(8) To give the Securities and Exchange Commission at least six months
advance notice in writing of applicants’ intention to stop doing business within the
Philippines; and to give such public notice thereof as the Securities and
Exchange Commission may require for the protection of resident creditors and
others dealing with the applicant; and
(9) Not to terminate any franchise, licensing or other agreement that applicant
may have with a resident of the Philippines, authorizing the latter to assemble,
manufacture or sell within the Philippines the products of the applicant, except for
violation thereof or other just cause and upon payment of compensation and
reimbursement of investment and other expenses incurred by the licensee in
developing a market for the said products: Provided, However, That in case of
disagreement, the amount of compensation or reimbursement shall be
determined by the court where the licensee is domiciled or has its principal office
who shall require the applicant to file a bond in such amount as, in its opinion, is
sufficient for this purpose.
The above requirement shall be in addition to those set forth in the Corporation Law, as
amended, for licensing foreign corporations and a violation of any of these requirements
shall be sufficient cause to cancel a license or permit issued pursuant to this
Act: Provided, However, That this section shall not apply to aliens or foreign firms,
associations partnerships, corporations or other forms of business organization not
organized or existing under the laws of the Philippines who may lawfully have been
licensed to do business in the Philippines prior to the effectivity of this Act; Provided,
further, That where the issuance of said license has been irregular or contrary to law,
any person adversely affected thereby may file an action with the Court of First Instance
where said alien or foreign business organizations resides or has its principal office to
cancel the said license. In such cases, no injunction shall issue without notice and
hearing; and appeals and other proceedings for review shall be filed directly with the
Supreme Court.

(b) The Estoppel Doctrine

⮚ Merril Lynch Futures, Inc. v. Court of Appeals:

- Came out with a diametrically opposed ruling to Top-Weld Manufacturing’s pari delicto
ruling.
o In that case, Merril Lynch Futures, Inc., through a domestic corporation as its
agent, brought a suit before the local courts to enforce a claim against local
investors.
o Although the Supreme Court found Merril Lynch to have engaged in business in
the Philippines without the requisite license, it overturned the trial court’s
dismissal of the suit, on the ground that if the local investors knew that the
foreign corporation had no license to do business, then they are estopped from
using the lack of license to avoid their obligations, thus –

● The rule is that a party 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… where such person has acted as agent for the
corporation and has violated his fiduciary obligations as such, and where
the statute does not provide that the contract shall be void, but merely
fixes a special penalty for violation of the statute…

- The doctrine of estoppel states that the other contracting party may no longer challenge
the foreign corporation's personality after acknowledging the same by entering into a
contract with it.

- Subsequently, in National Sugar Trading Corp. v. Court of Appeals,

o A complaint for specific performance and partial recission of contract with claims
for damages was brought by a foreign corporation against the National Sugar
Trading Corp. (NASUTRA).
o Although the complaint alleged that the foreign corporation was not engaged in
business in the Philippines, NASUTRA, after filing an answer, had moved to
dismiss the complaint on the ground that the foreign corporation was actually
 engaged in business in the Philippines and had not obtained a license, and
thereby had no standing to sue in Philippine courts.
o Although the issue before the Supreme Court was whether the foreign
corporation was engaged in business in the Philippines without a license,
nonetheless the resolution of such issue was rendered irrelevant because the
Court applied the Merrill Lynch estoppel doctrine.
o “Given these preliminary facts and assuming that petitioner NASUTRA was aware
from the outset that private respondent had no license to do business in this
country, it would appear quite inequitable for NASUTRA, a state-owned
corporation, to evade payment of an otherwise legitimate indebtedness due and
owing to private respondent upon the plea that the latter should have obtained
a license first before perfecting a contract with the Philippine government.

(c) Revoking Pari Delicto Ruling in Favor of Estoppel Doctrine

● The application of the pari delicto ruling seems to have been revoked in favor of the
estoppel doctrine in Communication Materials and Design, Inc. v. Court of Appeals,
which refereed directly to the Top-Weld Manufacturing decision, in finding that the
representative agreement entered into by a foreign corporation with a local
representative as having highly restrictive terms and conditions as to constitute the
foreign corporation as doing business in the Philippines.

● The Court refused to allow the plea of the local company that not having been licensed
to do business in the Philippines, the foreign corporation had no standing to sue, and
invoked the estoppel doctrine, thus –
• A foreign corporation doing business in the Philippines may sue in
Philippine courts although not authorized to do business here against a
Philippine citizen or entity who had contracted with and benefited by said
corporation.
• To put it another way, 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 a
foreign as well as to domestic corporations.
 - Under the pari delicto doctrine, the parties to a controversy are equally culpable or
guilty, they shall have no action against each other, and it shall leave the parties where
it finds them.

- What does in pari delicto means that action can arise from an illegal contract?

- The doctrine of in pari delicto which stipulates that the guilty parties to an illegal
contract are not entitled to any relief, cannot prevent a recovery if doing so violates the
public policy against unjust enrichment.

- One who has dealt with a corporation of foreign origin as a 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.
o The rule is deeply rooted in the time-honored axiom of Commodum ex injuria
sua non habere debet, no person ought to derive any advantage of his own
wrong.
o This is as it should be for as mandated by law, “every person must in the exercise
of his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith.”

(d) Eriks Pte. Ltd. Ruling as the Recommended Formula

● The estoppel doctrine has been reiterated in many subsequent decisions of the
Supreme Court, and is now the prevailing rule, even against the injunction under what is
now Section 150 of the Revised Corporation Code.
● The problem with the estoppel doctrine is that it basically lacks one of the essential
ingredients that constitutes the element of estoppel, which is that by the action or
representation of one party (i.e., the local entity or individual), the other party (i.e., the
foreign corporation), has been held to believe that it would be entitled to relief on the
contract entered into in the course of doing business in the Philippines without a
license.
● When a foreign entity engages in business in the Philippines and fails to obtain the
requisite license, then the simple act of a local entering into a contract with such foreign
corporation cannot reasonably give rise to estoppel or the belief therefore on the part
of the foreign entity that it would be allowed to secure reliefs from local court since the
 provisions of Section 150 of the RCC, which is deemed to be part of such contract,
prevents such belief from having a reasonable basis.
- Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the
manufacture and sale of elements used in sealing pumps, valves and pipes for industrial
purposes, valves and control equipment used for industrial fluid control and PVC pipes
and fittings for industrial uses.

- In its complaint, it alleged that: It is a corporation duly organized and existing under the
laws of the Republic of Singapore; It is not licensed to do business in the Philippines; and
is not so engaged and is suing on an isolated transaction for which it has capacity to sue.

- The estoppel doctrine effectively removes the sanction provided for by law on the
failure of a foreign corporation to obtain a license before it engages in business in the
Philippines, and there would be less motivation on the part of such foreign corporation
to obtain the license since it can always sue in Philippine courts.

- The more reasonable formula should be the ruling in Eriks Pte. Ltd. v. Court of Appeals,
that provides the rationale on why the estoppel doctrine should not be allowed to apply
in this jurisdiction.

- In that case it was argued by the foreign corporation, which was found to have engaged
in business in the Philippines without a license, that is denial of access to Philippine
courts would afford unjust enrichment to the defendant local company.

- The Court held that a judgement denying a foreign corporation relief from our courts for
failure to obtain the requisite license to do business, should not be construed as an
attempt to foreclose the ultimate right to collect on an obligation, thus: “By this
judgement, we are not foreclosing petitioner’s 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.

• The Court went on the sagely hold that “The requirement of a license is not meant to
put foreign corporations at a disadvantage. Rather, the doctrine of lack of capacity to
sue is based on considerations of sound public policy.
• The country needs to develop trade relations and foster our laws that regulate the
conduct of foreigners who desire to do business here. Such strangers must follow our
laws and must subject themselves to reasonable regulation by our government.

- The Eriks Pte. Ltd. doctrine would compel every foreign corporation doing business in
the Philippines without a license to first go to the process of obtaining 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.
- This is a more rational doctrine that should be promoted by the courts in keeping with
both the language and the spirit behind Section 150 of the Revised Corporation Code, as
Eriks Pte. Ltd. itself aptly held: “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 corporations 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.

- Subsequently, Steelcase, Inc. v. Design International Selections, Inc.,

o Discussed the need to rationalize the restrictive provisions of what is now

Section 150 of the Revised Corporation Code on foreign corporations investing in
the Philippines without the requisite license to do business, thus: “During this
period of financial difficulty, our nation greatly needs to attract more foreign
investments and encourage trade between the Philippines and other countries in
order to rebuild and strengthen our economy.
o While it is essential to uphold the sound public policy behind the rule that denies
unlicensed foreign corporations doing business in the Philippines access to our
courts, it must never be used to frustrate the ends of justice by becoming an all-
encompassing shield to protect unscrupulous domestic enterprise from foreign
entities seeking redress in our country.
o To do otherwise seriously jeopardize the desirability of the Philippines as an
investment site and would possibly have the deleterious effect of hindering trade
between Philippine companies and international corporations.”
Renjie Sinajan - topic:

Doctrine of “isolated transaction”

❖ The phrase “isolated transaction” has a definite and fixed meaning, i.e. a transaction or series of
transaction 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.

❖ Whether a foreign corporation which fails to obtain a license should be denied legal standing to
pursue legal remedies before local courts depends on whether it is “doing business in the
Philippines” which according to the Supreme Court must be based on the facts of each case.

❖ Not very activity or transaction undertaken in the Philippines by a foreign corporation through
its representatives amounts to doing or transacting business (presence) as to require the foreign
corporation to obtain such license.

❖ Since no definition is offered under the Revised Corporation Code as to what it means, the issue
has always been what the term “doing business in the Philippines” covers, and whether what is
involved is merely an “isolated transaction”

❖ In that case, an Oregon corporation sued a domestic corporation before local courts, to recover
the unpaid balance on a bill of sale of goods. The complaint was dismissed by the trial court on
demurrer by the defendant since the complaint did not show that the plaintiff, being a foreign
corporation, had complied with the legal requirements of foreign corporation obtaining the
license to do business.

❖ The Supreme Court established the rule that obtaining of a license and the effect of not
obtaining a license only applied to foreign corporations doing business in the Philippines.

❖ The well-established doctrine since then has been that foreign corporations which are not
engaged in doing business in the Philippines, and whose involvemement within Philippine
territory consist of merely “isolated transaction”, are not required to obtain a license to do
business in order to enter into any of such transactions, and/or obtain relief from local courts or
administrative tribunals.

❖ Isolated Transaction, even when perfected and/or consummated within the Philippine Territory,
do not constitute the essential element of “presence” 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 its person to the jurisdiction of the local courts by invoking it powers.

RULES ON CORPORATE NAMES AND TRADEMARKS

A. THE “RIGHT IN REM” DOCTRINE RECOGNIZED IN JURISPRUDENCE

In the case of WESTERN EQUIPMENT v. FIDEL A. REYES, GR No. 27897, 1927-12-02, where from the
stipulations of facts of the parties they had agreed that the foreign corporation “had never engaged in
business in the Philippine Islands,” it was easy for the Supreme Court to hold that a foreign which has
never done any business in the Philippines, but which was widely and favorably known in the Philippines
through the use of its products bearing its corporate and trade name, has a legal right to maintain an
action in the Philippines to restrain the local residents from organizing a corporation bearing the same
name as the foreign corporation.

B. UNDER THE TRADEMARK LAW

The issue on legal standing of foreign corporation to bring local suits on trademarks and tradenames had
become moot with the adoption of the Section 21-A of the Trademark Law, which expressly provided
that a foreign corporation whether or not licensed to do business 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 law, grants a similar privilege
to corporations or juristic persons of the Philippines.

La Chemise Lacoste, S.A. v. Fernandez, it was held that a foreign corporation not doing business in the
Philippines has personally to commence criminal proceeding for violation of Article 189 of the RPC for
unfair competition on the use of trademark and tradenames, without having to allege the qualifying
circumstances under Section 21-A. In that case, the court also took judicial cognizance of the Philippine
duties and obligations under the Paris Convention for the protection of Industrial Property to assure the
nationals of “countries of the Union” have n effective protection against unfair competition in the same
way that they are obliged to similarly protect Filipino Citizens and firms.

C. Under the intellectual property code

In 1997, the intellectual property code consolidated all laws relating to intellectual properties. Section
160 thereof effectively replaced Section 21-A of the Trademark Law, and provides that “any foreign
national or judicial person who meets the requirements of Section 3 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 designation of origin and false description,
whether or not it is licensed to do business in the Philippines under existing laws.

The wordings of Section 160 of the IP Code do not seem to comprehend the thrust of section 21-A of the
Trademark, 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 anticipated that the courts will eventually interpret Section 160 of the IP 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 the appropriate license, to be able to
obtain remedies and reliefs under the code.

LAW ON REGIONAL OR AREA HEADQUARTERS

The acts of a foreign corporation registered under Pres. Decree No. 218 as a regional or area
headquarter, which includes acting as supervision, coordination, communications and coordination
center for its home office’s affiliates, the naming of its local agent and employment of Philippine
nationals are acts pursuant to its primary purposes and functions as a regional/area headquarter for its
home office, and are deemed to be doing business in the country, as defined under the Omnibus
Investment code of 1987, and would give it standing to sue in local courts even without a license to do
business.

• In the case of Georg Grotjahn GMBH and co. v. Isagani, it was held that the performance by a
foreign corporation of acts pursuant to its main purposes and functions as a regional area
headquarters for its home office, qualifies such corporation as one doing business in the
country.

Juenrey Iba-oc - topic:

I. Doing Business in the Philippines

Under the Foreign Corporations Act and the doctrine of "doing business" in the Philippines,
"doing business" refers to engaging in regular, continuous, and systematic activities within
the country by a foreign corporation or entity that has not been incorporated under
Philippine laws.

The doctrine of "doing business" serves as a basis for determining whether a foreign
corporation should be subject to certain legal requirements and regulations in the
Philippines.

II. KINDS OF TEST IN DETERMINING A CORPORATION OR COMPANY IS DOING BUSINESS IN THE

PHILIPPINES

1. TWIN CHARACTERIZATION TESTS The twin characterization tests for "doing business" are
principles used to determine whether a foreign entity has a taxable presence or a permanent
 establishment in a particular country. These tests help determine whether the country has the
right to tax the profits derived by the foreign entity within its jurisdiction.

TYPES OF TWIN CHARACTERIZATION TESTS

A) Substance of the Transaction Test- 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 the
foreign corporation is continuing the body or substance of the business or enterprise for which it was
organized; and

B) Continuing Intent Test- In doing the act or transaction there was an intent on the part of the foreign
corporation to undertake “a continuity of commercial dealings and arrangements” in the Philippines, as
to distinguished if from an “isolated transaction.”

2. The Contract or Territoriality Test. The contract or territoriality test is a principle used to
determine the taxing rights of a country over income derived by a taxpayer. It helps determine
whether a country has the right to tax income based on the taxpayer's residence or the source
of the income. `

The contract or territoriality test seeks to determine the balance between these two factors to
avoid double taxation or the absence of taxation. If the taxpayer is a resident of one country and
earns income from another country, the two countries may have competing claims to tax that
income. In such cases, tax treaties between countries often come into play, as they provide rules
to resolve conflicts and allocate taxing rights between the countries involved.

3. THE FOR- PROFIT MAKING TEST The for-profit making test is a principle used to determine whether an
activity or organization is engaged in for-profit purposes or primarily for charitable, nonprofit, or
personal purposes. This test helps determine whether the income generated from the activity is taxable.

3. Doing Business under the FOREIGN INVESTMENTS ACTS OF 1991 (FIA ’91) The Foreign
Investments Act of 1991 (FIA '91) is a law in the Philippines that governs foreign investments
and the participation of foreign corporations in business activities within the country. Under the
FIA '91, the concept of "doing business" is a crucial element in determining the rights, privileges,
and obligations of foreign investors.

The FIA '91 provides a definition of "doing business" and sets certain thresholds and conditions for
foreign corporations to engage in business activities in the Philippines.
ELMER B. NUEZ III- COLLEGE OF LAW CORPORATION LAW SUMMARY OF THE REPORT ON: FOREIGN
CORPORATIONS AND THE DOCTRINE OF DOING BUSINESS

TOPICS:

1. Foreign Corporation as the Plaintiff

2. FOREIGN CORPORATION AS DEFENDANT

a. Proper Service of Summons Hinges upon Doing Business in the Philippines

b. Allegations on “Doing Business” Merely Preliminary

c. Service of Summons on Counsel d. Designation of Local Agents Conclusive on Service

of Summons

3. CONSENT TO LOCAL JURISDICTION

a. Participation on the Merits of the Case

b. Contractual Stipulation on Venue

4. The Facilities Management Strain

a. The Latest Word on the Matter FOREIGN CORPORATIONS AS PARTIES IN LITIGATION

1. Foreign Corporation as the Plaintiff

• Spreckels v. Ward

• The provision of what is now Sec 150 of the revised Corporation Code denying to
unregistered (unlicensed) foreign corporations the right to maintain suits for the recovery of any
debt, claim or demand, were considered a matter of defense with burden of proof on the part of
the party raising it.

The rule was reversed in Atlantic Mutual Ins. Co. v Cebu Stevedoring Co. Inc. which provided
for the current prevailing rule. In that case, two foreign insurance corporations sued Cebu
stevedoring Co, Inc. for the recovery of sum of money by the way of subrogation over the
insurance claims on a local insured company for losses sustained on cargoes handled by the
local company.
 The rule was reversed

• Atlantic Mutual Ins. Co. v Cebu Stevedoring Co. Inc

• The trial court dismissed the complaint for failing to state that the plaintiffs were
foreign corporations duly licensed to transact business in the Philippines

• On appeal, the plaintiffs contended that the requirement for allegation of licenses
being obtained is required only if the plaintiff foreign corporation is engaged in business in the
Philippines

• The Supreme Court upheld the dismissal since the complaint filed with the lower court
only alleged that the plaintiffs are foreign corporations, without further indicating that they are
exempt from the requisite of a license because they are not engaged in business in the
Philippines.

2. Foreign Corporation as Defendant

• IF ENGAGES BUSINESS IN THE PHILIPPINES

• It has presence in the country.
• May be sued before local courts or administrative tribunals, whether or not it has
obtained the proper license to do business.

• IF IT ENTERS INTO AN ISOLATED TRANSACTION IN THE COUNTRY:

• Not really present in the Philippines
• Legally outside of the processes of the local courts

A. Proper service of summons hinges upon doing business in the Philippines.

As defined by law, by allowing service of summons to be made on its resident agent designated in
accordance with law for the purpose, or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers, agents, directors, or trustees within the
Philippines.

• If not registered in the Phil:

• By personal service coursed through the appropriate court in the foreign country

• By publication once in a newspaper of general circulation in the country where the defendant
may be found

• By facsimile
 • By electronic means with prescribed proof of service

• By such other means as the court may in its discretion direct.

B. Allegations on “doing business” merely preliminary

• It was sufficient that it be alleged in the complaint that the foreign corporation is doing business in the
Philippines

• The court need not go beyond the allegations of the complaint in order to determine whether it has
jurisdiction.

C. Service of summons on counsel

• A suit in local courts against such foreign corporation would justify the service of summons
upon such counsel even when said counsel has not been expressly authorized by the foreign
corporation to receive summons.

D. Designation of local agents conclusive on service of summons.

• Poizat v. Morgan, ruled that where a foreign corporation has specifically designated a person
to receive service of summons in judicial proceedings affecting the corporation, that designation
is exclusive and service of summons is without force and effect unless made on him.

3. CONSENT TO LOCAL JURISDICTION

Although doing business in the nexus by which local courts are granted the right to obtain
jurisdiction over the “person” of foreign corporation, consent may also authorize local courts
and administrative agencies to exercise jurisdiction over the foreign corporations even when
they are not doing business in the Philippines.

A. Participation on the merits of the case Far East International Import and
Export Corp. v. Nankai Kogyo Co. Ltd.
• A suit was filed against a Japanese corporation in local courts for
specific performance, damages and issuance of a writ of injunction.

• The court held that when the defendant foreign corporation filed an
answer which invoked grounds other than lack of jurisdiction, the act
vested upon the trial court jurisdiction to take cognizance of the case.

• The court may have jurisdiction on the case. •

 4. The facilities management strain

• If a foreign corporation not engaged in business in the Philippines, is not barred from
seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim
exemption from being sued in the Philippine courts for acts done against a person or persons in
the Philippines.

• Wang Laboratories Inc v. Mendoza

• The issue on the suability of foreign corporation whether or not doing business in the
Philippines has already been lain to rest. The court has categorically stated that although a
foreign corporation is not doing business in the Philippines, it may be sued for acts done against
persons in the Philippines.

The latest word on the matter

• The court ruled that the pe??oner was doing business in the Philippines, and that by serving
summons upon its resident agent, the trial court had effectively acquired jurisdiction.

• The court made no prescription as to the absolute suability of foreign corporations not doing
business in the country, but merely discounts the absolute exemption of such foreign
corporations from liabilities particularly arising from acts done against a person or persons in the
Philippines.

Vilma Pagulong – topic:

OTHER MATTERS RELATING TO FOREIGN CORPORATIONS

1. DOMICILE AND RESIDENCE OF FOREIGN CORPORATIONS

► Domicile – the domicile of a corporation would be in the state where it was incorporated and it
is in which is the state of its creation.

► Residence – the residence of a corporation is necessarily where it exercises corporate functions

or the place where its business is done.
 ► A foreign corporation licensed to do business in a state is a resident of any country where it
maintains an office or agent for transaction of its usual and customary business for venue
purposes.

► Under our jurisprudence, pending service of summons to a foreign corporation to a foreign

corporation, an attachment of foreign corporation’s properties in the Philippines may be
maintained.

2. LAWS APPLICABLE TO FOREIGN CORPORATIONS

► 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, save and except
such only provide for the creation, formation, organization or dissolution of corporation o such
as those that fix the relations, liabilities, responsibilities, or duties of shareholders, members, or
officers of corporations to each other or to the corporations.

► An early application of this principle can be found in Grey v. Insular Lumber Co., which involved a
foreign corporation organized under the laws of New York and licensed to do business in the
Philippines. According to the then Stock Corporation Law of New York, only shareholders owning
at less 3% of the shares of the corporation may inspect its books and records. Plaintiff Grey, who
held less than 3% stockholdings in the defendant corporation, invoked the provision of
Philippine laws which allowed all shareholders irrespective of size of shareholdings, to inspect
books and records of a corporation. The Court held that intramural matters such as the
qualification to inspect corporate records are governed by the laws where the corporation was
incorporated.

3. AMENDMENT OF ARTICLES OF INCORPORATION

► Whenever the articles of incorporation or the bylaws of a foreign corporation authorized to

transact business in the Philippines are amended, such foreign corporation shall within sixty
days after such amendment becomes effective, file with the SEC, and in the proper cases with
the appropriate government agency, a duly authenticated copy of the articles of incorporation
or bylaws, 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
incorporation.

4. MERGER AND CONSOLIDATION

► 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.

► 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 foreign corporation shall within sixty days after such merger or
consolidation becomes effective, file with the SEC, and in the proper cases with the appropriate
government agency, a copy of the articles of merger and consolidation duly authenticated by
the proper officials of the country or state under the laws of which such merger or consolidation
was effected.

5. WITHDRAWAL OF A FOREIGN CORPORATIONS

► Under section 153 of the revised corporation code, a foreign corporation licensed to transact
business in the Philippines may withdraw by:

(a) Filing a petition for withdrawal of the license;

(b) The petition has to be published once a week for three consecutive weeks in a newspaper of general
circulation in the Philippines;

(c) Payment, compromise or settlement of unless all claims which have accrued in the Philippines; and

(d) Payment of all taxes, imposts, assessments and penalties, if any, lawfully due to the Government or
any of its agencies or political subdivisions.

NOTE: Thereupon, the SEC will formally issue the certificate of withdrawal.

THE CASE FOR NONSTOCK FOREIGN CORPORATIONS

► Although the definition of “foreign corporation under Section 140 of the Revised Corporation
Code does not exclude foreign nonstock corporations, nonetheless, the operative provisions on
reciprocity and on the obtaining of license to do business, certainly have no application to
nonstock foreign corporations.

1. THE ISSUE OF RECIPROCITY

► Like their for-profit counterparts, nonstock foreign corporations are creatures of the laws which
grant to the separate juridical personalities.

► The host country has every right to provide for the terms and conditions under which a nonstock
foreign corporation shall be permitted to undertake its activities within the host state.

2. LICENSE TO ENGAGE IN ELEEMOSYNARY ACTIVITIES

► The second area where it is most appropriate to regulate nonstock foreign corporations is the
registration requirement by various administrative agencies which would have jurisdiction of the
activities they intend to carry-on within Philippine territory.

3. WHEN IS A NONSTOCK FOREIGN CORPORATION “PRESENT” IN THE PHILIPPINES?

► The really ticklish issue when it comes to nonstock foreign corporations is that of their
‘presence’ in the host country for the purposes of complying with notions of international due
process.

► When it is the nonstock foreign corporation that files a suit before local courts or administrative
tribunals, there is no doubt that the act of filing the complaint or petition constitutes a voluntary
surrender of “personal jurisdiction” before the local tribunal.

► A nonstock foreign corporation is deemed to be ‘present’ in the Philippine jurisdiction as to be

subject to our applicable laws, rules and regulations, and within the jurisdiction-obtaining

powers of local courts and administrative tribunals: FIRST: When the nonstock foreign
corporation has undertaken within the Philippines the eleemosynary activities for which it was
organized; SECOND: Such undertaking show “a continuity of dealings and arrangement, 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.

► It must be anticipated that the Facilities Management ruling may be extended to nonstock
foreign corporations which have no “presence” in the country, under the seemingly logical
proposition that “if nonstock corporations may sue and obtain reliefs in local courts then a
fortiori, they may also be sued locally for any contract or activity within the Philippines”.

► The principles developed for for-profit foreign corporations have been applied by the SEC for
nonstock foreign corporations. In a 2004 opinion, the SEC held that the hiring by a foreign
corporation of the services of a Philippine auditing firm as a regional internal auditor would not
be considered as transacting business in the Philippines. FIRST: the corporation will not directly
undertake its main business (child sponsorship corporation) in the country and neither will it
solicit contributions locally to support its operations; SECOND: it also ruled that the function of
internal auditor is advisory and the act of monitoring and auditing donations is merely to ensure
that the grants are used in accordance with their purpose, and is just part of the corporation’s
management control process and by no means transacting business. THIRD: the object of a non-
profit organization is something other than earning profits.