CONFLICTS OF LAW CHOICE OF LAW AFFECTING CORPORATIONS AND OTHER JURIDICAL ENTITIES

A corporation, according to Sec 2 of the Corporation Code of the Philippines, is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law and incident to its existence, while Section 123 of the same Code, defines a foreign corporation as 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. The Theories in determining Personal or Governing Law of a Corporation. 1. Place of Incorporation. Disadvantage: Under this theory, a corporation can evade many responsibilities by simply organizing in one state and performing its functions in another state. 2. Place or center of management. Disadvantage: A difficulty of this theory is that the Board may meet in different states. However, this defect may be cured by expressly providing in the articles of incorporation or by-laws where the principal meeting place of the Board is. 3. The place of exploitation. Disadvantage: The corporation may have its enterprise scattered all over the world. Besides, the physical acts of the corporation are not as important as the decision reached by its Board of Directors. In the Philippines, we follow the theory of the place of incorporation. Domicile Article 51 of the New Civil Code When the law creating or recognizing them, or any other provision does not fix the domicile of juridical persons, the same shall be understood to be the place where their legal representation is established or where they exercise their principal functions A corporation, which is defectively organized, is a de facto corporation insofar as innocent third persons are concerned. It can possess a domicile for its de facto existence. How is the domicile of a corporation determined?

For the purpose of determining a corporations domicile, Sec 14 of the Corporation Code requires that the articles of incorporation of a Philippine corporation must state the place where the original office of the corporation is to be established or located, which place must be within the Philippines. Thus, the place of incorporation of a Philippine corporation is also its domicile. Foreign Corporations A foreign corporation that has been granted a license to operate or to do business in the Philippines acquires domicile in this country by virtue of such license. Granger Associates v. Microwave Systems Inc., 189 SCRA 631 The purpose of the rule requiring foreign corporation to secure a license to do business in the Philippines is to enable the courts to exercise jurisdiction over them or the regulation of their activities in our country. Exceptions to the theory that the personal law or nationality of a corporation is determined by the place of incorporation: 1. For constitutional purposes, even if a corporation was incorporated in the Philippines, it cannot exploit or develop our natural resources nor operate public utilities unless 60% of the capital is Filipino owned (Art XII Secs 2, 10-11, 1987 Consti) 2. For wartime purposes, we adopt the control test; we piece the veil of corporate identity and go into the nationality of the controlling stockholders to determine whether a corporation is an enemy corporation. What are the matters governed by the personal law of a corporation? 1. Requisites as to the formation of the corporation; 2. Required number of incorporators and members of the board of directors; 3. The kinds of shares of stock allowed; 4. The transfer of stocks; 5. The issuance, amount, and legality of dividends; 6. The powers and duties of the officers, stockholders and members. The validity of the corporate acts and contracts are determined by the place of incorporation and the place of performance. Jurisdiction over Corporations and License Requirement A foreign corporation may sue and be sued in the Philippines if it has the necessary license to do business in the Philippines. The license is required not to forbid the foreign corporation from performing single acts

but to prevent it from acquiring a domicile for purposes of business without taking the steps necessary to render if amenable to suit in the local courts. If the corporation enters into a transaction without first obtaining the necessary license the contract is unenforceable. However, the person who contracted with the corporation may be in estoppel if he had received the benefits from the contract.

There are four exceptions to the license requirement: 1. Isolated Transactions One which is occasional, incidental and casual, not of a character to indicate a purpose to engage in business? One wherein there is no continuity of conduct and intention on the part of the foreign corporation to establish a continuous business within the state? 2. Action to protect trademark, trade name, goodwill, patent or unfair competition A foreign corporation engaging in business without a license may file a complaint for unfair competition since that is essentially a suit enjoining the unfair trader from pursuing the unlawful competition and in order to allow the aggrieved party to recover damages. This rule is based on equity considerations. 3. Agreements fully transacted outside the Philippines A foreign corporation is allowed to maintain an action on a transaction wholly celebrated and consummated abroad. 4. Petition filed is merely a corollary defense in a suit against it In Time Inc. v. Reyes, the court held that a foreign corporation is not maintaining a suit in our courts but is merely defending itself when it files a complaint for the sole purpose of preventing the lower court from exercising jurisdiction over the case. As such, the foreign corporation is not required to allege and prove that it has capacity to sue. Jurisdiction over the Corporation is acquired by service of summons to the following: 1. Its resident agent; 2. If there is no such agent, on the government official designated by law to that effect; or 3. On any of its officers or agents in the Philippines. Doing Business

Under the Foreign Investments Act, the phrase doing business shall include: a. soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; b. 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; c. participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; d. 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. Proviso: 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 distributor domiciled in the Philippines which transacts business in its own name and for its own account; However, there is no general rule or governing principle laid down as to what constitutes doing or engaging in or transacting business in the Philippines. Each case must be judged in the light of its peculiar circumstances. Special Corporations 1. Religious Societies and the Corporation Sole. - In one case, the SC held that a religious society, the trustees of which are composed of Chinese nationals may not acquire and register an agricultural land in view of the Constitutional provision requiring at least 60% of the capital to be owned by Filipino Citizens. In the case of Roman Apostolic Administrator of Davao v. Land Registration Commissioner, the Roman Catholic Administrator of Davao, a Canadian citizen, acting in his capacity as corporation sole, was allowed to acquire a parcel of land in his name without being required to satisfy the 60% membership of Filipino citizens. According to the Court, the requirement of at least 60% membership of Filipino citizens was never intended to apply to a corporation sole because unlike ordinary corporations, the corporation sole is composed of one person usually, the head or bishop of the diocese who is merely an administrator and not the owner of the temporalities in the diocese.

A partnership exists when two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves. In the Philippines, a partnership has a juridical personality separate and distinct from that of each of the partners. And the personal or governing law of a partnership is the law of the country where it is created. 2. Transnational Corporations- These are actually branches of a big, mother corporation in a highly industrialized, highly developed foreign country but doing business in many countries of the world through branches that have been incorporated under the law of each country or state where it has extended its business, in association with local businessmen. Since they are incorporated under the local law of each state where they are doing business, the branches are separate entities governed by the said local laws, but in reality the major decisions in their operation and management are controlled by theory mother or parent corporation. However, the branches, having incorporated in the states where they are established, are governed by the internal law of the said states, and their personal laws are the local laws of the host states. Partnership Art. 1767 New Civil Code A partnership exists when two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. The personal or governing law of a partnership is the law of the country where it is created. The domicile of the partnership, on the other hand, according to art. 51 of the New Civil Code, it is the place where their legal representation is established or where they exercise their principal functions.

Sources: Handbook on Conflict of Laws, Alicia V. Sempio-Diy Quezon City : Printed by MPC Printers, c2004 Conflict of Laws, Jorge R. Coquia, Central Book Supply, Inc.