DAVOCOL, NICOLE JD2D

CORPORATION LAW QUIZ WEEK 10

1.
Facilities Management Corporation (FMC) may be considered as "doing business in the
Philippines" within the scope of Section 14 (Service upon private foreign corporations), Rule 14
of the Rules of Court. This provision states that if the defendant is a foreign corporation or a non-
resident joint stock company or association "doing business in the Philippines," service of
summons may be made on its resident agent designated in accordance with law, or if none is
designated, on the government official specified by law or any of its officers or agents within the
Philippines.
The intent of Sections 68 and 69 of the Corporation Law (and similar provisions in the
Revised Corporation Code) is not to prevent a foreign corporation from performing single or
isolated acts in the Philippines. Rather, these provisions aim to prevent a foreign corporation from
acquiring a domicile for business purposes without fulfilling legal requirements to render it subject
to local courts' jurisdiction. As held in Marshall Co. vs. Elser & Co. (46 Phil. 70, 75), a foreign
corporation that obtains an isolated business order in the Philippines is not barred from seeking
redress in Philippine courts.
In compliance with Act 2486, as implemented by Department of Labor Order IV dated 20
May 1968, FMC appointed Jaime V. Catuira as its agent, authorized to execute employment
contracts and receive legal processes on behalf of the corporation. When the summons for FMC
was served on Catuira, he was still an employee of the corporation, making the service valid.
Notably, jurisprudence provides that foreign corporations not engaged in regular business
in the Philippines are not prohibited from accessing Philippine courts. Cases such as Aetna
Casualty & Surety Company vs. Pacific Star Line, Mentholatum vs. Mangaliman, and Eastboard
Navigation vs. Juan Ysmael & Co. support the principle that such corporations are not barred from
seeking legal redress for isolated acts. Similarly, they cannot claim exemption from being sued in
Philippine courts for acts committed in the country.
In the present case, the trial court erred in dismissing the complaint. The prohibition under
Section 150 of the Revised Corporation Code applies only to unlicensed foreign corporations
engaging in continuous or habitual business transactions in the Philippines. It was never intended
to exclude foreign corporations performing isolated acts, such as securing an order or collecting a
claim, from seeking or being subject to legal remedies in local courts.
For instance, in Aetna Casualty & Surety Company, the company was not deemed to be
transacting insurance business in the Philippines merely by collecting a claim assigned to it by the
consignee. The insurance contract was entered into and performed in New York, not the
Philippines. Consequently, Aetna was not barred from filing the case, even without securing a
license to transact business in the Philippines.
In summary, FMC, despite being a foreign corporation, is not exempt from being sued in
Philippine courts for acts committed in the country. Jurisprudence consistently allows foreign
corporations performing isolated transactions to seek or be subjected to judicial remedies in the
Philippines, provided due legal processes are followed.

2.

As early as 1924, the Supreme Court, in the landmark case of Marshall Wells Co. v. Henry
W. Elser & Co. (46 Phil. 70), established that the purpose of Sections 68 and 69 of the old
Corporation Law was to subject foreign corporations doing business in the Philippines to the
jurisdiction of Philippine courts. The law must be interpreted reasonably to avoid hampering the
development of trade relations and to foster friendly commercial intercourse among nations.
Section 150 of the Revised Corporation Code retains the principle that a foreign
corporation transacting business in the Philippines without a license cannot maintain or intervene
in any legal action in Philippine courts or administrative agencies. However, it may still be sued
or proceeded against for any valid cause of action under Philippine laws. This ensures that while
foreign corporations must comply with the licensing requirements, the law also recognizes the
enforceability of contracts executed by such corporations, even in cases where licensing
formalities were not initially met.
Jurisprudence clarifies that the prohibition on unlicensed foreign corporations pertains to
maintaining suits, not to the validity of contracts. For instance, in cases involving insurance
contracts entered into before securing a license, the Supreme Court ruled that such contracts are
not automatically null and void. The lack of capacity at the time of execution is deemed cured by
the subsequent registration of the license. The objective of the law is to subject foreign corporations
to local jurisdiction, not to unduly penalize them or invalidate transactions that are otherwise valid.
In distinguishing between penalties and remedies, the Corporation Law imposes a penal
sanction for transacting business without registration, such as imprisonment or fines. However,
this penalty does not render contracts unenforceable. Instead, the failure to register only affects the
corporation's ability to seek remedies in court, as clarified under Section 133 of the Revised
Corporation Code, which replaced the ambiguous wording of Section 69 of the old Corporation
Law. This updated provision ensures that unlicensed foreign corporations are denied access to
Philippine courts for initiating legal actions, but it explicitly allows them to be sued or held
accountable in local courts for valid causes of action.
In the case of Home Insurance, the corporation sufficiently alleged its capacity to sue by
stating it was authorized to do business in the Philippines, providing its agent's name and office
address, as required under Section 4, Rule 8 of the Rules of Court. These procedural aspects
strengthen the enforceability of the contracts in question.
Therefore, it is not necessary to declare the contracts null and void even against erring
foreign corporations. The penal sanctions for non-registration and the denial of access to Philippine
courts are sufficient from the viewpoint of legislative policy. This approach supports a balanced
interpretation of the law, promoting the growth of international trade while ensuring compliance
with local regulations.

3.
Yes, the Court of Appeals’ decision is correct, as the activities of Mentholatum Co., Inc.
constituted business transactions in the Philippines prior to securing the required license. Section
150 of the Revised Corporation Code provides that a foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall not be permitted to maintain or
intervene in any action, suit, or proceeding in any court or administrative agency in the Philippines.
However, such a corporation may still be sued or proceeded against before Philippine courts for
any valid cause of action recognized under Philippine laws.
In this case, Mentholatum Co., Inc., a foreign corporation, was transacting business in the
Philippines through its exclusive distributor, the Philippine-American Drug Co., Inc. This activity
brought it within the scope of “transacting business” as defined by the Corporation Law, requiring
it to obtain a license. Consequently, Mentholatum Co., Inc., not having secured the required license
at the time, is barred from prosecuting its action for trademark infringement and unfair competition
in Philippine courts.
Furthermore, the Philippine-American Drug Co., Inc., as the exclusive distributor, could
not maintain the suit independently because of its derivative authority and representative capacity.
It was essentially acting on behalf of Mentholatum Co., Inc., which lacked the legal capacity to
file the case due to its unlicensed status.
This case underscores the principle that foreign corporations must obtain the necessary
license to transact business in the Philippines before they can maintain any lawsuit in the country.
It also clarifies that activities conducted through local agents or distributors may fall within the
purview of "transacting business," requiring compliance with licensing requirements to pursue
legal actions or proceedings in Philippine courts.

4.
No, the Supreme Court agrees with the ruling of the lower courts that the petitioner’s transactions
in the Philippines were not isolated or casual transactions. The Court explained that, based on the factual
evidence, there was a clear and unmistakable intention on the part of the petitioner to continue the body of
its business in the Philippines. This intent was demonstrated by its series of transactions, including the grant
and extension of 90-day credit terms to the private respondent for every purchase. Such credit arrangements
are typically extended to customers with whom a long-term business relationship is intended, underscoring
that the petitioner was indeed conducting business in the country.
The Court cited the case of The Mentholatum Co., Inc. vs. Mangaliman, which held that the true
test of “doing business” is not the number or quantity of transactions but the intention to continue the body
or substance of the business for which the corporation was organized. The frequency or volume of
transactions merely serves as evidence of this intent. The phrase “isolated transaction” refers to a transaction
or series of transactions entirely distinct from the common business of the foreign corporation, without any
intent to engage in a progressive pursuit of its business purpose.
Here, the four-month period of transactions between the petitioner and the respondent clearly
established a continuing business relationship. This ongoing pattern of activity constituted "doing business"
under Philippine law. For all intents and purposes, the petitioner was transacting business in the Philippines
without securing the required license.
Section 150 of the Revised Corporation Code prohibits foreign corporations transacting business
in the Philippines without a license from maintaining or intervening in any action, suit, or proceeding in
Philippine courts. However, such corporations may still be sued or proceeded against in local courts or
tribunals for any valid cause of action. Jurisprudence further clarifies that a foreign corporation “doing
business” is determined not by the frequency of transactions alone but by the nature and character of those
transactions and the intent to pursue the purpose of the corporation within the country.
Therefore, since the petitioner’s intent to pursue and continue the substance of its business in the
Philippines has been clearly established, it cannot claim that its series of transactions were mere isolated
acts. As a foreign corporation transacting business without a license, the petitioner has no capacity to sue
under Philippine law.

5.

Yes, the petitioner is correct in asserting that it was not “doing business” in the Philippines, as its
participation in the assignment of contracts was merely incidental, casual, or isolated in nature.
Jurisprudence has consistently emphasized that the term "doing business" should not be given a
strict and literal interpretation to apply to every corporate act. Under Republic Act No. 7042 (Foreign
Investment Act of 1991) and related laws, the mere ownership of property or participation in isolated
transactions does not constitute "doing business." The term implies a continuity of commercial dealings or
the progressive pursuit of the corporation’s business purpose, evidenced by overt acts of engaging in such
activities. Absent such overt acts, the presumption of "doing business" cannot stand. For example, a foreign
corporation that becomes the assignee of mining properties, facilities, or equipment cannot automatically
be presumed to have the intention of engaging in mining operations.
Here, the Court of Appeals failed to establish any direct nexus between the petitioner’s business
purpose and the acts alleged to constitute "doing business." Its conclusion that the petitioner intended to
continue Marcopper’s business was based on conjecture and speculation, relying on the assumption that the
petitioner’s recovery of its financial investments was dependent on continuing Marcopper’s operations.
However, this presumption lacks sufficient factual basis. The absence of overt acts to demonstrate the
petitioner’s intent to continue the business negates the conclusion that it was "doing business" in the
Philippines.
 The principles governing a foreign corporation’s right to sue in Philippine courts are well-settled under
the Corporation Code and jurisprudence, and they may be summarized as follows:
1. If a foreign corporation is doing business in the Philippines without a license, it cannot sue before
Philippine courts.
2. If a foreign corporation is not doing business in the Philippines, it does not need a license to sue
for an isolated transaction or a cause of action independent of any business transaction.
3. If a foreign corporation is doing business in the Philippines with the required license, it can sue on
any transaction.
In this case, the Court found that the petitioner’s assignments were isolated transactions, not indicative
of ongoing or continuous business operations in the Philippines. As such, the petitioner is not barred from
maintaining its suit. The absence of the prescribed license does not debar the petitioner from accessing
Philippine courts because it was not “doing business” in the country.
Thus, MR Holdings, Ltd. was not engaged in business in the Philippines, and the assignments of
contracts were incidental transactions. Consequently, it was not required to secure a license to sue in local
courts.
6.
Yes, petitioner Hutchison Ports Philippines Limited (Hutchison), a foreign corporation organized under
the laws of the British Virgin Islands, is barred from bringing an action in Philippine courts because it was
"doing business" in the Philippines without the required license.
While Hutchison argues that it is suing on an isolated transaction to avoid the licensing requirement,
jurisprudence has established that a single act or transaction may constitute "doing business" if it involves
acts for which the corporation was created or exercises functions for which it was organized. The volume
or frequency of transactions is irrelevant if the act demonstrates the corporation’s intention to conduct
business.
In this case, Hutchison participated in a bidding process for a concession contract in the Philippines,
which constitutes “doing business.” Bidding for contracts, particularly international projects such as those
sponsored by the International Bank for Reconstruction and Development (IBRD) or the Asian
Development Bank (ADB), has been recognized as an act of doing business in the Philippines. This is
because bidding for such contracts involves exercising the corporation’s primary functions and is an activity
directly tied to its purpose or reason for existence. Such participation demonstrates an unmistakable intent
to engage in business within the country, making it subject to the licensing requirement under Philippine
law.
Jurisprudence has repeatedly held that a foreign corporation that engages in acts related to its primary
business purpose, regardless of whether those acts are isolated, is required to secure a license before it can
file or prosecute an action in Philippine courts. In this case, Hutchison failed to obtain the necessary license,
rendering it legally incapacitated to bring the petition for injunction before Philippine courts.
Accordingly, the petitioner’s participation in the bidding process constitutes “doing business” under
Philippine law, and Hutchison Ports Philippines Limited cannot maintain its suit in local courts without the
requisite license.
 7.
No, the transactions entered into by the respondent do not fall under the category of "doing
business" as defined by Philippine laws. The Supreme Court, in Eastboard Navigation Ltd. v. Juan Ysmael
and Co., Inc., held that isolated transactions do not constitute doing business in the Philippines within the
purview of Section 150 of the Corporation Code. Consequently, such isolated transactions do not bar a
foreign corporation from seeking redress in Philippine courts.
Jurisprudence has further clarified that the doctrine of lack of capacity to sue, based on the failure
to acquire a license to do business, is grounded in considerations of public policy. It is not intended to allow
domestic corporations to evade their contractual obligations by exploiting the technicality of a foreign
corporation’s unlicensed status when the transactions are isolated and do not constitute doing business.
In the present case, the transactions entered into by the respondent with the petitioners were not a
series of commercial dealings indicative of an intent to conduct continuous business operations in the
Philippines. The records show that the second and third transactions were merely attempts to recover the
respondent's losses from the petitioners’ failure to deliver crude coconut oil under the first agreement. The
three transactions were not distinct commercial agreements but part of an effort to fulfill the original
contract: the delivery by the petitioners of 500 long tons of crude coconut oil in exchange for payment from
the respondent.
The facts demonstrate that the respondent only entered into the subsequent transactions to mitigate
its losses and give the petitioners a chance to make good on their obligation. These transactions, taken
collectively, do not indicate a continuity of business dealings sufficient to categorize the respondent as a
foreign corporation doing business in the Philippines. Instead, they constitute isolated transactions, which
do not require the respondent to secure a license to do business under Philippine law.
Therefore, the respondent, being a foreign corporation not engaged in business in the Philippines,
does not need to obtain a license to maintain its suit in Philippine courts. Its actions fall outside the scope
of "doing business," and it retains the capacity to sue based on the isolated nature of the transactions.

8.
No, Agilent has legal capacity to file suit in Philippine courts since it is not "doing business" in the
Philippines. Under Philippine law, a foreign corporation without a license is not automatically barred from
bringing an action in Philippine courts. A license is required only if the corporation is "transacting" or
"doing business" in the country, as defined by Section 150 of the Revised Corporation Code.
Jurisprudence establishes that the right of a foreign corporation to file suit in Philippine courts can be
summarized as follows: (1) If a foreign corporation does business in the Philippines without a license, it
cannot sue in Philippine courts; (2) If a foreign corporation is not doing business in the Philippines, it does
not need a license to sue for an isolated transaction or a cause of action independent of any business
transaction; (3) If a foreign corporation does business in the Philippines without a license, a Philippine
citizen or entity that contracted with the corporation may be estopped from challenging its legal capacity to
sue. And (4) If a foreign corporation does business in the Philippines with the required license, it can sue
on any transaction.
To determine whether a foreign corporation is "doing business," the courts apply the substance test and
the continuity test. The substance test asks whether the foreign corporation is continuing the body of its
business or whether it has substantially retired from it. The continuity test, on the other hand, evaluates
whether there is a continuity of commercial dealings or the progressive prosecution of the corporation’s
purpose in the Philippines.
Additionally, the Implementing Rules and Regulations (IRR) of the Foreign Investment Act (FIA), as
amended by Republic Act No. 8179, provides that the following activities do not constitute "doing
business": (1) Maintaining a stock of goods in the Philippines solely for processing by another entity in the
Philippines; and (2) Consignment of equipment to a local company to be used in the processing of products
for export.
In this case, Agilent’s activities in the Philippines were confined to (1) maintaining a stock of goods
solely for processing by Integrated Silicon and (2) consigning equipment to Integrated Silicon for use in
the processing of products for export. These activities are explicitly excluded from the definition of "doing
business" under the FIA’s IRR. Furthermore, there is no evidence that Agilent engaged in profit-making
activities in the Philippines or intended to conduct continuous business dealings in the country.
Thus, Agilent is a foreign corporation not doing business in the Philippines and is not required to secure
a license to maintain its suit. The respondent’s argument that Agilent lacks the legal capacity to file suit is
therefore without merit.

9.
No, the Court of Appeals erred in its conclusion that the petitioner was "doing business" in the
Philippines. The delivery of goods in Hong Kong and the transactions conducted outside the Philippines do
not fall within the legal definition of "doing business" under Philippine law.
Under Section 3(d) of Republic Act No. 7042 (The Foreign Investments Act of 1991), "doing
business" includes activities such as soliciting orders or service contracts, opening offices or branches,
appointing representatives or distributors in the Philippines, or engaging in acts that imply a continuity of
commercial dealings or arrangements within the country. However, an essential condition to be considered
"doing business" is the actual performance of specific commercial acts within the territory of the
Philippines. Jurisprudence holds that the Philippines has no jurisdiction over commercial acts performed
entirely in foreign territories.
In this case, there is no evidence that the petitioner conducted any of the specific acts enumerated
in Section 3(d) within Philippine territory. The petitioner did not open an office, appoint a representative or
distributor, or manage, supervise, or control any local business. While there was a series of transactions
between the petitioner and the respondent, the negotiations, perfection, and consummation of these
transactions were all done outside the Philippines, specifically in Hong Kong. Thus, the petitioner’s
activities do not constitute "doing business" in the Philippines.
The Supreme Court has consistently held that an unlicensed foreign corporation not doing business
in the Philippines may sue in Philippine courts. This principle, grounded on the Corporation Code and the
Foreign Investments Act of 1991, ensures that foreign corporations engaged in isolated transactions or
activities performed outside Philippine jurisdiction are not barred from seeking legal remedies in Philippine
courts.
Accordingly, the Supreme Court reversed the Court of Appeals' decision, holding that the petitioner
was not doing business in the Philippines and was therefore not required to obtain a license to maintain its
collection suit. The petitioner retains the legal capacity to sue the respondent for the unpaid balance of its
purchases.