Doing Business in the Philippines: Jurisdiction Over Foreign Corporations

By February 1993, BMW expressed dissatisfaction with Hahn's performance—citing declining sales, deteriorating services, and inadequate facilities—and threatened to terminate the exclusive dealership. When Hahn protested, BMW withdrew its counter-offer and terminated the relationship effective June 30, 1993.

Hahn filed a complaint for specific performance and damages before the Regional Trial Court of Quezon City. Summons were served on BMW through the Department of Trade and Industry (DTI), pursuant to the Rules of Court provision allowing such service on foreign corporations doing business in the Philippines.

The Issue: Jurisdiction Over a Non-Resident Foreign Corporation

The central question was whether BMW was in the region

The Court distinguished an agent from a broker: an agent receives a commission upon the successful conclusion of a sale, while a broker earns pay merely by bringing buyer and seller together. Hahn's compensation structure clearly indicated agency.

Procedural Lesson: Deferring the Motion to Dismiss

The Court also addressed the trial court's decision to defer resolution of BMW's motion to dismiss until after trial. Under the Rules of Court, a court may defer action on a motion to dismiss if the ground asserted does not appear to be indubitable.

The Court emphasized that a determination that a foreign corporation is doing business—made for purposes of acquiring jurisdiction through service of summons—is only tentative. It does not foreclose a contrary finding if evidence later shows otherwise. A foreign corporation that responds to summons and participates in trial does not necessarily waive its objection to jurisdiction, provided it seasonably raises the defense.

Practical Takeaways

• Allegations in the complaint suffice for initial jurisdiction. For service of summons on a foreign corporation through the DTI, it is enough that the complaint alleges the corporation is doing business in the Philippines. The court need not go beyond the pleadings at that stage.
• Agency versus independent dealership matters. The critical test is whether the local party acts in its own name and for its own account. If the foreign corporation controls pricing, receives payment directly, and compensates the local party by commission, an agency relationship likely exists.
• "Doing business" is defined by statute. R.A. No. 7042 and its implementing rules enumerate what constitutes doing business, including appointing local representatives or distributors—unless those representatives transact in their own names and for their own accounts.
• Factual disputes should be resolved at trial. Courts should not dismiss a case on jurisdictional grounds when the determination depends on contested facts. Deferring the motion to dismiss until after trial is proper when the ground is not indubitable.
• Responding to summons is not automatic submission. A foreign corporation may participate in proceedings to challenge jurisdiction without waiving its objection, as long as it raises the defense seasonably.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.