Doing Business in the Philippines: When Selling to a Filipino Buyer Requires a License

The test for "doing business." Citing the 1941 case The Mentholatum Co. v. Mangaliman, the Court explained that the true test is whether the foreign corporation is continuing the body or substance of the business for which it was organized, or whether it has substantially retired from it. The term implies continuity of commercial dealings and the progressive prosecution of the corporation's purpose and object.

Why the sales were not isolated. The Court found that the number of transactions alone was not decisive. What mattered was Eriks' intention to continue the body of its business in the Philippines. Several factors pointed to that intention:

• The items sold were part and parcel of Eriks' main product line;
• The sales were made in the progressive prosecution of commercial gain;
• The 90-day credit terms showed an intention to maintain a long-term relationship with the buyer.

The Court noted that an "isolated transaction" means a transaction set apart from the common business of the foreign enterprise, with no intention to engage in a progressive pursuit of the organization's purpose. Eriks' dealings did not fit that description.

A Second Chance to Collect

The Court noted that its ruling did not foreclose Eriks' right to collect. A dismissal for lack of capacity to sue does not constitute res judicata because there was no determination on the merits. Moreover, citing Home Insurance Company v. Eastern Shipping Lines (123 SCRA 424, 1988), the Court stated that the subsequent acquisition of a license can cure the lack of capacity at the time the contract was executed.

Practical Takeaways

• A foreign corporation that sells to a Philippine buyer once or twice on an isolated basis may sue in Philippine courts without a license, but a series of transactions can cross the line into "doing business."
• The frequency of transactions is evidence of intent, but the nature and character of the transactions — and whether they pursue the corporation's main business purpose — are more important.
• Extending credit terms, opening an office, or appointing a local representative or distributor can signal an intention to do business in the Philippines.
• A foreign corporation doing business without a license cannot sue in Philippine courts, but it can still be sued by local parties.
• A dismissal for lack of capacity to sue does not bar a future suit if the corporation later obtains a license.

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