a. “Doing Business” in the Philippines

Bases of Authority over Foreign Corporations

• Consent - It is the voluntary surrender of jurisdiction over its person in a pending suit before the host state (Salonga, Private International Law, 1979 ed., p.344).
• “Doing Business” with regard to Foreign Corporations - Continuity of commercial dealings incident to prosecution of purpose and object of the organization. Isolated, occasional or casual transactions do not amount to engaging in business. But where the isolated act is not incidental/casual but indicates the foreign corporation’s intention to do other business, said single act constitutes engaging in business in the Philippines.

What constitutes “Doing Business”

Isolated Transactions Test: where a foreign corporation needs to obtain a license and fails to do so, whether it should be denied legal standing to obtain remedies from local courts and administrative agencies or not, depends therefore on the issue whether it will engage in business in the Philippines. Not every activity undertaken in the Philippines amounts to doing business as to require a foreign corporation to obtain such license.

Single or isolated acts, contracts, or transactions of foreign corporations are not regarded as a doing or carrying on of business. Typical examples of these are the making of a single contract, sale, sale with the taking of a note and mortgage in the state to secure payment thereof, purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do any other business within the country (MR Holdings, Ltd. v. Sheriff Carlos P. Bajar, G.R. No. 138104, 29 March 2004)¹.

However, where a single act or transaction is not merely incidental or casual but indicates the foreign corporation's intention to do other business in the Philippines, said single act or transaction constitutes doing business (FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION v. Nankai Kogyo Co. LTD, G.R. No. L-13525, 30 November 1962)².

Need to Allege: The fact that a foreign corporation is not doing business in the Philippines must be alleged, if a foreign corporation desires to sue in Philippines courts under the “isolated transactions rule” (ATLANTIC MUTUAL INSURANCE COMPANY and CONTINENTAL INSURANCE COMPANYand v. CEBU STEVEDORING CO., INC..and, G.R. No. L-18961, 31 August 1966)³; if not alleged, it can be dismissed for lack of capacity to sue by the plaintiff (Commissioner of Customs v. Gani, G.R. No. 73722, 26 February 1990)⁴.

Twin Characterization Test (Mentholatum Co., Inc. v. Mangaliman, G.R. No. 47701, 27 June 1941)⁵

Substance Test: Consider the body or substance of the business or the enterprise for which it was ORGANIZED or whether it has substantially retired from it and turned it over to another.

Continuity Test: That doing business implies a continuity of commercial dealings and arrangements and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incidental to, and in progressive prosecution of, the purpose and object of its organization.

Taken together, “Doing Business In The Philippines” may consist of a transaction or a series of transactions in pursuit of the main business goals of the corporation and done with the intent to continue the same in the Philippines.

Contract Test: if the salient points of a contract do not find themselves in the Philippines, Philippine authorities have no business subjecting the parties to local registration and licensing requirements (Pacific Vegetable Oil Corp. v Singzon, G.R. No. 7917)⁶

“Doing Business” Under The Foreign Investment Act and IRR

• Soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches;
• Appointing representatives or distributors domiciled in the Philippines;

NOTE: Includes “appointing representatives or distributors in the Philippines” but not when the representative or distributor “transacts business in its name and for its own account.” (Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft, G.R. No. 113074, 22 January 1997)⁷

• Participating in the management, supervision, or control of any domestic business, firm, entity, or corporation in the Philippines; and
• Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization

NOTE: Pioneer International’s alleged managerial and operational acts, taken as hypothetically admitted on its motion to dismiss, could constitute doing business; whether it actually performed them required factual determination. Pioneer International’s alleged acts in actively negotiating to employ Todaro to run its pre-mixed concrete operations in the Philippines, which acts are hypothetically admitted in Pioneer International’s motion to dismiss, are not mere acts of a passive investor in a domestic corporation. Such are managerial and operational acts in directing and establishing commercial operations in the Philippines. (Pioneer International, Ltd. v. Guadiz, G.R. No. 156848, 11 October 2007)⁸

Does Not Include:

• Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor;
• Having a nominee director or officer to represent its interests in such corporation;
• Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;
• The publication of a general advertisement through any print or broadcast media;
• Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;
• Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;
• Collecting information in the Philippines; and
• Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as Installing in the Philippine machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

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 (Lorenzo Shipping Corp v. Chubb and Sons, Inc., G.R. No. 147724, 8 June 2004)⁹.

Registration Requirement– Section 5, RA 7042¹⁰, as amended

Updated: However, a single and isolated service contract for a specific project does not constitute doing business for lack of continuity, Magna Ready Mix Concrete Corporation v. Andersen Bjornstad Kane Jacobs, Inc., G.R. No. 196158, 19 June 2023.

Bases of Authority over Foreign Corporations

• Consent - It is the voluntary surrender of jurisdiction over its person in a pending suit before the host state (Salonga, Private International Law, 1979 ed., p.344).
• “Doing Business” with regard to Foreign Corporations - Continuity of commercial dealings incident to prosecution of purpose and object of the organization. Isolated, occasional or casual transactions do not amount to engaging in business. But where the isolated act is not incidental/casual but indicates the foreign corporation’s intention to do other business, said single act constitutes engaging in business in the Philippines.

Test to Determine “Doing Business”

• Isolated Transactions Test: where a foreign corporation needs to obtain a license and fails to do so, whether it should be denied legal standing to obtain remedies from local courts and administrative agencies or not, depends therefore on the issue whether it will engage in business in the Philippines. Not every activity undertaken in the Philippines amounts to doing business as to require a foreign corporation to obtain such license.

Single or isolated acts, contracts, or transactions of foreign corporations are not regarded as a doing or carrying on of business. Typical examples of these are the making of a single contract, sale, sale with the taking of a note and mortgage in the state to secure payment thereof, purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do any other business within the country (MR Holdings, Ltd.)¹¹.

BUT: Where a single act or transaction is not merely incidental or casual but indicates the foreign corporation's intention to do other business in the Philippines, said single act or transaction constitutes doing business (FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION)¹².

Need to Allege: The fact that a foreign corporation is not doing business in the Philippines must be alleged, if a foreign corporation desires to sue in Philippines courts under the “isolated transactions rule” (ATLANTIC MUTUAL INSURANCE COMPANY)¹³; if not alleged, it can be dismissed for lack of capacity to sue by the plaintiff (Commissioner of Customs)¹⁴.

• Twin Characterization Test (Mentholatum Co., Inc.)¹⁵

Substance Test: Consider the body or substance of the business or the enterprise for which it was ORGANIZED or whether it has substantially retired from it and turned it over to another.

Continuity Test: That doing business implies a continuity of commercial dealings and arrangements and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incidental to, and in progressive prosecution of, the purpose and object of its organization.

Taken together, DOING BUSINESS in the Philippines may consist of a transaction or a series of transactions in pursuit of the main business goals of the corporation and done with the intent to continue the same in the Philippines.

• Contract Test: if the salient points of a contract do not find themselves in the Philippines, Philippine authorities have no business subjecting the parties to local registration and licensing requirements (Pacific Vegetable Oil Corp., G.R. No. 7917)¹⁶

“Doing Business” Under The Foreign Investment Act and IRR

“Doing Business” in the Philippines - Includes:

• Soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches;
• Appointing representatives or distributors domiciled in the Philippines;

Note: Includes “appointing representatives or distributors in the Philippines” but not when the representative or distributor “transacts business in its name and for its own account.” (Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft)¹⁷

• Participating in the management, supervision, or control of any domestic business, firm, entity, or corporation in the Philippines; and
• Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization

Note: In Pioneer International, the allegations of active negotiation and operational involvement, hypothetically admitted for purposes of the motion to dismiss, were sufficient at that stage to support a claim that Pioneer International was doing business in the Philippines; whether the alleged acts occurred remained a factual question. Pioneer International’s alleged acts in actively negotiating to employ Todaro to run its pre-mixed concrete operations in the Philippines, which acts are hypothetically admitted in Pioneer International’s motion to dismiss, are not mere acts of a passive investor in a domestic corporation. Such are managerial and operational acts in directing and establishing commercial operations in the Philippines. (Pioneer International, Ltd. v. Guadiz)¹⁸

Updated: However, a service contract with a domestic corporation does not constitute doing business if the services are performed outside the Philippines, even with incidental visits to the country for consultation (Magna Ready Mix Concrete Corporation v. Andersen Bjornstad Kane Jacobs, Inc., G.R. No. 196158, 19 June 2023).

Does Not Include:

• Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor;
• Having a nominee director or officer to represent its interests in such corporation;
• Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;
• The publication of a general advertisement through any print or broadcast media;
• Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;
• Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;
• Collecting information in the Philippines; and
• Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as Installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

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 (Lorenzo Shipping Corp. v. Chubb and Sons, Inc.)¹⁹.