PROMOTION OF NEW PARTNER

The The Firm's Executive Committee and General Partnership unanimously approved the promotion of Mr. James Gerard M. Baello as Junior Partner effective 1 January 2012.

Mr. Baello obtained his Bachelor of Laws Degree in 2003 and Bachelor of Arts Degree in Sociology in 1999 from the University of the Philippines -Diliman.

Mr. Baello joined the Firm in 2004, a month after being admitted to the Philippine Bar. He was a Junior Associate from 2004 to 2008 and a Senior Associate from 2008 to 2011. In his seven years of practice, Mr. Baello has handled civil claims involving properties worth hundreds of millions for big corporate clients. He has also handled the defense of a capital offense case and the prosecution of a multi-million scam. Mr. Baello has also been involved in various aspects of administrative, commercial and corporate law from the most mundane such as corporate housekeeping to the most complex such as corporate acquisitions involving hundreds of millions in investments.

WHAT CONSTITUTES NOT DOING BUSINESS?

By Napoleon J. Poblador

Where the complaint simply alleges that a foreign corporation is doing business through a local subsidiary, can a Philippine court acquire jurisdiction over said foreign corporation through the service of summons on an employee of the local subsidiary? The answer is no; such service of summons would be invalid.

The Philippine Supreme Court, in Avon Insurance PLC. British Reserve Insurance Co. Ltd., et al. vs. Court of Appeals, et al. (G.R. No. 97642, 29 August 1997) held that if a foreign corporation does not do business in the Philippines, there would be no reason for it to be subject to the State's regulation. Thus, the local court's jurisdiction does not extend to a foreign reinsurance company that enters into reinsurance contracts exclusively abroad. Inasmuch as it does not enter into such contracts in the Philippines, it cannot be deemed as doing business in the Philippines. Such a corporation would be beyond the jurisdiction of the Philippine courts. It cannot be served summons. The Supreme Court said:

A foreign corporation, is one which owes its existence to the laws of another state, and generally, has no legal existence within the state in which it is foreign.

x x x

The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts, otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts.

The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the State's regulation. As we observed, in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty.

x x x

As we have found, there is no showing that petitioners had performed any act in the country that would place it within the sphere of the court's jurisdiction. A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties, notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness. In addition, the assertion that a resident of the Philippines will be inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and unavailing to sustain the continuance of a local action, for jurisdiction is not dependent upon the convenience or inconvenience of a party.

In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons.

Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the complaint. The service of summons upon the defendant becomes an important element in the operation of a court's jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his person. Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation of due process, are null and void, unless the defendant waives the service of summons by voluntarily appearing and answering the suit.


Section 3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) enumerates what “doing business” covers:

…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 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 interests 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. (Emphasis supplied)

Section 1 of the Implementing Rules and Regulations of the said Foreign Investments Act 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 representative’s or distributor’s 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.

Based on the Foreign Investments Act and its implementing rules, merely alleging in the complaint that the foreign corporation does business in the Philippines through a local subsidiary is not enough to warrant the conclusion that the former is doing business in the Philippines. Having a subsidiary in the Philippines is not included in the above enumerations.

And even if the local subsidiary is selling in the Philippines products of the foreign corporation, but there is no showing that the local subsidiary is doing so in the name and for the account of the foreign corporation, and said subsidiary conducts its business and makes business decisions through its own officers, in its own name, and for its own account, the conclusion would be the same: the foreign corporation is not doing business in the Philippines.

Philippine jurisprudence tells us that the fact of doing or transacting business in the Philippines must first be established by appropriate allegations in the complaint. (French Oil Mill Machinery Co., Inc. vs. Court of Appeals, G.R. No. 126477, 11 September 1998.) Let’s say that the complaint alleges that:

a. The foreign corporation is doing business in the Philippines through its alleged subsidiary, the local company; and

b. The local company is duly authorized to license, sell and/or distribute the products owned and manufactured by the foreign corporation.

The allegation that the foreign corporation is doing business in the Philippines through its subsidiary, is just a conclusion; it is not an allegation of ultimate fact. As discussed by the Philippine Supreme Court in the case of Hong Kong and Shanghai Banking Corporation Limited (“HSBANK”) and HSBC International Trustee Limited (“HSBC TRUSTEE”) vs. Catalan (G.R. No. 159590-1, 18 October 2004), there is a whale of a difference between a conclusion of fact/law and an allegation of ultimate fact. Catalan had complained against HSBANK and HSBC TRUSTEE for the latter’s alleged refusal to pay the value of some HSBANK checks. The complaint alleged that:

Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are corporations duly organized under the laws of the British Virgin Islands with head office at 1 Grenville Street, St. Helier Jersey, Channel Islands and with branch offices at Level 12, 1 Queen’s Road Central, Hong Kong and may be served with summons and other court processes through their main office in Manila with address at HSBC, the Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas Street, Makati City.

Summons for HSBC TRUSTEE was tendered to the internal counsel of the Philippine office of HSBANK at the address stated in the complaint. Without submitting itself to the jurisdiction of the trial court, HSBC TRUSTEE filed a Special Appearance for Motion to Dismiss Amended Complaint, questioning the trial court’s jurisdiction over it, saying that, by tender of summons through HSBANK, the trial court did not obtain jurisdiction over it because: (a) it is a corporation separate and distinct from HSBANK; (b) it does not hold office at the Philippine office of HSBANK or in any other place in the Philippines; (c) it has not authorized HSBANK to receive summons for it; and, (d) it has no resident agent upon whom summons may be served because it does not transact business in the Philippines.

The Supreme Court held that the trial court did not acquire jurisdiction over the person of HSBC TRUSTEE since the allegations in the complaint did not sufficiently show the fact of HSBC TRUSTEE’s conduct of business in the Philippines. To quote the Supreme Court:

Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing under the laws of the British Virgin Islands. For proper service of summons on foreign corporations, Section 12 of Rule 14 of the Revised Rules of Court provides:

SEC. 12. Service upon foreign private juridical entity. – When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines.

In French Oil Mill Machinery Co., Inc. vs. Court of Appeals, we had occasion to rule that it is not enough to merely allege in the complaint that a defendant foreign corporation is doing business. For purposes of the rule on summons, the fact of doing business must first be "established by appropriate allegations in the complaint" and the court in determining such fact need not go beyond the allegations therein.

The allegations in the amended complaint subject of the present cases did not sufficiently show the fact of HSBC TRUSTEE’s doing business in the Philippines. It does not appear at all that HSBC TRUSTEE had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. Absent from the amended complaint is an allegation that HSBC TRUSTEE had performed any act in the country that would place it within the sphere of the court’s jurisdiction.

We have held that a general allegation, standing alone, that a party is doing business in the Philippines does not make it so; a conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness.

Besides, there is no allegation in the amended complaint that HSBANK is the domestic agent of HSBC TRUSTEE to warrant service of summons upon it. Thus, the summons tendered to the In House Counsel of HSBANK (Makati Branch) for HSBC TRUSTEE was clearly improper. (Underscoring supplied).

Clearly, where (a) the defendant is a foreign corporation; (b) summons was attempted to be served upon it through a local company which is a corporation separate and distinct from the former; (c) the defendant does not hold office in the Philippines; (d) it has not authorized the local company to receive summons for it; (e) it has no resident agent upon whom summons may be served because it does not transact business in the Philippines; and (f) the complaint does not sufficiently show that the defendant has transacted business in the Philippines, then the service of summons on the subsidiary cannot validly place the defendant under the jurisdiction of the local court.

Will it be sufficient to generally allege in the complaint that a domestic corporation is the foreign corporation’s agent, upon whom summons may be served is enough? In French Oil Mill Machinery Co., Inc. vs. Regional Trial Court (G.R. No. 126477, 11 September 1998), the Supreme Court, answering that question in the negative, said:

Private respondent alleged in its complaint that Trans-World is petitioner’s agent, so that the service was made on the latter. Such general allegation is insufficient to show the agency relationship between petitioner and Trans-World. However, although there is no requirement to first substantiate the allegation of agency yet it is necessary that there must be specific allegations in the complaint that establishes the connection between the principal foreign corporation and its alleged agent with respect to the transaction in question. Nowhere in the case of Signetics Corporation v. CA, cited by both parties, did the court say that if the “complaint alleges that defendant has an agent in the Philippines, summons can validly be served thereto even without prior evidence of the truth of such factual allegation.” [Underscoring supplied]

Hence, absent allegations sufficient to show that local subsidiary is indeed an agent of the foreign corporation, service of summons on the former will not enable the local court to acquire jurisdiction over the foreign corporation.

This has always been the rule, except that a few Supreme Court decisions in the past were misinterpreted to prescribe a less stringent rule. In 1987, in the case of Wang Laboratories, Inc. vs. Mendoza (“Wang Laboratories case”) (156 SCRA 44, 52-53) the Supreme Court stated that a foreign corporation not doing business in the Philippines “cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines,” which statement was lifted from the 1979 decision in Facilities Management Corporation vs. De La Rosa (“Facilities Management case”) (89 SCRA 131).

In 1997, both the 1979 Facilities Management case and the 1987 Wang Laboratories case were clarified in Avon Insurance PLC. vs. et al. vs. Court of Appeals, et al. (“Avon Insurance case”) (278 SCRA 312 [1997]) where the Supreme Court held that if a foreign corporation does not do business in Philippines, there would be no reason for it to be subject to the State's regulation, that such foreign corporation has no legal existence in so far as the State is concerned, and that to subject such corporation to the Philippine courts' jurisdiction would violate the essence of sovereignty. In effect, the Supreme Court in the Avon Insurance case upheld the non-suability in Philippine courts of foreign corporations not doing business in the Philippines.

The 1979 statement that a foreign corporation not doing business in the Philippines “cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines” was often misconstrued in the past (and still is by some lawyers). But that statement was not a binding jurisprudential precedent, since it did not form a necessary part of the court's decision, either in the Wang Laboratories case or the Facilities Management case. That statement is what lawyers fondly refer to as an obiter dictum, which is not part of the rationes decidendi of the Wang Laboratories case and Facilities Management case, because both cases dealt with foreign corporations which were indubitably doing business in the Philippines. In the Wang Laboratories case, the foreign corporation admitted that it had an office in the Philippines and there was evidence that it had a local representative and that it registered its trade name with the Philippine Patents Office. In the Facilities Management case, the facts showed that the foreign corporation was engaged in business in the Philippines by the appointment of a liaison officer in the Philippines to recruit personnel. By contrast, the Avon Insurance case involved foreign corporations not doing business in the Philippines. Thus, when the Supreme Court concluded and held therein that the trial court had no jurisdiction over the foreign corporations, forming part of its reasoning for such a decision is the holding that to subject a foreign corporation not doing business in the Philippines to the Philippine courts' jurisdiction would violate the essence of sovereignty.

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