DOJ Opinion No. 037, s. 1998

DOJ OPINION NO. 037 , s. 1998 March 18, 1998 The Secretary Department of Tourism T.M. Kalaw Street Rizal Park, Manila Sir : This has reference to the request of that Department for opinion on the following issues: (1) whether the act of foreign press agency representatives of soliciting advertising placements from clients in the Philippines constitutes "doing business" in the Philippines; (2) what are the legal requirements that government agencies must observe if and when they enter into advertising contracts with such foreign press agency representatives; and (3) whether a local sanggunian (e.g. Tagaytay City Sanggunian) could unilaterally withdraw any resolution (such as the resolution endorsing the "Palace-in-the-Sky" redevelopment plan) already approved by the Regional Development Council (RDC) and a department and inter-agency coordinating committee, "without the approval of the other participating departments, agencies, councils or committees." The first issue brings to mind the four players in the advertising world, namely: (1) the advertiser, (2) the advertising agency, (3) the media, and (4) the vendor. The advertiser is the individual or organization, including any government agency, that initiates the advertising process. The advertising agency is an independent agency hired by advertisers to plan and implement part or all of their advertising effort. The media are the channels of communication that carry the messages from the advertiser to the audience. Finally, the vendor is a service organization that assists advertisers, advertising agencies and the media by providing certain expertise that advertisers and agencies cannot perform (William Wells et al ., Advertising Principles and Practice, Third Edition, New Jersey: Prentice-Hall Inc., 1995, pp. 16-21). Media organizations are organized to sell space (in print media) and time (in broadcast media). Media representatives meet with the agency media buyers to convince them that the medium is a good advertising vehicle for their client's message. They negotiate directly with the advertiser or work through the agency and its media department. ( Ibid ., p. 21) In this connection, it appears that, from time to time, foreign press agency representatives would visit certain government offices "to conduct interviews and prepare reports about their respective sectors." In the course, said representatives solicit advertising placements from the government agencies involved. Hence, the first issue. The first issue must be viewed in the light of the provision of Section 11(2), Article XVI of the 1987 Constitution which provides: "Sec. 11. (1) . . . (2) The advertising industry is impressed with public interest, and shall be regulated by law for the protection of consumers and the promotion of the general welfare. Only Filipino citizens or corporations or associations at least seventy per centum of the capital of which is owned by such citizens shall be allowed to engage in the advertising industry . The participation of foreign investors in the governing body of entities in such industry shall be limited to their proportionate share in the capital thereof, and all the executive and managing officers of such entities must be citizens of the Philippines." (Emphasis supplied.) The above provision prescribes a nationality requirement for entities (corporations) engaging in the advertising industry. Such entities must be owned at least to the extent of 70% of its capital by Filipino citizens. The question is whether such nationality requirement is applicable to a foreign press agency (corporation) which solicits advertisements, through its representatives, from prospective clients in the Philippines, such as government agencies which desire to promote or advertise the Philippines abroad. Our view is that such foreign press agency (corporation) is not covered by the nationality requirement under Section 11(2), Article XVI) supra , provided that the advertising is done abroad, that is, with the use of foreign mass media. The 70-30 Filipino-foreign equity ratio requirement, to our mind, applies when use of mass media in the Philippines is involved. Advertising is use of mass media (Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, 1996 edition, p. 1158, citing V Record, pp. 88, 94 & 95). Thus, when advertising will be carried on in mass media abroad, as distinguished from mass media in the Philippines, the person performing such advertising activity cannot be said to be engaged in the advertising industry in the Philippines. A contrary interpretation would unnecessarily limit our options in promoting the Philippines abroad and place it in an uncompetitive position vis-a-vis other countries with no similar restriction. Such a rigid construction is anathema to the development of the Philippine tourism industry and to the dynamism of the Constitution as well. The rule is that words employed in the Constitution are not to be construed to yield fixed and rigid answers but as impressed with the necessary attributes of flexibility and accommodation to enable them to meet adequately whatever problems the future has in store (Agpalo, Statutory Construction [1995, p. 342, citing J.M. Tuason & Co. Inc. v. Land Tenure Administration, 31 SCRA 413). A corollary question is whether such foreign press agency (corporation) which solicits advertisements from clients in the Philippines for placement in mass media abroad is deemed to be "doing business" in the Philippines and, therefore, subject to regulation under Philippine laws. Our answer is in the affirmative. It has been held that "there is no general rule or principle that can be laid down to determine what constitutes doing or engaging in business. Each case must be judged in the light of its peculiar factual milieu and upon the language of the statute applicable" (Marubeni Nederland B.V. vs. Tensuan, 190 SCRA 105, 108 [1990]). Section 3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) provides that "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 totalling 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." Thus, "where a foreign insurance corporation engages in regular marine insurance business here by issuing marine insurance policies abroad to cover foreign shipments to the Philippines, said policies being made payable here, and said insurance company appoints and keeps an agent here to receive and settle claims flowing from said policies, then said foreign corporation will be regarded as doing business here in contemplation of law" (Gen. Corp. of the Philippines vs. Union Ins. Soc. of Canton, Ltd., 87 Phil. 313, 323-324 [1950]); or where a foreign corporation solicits "orders, purchases (sales) or service contracts" and constitutes an entity as its representative in the Philippines to transact business for its account as principal, then such foreign corporation will also be regarded as doing business in the Philippines" within the contemplation of the law (Marubeni Nederland B.V. vs. Tensuan, supra ). The regularity of the act or transaction is not an inflexible criterion in determining whether a foreign corporation is doing business in the Philippines or not. Even a single transaction may be construed as "transacting business in the Philippines" under certain circumstances, as where it is an act of the ordinary business of the corporation (Granger Associates vs. Microwave Systems, Inc., 189 SCRA 631, 641 [1990], citing Far East International Import and Export Corporation v. Nankai Kogyo Co., Ltd., 6 SCRA 725). Stated otherwise, "if a corporation performs acts for which it was created or exercises some of the functions for which it was organized, the amount or volume of the business is immaterial and a single act of that character may constitute doing business. Thus, an engineering consulting firm that had entered into a single contract with a Philippine government agency for the purpose of rendering services for a period of three years as a technical consultant in engineering will be required to obtain a license to do business. Similarly, a foreign company invited to bid for IBRD and ADB international projects in the Philippines will be considered as doing business in the Philippines for which a license is required. In this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business , that determines whether a foreign corporation needs a license or not" ( Id ., citing Tabios, Severiano S., Fundamentals of Doing Business by a Foreign Corporation in the Philippines, 142 SCRA 10). Guided by the above premises, we believe that a foreign press agency (corporation) which, through its representatives in the Philippines, solicits advertising placements and enters into advertising contracts in the Philippines, such as when it solicits advertisements from government agencies to promote the Philippines abroad, is considered as "doing business" in the Philippines. As such, it must comply with the license requirement prescribed under Section 123 of the Corporation Code of the Philippines (B.P. Blg. 68), which provides: "SEC. 123. Definition and rights of foreign corporations . For the purpose 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 authority." "The purpose of the rule requiring foreign corporations to secure a license to do business in the Philippines is to enable us to exercise jurisdiction over them for the regulation of their activities in this country. If a foreign corporation operates in the Philippines without submitting to our laws, it is only just that it not be allowed to invoke them in our courts when it should need them later for its own protection. While foreign investors are always welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an indispensable condition to respect and be bound by Philippine law in proper cases, . . ." (Granger Associates vs. Microwave Systems, Inc., supra ). Regarding the second issue on the legal requirements that the government must observe in entering into advertising contracts with foreign press agency representatives, Section 65, Chapter 33, Book IV of the Administrative Code of 1987 provides: "SEC. 65. Approval of other types of Government Contracts . All other types of government contracts which are not within the coverage of this Chapter shall, in the absence of a special provision, be executed with the approval of the Secretary or by the head of the bureau or office having control of the appropriation against which the contract would create a charge. Such contracts shall be processed and approved in accordance with existing laws, rules and regulations." Concerning the third and final issue on the legality of the unilateral withdrawal of a resolution by the local sanggunian pertaining to the "Palace- in- the-Sky" project, we regret to inform you that we are unable to render an opinion thereon because it involves factual matters that are not readily discernible from the query, aside from the fact that it involves a local government matter which appropriately pertains to the competence of the Department of the Interior and Local Government to resolve. Pursuant to settled practice and precedents, the Secretary of Justice has consistently refrained from expressing his views on matters which fall within the official competence of another government office or agency over whose rulings and actuations this Department possesses no revisory authority, unless requested by such office or agency (Secretary of Justice Opinion Nos. 61 & 71, s. 1996). This practice has evolved not only out of respect and deference for the competence and expertise of the office or agency having primary jurisdiction to resolve the matter and for its familiarity with the policy repercussions of the resolution of the question involved but also from a logical recognition of the lawful exercise of an authority conferred by law (Secretary of Justice Opinion No. 17, s. 1994). We, therefore, suggest that the issue involving the "Palace-in-the-Sky" project be referred to the DILG for its appropriate consideration. Please be guided accordingly. Very truly yours, (SGD.) SILVESTRE H. BELLO III Secretary