for business org 2

8/12/2019 For Business Org 2

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2/19

PROBLEM #13

MLFI, a foreign corporation, through MLFPh,

a local company, sold commodity futures to

the public without the proper license to do

business. MLFI filed a case in court againsta local investor. The local investor, aware

that MLFI had no license, argues that it has

no legal standing in Philippine courts.Decide.


3/19

ISSUES

1. What is foreign corporation?

2. What are the requirements prescribed by the Code in order for aforeign corporation to be authorized to do business in thePhilippines?

3. What are the rights of a foreign corporation under the Philippinelaws?

4. Whether or not MLFI being a foreign corporation not registeredunder Philippine laws has the right to file a suit against the localinvestor.


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5/19

APPLICABLE JURISPRUDENCE

Communication Materials and Design, Inc. v. CA, 260 SCRA 673 (1996.)

Corporation Code of the Philippines Annotated. Miriam Defensor Santiago (2000.)

National Sugar Trading Corporation v. CA, 246 SCRA 465 (1995.)

Columbia Pictures, Inc. v. CA, 261 SCRA 144 (1996.)

Marubeni Nederland B.V. v. Tensuan. 190 SCRA 105 (1990).

Merril Lynch Features Inc. vs. CA

References

Corporation Code Annotated by Miriam Defensor Santiago. Corporation Code of the Philippines by Hector De Leon

Corporation Code of the Philippines: Comments and cases by Justice Vitug


6/19

RULE OF THUMB

Foreign corporation is licensed to do

business here in the Philippines

Foreign Corporation no licensed to

do business

Can sue and be sued Can be sued but cannot sue

Exception: If the transaction is isolated the foreign corporation may sue

and be sued


7/19

DISCUSSIONWhat is foreign corporation?

Section 123 of the Corporation Code of

the Philippines provides that a foreign

corporation is one formed, organized or

existing under any laws other than those of

the Philippines and whose laws allow Filipino

citizens and corporations to do business inits own country or state.


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WHAT ARE THE REQUIREMENTS PRESCRIBED BY THE CODE IN ORDERFOR A FOREIGN CORPORATION TO BE AUTHORIZED TO DO BUSINESS INTHE PHILIPPINES?

Under Section 124 of the Corpoartion Code of thePhilippines every foreign corporation which on the date of theeffectivity of this Code is authorized to do business in thePhilippines under a license therefore issued to it, shallcontinue to have such authority under the terms and conditionof its license, subject to the provisions of this Code and otherspecial laws. Further, the law requires that a foreigncorporation applying for a license to transact business in thePhilippines shall submit to the Securities and ExchangeCommission a copy of its articles of incorporation and by-laws, certified in accordance with law, and their translation toan official language of the Philippines, if necessary. Theapplication shall be under oath and, unless already stated inits articles of incorporation, shall specifically set forth thefollowing:


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1. The date and term of incorporation;

2. The address, including the street number, of the principal office of the corporation in thecountry or state of incorporation;

3. The name and address of its resident agent authorized to accept summons and process in

all legal proceedings and, pending the establishment of a local office, all notices affectingthe corporation;

4. The place in the Philippines where the corporation intends to operate;

5. The specific purpose or purposes which the corporation intends to pursue in the transactionof its business in the Philippines: Provided, That said purpose or purposes are thosespecifically stated in the certificate of authority issued by the appropriate governmentagency;

6. The names and addresses of the present directors and officers of the corporation;

7. A statement of its authorized capital stock and the aggregate number of shares which thecorporation has authority to issue, itemized by classes, par value of shares, shares withoutpar value, and series, if any;

8. A statement of its outstanding capital stock and the aggregate number of shares which thecorporation has issued, itemized by classes, par value of shares, shares without par value,and series, if any;

9. A statement of the amount actually paid in; and

10. Such additional information as may be necessary or appropriate in order to enable the

Securities and Exchange Commission to determine whether such corporation is entitled toa license to transact business in the Philippines, and to determine and assess the feespayable.

Attached to the application for license shall be a duly executed certificate under oath by theauthorized official or officials of the jurisdiction of its incorporation, attesting to the fact thatthe laws of the country or state of the applicant allow Filipino citizens and corporations todo business therein, and that the applicant is an existing corporation in good standing. Ifsuch certificate is in a foreign language, a translation thereof in English under oath of thetranslator shall be attached thereto.


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The application for a license to transact business in thePhilippines shall likewise be accompanied by a statementunder oath of the president or any other person authorized by

the corporation, showing to the satisfaction of the Securitiesand Exchange Commission and other governmental agencyin the proper cases that the applicant is solvent and in soundfinancial condition, and setting forth the assets and liabilitiesof the corporation as of the date not exceeding one (1) yearimmediately prior to the filing of the application.

Foreign banking, financial and insurance corporations shall, inaddition to the above requirements, comply with theprovisions of existing laws applicable to them. In the case ofall other foreign corporations, no application for license totransact business in the Philippines shall be accepted by theSecurities and Exchange Commission without previous

authority from the appropriate government agency, wheneverrequired by law.


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NOTE: The purpose of the law in requiring aforeign corporations doing business in thePhilippines be licensed to do so and that theyappoint an agent for service of process is to

subject the foreign coproration doing business inthe Philippines to the jurisdiction of its courts.The object is not to prevent the foreigncopration from performing single act, but to

prevent the foreign copration from performingsingle acts but to prevent it from acquiring adomicile for the purpose of business withouttaking steps necessarry to render it amenable tosuit in the local courts.


12/19

WHAT ARE THE RIGHTS OF A FOREIGN CORPORATION UNDERTHE PHILIPPINE LAWS?

Generally, a foreign corporation has no legal existencewithin the state in which it is foreign. This proceeds from the factthe principle that the juridical existence of a corporation isconfined within the territory of the state under whose laws it wasincorporated and organized, and it has no legal status beyondsuch territory. Such foreign corporation may be excluded by anyother state from doing business within its limits, or conditionsmaybe imposed on the exercise of such privilege.

It shall have the right to transact business in the Philippinesafter it shall have obtained a license to transact business in this

country in accordance with this Code and a certificate of authorityfrom the appropriate government agency. CommunicationMaterials and Design, Inc. v. CA, 260 SCRA 673 (1996.)


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WHETHER OR NOT MLFI HAS THE RIGHT TO FILE A SUIT AGAINST THE LOCALINVESTOR

No. While it true that Section 125 of the Corporation code of thePhilippines is not a condition precedent in the maintenance of any kind of actionin the Philippine courts by a foreign corporation, under the provision, no foreignshall be permitted to transact business here, it shall not be permitted to maintainany suit in local courts. Shortly, it has no legal capacity to sue. The court ruledthat The doctrine of lack of capacity to sue is based on the failure toacquire local license is based in the consideration of sound public policy.

The license requirement was imposed to subject the foreign corporations doingbusiness in the Philippines to the jurisdiction of its courts. It was never intendedto favor domestic corporations who enter into solitary transactions with unwaryforeign firms and then repudiate their obligations simply because the latter arenot licensed to do business in this country.

It must be emphasized that a foreign corporation doing business in thePhilippines with or without license is subject to process and jurisdiction of the

local courts. If such corporation is properly licensed then well and good. But itshall not be allowed, under any circumstances, to invoke its lack of license toimpugn jurisdiction of the courts. National Sugar Trading Corporation v. CA, 246SCRA 465 (1995.)


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FACTS

MLFI, a foreign corporation, through

MLFPh, a local company, sold commodity

futures to the public without the proper

license to do business. MLFI filed a case in

court against a local investor. The local

investor, aware that MLFI had no license,argues that it has no legal standing in

Philippine courts. Decide.


15/19


16/19

WHETHER OR NOT A FOREIGN CORPRATION DOING BUSINESS

IN THE PHILIPPINES MAY SUE MLFPH, A LOCAL INVESTOR.

Yes. A foreign corporation doing business in

the Philippines may sue in Philippine Courtsalthough not authorized to do business hereagainst a Philippine citizen or entity who had

contracted with and benefited by saidcorporation. Provided that the transaction isisolated one.


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WHETHER OR NOT THE DOCTRINE OF ESTOPPEL IS

APPLICABLE TO THE CASE AT BAR.

Yes. The local investor is estopped. A party isestopped to challenge the personality of a corporationafter having acknowledged the same by entering intoa contract with it. And the doctrine of estoppel to denythe corporate existence applies to a foreign as well asto domestic corporations. One who has dealt with acorporation of foreign origin as a corporate entity isestopped to deny its corporate existence andcapacity: This principle is applied to prevent a person

contracting with a foreign corporation from latertaking advantage of its noncompliance with thestatuses chiefly in cases where such person hasreceived the benefits of the contract.


18/19

MERRILL LYNCH FUTURES INC V CA (211 SCRA824)

Merrill Lynch Futures, Inc. (MLF) filed a complaint againstthe spouses Lara for the recovery of a debt. MLF is anon-resident foreign corp. not doing business in the Phil.,organized under the laws of Delaware, USA. It is a futurescommission merchant duly licensed to act as such in the

futures markets and exchanges in the US, essentiallyfunctioning as a broker executing orders to buy and sellfutures contract received from its customers on USfutures exchanges.

The spouses refused to pay and moved to dismiss the

case alleging that plaintiff had no legal capacity to suebecause (1) MLF is doing business in the country withouta license; and (2) the transactions were made with MerrillLynch Pierce, Fenner and Smith and not with plaintiffMLF.


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ISSUE: CAN MLF SUE IN PHILIPPINE COURTS TO ESTABLISH AND ENFORCE ITS RIGHTS AGAINST

SPOUSES IN LIGHT OF THE UNDENIABLE FACT THAT IT HAD TRANSACTED BUSINESS WITHOUT A

LICENSE?

Legal capacity to sue may be understood in two senses: (1) That theplaintiff is prohibited or otherwise incapacitated by law to institutesuit in the Phil. Courts, or (2) although not otherwiseincapacitated in the sense just stated, that it is not a real party ininterest.

The Court finds that the Laras were transacting with MLF fully awareof its lack of license to do business in the Phils., and in relation tothose transactions had made payments and the spouses areestopped to impugn MLF's capacity to sue them. The rule is thata party is estopped to challenge the personality of a corp after

having acknowledged the same by entering into a contract with it.The principle is applied to prevent a person contracting with aforeign corporation from later taking advantage of itsnoncompliance with the statutes, chiefly in cases where suchperson has received the benefits of the contract.

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