A Corporation is an artificial being created by operation of law,

having the right of succession and the powers, attributes, and properties
expressly authorized by law or incidental to its existence. (Sec. 2, RCC)

CONFLICT RULES ON CORPORATION

AND PARTNERSHIP By a contract of partnership 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. (Art. 1767, NCC)
Prepared by:

ATTY. WALDEMAR R. GRAVADOR

USC-LAW

1. Various Theories in determining the personal/governing law of

corporation
From Sempio-Diy:
A. The Personal/governing law of
Ø First Theory: Law of the Place of Incorporation
a partnership: The law of the country
where it is created (Art. 15, Code of o Law of the place where the corporation was
Commerce)
B. Domicile of a Partnership: where incorporated or organized
they are established or where they exercise
their principal functions.
o Defect of the Theory
§ Possibility of evasion of many responsibilities
through the simple expedient of company
organizing in one state and performing its
corporate functions in another state

Ø Second Theory: Law of Place of Management

o Law of the place or center of management

o Defect of the Theory

§ Difficulty arises when the board meets in
different states

Ø Third Theory: Law of Place (affected by its activities) or

Center of Exploitation

o Law of the place principally affected by its activities,

or the center of exploitation
 2

o Defect of the Theory

§ Corporation may have its enterprise scattered
in all parts of the world

2. Theory adopted in this jurisdiction

The Philippines follows the FIRST THEORY, i.e. Law of the

This can be implied from the definition of foreign corp. by the
Place of Incorporation RCC as one "formed, organized, or existing under any laws
other than those of the Phils."

3. Exceptions to the application of the Theory of Incorporation:

Constitutional
Ø Provisions of the Constitution relating to utilization of natural
Purposes
resources
(Sections 1,10, 11, Article 12 of the 1987 Constitution)

Ø For Wartime Purposes, i.e. “control test” is applied which goes

into the nationality of the controlling stockholders for the
purpose of determining if a corporation is an enemy corporation
or not (cited by Paras)

o CORPORATIONS; NATIONALITY OF PRIVATE

CORPORATION; CONTROL TEST. — The nationality of a
private corporation is determined by the character or
citizenship of its controlling stockholders.

o ID.; ID.; ID.; INTERNATIONAL LAW; EFFECT OF WAR. —

Where majority of the stockholders of a corporation were
German subjects, the corporation became an enemy
corporation upon the outbreak of the war between the United
States and Germany.
(Filipinas Compañia De Seguros v. Christern, Hunefeld & Co.,
Inc., G.R. No. L-2294, [May 25, 1951], 89 PHIL 54-60)
 3

In the case of Filipinas Compañía de Seguros vs. Christern

Huenefeld & Co., Inc., 89 Phil., 54, we held that the nationality of
a private corporation is determined by the character or citizenship
of its controlling stockholders; and this pronouncement is of
course decisive as to the hostile character of the Eastern Isles
Import Corporation and the Eastern Isles, Inc., as far as the
Japanese Military Administration was concerned, it being
conceded that the controlling stockholders of said corporations
were American citizens. (S. Davis Winship v. Philippine Trust
|||

Company, G.R. No. L-3869, [January 31, 1952], 90 PHIL 744-

747)

4. Matters governed by the personal law of the corporation

Ø Requisites for the formation of a corporation (except pre-

incorporation contracts which is governed by the lex contractus)
Ø Kinds of stocks allowed
Ø Transfer of stocks
Ø Issuance, amount and legality of dividends
Ø Powers and duties of members, stockholders and officers; and
Ø Manner and effect of dissolution

5. Validity of corporate acts and contracts

Ø Law of incorporation
Ø Law of performance of contracts
From Sempio-Diy:
Thus, if valid in the place of Therefore, for the validity of corporate acts and contracts, it must
incorporation but void in the
place of performance, or vice be valid BOTH according to the law of the place of incorporation
versa, the validity of said acts and the law of the place where the contract is performed.
or contracts is doubtful and it
may not be given effect at all,
without prejudice to 6. What is a foreign corporation
the principle of
estoppel.
REPUBLIC ACT NO. 112321 (REVISED CORPORATION
CODE OF THE PHILIPPINES)
 4

Section 140 Definition and 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 a certificate of authority from the appropriate
government agency.

7. Rule on foreign corporation doing business in the Philippines

From Sempio-Diy citing Paras: Section 150
Doing Business Without a License

A foreign corporation who had already
withdrawn from business in the Phils.
may still be sued for contracts it had No foreign corporation transacting business in the
previously entered into.
After all, fairness demands that the citizens
Philippines without a license, or its successors or assigns,
and residents of the Phils. be afforded the shall be permitted to maintain or intervene in any action, suit
opportunity to sue those foreign corp.
locally, instead of requiring them to sue or proceeding in any court or administrative agency of the
in the foreign countries where they are
domiciled.
Philippines; but such corporation may be sued or proceeded
By the same token, the foreign corp. that against before Philippine courts or administrative tribunals
has withdrawn should also be allowed to
on any valid cause of action recognized under Philippine
sue on validly existing transactions, entered into
previous to the cessation of its business here.
laws.
And an identical rule should also apply to contracts
entered into prior to the revocation of the foreign corp's
license.

8. The general rule on requirement of a license and its effects:

From Sempio-Diy
The license is required The general rule therefore is that a corporation cannot maintain,
not to forbid the foreign
corporation from
intervene (generally cannot sue) in any action, suit, or proceeding in
performing single acts any court or administrative agency in the Philippines.
but to prevent it from
acquiring a domicile
for purposes of business However, it can be sued. It cannot be a plaintiff but it can be a
without taking the steps
necessary to render it defendant.
amenable to suit in the local
courts (Marshall Wells & Co.
v. Elser Co., 46 Phil. 71) In Philippine Columbia Enterprises Co. v. Lantin, if a corporation (without
a license) sues and the defendant in the suit questions its legal
capacity to sue but interposes a counterclaim, the effect of the
defendant in interposing a counterclaim should not be deemed a
 5 A corporation cannot put up by way of defense its failure to comply
with the law (Gen. Cor. of the Phils. v. Union Ins. Society of Canton)

waiver of his or her or its right to question plaintiff corporation’s lack

of legal capacity. Thus:

“The last objection of the petitioners to the deferment order is

that if they file a counterclaim against respondent foreign
corporation, they would be recognizing the legal capacity of said
corporation which they are precisely questioning. This fear is
without legal basis, for actions by foreign corporations are
governed by rules different from those in actions against them.
A counterclaim partakes of the nature of a complaint and/or
cause of action against the plaintiff, so that if the petitioners-
defendants should file a counterclaim, the private respondent-
plaintiff Katoh & Co., Ltd., would be a defendant thereto, in
which case the said foreign corporation would not be
maintaining a suit and consequently Section 69 of the
Corporation Law would not apply”. (G.R. No. L-29072, [June 7,
||

1971], 148-A PHIL 315-326)

The contract entered into by a corporation which transacts business

without the requisite license is unenforceable. This was ruled upon by
the Supreme Court in Home Insurance Co. v. Eastern Shipping Lines,
thus:

“The better reason, the wiser and fairer policy, and the greater
weight he with these decisions which hold that where, as here,
there is prohibition with a penalty, with no express or implied
declarations respecting the validity of enforceability of contracts
made by qualified foreign corporations, the contracts . . . are
enforceable . . . upon compliance with the law. (Peter &
Burghard Stone Co. v. Carper, 172 N.E. 319 (1930]). Our
jurisprudence leans towards the later view. A part from the
objectives earlier cited from Marshall Wells Co. vs. Henry W.
Elser & Co. (supra). it has long been the rule that a foreign
corporation actually doing business in the Philippines without
license to do so may be sued in our courts”. (G.R. No. L-34382,
|||

L-34383, [July 20, 1983], 208 PHIL 359-374)

 6

9. The exceptions to the rule on requirement of a license to do

business to commence suit

Ø If foreign corporation is suing on an isolated transaction

Based on the rulings laid down in the foregoing cases, it cannot

be said that the Aetna Casualty & Surety Company is transacting
business of insurance in the Philippines for which it must have a
license. The contract of insurance was entered into in New York,
U.S.A., and payment was made to the consignee in its New York
branch. It appears from the list of cases issued by the Clerk of
Court of the Court of First Instance of Manila that all the actions,
except two (2) cases filed by Smith, Bell & Co., Inc. against the
Aetna Casualty & Surety Company, are claims against the
shipper and the arrastre operators just like the case at bar.
Consequently, since the appellant Aetna Casualty & Surety
Company is not engaged in the business of insurance in the
Philippines but is merely collecting a claim assigned to it by the
consignee, it is not barred from filing the instant case although it
has not secured a license to transact insurance business in the
Philippines.
(Aetna Casualty & Surety Co. v. Pacific Star Line, G.R. No. L-
|||

26809, [December 29, 1977], 170 PHIL 655-668)

We reject the claim of petitioner Lorenzo Shipping that

respondent Chubb and Sons is not suing under an isolated
transaction because the steel pipes, subject of this case, are
covered by two (2) bills of lading; hence, two transactions. The
stubborn fact remains that these two (2) bills of lading spawned
from the single marine insurance policy that respondent Chubb
and Sons issued in favor of the consignee Sumitomo, covering
the damaged steel pipes. The execution of the policy is a single
act, an isolated transaction. This Court has not construed the
term "isolated transaction" to literally mean "one" or a mere single
act. In Eriks Pte. Ltd. vs. Court of Appeals, this Court held that:
. . . What is determinative of "doing business" is not really
the number or the quantity of the transactions, but more
 7

importantly, the intention of an entity to continue the body of its

business in the country. The number and quantity are merely
evidence of such intention. The phrase "isolated transaction" has
a definite and fixed meaning, i.e. a transaction or series of
transactions set apart from the common business of a foreign
enterprise in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the business
organization. Whether a foreign corporation is "doing business"
does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the
transactions. [Emphasis supplied.] (Lorenzo Shipping Corp. v.
|

Chubb and Sons, Inc., G.R. No. 147724, [June 8, 2004])

Ø In infringement of trademark and unfair competition

WHEN AN UNLICENSED FOREIGN CORPORATION CAN

MAINTAIN ACTION.—A foreign corporation which has never done
any business in the Philippine Islands and which is unlicensed and
unregistered to do business here, but is widely and favorably known
in the Islands through the use therein of its products bearing its
corporate and trade name, has a legal right to maintain an action in
the Islands to restrain the residents and inhabitants thereof from
organizing a corporation therein bearing the same name as the
foreign corporation, when it appears that they have personal
knowledge of the existence of such a foreign corporation, and it is
apparent that the purpose of the proposed domestic corporation is
to deal and trade in the same goods as those of the foreign
corporation. (Western Equipment and Supply Co. v. Reyes, G.R.
|||

No. 27897, [December 2, 1927], 51 PHIL 115-131)

It is unfortunate that respondent Director of Patents has concluded

that since the petitioner is not licensed to do business in the
country and is actually not doing business on its own in the
Philippines, it has no name to protect in the forum and thus, it is
futile for it to establish that "CONVERSE" as part of its corporate
name identifies its rubber shoes. That a foreign corporation has a
right to maintain an action in the forum even if it is not licensed to
do business and is not actually doing business on its own therein
 8

has been enunciated many times by this Court. In La Chemise

Lacoste, S.A. vs. Fernandez, 129 SCRA 373, this Court,
reiterating Western Equipment and Supply Co. vs. Reyes, 51 Phil.
115, stated that:LibLex

". . . a foreign corporation which has never done any

business in the Philippines and which is unlicensed and
unregistered to do business here, but is widely and favorably
known in the Philippines through the use therein of its products
bearing its corporate and tradename, has a legal right to maintain
an action in the Philippines to restrain the residents and
inhabitants thereof from organizing a corporation therein bearing
the same name as the foreign corporation, when it appears that
they have personal knowledge of the existence of such a foreign
corporation, and it is apparent that the purpose of the proposed
domestic corporation is to deal and trade in the same goods as
those of the foreign corporation. (Converse Rubber Corp. v.
Universal Rubber Products, Inc., G.R. No. L-27906
(Resolution), [January 8, 1987], 231 PHIL 149-159)

BUT, in Leviton Industries v. Salvador, the Supreme Court ruled

that trademark must be registered and that the country of the
plaintiff foreign corporation gives reciprocal treatment to Filipino
corporations, thus:

“Undoubtedly, Section 21-A of the Trademark

Law (Republic Act No. 166) grants to a foreign corporation,
whether or not licensed to do business in the Philippines,
the right to seek redress for unfair competition before
Philippine courts, But the said law is not without
qualifications. Its literal tenor indicates as a condition sine
qua non the registration of the trademark of the suing
foreign corporation with the Philippine Patent Officer or, in
the least, that it been assignee of such registered
trademark. The said section further requires that the
country, of which the plaintiff foreign corporation or juristic
person is a citizen or democilliary, grants to Filipino
corporations or juristic entities the same reciprocal
 9

treatment, either thru treaty, convention or law.”||| (G.R. No.

L-40163, [June 19, 1982], 199 PHIL 591-599)

Further, in Philip Morris, Inc. v. Fortune Tobacco Corp., the

right to sue by a corporation without a license to protect its
trademark was further qualified, thus:

“Before discussing petitioners' claimed entitlement to

enforce trademark rights in the Philippines, it must be
emphasized that their standing to sue in Philippine
courts had been recognized, and rightly so, by the CA.
It ought to be pointed out, however, that the appellate
court qualified its holding with a statement, following
G.R. No. 91332, entitled Philip Morris, Inc., et al. v. The
Court of Appeals and Fortune Tobacco
Corporation, that such right to sue does not necessarily
mean protection of their registered marks in the
absence of actual use in the Philippines.||| (G.R. No.
158589, [June 27, 2006], 526 PHIL 300-324)

Ø on a cause of action entirely independent of any business

transaction

FOREIGN CORPORATION; ACTION FOR DAMAGES. —

A foreign corporation which had not established itself here,
nor engaged in business here, could in 1905, without filing
its articles of incorporation in the mercantile registry,
maintain an action against another for damages caused to
one of its ships while in the harbor of
Manila. (Dampfschieffs Rhederei Union v. La Compañia
|||

Trasatlantica, G.R. No. 3423, [March 27, 1907], 8 PHIL 766-

770)

COMMERCIAL LAW; CORPORATION LAW; FOREIGN

CORPORATIONS; CAPACITY TO SUE IN THE ABSENCE
OF LICENSE TO ENGAGE IN BUSINESS IN THE
PHILIPPINES. — The respondents challenge the
petitioner's capacity to sue, it being admittedly a foreign
 10

corporation without license to engage in business in the

Philippines, citing Section 69 of the Corporation Law. It
must be stated however that this section is not applicable to
a foreign corporation performing single acts or "isolated
transaction." There is nothing in the record to show that the
petitioner has been in the Philippines engaged in continuing
business or enterprise for which it was organized, when the
sixteen bundles were erroneously discharged in Manila, for
it to be considered as transacting business in the
Philippines. The fact is that the bundles, the value of which
is sought to be recovered, were lauded not as a result of a
business transaction, "isolated" or otherwise, but due to a
mistaken belief that they were part of the shipment of forty
similar bundles consigned to persons or entities in the
Philippines. There is no justification, therefore, for invoking
the provisions of Section 69 of the Corporation
Law. (Swedish East Asia Co., Ltd. v. Manila Port Service,
|||

G.R. No. L-26332, [October 26, 1968], 134 PHIL 619-627)

Since petitioner foreign banking corporation was not doing

business in the Philippines, it may not be denied the
privilege of pursuing its claims against private respondent for
a contract which was entered into and consummated outside
the Philippines. Otherwise we will be hampering the growth
and development of business relations between Filipino
citizens and foreign nationals. Worse, we will be allowing the
law to serve as a protective shield for unscrupulous Filipino
citizens who have business relationships abroad. (HangprLL|||

Lung Bank, Ltd. v. Saulog, G.R. No. 73765, [August 26,

1991], 278 PHIL 155-165)

Ø Enforcement of foreign arbitral award in Tuna Processing, Inc.

v. Philippine Kingford, Inc., thus:

“Indeed, it is in the best interest of justice that in the

enforcement of a foreign arbitral award, we deny availment
by the losing party of the rule that bars foreign corporations
not licensed to do business in the Philippines from
maintaining a suit in our courts. When a party enters into a
 11

contract containing a foreign arbitration clause and, as in this

case, in fact submits itself to arbitration, it becomes bound
by the contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the other party
to enter into the contract, participate in the arbitration and
cause the implementation of the result. (G.R. No. 185582,
|||

[February 29, 2012], 683 PHIL 276-294)

Ø Another exception in Time, Inc. v. Reyes.

“Private respondents also invoke the ruling in Marshall-Wells

Co. vs. Elser & Co., Inc. that no foreign corporation may be
permitted to maintain any suit in the local courts unless it
shall have the license required by the law, and the ruling in
Atlantic Mutual Ins. Co., Inc. vs. Cebu Stevedoring Co., Inc.
that "where . . . the law deniesto a foreign corporation the
right to maintain suit unless it has previously complied with a
certain requirement, then such compliance or the fact that
the suing corporation is exempt therefrom, becomes a
necessary averment in the complaint." We fail to see how
these doctrines can be a propos in the case at bar, since the
petitioner is not "maintaining any suit" but is merely
defending one against itself; it did not file any complaint but
only a corollary defensive petition to prohibit the lower court
from further proceeding with a suit that it had no jurisdiction
to entertain. |x

xxx xxx xxx

"A foreign corporation may, by writ of prohibition, seek relief

against the wrongful assumption of jurisdiction. And a foreign
corporation seeking a writ of prohibition against further
maintenance of a suit, on the ground of want of jurisdiction,
is not bound by the ruling of the court in which the suit was
brought, on a motion to quash service of summons, that it
has jurisdiction." (G.R. No. L-28882, [May 31, 1971], 148-A
|||

PHIL 255-267)
 12

10. Modes of acquiring jurisdiction over Foreign Corporation

Ø The case of Lingner & Fisher GMBH v. Intermediate Appellate

Court

CIVIL PROCEDURE; VENUE; AGREEMENT OF

PARTIES WITH REGARDS THERETO PREVAILS. — It
is our view that evidence as to whether LINGNER was
doing business in the Philippines, even before the Trial
Court, it no longer necessary in view of the fact that
PHILCHEM and LINGNER were contractees in the
AGREEMENT and the claim of PHILCHEM is based on
the ROYALTY CLAUSE of that AGREEMENT. Whether
LINGNER is or is not doing business in the Philippines,
will not matter because the parties had expressly
stipulated in the AGREEMENT that all controversies
based on the AGREEMENT "shall fall under the
jurisdiction of Philippine courts." In other words, there was
a covenant on venue to the effect that LINGNER can be
sued by PHILCHEM before Philippine Courts in regards
to a controversy related to the AGREEMENT.||| (G.R. No.
L-63557 (Resolution), [October 28, 1983], 210 PHIL 438-
445)

Ø The 2019 Amendments to the 1997 Rules of Civil Procedure

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 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.
 13

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. (12a)
||| (2019 Proposed Amendments to the 1997 Rules of Civil
Procedure, A.M. No. 19-10-20-SC (Resolution), [October
15, 2019])

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