CONFLICTS OF LAW: CORPORATIONS 4.
) FACTUAL SITUTATION: Validity of corporate acts and contracts
BRIEF SUMMARY OF CONFLICT RULES ON CORPORATIONS
1.) FACTUAL SITUTATION: EXISTENCE, LEGAL CHARACTER, CAPACITY,
POWERS and LIABILITIES
POINT OF CONTACT: General Rule: the law of the place of
incorporation.
Exceptions:
1. Constitutional and Statutory Restrictions. (Constitution, Art. XI)
For constitutional purposes even if it is incorporated in the
Philippines, it is not deemed a Filipino corporation and cannot acquire
land, exploit our natural resources and operate public utilities unless
60% of the capital is Filipino owned (Constitution, Art. XII, Sec. 2, 10,
and 11)
2. Control Test During Wartime the veil of corporate identity is
pierced and the nationality of the controlling stockholders is used to
determine of a corporation is an enemy corporation or not (the
Control Test) (Dorkis Winskip vs. Phil. Trust Co., L-3829, January 31,
1952)
2.) FACTUAL SITUTATION: Formation of the corporation (requisites,
Kinds of stocks, Transfer of stocks to bind the corporation, Issuance,
amount and legality of dividends, Powers and duties of members,
stockholder and officers.
POINT OF CONTACT: Law of the place of incorporation
3.) FACTUAL SITUTATION: Alteration of Charter, Internal Organization,
Merger and Consolidation
POINT OF CONTACT: Law of the place of incorporation
(including ultra-vires acts)
POINT OF CONTACT: Law of place of incorporation and law of the
place of performance (the act or contract must be authorized by
BOTH LAWS)
5.) FACTUAL SITUTATION: Right to sue and amenability to court
processes and suits against it.
POINT OF CONTACT: Lex fori - The positive law of the state, nation, or
jurisdiction within which a lawsuit is instituted or remedy sought.
6.) FACTUAL SITUTATION: Manner and effect of dissolution.
POINT OF CONTACT: Law of the place of incorporation provided that
the public policy of the forum is not mitigated against.
7.) FACTUAL SITUTATION: Domicile
POINT OF CONTACT: If not fixed by the law creating or recognizing the
corporation or by any other provision the domicile is where its legal
representation is established or where it exercises its principal
functions (Civil Code Art. 51)
8.) FACTUAL SITUTATION: Receivers (appointment and powers)
POINT OF CONTACT: Principal receiver is appointed by the courts of
the state of incorporation; ancillary receivers, by the courts of any
state where the corporation has assets.
EFFECT OF RECOGNITION OF FOREIGN BUSINESS ASSOCIATION
Merely admits or affirms its legal existence created under the law of
one State but does not involve the rights of the corporation to do or
transact business
 THEORIES OF RECOGNITION Note: A foreign corporation granted license to operate in the
Philippines acquires domicile therein.
TERRITORIAL THEORY: A company has no legal existence beyond its
sovereignty by which it was created.

INTERNATIONAL THEORY: A foreign corporation is immediately
recognized without further formality.
RESTRICTED ADMISSION THEORY: A state imposes comprehensive
examination, supervision and control of foreign corporations.
The principle recognized in the Philippines is that every state
may impose conditions on the exercise by foreign corporations of
activities within its territory.
The minimum contract required for the power of restriction
and supervision, is the fact of transacting or doing business in the
Philippines.
VALIDITY OF CORPORATE ACTS AND CONTRACTS:
To be valid and binding, corporate acts or contracts must be
authorized both by:
The law of the place of incorporation
The law of then place of performance
Otherwise, their validity is doubtful and they may not be given effect,
without prejudice to the principle of estoppel.
MULTINATIONAL or TRANSNATIONAL CORPORATIONS.

Branches of a big mother corporation that have been incorporated

under the local law of each country or state where it has been
extended its business are separate entities governed by the said local
CORPORATION THEORIES ON THE PERSONAL OR GOVERNING LAW
laws.
OF A CORPORATION.

Law of the place of incorporation: Law adopted by the

Philippines.
Law of the place or center of management or Central Office
Principle/Centre of administration or siege social.
Place of Exploitation/ exploitation centre or siege
dexploitation.

DOMICILE OR RESIDENCE OF FOREIGN CORPORATIONS.

When not fixed by the law creating them it shall be

understood to be the place where their legal representation is
or where they exercise their principal functions.
 JURISDICTION OVER FOREIGN CORPORATIONS
CONSENT DOCTRINE
A foreign corporation will be recognized and will be allowed to
transact business in any state which gives it consent.
This doctrine is established in Secs. 125, 126, 127 and 128 of the
Corporation Code of the Philippines.
Note: All foreign corporations lawfully doing business in the
Philippines shall be bound by all laws, rules, and regulations
applicable to domestic corporations except provisions on the
creations, formation, organization, or dissolution of corporations or
those which fix the relations, liabilities, responsibilities, or duties of
stockholders, members, or officers of the corporation to each other.
A foreign corporation may sue and be sued in the Philippines if
it has the necessary license to do business here.
A foreign corporation may be sued after it withdrew from business in
the Philippines on contracts previously entered into by it. The same
rules applied to contracts entered into prior the revocation of a
foreign corporations license.
PARENT AND SUBSIDIARY CORPORATIONS
Jurisdiction over the parent corporation can be acquired when the
separate existence of the subsidiary has not been fully maintained or
if the parent has acted within the state as the subsidiarys agent.
However, if the local counterpart is a subsidiary with an entire distinct
personality, jurisdiction over the local counter-part is not jurisdiction
over the parent company.
RIGHT OF A FOREIGN CORPORATION TO BRING SUIT
General Rule: No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines; but such
corporation may be sued or be proceeded against before Philippine
courts or administrative tribunals on any valid cause of action
recognized under the Philippines laws. (Corporation Code, Sec. 133)
EXCEPTIONS:
1. Isolated transactions
2. Action to protect trademark, trade name, goodwill, patent or
for unfair competition;
3. Agreement fully transacted outside the Philippines;
4. Petition filed is merely a corollary defense in a suit against it;
5. To enforce a right not arising out of a business transaction; e.g.
tort that occurred in the Philippines.
6. When the parties have contractually stipulated that the
Philippines is the venue of actions;
7. When the party sued is barred by the principle of estoppel
and/or principle of unjust enrichment from questioning the
capacity of the foreign corporation; and
8. Recovery of misdelivered property.
 In the absence of an express provision, the courts will deem as
controlling the law that will sustain the validity of the trust.
EFFECT OR FAILURE TO SECURE A LICENSE TO TRANSACT
BUSINESS.

1. The foreign corporation which does business in the Philippines

without a license has no right to sue in the Philippines, but it
can still be sued; and

2. The contracts entered into are valid as between the parties,

but they may not be enforced in the Philippine courts.

FOREIGN CORPORATIONS AND COMPULSORY

COUNTERCLAIMS

EXCEPTIONS:

1. When a foreign corporation is sued, it may interpose a

counterclaim which would defeat the complaint.

2. If the foreign corporation is suing on an isolated contract or is

exempt from the license requirement, a local defendant can
file a counterclaim.

NOTE:

In either case, the foreign corporation is not maintaining a suit.

Further, such counterclaim may embrace only compulsory
counterclaim, not a permissive one, for the former is deemed waived
if not raised.

TRUSTS

When the trust contains an express choice-of-law provision, that law

shall apply.

RECOGNITION AND ENFORCEMENT OF FOREIGN
JUDGMENTS
EXAMPLES OF FOREIGN JUDGMENT WHICH CAN BE RECOGNIZED
1.) Declaratory judgments;
2.) Judgments which give no affirmative relief and
3.) Judgements which determine the parties interests in a thing or
status
REQUISITES FOR RECOGNITION OR ENFORCEMENT:
1.) The defendant has been given reasonable notice and opportunity
to be heard;
2.) There is adequate proof of foreign judgment;
3.) The foreign judgment must have disposed of the controversy on
the merits and must be res judicata, i.e., judgment on the merits is
final, issued by a foreign court having jurisdiction over the subject
matter and parties, and there was identity of parties, subject matter,
and cause of action.
4.) It must not be barred by prescription both in the State where it
was promulgated and where it is sought to be enforced.
5.) State where the foreign judgment was obtained allows recognition
or enforcement of Philippine judgments;
6.) If judgment is for sum of money, it must be fixed;
7.) Foreign judgment must not be contrary to the public policy or
good morals of the country where it is to be enforced.
8.) Judgment must not have been obtained by fraud, collusion,
mistake of fact or law; and
9.) It must be a judgment on civil or commercial matters, including
questions of status, not on a criminal, revenue, or administrative
matter.
PHILIPPINE RULE ON THE EFFECT OF FOREIGN JUDGMENT
The effect of a judgment or final order of a tribunal of a
foreign country, having jurisdiction to render the judgment or final
order is as follows:
1.) In a judgment or final order upon a specific thing, the judgment or
final order is conclusive upon the title to the thing; and
2.) In a judgment or final order against a person, the judgment or final
order is presumptive evidence of a right as between the parties and
their successors in interest by a subsequent title.
In either case, the judgment of final order may be repelled by
evidence of a want of jurisdiction, want of notice the party, collusion,
fraud, or clear mistake of law or fact.
Note: The judgment in the foreign court does not constitute
res judicata as basis for its enforcement without giving the losing
party the opportunity to dispute.
 THREE MODES OF ENFORCEMENT OF JUDGMENT PROCEDURE OF ENFORCEMENT OF JUDGMENT IN THE PHILIPPINES

1.) By filing a petition in the court where the judgment is sought to be 1.) Filing of petition in the proper court attaching an authenticated
recognized for the recognition of the judgment; copy of the foreign judgment; and

2.) By a summary procedure known as exequatur proceedings; and
Exequatur Procedure
A summary procedure outline in the statues of some civil law
countries such as France, Italy, Switzerland, and Austria for the
enforcement of foreign judgments that have no automatic effect or
authority in themselves.
2.) Authentication calls for the Philippine consul assigned to the
country where the foreign judgment was decreed to certify that such
judgment was rendered by a court of competent jurisdiction.
FOREIGN JUDGMENT MUST CONFORM WITH THE CONSTITUTIONAL
REQUIREMENTS

3.) By registration of the foreign judgment in a registry of judgments The requirement that a judgment must state the facts and the law
in the forum where it is with or without judicial supervision. upon which it is based is embodied in Section 14 of Article VIII of the
Constitution.

Any foreign law, whether substantive or procedural, cannot overrule

REASONS FOR REFUSAL BY A LOCAL COURT TO RECOGNIZE OR or prevail over this constitutional provision.
ENFORCE A FOREIGN JUDGMENT

1.) The requisite proof of the foreign judgment may not have been
presented;

The manner of proving a foreign judgment is the same as proving a

foreign law.

2.) The foreign judgment may contravene a recognized and

established policy in our country, e.g., foreign decree of divorce
obtained by a Filipino from his Filipino wife abroad; or

3.) The administration of justice in the country where the foreign

judgment came from may be shockingly corrupt or not beyond
reproach.

JURISPRUDENCE
RIGHT OF FOREIGN CORPORATION TO BRING SUIT
CARGILL v. INTRA STRATA ASSURANCE CORPORATION
G.R. 168266, March 15, 2010
Cargill (foreign) is a corporation organized and existing under
the laws of the State of Delaware.
Cargill executed a contract with Northern Mindanao
Corporation (NMC) a domestic corporation for the sale of
molasses.
In compliance, Intra Strata Assurance Corporation issued a
performance bond to guarantee NMCs performance.
NMC failed to deliver the molasses
Cargill sued NMC and Intra Strata
ISSUE: WON Cargill has capacity to sue in the Philippines
YES, Cargill has capacity to sue in the Philippines.
The threshold question in this case is whether petitioner was
doing business in the Philippines. In evaluating whether a
foreign entity is doing business, the courts consider whether
the activity undertaken by such entity in the Philippines
involves profit-making. If so, it is likely that the foreign entity
will be deemed doing business in the Philippines
In this case, it was NMC the domestic corporation, which
derived income from the transaction and not the petitioner.
There is also no showing that the transactions between the
parties signify intent of petitioner to establish a continuous
business or extends its operations in the Philippines.
In the case, petitioner is a foreign company merely importing
molasses from a Philippine exporter. A foreign company that
merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is
not doing business in the Philippines.
RESIDENCE OF CORPORATION
STATE INVESTMENT HOUSE, INC. v. CITIBANK
G.R. 79926-27, October 17, 1991
Consolidated Mines, Inc. (CMI) obtained loans from Citibank,
Bank of America and HSBC, all foreign corporations but with
branches in the Philippines.
Meanwhile, State Investment House, Inc. (SIHI) and State
Financing Center, Inc. (SFCI), also creditors of CMI, filed
collection suits against the CMI with writs of preliminary
attachment.
Subsequently, the three foreign banks jointly filed with the
court a petition for involuntary insolvency of CMI.
SIHI and SFCI opposed the petition on the ground that the
petitioners are not resident creditors in contemplation of the
Insolvency Law.
ISSUE: WON a foreign corporation with a branch in the
Philippines and doing business therein can be considered a
resident.
 Yes, they are residents of the Philippines.
Several domestic laws provide that Foreign corporations duly
licensed to do business in the Philippines and are operating
therewith are considered residents of the Philippines,
including the Insolvency Law, the Tax Code, and the Offshore
Banking Law.
The Courts cannot thus accept the petitioners theory that the
corporation may not have a residence separate from their
domicile, and that they may be considered by other states as
residents only for a limited and exclusive purpose.
Of course, as petitioner correctly avers, it is not really the grant
of the license to do business that makes it a resident, the
license merely gives legitimacy to its doing business here.
What effectively makes such a foreign corporation a resident
corporation in the Philippines is its actually being in the
Philippines and licitly doing business here.
INTERNAL AFFAIRS RULE
ROGERS v. GUARANTY TRUST CO. 288 US 123 (1932)
Rogers owns 200 shares of common stock of American
Tobacco Company (ATC). He also owns 400 shares of
common stock B.
ATC was organized under the law of New Jersey, and in that
state maintains its principal and registered address, holds
stockholders meetings and does substantial amount of
business
ATC is also authorized by the laws of New York, many other
states and a number of foreign countries to do and carry
on business.
The BOD of ATC adopted resolutions approving the
reduction by one half of par value and doubling of number
of shares of both stocks and issue and sale of common
stock B to employees.
Rogers filed suit before the NY district court questioning a
certain resolution by ATC.
ATC moved to dismiss the suit because it is an attempt to
regulate the internal affairs of a corporation foreign to New
York, and that the court should decline to take jurisdiction.
ISSUE: WON New Jersey or New York Law should apply.
New Jersey Law will apply,
It has long been settled doctrine that a court sitting in one
state will as a general rule decline to interfere with the
management of a corporation organized under the laws of
another state but will leave the controversies as to such
matters to courts of the state of domicile.
The reliefs sought by plaintiff, the situs of the stock is in
New Jersey and all questions relating to the validity of the
plan, authorization, issue, allotment and sale of the same
may be conveniently and effectively determined in New
Jersey courts, the authoritative and final interpreters of the
statues of that state.
 DOMICILE OF CORPORATIONS
HYATT ELEVATORS v. GOLDSTAR ELEVATORS
GR. 161026, October 24, 2005
Hyatt Elevators and Goldstar Elevator are both engaged in
the business of importing, installing and maintaining
elevators and escalators. Hyatt filed an unfair competition
case against LG and Goldstar before the RTC of
Mandaluyong City, alleging that it was appointed as the
sole distributor of LG elevators and escalators.
Goldstar moved to dismiss the case alleging that venue
was improperly laid as neither the Hyatt, LG or Goldstar
itself resided in Mandaluyong city where the case was
originally filed.
ISSUE: WON the venue was properly laid in Mandaluyong
City
NO, Venue is improper in Mandaluyong City. Although the
Rules of Court do not provide that when the plaintiff is a
corporation, the complaint should be filed in the location
of its principal office as indicated in its articles of
incorporation.
Jurisprudence has, however, settled that the place where
the principal office of a corporation is located, as stated in
the articles, indeed establishes its residence.
GRANDFATHER RULE
NARRA NICKEL MINING AND DEVELOPMENT CORPORATION v.
REDMONT CONSOLIDATED MINES CORPORATION
GR. 185590, April 21, 2014
Redmont is a domestic corporation interested in the
mining and exploration of some areas in Palawan. Upon
learning that those areas were covered by Mineral
Production Sharing Agreements (MPSA) applications of
three other corporations (allegedly Filipino) namely Narra,
Tesoro, and MacArthur.
Redmont filed a petition before the Panel of Arbitrators of
DENR seeking to deny their permits on the ground that
these corporations are in reality foreign-owned by MBMI, a
100% Canadian corporation
o ISSUE: WON the grandfather rule must be applied
in this case
Yes, It is the intention of the framers of the Constitution to
apply the Grandfather Rule in cases where corporate
layering is present.
First, as a rule in statutory construction, when there is
conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically
pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony, Sec. 3 of
the FIA will have no place of application.
Corporate layering is admittedly allowed by the FIA, but if
it is used to circumvent the Constitution and other
pertinent laws, then it becomes illegal.
 Second, under the SEC Rule 1 and DOJ Opinion 2 , the
Grandfather Rule must be applied when the 60-40 Filipino-
foreign equity ownership is in doubt. Doubt is present in
the Filipino equity ownership of Narra, Tesoro, and
MacArthur since their common investor, the 100%
Canadian-owned corporation MBMI, funded them.
Under the Grandfather Rule, it is not enough that the
corporation does have the required 60% Filipino
stockholdings at face value.
To determine the percentage of the ultimate Filipino
ownership, it must first be traced to the level of the
investing corporation and added to the shares directly
owned in the investee corporation. Applying this rule, it
turns out that the Canadian corporation owns more than
60% of the equity interests of Narra, Tesoro and
MacArthur.
Hence, the latter are disqualified to participate in the
exploration, development and utilization of the Philippines
natural resources.
o ISSUE: WON the application by the SC of the
grandfather resulted to the abandonment of the
control test
No, The control test can be applied jointly with the
Grandfather Rule to determine the observance of foreign
ownership restriction in nationalized economic activities.
These methods can, if appropriate, be used cumulatively in
the determination of the ownership and control of
corporations engaged in fully or partly nationalized
activities, as the mining operation involved in this case or
the operation of public utilities.
When in the mind of the court there is doubt, based on the
attendant facts in the 60-40 Filipino equity ownership in
the corporation, then it may apply the grandfather rule.
In this case, using the control test, Narra, Tesoro and
MacArthur appear to have satisfied the 60-40 equity
requirement. But the nationality of these corporations and
the foreign-owned common investor that funds them was
in doubt, hence, the need to apply the Grandfather Rule.
CAPITAL REFERS TO COMMON SHARES
GAMBOA v. TEVES
GR. 176579, June 28, 2011
This case pertains to the petition to nullify the sale of
shares of stock of Philippine Telecommunications
Investment Corporation (PTIC) by the government of the
Republic of the Philippines, acting through the Inter-
Agency Privatization Council (IPC), to Metro Pacific Assets
Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific), a Hong Kong-based investment
management and holding company and a shareholder of
the Philippine Long Distance Telephone Company (PLDT).
The petitioner Wilson Gamboa, questioned the sale on the
ground that the sale also involved an indirect sale of 12
million shares (or about 6.3 percent of the outstanding
common shares) of PLDT owned by PTIC to First Pacific.
With this sale, First Pacifics common shareholdings in
PLDT increased from 30.7 percent to 37 percent, thereby
increasing the total common shareholdings of foreigners in
PLDT to about 81.47%.
 This, according to the petitioner, violates Section 11, own only 35.73% of PLDTs common shares, thus do not
Article XII of the 1987 Philippine Constitution which limits exercise control over PLDT; (3) preferred shares, 99.44%
foreign ownership of the capital of a public utility to not owned by Filipinos, have no voting rights; (4) preferred
shares earn only 1/70 of the dividends that common
more than 40%.
shares earn; (5) preferred shares have twice the par value
ISSUE: WON the term capital in Sec. 11, Article XII of the
of common shares; and (6) preferred shares constitute
Constitution refers to the common shares only or to the 77.85% of the authorized capital stock of PLDT and
total outstanding capital stock common shares only 22.15%.
Yes, the term capital refers only to common shares entitled
to vote.
Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which
usually have no voting rights, the term capital in Section
11, Article XII of the Constitution refers only to common
shares.
However, if the preferred shares also have the right to vote
in the election of directors, then the term capital shall
include such preferred shares because the right to
participate in the control or management of the
corporation is exercised through the right to vote in the
election of directors. In short, the term capital in Section
11, Article XII of the Constitution refers only to shares of
stock that can vote in the election of directors.
In this case, foreigners hold 64.27% of the total number of
PLDTs common shares, while Filipinos hold only 35.73%.
Since holding a majority of the common shares equates to
control, it is clear that foreigners exercise control over
PLDT. Such amount of control unmistakably exceeds the
allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the
Constitution
Foreigners own 64.27% of the common shares of PLDT,
which exercises the sole right to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos