i.

tax
ii. governing law
iii. validity of acts
iv. personality to sue
v.

1. Control Test

a. Definition and History

The nationality of a private corporation is determined by the character or

citizenship of its controlling stockholders1. The Supreme Court in Filipinas
Compañia de Seguros v. Christern, following the decision of the US Supreme Court
in United States in Clark vs. Uebersee Finanz Korporation, adopted the control test
and recognized its applicability in the Philippine setting.

It was the English courts which first in the Daimler case applied this new concept
of "piercing the corporate veil', which was adopted by the Peace Treaties of 1919
and the Mixed Arbitral Tribunals established after the First World War 2.

b. War time test

In Filipinas Compañia de Seguros v. Christern, the Court held that in times of war,
the control test should be used in order to determine the nationality of
corporations. The Court considered the juridical entity an enemy based on the
fact that the "majority of the stockholders of the respondent corporation were
German subjects."

In case of war, for reasons of national security, in addition to the incorporation

test embodied in Section 123 of the Corporation Code, the "control test" is applied
to determine the nationality of a corporation. A foreign corporation can have no

1 Filipinas Compañia De Seguros v. Christern, Hunefeld & Co., Inc., G.R. No. L-2294, [May 25, 1951], 89 PHIL 54-60
2
"Enemy Corporations" by Martin Domke, a paper presented to the Second International Conference of the Legal Profession held at The
Hague (Netherlands) in August, 1948
legal existence beyond the bounds of the state or sovereignty by which it is
created. It exist only in contemplation of law and by the force of law, and where
that law ceases to operate, the corporation can have no existence. This principle
however, does not prevent a corporation from acting in another state or country
with the latter's express or implied consent3.

C. Tests to determine the nationality of Corporations

Under Philippine jurisdiction, the primary test to determine the nationality of a

corporation is always the place of incorporation test, since we adhere to the
doctrine that a corporation is a creature of the State under whose it has been
created. A corporation organized under the laws of a foreign country,
irrespective of the nationality of the persons who control it, is necessarily a foreign
corporation. The control test, and the principal place of business test (siege
social), are merely adjunct tests, when the place of incorporation test indicates
that the subject corporation is organized under Philippine laws.

In case of double nationality or multiple nationality, the Philippine authority will

always consider the person from the point of view of Philippine doctrine and treat
it as Philippine national if it falls squarely within the test.

In sum, the general rule adhered to by the Corporation Code is the Place of
Incorporation Test. However, during exceptional circumstances, ie. 1) In times of
war, as regards public enemy; 2) For investment purposes, as defined under the
Foreign Investment Act, the control test is used.

CASE:

Villanueva, C. L. (2013). Philippine Corporate Law. Metro Manila: Rex Bookstore.

1. Gamboa vs Teves

SEC Memorandum 8 s. 2013

2. Roy III vs Herbosac

a. Applying the Control Test

Hyopsung Maritime Co., Ltd. v. Court of Appeals, sought to qualify the Facilities
Management rule. In that case which involved the suit filed in local courts against
a foreign corporation, the Court mandated the principle that service of summons
under Section 14, Rule 14 of the old Rules of Court "requires that the foreign
corporation be one which is doing business in the Philippines. This is sine qua non
requirement. This fact must first be established in order that summons can be
made and jurisdiction acquired."

The Court then provided that when the contract sued upon has entirely been
executed outside of Philippine jurisdiction, the rule in Facilities Management is
inapplicable, thus:

The present case must be distinguished from Facilities Management Corp. vs. de
la Osa which involved the non- payment by Facilities Management Corp (FMC in
short), a non-resident foreign corporation, of overtime compensation, as well as
swing shift and graveyard shift premiums to Leonardo de la Osa, a Filipino,
successively employed as painter, houseboy, and cashier. Notably, de la Osa was
hired in Manila by the Filipino agent of FMC and the contract of employment
between him and FMC was originally executed and subsequently renewed in
Manila. . . On the other hand, the present suit is for the recovery of damages
based on a breach of contract which appears to have been entirely entered
into, executed, and consummated in Korea. . . Simply put, the petitioner is beyond
the reach of our courts.

(165 SCRA 258 (1988). )

Pacific Micronesian Line, Inc. v. del Rosario, 96 Phil. 23 (1954).

Hyopsung Maritime would therefore include the "contract test" of Pacific

Vegetables as a requisite element for the application of the Facilities
Management rule, i.e., that for a foreign corporation not doing business in the
Philippines can be sued in local courts provided it is based on a contract or
transaction which would wholly or partially executed or fulfilled within Philippine
territory.

In 1990 in Marubeni Nederland B.V. v. Tensuan the Supreme Court took a different
approach. In that case, a suit was filed by a local against a Japanese
corporation, on the basis of the limited and special appearance filed by counsel
of the foreign corporation seeking dismissal of the complaint on the ground that
the court a quo had no jurisdiction over the person of the petitioner "since it is a
foreign corporation neither doing nor licensed to do business in the Philippines."
The Court then clearly laid the "pivotal" issue to be "whether or not petitioner
Marubeni Nederland B.V. can be considered as `doing business' in the Philippines
and therefore subject to the jurisdiction of our courts," implying the minimum nexus
to be "doing business" to allow our courts to have jurisdiction over the person of
the defendant foreign corporation. In any event, the Court, relying on the
provisions of rules and regulations implementing Rep. Act 5455 which considered
as "doing business" soliciting of orders, purchases (sales) or service contracts in the
Philippines, held Marubeni Nederland B.V. to be doing business in the Philippines,
and with or without a license, was subject to the jurisdiction of local courts:

Even assuming for the sake of argument that Marubeni Nederlands B.V. is a
different and separate business entity from Marubeni Japan and its Manila
branch, in this particular transaction, at least, Marubeni Nederland B.V. through
the foregoing acts, had effectively solicited “orders, purchases (sales) or service
contracts” as well as constituted Marubeni Corporation, Tokyo, Japan and its
Manila Branch as its representative in the Philippines to transact business for its
account as principal. These circumstances, taken singly or in combination,
constitute “doing business in the Philippines” within the contemplation of the law.

Ibid, at pp. 263-264. Emphasis supplied.

190 SCRA 105 (1990).

It is ironical that in 1990 in Marubeni Nederland B.V. the Supreme Court was still
struggling with the issue of whether the defendant foreign corporation was "doing
business in the Philippines" to warrant jurisdiction of the trial court over the "person"
of the defendant, when there existed already the Facilities Management doctrine
which allows court jurisdiction over foreign corporation even not engaged in
business in the Philippines on an isolated transaction done in the Philippines.

The logic of Facilities Management doctrine is that although an isolated

transaction of a foreign corporation within Philippine jurisdiction does not amount
to doing business as to require it to obtain a license and to sue on such isolated
transaction, nevertheless, the entering by the foreign corporation of such isolated
transaction within the Philippines is taken as a consent to be subject to the
jurisdiction of Philippine courts. Therefore Facilities Management has reduced the
"nexus" by which Philippine agencies and courts are deemed to have authority
over foreign corporation from "doing business" to "engaging in an isolated
transaction" in the Philippines.

b. The Signetics Clarification

The argument has reached full circle recently in Signetics Corporation v. Court of
Appeals. In that case, an American corporation, Signetic Corporation, through a
wholly-owned subsidiary, entered into a lease contract over a piece of land with
a local company. In a case subsequently filed by a the local company against
the American corporation for damages arising from the lease contract (there was
a piercing of the veil of corporate fiction treating the local subsidiary and the
parent American company as one), Signetics filed, by way of special
appearance, a motion to dismiss the complaint on the ground of lack of
jurisdiction over its person. It invoked Section 14, Rule 14 of the Rules of Court and
the rule laid down in Pacific Micronisian Line, Inc. v. Del Rosario to the effect that
the fact of doing business in the Philippines should first be established in order that
summons could be validly made and jurisdiction acquired by the court over a
foreign corporation.

In affirming the denial of the motion to dismiss, the Supreme Court held that the
doctrine in Pacific Micronisian Line should be interpreted to mean the fact of
doing business must be established by appropriate allegations in the complaint,
and thereafter extraterritorial service of summons may be done pursuant to the
provisions of Section 17, Rule 14, of the Rules of Court. In addition, the Court held
that even if Signetics were not doing business in the Philippines, under the Facilities
Management doctrine "a foreign corporation, although not engaged in business
in the Philippines, may still look up to our courts for relief; reciprocally, such
corporation may likewise be `sued in Philippine courts for acts done against a
person or person in the Philippines."

The Court went on to say that Signetics right to question the jurisdiction of the
court over its person is now to be deemed a foreclosed matter since - . . . If it is
true, as Signetics claims, that its only involvement in the Philippines was through a
passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific
is not its agent, then it cannot really be said to be doing business in the Philippines.
It is a defense, however, that requires the contravention of the allegations of the

complaint, as well as full ventilation, in effect, of the main merits of the case, which
should not thus be within the province of a mere motion to dismiss. . .

225 SCRA 737, 44 SCAD 357 (1993).

96 Phil. 23 (1954).

This was a curious proposition on the part of the Court, since by adopting the
Facilities Management doctrine, whether or not a foreign corporation is engaged
in business in the Philippines has now become legally irrelevant, and the fact of
not doing business in the Philippines is not a proper defense for a suit brought in
Philippine courts against a foreign corporation. The point that matters with the full
adoption of the Facilities Management doctrine is whether the requirements of
due process and fair play could be complied with against a foreign corporation
not doing business in the Philippines, i.e., whether the proper process of obtaining
jurisdiction over its "person" have been complied with.

This point at least was recognized in Signetics Corporation when the Court went
to stress that -

. . . provided that, in the latter case, it would not be impossible for court processes
to reach the foreign corporation, a matter that can later be consequential in the

proper execution of judgment. Verily, a State may not exercise jurisdiction in the
absence of some good basis (and not offensive to traditional notions of fair play
and substantial justice) for effectively exercising it, whether the proceedings are
in rem, quasi in rem or in personam.

c. Latest Word on the Matter

Lately, in Avon Insurance PLC v. Court of Appeals, the Supreme Court seems to
have discounted the absolute suability rule of Facilities Management, thus:

In the alternative, private respondents submits that foreign corporation not doing
business in the Philippines are not exempt from suits leveled against them in courts,
citing the case of Facilities Management Corporation vs. Leonardo Dela Osa, et
al.,. . . We are not persuaded by the position taken by the private respondent. In
Facilities Management case, the principal issue presented was whether the
petitioner had been doing business in the Philippines, so that service of summons
upon its agent as under Section 14, Rule 14 of the Rules of Court can be made in
order that the Court of First Instance could assume jurisdiction over it. The Court
ruled that the petitioner was doing business in the Philippines, and that by serving
summons upon its resident agent, the trial court had effectively acquired
jurisdiction. In that case, the court made no prescription as the absolute suability
of foreign corporations not doing business in the country, but merely discounts the
absolute exemption of such foreign corporations from liabilities particularly arising
from acts done against a person or persons in the Philippines.

278 SCRA 312, 324, 86 SCAD 401, 412 (1997).

4. Contractual Stipulation on Venue

When a contract between a local and a foreign corporation stipulates

venue to be within the proper courts in the Philippines, the Supreme Court has

recognized the same to be a consent to being sued in the Philippines even when

the foreign corporation does no business in the Philippines.

In Lingner & Fisher GMBH v. Intermediate Appellate Court,

a stipulation

was provided for in the licensing agreement entered into between a foreign

corporation and a local company that read: "All legal settlements within the
compass of this AGREEMENT shall fall under the jurisdiction of Philippine

courts."

185

In a suit brought against the foreign corporation, where summons was

served upon its local counsel, the Supreme Court held that no evidence as to

whether the foreign corporation was doing business in the Philippines was

necessary to be adduced to make it amenable to the jurisdiction of the trial court

since whether or not the foreign corporation is 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 [the foreign corporation] can be sued by [the local company] before

Philippine Courts in regards to a controversy related to the AGREEMENT."

184

Nevertheless, the Supreme Court found service of summons upon the

foreign corporation's counsel as improper, but directed that since there is no

evidence to show that the foreign corporation was engaged in business for the

case to come under Section 14, Rule 14 of the Rules of Court where doing
184

185

186

125 SCRA 522 (1983).

Ibid, at p. 524.

Ibid, at p. 527.

186

business "is a sine qua non requirement,"

187

then service of summons can be

effected by extraterritorial service under Section 17, Rule 14, in relation to Rule 4

of the Rules of Court, "which recognizes the principle that venue can be agreed

upon by the parties."

188

Lingner & Fisher GMBH therefore laid down the rule that "if a local plaintiff

and a foreign corporation have agreed on Philippine venue, summons by

publication can be made on the foreign corporation under the principle of liberal
construction of the rules to promote just determination of actions."

189

Rules on Juridical Persons

FACTUAL SITUATION POINT OF CONTACT

Corporations

General rule: the law of the

place of
incorporationEXCEPTIONS:

For constitutional purposes –

even of the corporation was
incorporated in the RP, it is nor
deemed a Filipino corporation &
therefore can’t acquire land,
exploit our natural resources, 7
operate public utilities unless 60%
of capital if Filipino owned

For wartime purposes – we

pierce the corporation veil & go
to the nationality of the
controlling stockholders to
determine if the corporation is
Powers and liabilities an enemy (CONTROL TEST)
Formation of the corporation
(requisites); kind of stocks,
transfer of stocks to bind the
corporation, issuance, amount &
legality & dividends, powers &
duties of members, stockholders Law of the place of
and officers incorporation

Law of the place of

incorporation & law of the place
Validity of corporate acts & of performance (the act or
contracts (including ultra contract must be authorized by
vires acts) BOTH laws)

Right to sue & amenability to

court processes & suits against it Lex fori

Law of the place of

incorporation provided that the
public policy of the forum is not
Manner & effect of dissolution militated against

If not fixed by the law creating or

recognizing the corporation or
by any other provision – the
domicile is where it is legal
representation is established or
Domicile
where it exercises its principal
 functions (Article. 15)

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 (authority is CO-
Receivers (appointment & EXTENSIVE) w/ the authority of
powers) the appointing court

NOTE: Theories on the personal and/or governing law of corporations:

Law of the place of incorporation (this is generally the RP rule)

Law of the place or center of management (center for administration or

siege social) (center office principle)

Law of the place of exploitation (exploitation centre or siege d’

exploitation)

Partnerships

The personal law of the

The existence or non-existence
partnership, i.e., the law of the
of legal personality of the firm;
place where it was created
the capacity to contract; liability
(Article 15 of the Code of
of the firm & the partners to
Commerce) (Subject to the
3rd persons
exceptions given above as in
 the case of corps.)

Creation of branches in the RP;

validity & effect of the branches’ RP law (law of the place where
commercial transaction; & the branches were created) (Article
jurisdiction of the court 15, Code of Commerce)

Dissolution, winding up, & RP law (Article 15, Code of

termination of branches in the RP Commerce)

If not fixed by the law creating or

recognizing the partnership or by
any other provision – the
domicile is where it is legal
representation is established or
where it exercises its principal
Domicile functions (Article. 15)

RP law insofar as the assets in the

RP are concerned can be
Receivers exercised as such only in the RP

Foundations (combination of capital Personal law of the foundation

independent of individuals, usually (place of principal center of
not for profit) administration)