May an unlicensed foreign corporation "doing business" in the Philippines be allowed from accessing our courts?

As a general rule, no foreign corporation transacting business in the Philippines without a license shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines.

In a number of cases, however, the Supreme Court has held that an unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine courts against a Philippine citizen or entity who had contracted with and benefited from said corporation. Such a suit is premised on the doctrine of estoppel. A party is estopped from challenging the personality of a corporation after having acknowledged the same by entering into a contract with it. The application of this principle prevents 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.

The principles regarding the right of a foreign corporation to bring suit in Philippine courts may be condensed in four statements:

(1)  if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts;

(2)  if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction;

(3)  if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporation’s corporate personality in a suit brought before Philippine courts; and

(4)  if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction.

On the other hand, the Foreign Investments Act of 1991 (the "FIA"; Republic Act No. 7042, as amended), defines "doing business" as follows:

Sec. 3, par. (d). The phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity, or corporation in the Philippines; and 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 the progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Section 1 of the Implementing Rules and Regulations of the FIA (as amended by Republic Act No. 8179) provides that the following shall not be deemed "doing business":

(1) 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;

(2) Having a nominee director or officer to represent its interest in such corporation;

(3) Appointing a representative or distributor domiciled in the Philippines which transacts business in the representatives or distributors own name and account;

(4) The publication of a general advertisement through any print or broadcast media;

(5) Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;

(6) Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;

(7) Collecting information in the Philippines; and

(8) 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.

In essence, to constitute "doing business", the activity to be undertaken in the Philippines is one that is for profit-making. (See Steelcase, Inc. v. Design International Selections, Inc. [2012]; Agilent Technologies Singapore (Pte.), Ltd. v. Integrated Silicon Technology Philippines Corporation [2004])

Foreign corporations doing business without a license in the Philippines: penal sanctions

The Civil Code of the Philippines provides that, “Ignorance of the law excuses no one from compliance therewith.” (Art. 3) Thus, for foreigners about to do business, or who are already doing business without a license, in the country, consider this as a gentle reminder: doing so is punishable by fines and/or imprisonment.

Under the Corporation Code: “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.” (Sec. 133)

The Supreme Court has categorically declared that, "the prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of Section 144 of the Code." (Home Insurance Co. vs. Eastern Shipping Lines, G.R. No. L-34382, 20 July 1983)

Sec. 144 of the Corporation Code states, thus – “Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days but not more than five (5) years, or both, in the discretion of the court. If the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided, That such dissolution shall not preclude the institution of appropriate action against the director, trustee or officer of the corporation responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code.”

But what does doing business actually mean? The determination of whether a foreign corporation is doing business in the Philippines must be based on the facts of each case. (Rimbunan Hijau Group of Companies vs. Oriental Wood Processing Corporation, G.R. No. 152228, 23 September 2005)

According to the Supreme Court, to be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license. (B. Van Zuiden Bros., Ltd. vs. GTVL Marketing Industries, Inc., G.R. No. 147905, 28 May 2007)