CONTENTS 1.

Conflicts Problems on Corporations

2. Domestic and Foreign Corporations
3. “Doing Business”
4. Residence of Corpration
5. The “Internal Affairs” Rule
6. State of Incorporation
7. Domicile of Corporations
8. Nationality of Corporations
9. Test of Corporate Nationality: Control Test and Grandfather Rule
10. Controlling Doctrine: Control Test

Conflict of Laws: Corporations

Conflicts Problems on Corporations

• Conflict of laws with respect to corporations generally deals with

laws governing their:
1. Administration;
2. Incorporation;
3. Nationality;
4. Domicile; and
5. Ownership.

Conflict of Laws: Corporations 3

What is Corporation?

Conflict of Laws: Corporations 4

 Domestic and Foreign Corporations
DOMESTIC CORPORATIONS
• Those organized and existing under the
laws of the Philippines.

FOREIGN CORPORATION
• Those formed, organized or existing under
any laws other those of the Philippines and
whose laws allow Filipino citizens and
corporations to do business in its own
country or state (Section 123, Corporation
Code of the Phil.).
Conflict of Laws: Corporations 5
Foreign Corp. cont...

• Although organized in another jurisdiction, foreign corporation

may operate in the Philippines so long as they apply for licence
with the SEC.
• The ABSENCE of a licence, however, is no impediment for the
filing of the suit against the corporation for commission of illegal
acts or violation of Philippine laws (Section 133, Corporation
Code of the Phil).
Conflict of Laws: Corporations 6
 Foreign Corp. cont...

Quasi- Foreign Corp (Pseudo-foreign)

• Are corporations incorporated in
one state and operate in another
state
• In Philippines, they are called
foreign corporation and licensed
to do business in our jurisdiction.

Conflict of Laws: Corporations 7

Personal Law of a Corporation
GENERAL RULE: Personal law is the law of the state where it was incorporated or formed.

EXCEPTIONS:
1. Constitutional and Statutory Restrictions (Art. XII)
2. Control test during war – courts may pierce the veil of corporate identity and look into the
nationality of stockholders to determine citizenship of the corporation

 If the law creating it does not authorized it to enter into certain contracts, such contracts which can
be made in other states shall be void despite the express permission given by other state.

 M.E GRAY V. INSULAR LUMBER CO. No. 45144 April 3, 1939

M.E Gray, not a stockholder owning at least three percent of the capital stock of Insular Lumber
Co., contends that under Philippine Corporation code, under which Insular Lumber company was
registered to do business in the Philippines, he is entitled, as stockholder (owning only 6 shares), to
inspect the record of the transactions of the defendant corporation (sec. 51, Act No. 1459), and this
right, which is recognized in the common law, has not been altered by section 77 of the Stock
Corporation Law of New. According to the Supreme Court, said right to examine and inspect the
books of the corporation must be exercised in good faith, for a specific and honest purpose, and not
Conflict to gratify
of Laws: curiosity, or for speculative or vexatious purposes.
Corporations 8
 Personal Law of a Corporation

 If according to the personal laws of the corporation,

stockholders are given certain rights, such rights cannot be
diminished nor added upon by the law of the place where the
corporation does business.
 This is because such rights are already fixed by the corporation.

Conflict of Laws: Corporations 9

 Residence of Corporations
 A corporation may only have one (1) domicile but it can be a resident of several states.
 The domicile of a juridical person is the state of its incorporation. However, it may do business in
other states and thus become resident thereof.

 In Northwest Orient Airlines, Inc. V. CA (1995) GR No. 112573, dated February 9, 1995
Northwest sued C.F. Sharp & Company in Tokyo, Japan, for collection of the unremitted
proceeds of the ticket sales, with claim for damages. After the 2 attempts of service of summons
were unsuccessful, Supreme Court of Japan sent the summons together with the other legal
documents to the Japanese Embassy in Manila, then to the Department of Foreign Affairs, then to
the Judge of the Regional Trial Court of Manila who ordered Deputy Sheriff Rolando Balingit to
bring the summons to the C.F. Main Office but failed to appear at the scheduled hearing.
Issue: WON Japanese court has jurisdiction over CF whose main office is in Manila?

Held: Accordingly, the extraterritorial service of summons on it by the Japanese Court was valid not
only under the processual presumption but also because of the presumption of regularity of
performance of official duty. Where the corporation has no such agent, service shall be made on
the government official designated by law.
Conflict of Laws: Corporations 10
Residence of Corporations

Who is a “Resident Foreign Corporation”.

• “foreign corporation engaged in trade or business within
Philippines” (Sec. 22 (H) and (I) of the NIRC).
• “branches, subsidiaries, affilliates , extention offices or any
other units of corporation or juridical person organized under
the laws of any foreign country operating in the Philippines
shall considered residents of the Philippines”, (PD No. 1034)
Conflict of Laws: Corporations 11
Governing Laws in foreign and pseudo-foreign corporations

 most jurisdiction follow the general rule that the “internal affairs”
of the corporation should be governed by the laws of the state of
incorporation.
 GR: the Philippines adhere to the internal affairs rule.
• Section 129, Corporation Code: “any corporation lawfully shall

be bound by all laws, rules and regulations applicable to

domestic corporations of the same class, xxx.”
Conflict of Laws: Corporations 12
Governing Laws in foreign and pseudo-foreign corporations

 XPN: Philippine law is not applicable to matters relating to the

“creation, formation, organization or dissolution of corporations
or those which fix the relations, liabilities responsibilities or
duties of stockholders, members, or officers of corporation to
each other or to the corporation”, Section 129, Corp. Code.

Conflict of Laws: Corporations 13

State of Incorporation

• by incorporating in a particular state, a corporation thereby

agrees that the laws of that state shall be the governing law
with respect to the internal affairs of the corporation.
• thus, if a corporation organizes in the state of X, the laws of X
shall apply in case there is an intra-corporate dispute among
stockholders, even such corporation were to operate in
another state.
Conflict of Laws: Corporations 14
Internal Aaffairs

• refer to matters relating to the governance of the corporation

as well as the rights and responsibilities of officers and
stockholders.

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Domicile of Corporation

• the domicile of corporation is the place where they have their

principal place of business as stated in the articles of
incorporation.
• while corporations may have seeral places of business, it can
only have one principal business.
• Purpose: determining factor where suits will be filed, venue
for personal actions.
Conflict of Laws: Corporations 16
Nationality of Corporations

• a corporation's nationality becomes relevant in determining

compliance with laws prescribing minimum ownership
requirements by Filipinos for certain industries or activities
under the Constitution.

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Test of Corporate Nationality

1. Control Test
 when shares belonging to corporation or partnership at
least 60% of the capital of which is owned by Filipino
citizens, the corporation shall be considered of Philippine
nationality (sec. 3, Foreign Investment Act).

Conflict of Laws: Corporations 18

 Test of Corporate Nationality

2. Grand Father Rule

 if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares of
corresponding to such percentage shall be counted as of
Philippine nationality.

Conflict of Laws: Corporations 19

What “nationality test” is controlling?

Controlling Doctrine: Control Test

 the Supreme Court has declared in unequivocal terms that
the controlling approach is still the control test. Control test is
still the prevailing mode of determining whether or not a
corporation is a Filipino corporation. This is the GENERAL
rule.
 see: Narra Nickel Mining Development Corp. v. Redmont Consolidated
Mines Corp. GR No. 195580 April 21, 2014
20
Conflict of Laws: Corporations
What happens now to the “Grandfather Rule”?

• Not totally abandoned but it serves as an EXCEPTION to the

general rule.
• it applies only when there is doubt in the 60-40 Filipino equity
ownership in the corporation.

Conflict of Laws: Corporations 21

Jurisdiction over Foreign Corporations
• With the consent of the state a foreign corporation will be recognized and will
be allowed to transact business in any state which gives it consent. This
consent doctrine is established in section 125, 126, 127, and 128 of the
Corporation Code of the Philippines

Can the court acquire jurisdiction over foreign corporations

notwithstanding the absence of a license or a resident agent?
Yes, because if the defendant is a foreign corporation, or a non-resident
joint stock company or association, doing business in the Philippines, service
may be made on its resident agent designated in accordance with law for
that purpose, or if there be no such agent, on the government official
designated by law to that effect, or on any of its offcers or agents within the
Philippines (Rule 14 Sec 14, ROC)

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Jurisdiction over Foreign Corporations
• All foreign corporations lawfully doing business here in the Philippines shall be bound by all laws rules
and regulations applicable to domestic corporations except provisions for the creation, formation,
organization or dissolution of corporations or those which fix the relations the relations, liabilities,
responsibilities or duties of stockholders, members or officers of the corporation to each other.

When is a foreign corporation ‘doing business’?

When it transacts therein in some substantial part of its ordinary business which is continuous in
character as distinguished by merely casual or occasional transactions
• Who determines whether a foreign corporation is doing business?
Law of forum

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Jurisdiction over Foreign Corporations
SERVICE OF SUMMONS
• Service of summons upon foreign corporations doing business in the
Philippines may be made on:
1. Its resident agent;
2. In the absence thereof, process will be served on the government official
designated by law or any of its officers or agent within the Philippines;
and
3. on any officer or agent of said corporation in the Philippines
4. serving summons through diplomatic channels

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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 proceeded against before Philippine courts or administrative tribunals on any
valid cause of action recognized under the Philippine laws (Section 133 Corporation Code).
Hence, acquisition by a foreign Corporation of a license to transact business in the
Philippines is an essential prerequisite for the filing of suits before courts.
EXCEPTIONS:
1. Isolated transactions
2. Action to protect trademark, trade name, goodwill, patent or for unfair competition
3. Agreements fully transacted outside the Philippines
4. Petition filed is merely a corollary defense in a suit against it

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Effect of Failure to Secure a license to Transact Business
The foreign corporation which does business in the
Philippines without a license has no right to sue in the Philippines,
but can still be sued. Although the contracts entered into may be
valid as between the parties, it may not be enforced in the
Philippine courts

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Dissolution of a Corporation
• What law governs the dissolution of a corporation?
Law of place of incorporation
• When is a receiver appointed?
When there is a need to preserve the property of a
private corporation or sequester it for the benefit of creditors
• Who appoints the receiver?
State where corporation was incorporated

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Multinational Corporations
Multinational Corporations are clusters of corporation with separate entities
controlled by one corporation usually in a developed country
Can you sue the mother corporation for acts of local corporations?
first determine whether mother corporation and local corporation are
really separate entitles (pierce corporate veil)
If they are separate entities, you cannot sue BUT if they are just one
entity (same payroll, same advertising), you can sue the mother corporation
provided you acquire jurisdiction over the latter

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onflict of Laws: Corporations

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