Although a corporate officer is not liable for corporate obligations, such as claims for wages, however, when such corporate officer [ceases] corporate property to apply to his own claims against the corporation, he shall be liable to the extent thereof to corporate liabilities, since knowing fully well that certain creditors had similarly valid claims, he took advantage of his position as general manager and applied the corporation's assets in payment exclusively to his own claims. De Guzman v. NLRC, 211 SCRA 723 (1992).
If the 3-year extended life has expired without a trustee or receiver having been designated, the Board of Directors itself, following the rationale of the decision in Gelano, may be permitted to so continue as ―trustees‖ to complete liquidation; and in the absence of a Board, those having pecuniary interest in the assets, including the shareholders
and the creditors of the corporation, acting for and in its behalf, might make proper representations with the appropriate body for working out a final settlement of the corporate concerns. Clemente v. Court of Appeals, 242 SCRA 717 (1995).
In Gelano case, the counsel of the dissolved corporation was considered a trustee. In the later case of Clemente v. Court of Appeals, the Board of Directors was permitted to complete the corporate liquidation by continuing as ―trustees‖. Under Sec. 145 ―No right of remedy in favor or against any corporation . . . shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof.‖ This provision safeguards the rights of a corporation which is dissolved pending litigation. Reburiano v. Court of Appeals, 301 SCRA 342 (1999); Knecht v. United Cigarette Corp., 384 SCRA 48 (2002).
15. 3 Cases
Clemente v. CA (1995)
Corporation continues to be a body corporate for 3 years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs.
The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors.
Reburiano v. CA (1999)
The board of directors may be permitted to complete the corporate liquidation by continuing as ―trustees‖ by legal implication.
Since the law specifically allows a trustee to manage the affairs of the corporation in liquidation, any supervening fact, such as the dissolution of the corporation, repeal of a law, or
any other fact of similar nature would not serve as an effective bar to the enforcement of such right.
16. FOREIGN CORPORATIONS
Foreign corporation- corporation formed, organized or existing under any law other than those of the Philippines, and whose laws allow Filipino citizens and corporations to do business in its own country or state. (Section 123)
Jack’s Lecture
Section 123 defines what is a foreign corporation, 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 in its own country or state. Note the element of reciprocity is included in the definition of a foreign corporation as an ingredient of a foreign corporation.
We said that a corporation is an artificial person, it has a juridical personality by legal fiction. So it has personality because of the law under which it was incorporated and since it exists only because of the law under which it was incorporated, if it wishes to participate in the economic processes of another country, it must get permission from that other country also and it will get permission by getting a license to do business and our code now requires reciprocity so normally like if it is an American corporation it will submit a certification from the Secretary of State of that particular state under which it was incorporated like New York, California because the Secretary of State is the custodian of the laws and he will certify that under the laws of New York, Filipinos are allowed to do business in New York.
There are different ways by which a foreign corporation can establish its presence here. one is by setting a branch office, another is by setting up subsidiary, for tax purposes there are no trade-offs because a branch and a subsidiary are taxed in the same way but a subsidiary may be beneficial in the sense that it limits the exposure of the mother company to its subscription instead of risking all the assets of the mother company. Another is the regional headquarters which does not do business, it is just a coordinating and communication center. Foreign companies are setting up regional headquarters here because it has subsidiaries in Southeast Asia or licensees and franchisees and its function is to supervise and coordinate with those subsidiaries or franchisees so normally a regional headquarter would have a one room office here probably with country manager and secretary, a telephone, computer and fax machine.
If a foreign corporation wants to do business here it has to appoint a resident agent who may be a corporation, partnership or individual, if individual he must be of good moral character, sound financial standing, although his only function is to receive summonses in behalf of the corporation.
16.1 What constitutes doing business in the
Philippines (See Section 3(d) RA 7042 as amended)
RA 7042, Section 3[d]
The phrase ―doing business‖ shall include soliciting orders, services 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 progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, that the phrase ―doing business‖ shall not be deemed to 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; nor having a nominee director or officer to represent its interest in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;
When is a foreign corporation doing business?
American jurisprudence makes a distinction. When you talk of foreign corporation doing business you will ask for what purpose are we trying to determine whether or not a foreign corporation is doing business.
Is it for the purpose of determining whether or not it can be sued? If that is the purpose, to determine its amenability to the jurisdiction of the courts they apply a liberal interpretation, the USSC says minimal contact that would satisfy the requirements of due process is sufficient. In fact the different states have these long-arm statutes by which state the instances when a foreign
corporation may be sued. There is one state Georgia has this provision that if a foreign corporation commits a tort, it will be considered to be doing business and can be sued. The USSC has said times have changed now the means of communications are very rapid so that if you have a representative here he can quickly communicate with the home office so it can take steps to defend itself.
On the other hand, if you are talking of determining whether a foreign corporation is doing business for the purpose of prosecuting officers criminally, that is penal, it must be strictly construed.
In the middle is the question of whether or not the foreign corporation is doing business and therefore is taxable as a resident foreign corporation.
So many decisions have been handed down to determine whether the foreign corporations are doing business but there are three principal guidelines.
1. Transactions must not be isolated. Transactions must be
habitual like in the Mentholatum case. In the Amsterdam case where a foreign shipping company it has a vessel which roam around going to places where they can find cargo and they just pass by here in 1963, the court said that it is an isolated transaction and not doing business here.
In one case, a foreign corporation bought copra, seller failed to deliver and they negotiated and they agreed to give him more time still he failed to deliver then they negotiated again and he was given more time still he failed to deliver and finally the foreign corporation filed suit, the seller claimed doing business without a license, the SC said no that is an isolated transaction. The better rule(according to Jack) is that that is buying that is not doing business you do not make profit from buying that is settled in American jurisprudence. You make profit from selling not from buying.
In the Hang lung bank case, the SC said that it is not doing business here so it can sue.
However, an isolated transaction which indicates an intention to habitually do business may constitute doing business. If the foreign corporation leased space for example at the Luneta Hotel and they sent their officers here. There was indication of their intention to do business.
2. It must involve a substantial portion of the business of the primary purpose of the corporation. In one case,
there was a foreign shipping company which pass by here
and hired a Filipino a cook in one of its vessels, the SC held that that is not doing business hiring a cook is not a substantial portion of its business its business is transporting passengers and cargo.
3. If the contract is consummated abroad then the foreign corporation is not doing business here. In the case of
Columbia Pictures vs. CA, Columbia Pictures filed a case because its films were being pirated here and it was argued that it was doing business without a license, the SC said no because the contracts are consummated abroad. In the Avon Plc case, the Court said that a foreign insurance company which accepted reinsurance is not doing business here because the contract is executed abroad.
What constitutes doing business in the Philippines for foreign corporations?
Under the continuity test, doing business implies a continuity of commercial dealings and arrangements, and contemplates to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of, the purpose and object of its organization.
Under the substance test, a foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was organized. (JRS at 315)
How do we determine whether a foreign corp is doing business in the Philippines? (Based on Justice Aquino’s outline)
There is no general rule or governing principle that holds for the determination of whether or not a foreign juridical entity is doing business in the Philippines to enable our court to acquire jurisdiction over it. When such foreign corporation however participates in a bidding process, its mere participation manifests an intention to engage in business in the Philippines, therefore participating in the bidding process is ―doing business‖ in this jurisdiction. More directly put, when a foreign corporation performs acts for which it
was created, regardless of volume, it is doing business. (European Resources v. Ingenieuburo Birkahn, 2004) Does an “isolated transaction” by a foreign corporation qualify as “doing business” in the Philippines?
It depends. If a single or isolated transaction is incidental and casual transaction, it cannot qualify as ―doing business‖ since it lacks the element of CONTINUITY. However, where a single or isolated 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‖ in the Philippines. (JRS at 315)
16.2 Requirements for the establishment of a branch
(Section 123)
Sec. 123. Definition and rights of foreign corporations
For the purposes of this Code, 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 in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency. (n)