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XVII. Choice of Law Affecting Corporations - Coggle Diagram
XVII. Choice of Law Affecting Corporations
A. Personal law of a corporation
- Law of the state where it is incorporated.
B. Exceptions to the rule of incorporation test
a. Constitutional and statutory restrictions
- A state may, by legislation exclude a foreign corporation altogether, subject to constitutional limitations, or prescribe any conditions it may see fit as prerequisite to the corporation’s right to do business within its territory.
b. Control test during war
- In wartime, courts may pierce corporate veil and look into nationality of controlling stockholders to determine the citizenship of the corporation.
Daimler Co. v. Continental Tire and Rubber Co
.: A business corporation incorporated in England, with a British secretary, but whose shares were controlled by Germans, was considered an enemy corporation.
Thus, prohibited from trading in England.
Place of incorporation is not conclusive in determining whether a corporation is an enemy corporation.
The company itself is incapable of enmity or amity, since such are attributable only to human beings.
The company had the predominant character of its shareholders who were Germans.
PH Const. Provisions
- Primarily governed by Art. XII (12) of the constitution.
Sec. 2 - 60% ownership of corporations engaging in JVAs/co-production/production-sharing agreements relating to natural resources.
Sec. 10 - 60% ownership of corporations by law on certain areas of investments.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.
C. Domicile or residence of foreign corporations
NCC 51 provides that when the law creating/recognizing does not fix the domciile of juridical persons, domicile refers tot he place where their legal representation is established or, where they exercise their principal functions.
D. Jurisdiction over foreign corporations
-
Dictum - Bank of Augusta v. Earle - Corporation has force only in the incorporating state and has no existence outside the state.
Abandoned. Due to expansion of investments in many countries.
New GR - With the consent of a state, a foreign corporation shall be recognized and will be allowed to transact business in any state which gives it consent.
E. Right of Foreign Corporations to bring suit
- Acquisition of a license to transact business is an essential pre-requistie for filing a suit before PH courts. Codified under Sec. 150 of RCC (formerly 133)
Additional Cases:
Aboitiz Shipping v. Insurance Co. of North America, G.R. No. 168402, 6 August 2008
Cargill, Inc. v. Intra Strata Assurance Co., G.R. No. 168266, 15 March 2010
F. Licence Requirement
-
GR - Foreign corporations are allowed to seek redress in PH Courts only upon obtaining a license.
a. Definition and scope of transacting/doing business
- The foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account.
Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license.
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. (Cargill)
b. Exceptions to the license requirement
i. Isolated Transactions
- One which is occasional, incidental, and casual. Not of a character to indicate a purpose to engage in business.
Test - Isolated if there is no continuity of conduct and intention on the part of the foreign corporation to establish a continuous business within the state.
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Enumeration of Doing Business under RA 5455
- shall include:
soliciting orders,
purchases,
service contracts,
opening offices - whether called ‘liaison’ offices or branches;
appointing representatives or distributors who:
a. are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period
b. or periods totalling one hundred eighty days or more;
participating in the management,
supervision or control of any domestic business firm, entity or corporation in the Philippines;
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.
Enumeration of Doing Business under RA 7042
- 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:
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 distributor domiciled in the Philippines which transacts business in its own name and for its own account.
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State Consent
-
GR
- A corporation has capacity to act and contract through its agent in a foreign state with the EXPRESS or IMPLIED consent of that country or state.
XCPN
- A foreign corporation can do business therein, with state consent being presumed except:
Express Constitutional or Statutory Prohibition
Where it is seeking to perform acts which are contrary to the public policy
Seeking to perform acts not authorized by the law of the state of its incorporation
Where it is seeking to exercise extraordinary and special franchises
Definition
- Determined by the laws of the state.
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Importance
- Serves as the basis for the court''s exercise of jurisdiction. Corporations are considered present in the state or, have consented to the suit by making state a major place of business.
G. Special Corporations -
1. Religious Societies and the Corporation Sole
- Religious societies whose trustees are foreigners may not acquire and register agricultural land due to 60% ownership. Thus 60% membership applies as well in non-stock corporations.
2. Transnational Corporation
- clusters of several corporations, each with a separate entity, existing and spread out in several countries but controlled by the headquarters in a developed state where it was originally organized.
Not organized under international law (treaty).
All the locally incorporated branches are joined together by common control and management of higher officials in the home state.
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Corporation Sole
- Incorporated office composed of only one person. 60% ownership requirement does not apply. Corporation sole composed only of one person and is an administrator.
Not considered owner of the temporalities of the diocese. Thus, citizenship of the incumbent administrator irrelevant.
Capacity of a Foreign Corporation to Sue
- Must be averred in the complaint. As law denies foreign corporation to maintain suit.
Must show either:
Doing business with license
Isolated transaciton
Q. Recite Aboitiz (skipped for lack of time)
-
EAP - Subrogee of the consignee cannot be considered to do business
Q. Recite Cargill v. Intra Strata (Also skipped, no time)
EAP - Emphasis on systematic and regular activities leads to doing business. Not merely casual or ocassional activities.
This is the main issue in many cases. This is determined by the law of the place where the acts in question took place
Exceptions to License Requirement
- No recitation, but emphasized these.
Fully transacted - EAP: If even one aspect of the contract/activity is in the Philippines, must go into issue of doing business or not.
Corollary Defense.
Bank of Augusta Doctrine
Exceptions to Incorporation Test
-
NCC 51 - Domicile of Foreign corporations once acquired license.
EAP - Usually, law will say w/n domiciled or not. But, if no mention refer to NCC 51 (Place with legal representation or, where they establish principal functions)
Important to know other juridical entities
Partnerships, w/n limited or general.
EAP - General idea is law of place where created governs. Thus, must refer to laws of that state.
End of 20th Meeting
Section 150. Doing Business Without a License
. - No foreign corporation transacting business in the Philippines without a license, or its successor 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 the Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.
PH Consent Doctrine
- Found in the RCC.
Section 142. Application for a License. (125)
Section 143. Issuance of a License (126)
Section 144. Who May be a Resident Agent (127)
Section 145. Resident Agent; Service of Process (128)
Service of Summons
- Summons may also be served through diplomatic channels.
Recall International Shoe: Minimum contacts required between defendant and state so as not to offend traditional notions of fair play and substantial justice
Service of Summons under new ROC Rule 13 Section 14. Service upon foreign private juridical entities. -
When the defendant is a foreign private juridical entity which has transacted or is doing business in the Philippines, as defined by law, service may be made:
on its resident agent designated in accordance with the 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 officers, agents, directors or trustees within the Philippines.
If the foreign private juridical entity is not registered in the Philippines, or has no resident agent but has transacted or is doing business in it, as defined by law, such service may, with leave of court, be effected outside of the Philippines through any of the following means:
(a) By personal service coursed through the appropriate court in the foreign country with the assistance of the department of foreign affairs;
(b) By publication once in a newspaper of general circulation in the country where the defendant may be found and by serving a copy of the summons and the court order by registered mail at the last known address of the defendant;
(c) By facsimile;
(d) By electronic means with the prescribed proof of service; or
(e) By such other means as the court, in its discretion, may direct. (12)
Section 146. Law Applicable (Formerly Sec. 129)
In the PH, foreign corporations doing business in the PH are bound by all laws, rules and regulations applicable to domestic corporations.
XCPN - except those which provide for the creation, formation, organization or dissolution of corporations or those which fix the relations, liabilities, responsibilities, or duties of stockholders, members or officers of corporations to each other or to the corporation.
Foreign Corporations
- Once foreign corporations granted license in the PH, they acquire a domicile here.
Traditionally distinct form residence. Corporation's domicile is state of incorporation, where residence is where the center of control reposes.
But, usage here synonymous with domicile.
Rationale
- Since a corporation is an artificial being, it only has the rights and powers conferred upon it in its charter.
The state of incorporation may withhold from a corporation the power to enter into certain contracts.
If it enters into such contract in another state, the contract is void.
Anglo-American Legal Theory on Corporation/Bank of Augusta Doctrines
-
A corporation, being a creature of law, has no legal status beyond the bounds of the sovereignty within which it was created;
A corporation cannot exercise powers not granted by its corporate charter or by the laws of the state of incorporation;
No state is under any obligation to adhere to the doctrine of comity. Every state has the power to refuse to recognize or prevent the foreign corporation from acting within its jurisdiction; and
A state is not obliged to grant to a foreign corporation the privileges and immunities common to the citizen of that state.
Legal Status of Corporation
- A corporation has no legal status beyond the bounds of the sovereignty by which it was created.
Cannot migrate to another sovereignty; but can sue in another state provided consent of that state.
Consent of a state to a foreign corporation's activities within its jurisdiction is required to control and set conditions on the activities; not to bar them altogether.
Q. How can an entity that does not exist sue in a foreign state if such state does not recognize the legal personality of the principal?
Paul v. Virginia - US SC decision where a state may impose any term it may desire as a pre-requisite to admission.
Subject to certain exceptions.
Ex. is a commerce clause, which prohibits a state from imposing conditions on corporations engaged in interstate commercial activities and provides the basis of federal power to regulate interstate commerce.
Due Process - A corporation is also a “person” protected by the due process and equal protection clauses of the constitution.
Constitution - A state cannot impose “unconstitutional conditions” which require the corporation to give up its constitutional rights either as a prerequisite to doing business in the state or to avoid being removed therefrom.
Status of Corporation as a Person
- Though a corporation is a person, it is not deemed a “citizen” entitled to privileges given by the state to individual citizens.
A grant of corporate existence is a grant of special privileges to the corporations, enabling them to act for certain designated purposes as a single individual, and exempting them from individual liability.
If the right asserted of the foreign corporation, when composed of citizens of one State, to transact business in other States were even restricted to such business as corporations of those States were authorized to transact, it would still follow that those States would be unable to limit the number of corporations doing business therein.
Definition of Corporation (RCC 2
) - an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. (2)
Foreign Corporation (RCC 123)
- 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 agency
Section 140. Definition of Rights of Foreign Corporations
. - For purposes of this Code, a foreign corporation is one formed, organized or existing under 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 obtaining a license for that purpose in accordance with this Code and certificate of authority from the appropriate government agency.