b. Suability and Capacity to Sue

Suability of Foreign Corporations

Every foreign corporation

• Doing business in the Philippines with a license may sue and can be sued in the Philippines
• Doing business in the Philippines without a license cannot sue, but may be sued in the Philippines
• Not doing business in the Philippines, or on isolated transactions may sue and can be sued (if jurisdiction can be acquired)

Instances When Unlicensed Foreign Corporations May Be Allowed To Sue:

• Isolated transactions;
• Action to protect good name, goodwill, and reputation of a foreign corporation;
• A Philippine-venue clause does not independently cure lack of capacity to sue for a foreign corporation doing business in the Philippines without a license; determine whether an exception, such as estoppel, applies (R.A. No. 11232, Sec. 150);
• A license subsequently granted enables the foreign corporation to sue on contracts executed before the grant of the license (Eriks Pte. LTD v. Court of Appeals and Delfin F. Enriquez, G.R. No. 118843, 6 February 1997)¹;
• Recovery of misdelivered property;
• Where the defendant is estopped.

The Intellectual Property Code² provides that any foreign corporation not engaged in business in the Philippines and a national of a country which is a party to any convention, treaty or agreement relating to intellectual property rights or the repression of unfair competition, to which the Philippines is also a party or extends reciprocal rights, may sue in trademark or service mark enforcement action (Sehwani v. In-N-Out Burger, Inc., G.R. No. 171053, 15 October 2007)³.

Rules Regarding A Foreign Corporation’s Right to Bring Suit in the Philippines

(Singapore v. Integrated Silicon Technology Philippines Corporation, G.R. No. 154618, 14 April 2004)⁴

Capability to Sue and Suability of Foreign Corporations W/N Doing Business

Suability and Capacity to Sue of Foreign Corporations:

• Corporation doing business in the Philippines with a license: Possesses capacity to sue and may also be sued.
• Corporation doing business in the Philippines without a license: Lacks legal capacity to maintain a suit, subject to the doctrine of estoppel; however, it may be sued provided proper service of summons is made to establish jurisdiction.
• Corporation not doing business in the Philippines (isolated transactions): May sue on isolated transactions, unless the course of dealing demonstrates an intent to engage regularly in business, which then requires a license to sue; it may also be sued provided jurisdiction is acquired via proper service of summons.

Nationalized Activities and the Negative List

The Foreign Investments Negative List or Negative List designates sectors of economic activity where foreign investment is prohibited or limited, with the applicable restriction depending on the Constitution or specific law (Sec. 8)⁵.

The Foreign Investment Negative List has three component lists: Lists A, B, and C.

• List A: Enumerates areas of activity exclusively or partially reserved to Philippine nationals pursuant to the Constitution and specific statutory enactments.
• List B: Enumerates economic areas and enterprises regulated under statutory authority:
  • Defense-related activities, which require prior clearance and authorization from the Department of National Defense (DND), including the manufacture, repair, storage, and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics, and analogous items; except where such manufacturing or repair is expressly authorized by the Secretary of National Defense to a non-Philippine national with a substantial export component; or
  • Activities impacting public health and morals, such as the manufacture and distribution of dangerous drugs; all types of gambling, nightclubs, bars, beerhouses, and dance halls; and sauna and steam bathhouses, as well as massage clinics.
  • Small and medium-sized domestic market enterprises:
    • General Rule: Enterprises with paid-in equity capital below the equivalent of five hundred thousand US dollars (US$500,000) are reserved to Philippine nationals, subject to the statutory exceptions.
    • Exception: Non-Philippine nationals may operate a small and medium-sized domestic market enterprise with a minimum paid-in equity capital of two hundred thousand US dollars (US$200,000) if:
      • the enterprise utilizes advanced technology as certified by the Department of Science and Technology; or
      • the enterprise employs a majority of Filipino direct employees, but not fewer than fifteen (15) Filipino employees (Sec. 8).⁶

To be categorized as advanced technology, the technology must:

• Be essential to the growth of particular industries;
• Comply with the standards and guidelines of the Department of Science and Technology; and
• Be suitable and adaptable to domestic conditions to facilitate its ultimate assimilation and application with available indigenous technology (Implementing Rules and Regulations of RA 7042 [as amended by RA 8179 July 9, 1996] Rule 1 §1 [o])⁷.

Procedure to Amend List B:

• Recommendation submitted by the Secretary of National Defense, the Secretary of Health, or the Secretary of Education, Culture and Sports;
• Endorsement issued by the National Economic and Development Authority (NEDA);
• Approval by the President; and
• Promulgation via a Presidential Proclamation (Sec. 8).

A Foreign Investment Negative List takes effect fifteen (15) days after its publication in a newspaper of general circulation in the Philippines. Every Negative List applies prospectively and shall not impair foreign investments already in existence at the time of publication (Sec. 8).

Modifications to List B following the promulgation and publication of the initial Regular Foreign Investment Negative List at the conclusion of the transitory period may not take place more often than once every two (2) years (Sec. 8).

Personality to Sue

Section 35 of RA 11232⁸ enumerates a corporation’s powers and capacity, including the capacity to sue and be sued in its corporate name.

The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. (Bitong v. Court of Appeals, G.R. No. 123553, 13 July 1998)⁹

Suability of Foreign Corporations

Every foreign corporation

• Doing business in the Philippines with a license may sue and can be sued in the Philippines
• Doing business in the Philippines without a license cannot sue, but may be sued in the Philippines
• Not doing business in the Philippines, or on isolated transactions may sue and can be sued (if jurisdiction can be acquired)

Instances When Unlicensed Foreign Corporations May Be Allowed To Sue:

• Isolated transactions;
• Action to protect good name, goodwill, and reputation of a foreign corporation;
• A contractual choice of Philippine venue does not, by itself, give an unlicensed foreign corporation capacity to sue on a cause of action arising from doing business in the Philippines without a license; determine whether it was doing business without a license or whether an exception, such as estoppel, applies (R.A. No. 11232, Sec. 150);
• A license subsequently granted enables the foreign corporation to sue on contracts executed before the grant of the license (Eriks Pte. LTD)¹⁰;
• Recovery of misdelivered property;
• Where the defendant is estopped.

The Intellectual Property Code¹¹ provides that any foreign corporation not engaged in business in the Philippines and a national of a country which is a party to any convention, treaty or agreement relating to intellectual property rights or the repression of unfair competition, to which the Philippines is also a party or extends reciprocal rights, may sue in trademark or service mark enforcement action (Sehwani)¹².

Rules Regarding A Foreign Corporation’s Right to Bring Suit in the Philippines

(Singapore)¹³

Capability to Sue and Suability of Foreign Corporations W/N Doing Business