PERSONALITY TO SUE

What confers upon the foreign corporation the legal capacity to

sure in the Philippines?
The foreign corporation has the legal capacity to sue if it hasprocured from the SEC a license to do
business or it is suing on a casual or isolated transaction.

For purposes of acquiring jurisdiction by way of service of summons, there is no need to prov first the fact
that the defendant is doing business in the Philippines. Where a complaint alleges that defendant has an
agent in the Philippines, summonsa can validly be served thereto evem without prior to evidence of the
truth of suct factual allegation. If in fact, a foreign corporation does not do business here, that is a matter
that should be ventilated in the trial on th merits but not in a motion to dismiss.

It does not follow that the insurer, as subrogee, has also no capacity to sue in this jurisdiction simply
because the insured party ( which is the foreign corporation) has no legal capacity to sue in the
Philippines. The rights inherited by the insurer pertain only to the payment it made to the insured and
which amount it now seeks to recover from the shipping company which caused the loss sustained by the
insured. Th capacity to sue is a right personal to its holder. It is conferred by law and not by the parties.
The insurer has satisfactorily proven its capacity to sue, after having shown that it is not doing business in
the Philippines, but is suing only under an isolated transaction, i.e., under the one marine insurance policy
issued in favor of he consignee/insured.
SUABILITY OF FOREIGN
CORPORATION
 State the principles governing the right to sue and suability of
foreign corporation
The following principles governing a foreign corporation’s right to sue in local courts have long been
settled, to wit:

a. If a foreign corporation does business in the Philippines without a license , it cannot sue before the
Philippine courts;
b. If a foreign corporation is not doing business in the Philippines, it need no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of an
business transaction; and
c. If a foreign corporation does not business in the Philippine with the required license, it can sue before
Philippine court on any transaction.
It is not the absence of the prescribed license but the “doing (of) business” in the Philippines without such
license which debars the foreign corporation from access to our courts.

Tersely, the issue on whether a foreign corporation, which does not have a license to engage in business
in the Philippines can seek redress in Philippine courts depend s on whether it is doing business or it
merely entered into an isolated transaction. A foreign corporation that is not doing business in the
Philippines must disclose such fact if it desires to sue in Philippine courts under the isolated transaction
rule because, without such disclosure, the court may choose to deny it the right to sue.
 INSTANCES WHEN
UNLICENSED FOREIGN
CORPORATIONS MAY BE
ALLOWED TO SUE
(ISOLATED TRANSACTION)
 What are the instances when an unlicensed foreign corporations
may be allowed to sue ?
The following are the instances when an unlicensed foreign corporation may be allowed to sue in the
Philippines court.

a. If the foreign corporation is suing on a casual or isolated transaction.

An isolated transaction will not result in the enterprise being deemed as doing business in the
Philippines. The phrase “ isolated transaction” has a definite and fixed meaning, i.e, a transaction or series
of transactions 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 an object of the business organization.

The ascertainment of whether a foreign corporation is merely suing on an isolated transaction or is

actually doing business in the Philippines requires the elicitation of at least a preponderant set of facts. It
simply cannot be answered through conjectures or acceptance of unsubstantiated allegations.
 What are the instances when an unlicensed foreign corporations
may be allowed to sue ?
b. Action to protect the good name, goodwill and reputation if a foreign corporation.

Foreign corporation not doing business in the Philippines may sue here even if not licensed in order to
protect intellectual property rights. Under the Paris Convention for the Protection of Intellectual Property
Rights, the Philippines is obligated to assure nationals of countries of the Paris Convention that they are
afforded effective protection against violation of their intellectual property rights in the Philippines in the
same way that their own countries are obligated to accord similar protection to Philippine nationals.

Our obligation under the Paris Convention is incorporated in Section 3 of R.A. No. 8293, otherwise known
as the Intellectual Property Code.

c. Where the contract provides the Philippine court as the exclusive venue for court action, to the exclusion
of other courts.

Stipulation as to venue which is not permissive but exclusive in nature is binding to the parties.
 What are the instances when an unlicensed foreign corporations
may be allowed to sue ?
d. A license to engage in business granted subsequent to the transaction enables the foreign corporation
to sue on contracts executed before grant oflicense.

In one case, the Supreme Court ruled that a contractentered into by a foreign corporation not licensed to
do business in the Philippines is not void even as against the erring foreign corporation. The lack of
capacity at the time of the execution of the contracts was cured by the subsequent grant of a license to
engage in business.

It was likewise held in this case that while the grant of the license retroacts to the date ofthe transaction,
this is without prejudice to criminal prosecution against the foreign corporation for doing business without a
license.

The basis of criminal liability is Section 144 of the OCC (now Section 170 of the RCC) that any violation of
the provisions ofthe Corporation Code or its amendments not otherwise specifically penalized therein shall
be punished by a fine or by imprisonment. (The RCC retained the language but removed the penalty of
imprisonment.)
 What are the instances when an unlicensed foreign corporations
may be allowed to sue ?
In TENT v. Tullett Prebon,™ the Supreme Court, however, ruled that its declaration in Home
Insurance
Company v. Eastern Shipping Lines that “the prohibition against doing business without first
securing a licenseis now given a penal sanction which is also applicable to other violations ofthe
Corporation Code under the general provisions of Section 144 of the Code” is unmistakably an
obiter dictum. The issue in the Home Insurance case was whether or not a foreign corporation
previously doing business here without a license has the capacity to sue in our courts when it had
already acquired the necessary license at the time of the filing of the complaints. The statement
regarding the supposed penal sanction was not essential to the resolution of the case as none of
the parties was being made criminally liable.

e. When the unlicensed foreign corporation has domestic corporation as a co-plaintiff/petitioner.

This is necessary to prevent multiplicity of suits.

 What are the instances when an unlicensed foreign corporations
may be allowed to sue ?
f. Under the doctrine of estoppel when the counterparty is estopped or precluded from questioning the lack
of legal capacity ofthe foreign corporation, as held in the following cases:

A foreign corporation which licensed a domestic corporation to manufacture and market its products
and equipment is doing business in the Philippines and cannot sue the domestic corporations ifit has no
license to do business in the Philippines. For being in pari delicto, the domestic corporation cannot ask the
courts to prohibit the foreign corporation from terminating its contract and giving the license to produce and
market its products to another.

A foreign corporation doing business in the Philippines may sue in the Philippine courts although it has no
license to do business here against a Philippine citizen who had contracted with and been benefited by
said corporation where such party is aware that the foreign corporation is doing business in the Philippines
without a license and received benefits from transacting business with it, under the principle 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 principle is applied to prevent a person contracting with a foreign
corporation from latertaking advantage ofits noncompliance with the statutes, chiefly in cases where such
person has received the benefits ofthe contract.
Grounds for revocation of license
 When may the SEC revoke or suspend the license of a foreign
corporation to transact business in the Philippines?

Without prejudice to other grounds provided under special laws, the license of a
foreign corporation to transact business in the Philippines may be revoked or
suspended by the SEC upon any of
the following grounds:
a. Failure to file its annualreport or pay any fees asrequired by the RCC;

b. Failure to appoint and maintain a resident agent in the Philippines as required by

this Title;

c. Failure, after change of its resident agent or address, to submit to the SEC a
statement ofsuch change asrequire by this Title;

d. Failure to submit to the SEC an authenticated copy of any amendment to its articles
of incorporation or bylaws or of any articles of merger or consolidation within the time
prescribed by this Title;
 When may the SEC revoke or suspend the license of a foreign
corporation to transact business in the Philippines?

e. A misrepresentation of any material matter in any application, report, affidavit or

other document submitted by such corporation pursuant to this Title;

f. Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully
due to the Philippine Government or any ofits agencies or politicalsubdivisions;

g. Transacting business in the Philippines outside of the purpose or purposes for

which such corporation is authorized under its license;

h. Transacting business in the Philippines as agent of or acting on behalf of any

foreign corporation or entity not duly licensed to do business in the Philippines; or

i. Any other ground as would render it unfit to transact business in the Philippines.
 When may the SEC revoke or suspend the license of a foreign
corporation to transact business in the Philippines?

Upon the revocation of the license to transact business in the Philippines, the
SEC shall issue a corresponding certificate of revocation, furnishing a copy
thereofto the appropriate government
agency in the proper cases.

The SEC shall also mail the notice and copy of the certificate of revocation to
the corporation, at its registered office in the Philippines.
Merger and Consolidation
 What are the different forms of corporate combinations and
acquisitions?
The different forms of corporate combinations and
acquisitions are:

a. Sale of all or substantially all ofthe assets (asset sale).

b. Sale of controlling block of stock to new stockholder/s
(stock sale).
c. Merger or consolidation.
 What is a merger?

A merger is a reorganization of two (2) or more corporations that

results in their consolidating into a single corporation, which is one of
the constituent corporations, one disappearing or dissolving and the
other surviving.

To put it another way, merger is the absorption of one (1) or more

corporations by another existing corporation, which retainsits identity
and takes over the rights, privileges, franchises, properties, claims,
liabilities and obligations ofthe absorbed corporation(s). The
surviving corporation continues its existence while the life or lives of
the other corporation(s) is or are terminated.
 Distinguish merger from asset sale between corporations.

In merger, the constituent corporations cease to exist except the

surviving corporation which retains its corporate identity but acquires
all the rights and liabilities of the acquired corporation/swhereas in
asset sale, both the seller corporation and buyer corporation
continue to exist. The seller corporation is not dissolved even though
it may not have any asset left.

In merger, the surviving corporation assumes all the liabilities of the

absorbed corporation whereas in asset sale, the buyer, as a general
rule, does not assume the liabilities of the seller.
 Distinguish merger from consolidation.

Consolidation is the union of two (2) or corporations to form a new corporation called
the consolidated corporation.

Merger, on the other hand, is a union whereby one corporation absorbs one or more
existing corporations, and the absorbing corporation survives and continues the
combined business.

The parties to a merger or consolidation are called constituent corporations. In

consolidation, all the constituents are dissolved and absorbed by the new consolidated
enterprise. In merger, all constituents, except the surviving corporation, are'dissolved.
In both cases, however, there is no liquidation of the assets of the dissolved
corporations, and the surviving or consolidated corporation acquires all their
properties, rights and franchises and their stockholders usually become its
stockholders.
 Distinguish merger from consolidation.

The surviving or consolidated corporation assumes automatically the

liabilities ofthe dissolved corporations, regardless of whether the
creditors have consented or not to such merger or consolidation.