Mr. Henry Villegas

March 29, 1995 Mr. Henry Villegas Tirol & Tirol Law Office 156 Burgos St., Iloilo City S i r : This refers to your letter of March 28, 1995 requesting opinion on the query posed therein. As stated, you have a client, a foreign corporation doing business in Hong Kong. One of its employees, an American Citizen married to a Filipino, wants to buy a lot and building in Baguio City. The lot and building will be acquired in the name of the Filipino wife. The foreign corporation is willing to extend a loan to the Filipino wife to be secured by the said real property in Baguio City. Your query is, whether the execution and signing of a real estate mortgage by the foreign corporation as mortgagee requires prior license to do business in the Philippines. It is well-settled that a corporation is not doing business in the state by lending money to a resident of the state, where the loan is merely incidental to, and not a substantial part of its corporate business, or where the loan is made and the securities delivered in another state, although the application for the loan may be made and negotiations carried on through an agent or broker in the states or domiciled out of the state. Thus, where money is loaned by a foreign corporation outside of the state, the mere giving of a note and mortgage on property within the state as incidental to the transaction does not constitute "doing of business" within the state, even though certain officers of the corporation examined the land covered by the security, approved the security and recommended the loan (17-A Fletcher, Cyclopedia, Sec. 8491) Further, the weight of authority maintains that where the corporation enters into a single agreement, or engaged in some other isolated business act or transaction within a particular state, with no intention to repeat the same or make such state a basis for the conduct of any part of its corporate business, such corporation cannot be said to be doing business or transacting business within the state, within the meaning of the usual statutory provisions regulating the transaction of business by foreign corporations. (17 Fletcher, Cyclopedia Corporations, Sec. 8469) Under Philippine jurisdiction, the term "doing business" is thus defined under Sec. 3(d) of RA No. 7042, otherwise known as the Foreign Investments Act of 1991, as follows: "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 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 a distributor domiciled in the Philippines which transacts business in its own name and for its own account." (Emphasis supplied) From the foregoing authorities, it would appear that the mere act of signing the loan agreement and the execution of a real estate mortgage in relation thereto do not fall within the coverage of the term "doing business" which requires licensing under the Corporation Code and Foreign Investments Act. However ,while the above transaction does not constitute "doing business," the mortgage agreement, the mortgagee being a foreign corporation , is subject to the provisions of RA 133, as amended by RA 4381 and RA 4882 imposing certain restrictions upon the mortgagee or his successor-in-interest, if disqualified to acquire or hold lands of the public domain in the Philippines ,by forbidding him to take possession of the mortgaged property during the existence of the mortgage; neither is possession allowed after default of the mortgagor except for the sole purpose of foreclosure, receivership, enforcement of other proceedings and in no case for a period of more than five years from the actual possession and such alien mortgagee cannot participate in the bidding nor take part in any sale of such real property in case of foreclosure .(Pena, Registration of Land Titles and Deeds 1982 Revised Edition) Furthermore, regarding the proposal of the American husband to acquire land in the Philippines in the name of a Filipino wife, your attention is invited to the provisions of the Family Code of the Philippines regarding the property regime of the spouses that will govern them during their marriage. Article 75 thereof, provides that unless a different system of property relations is agreed upon, the property relation between the husband and the wife shall be governed by the system of absolute community of property. Assuming therefore, that the husband and wife failed to agree on what property regime to adopt, properties obtained by either spouse after their marriage may be deemed as community property and shall be governed by the law on "co-ownership" pursuant to Article 90 of the Family Code which provides: "The provisions on co-ownership shall apply to the absolute community of property between the spouses in all matters not provided for in this Chapter." (Emphasis supplied) Accordingly, since a co-ownership relation is created, there is a clear doubt on the legality of the above-mentioned proposed land acquisition. It is thus suggested that you refer this particular issue to the Land Registration Authority for clarification and/or definite ruling as to whether or not this situation is allowable under existing laws implemented by that Office. cdll Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner