CONFLICT OF LAWS: CHOICE OF LAW AFFECTING FOREIGN CORPORATIONS

SUBMITTED TO: ATTY. MARCIANO G. DELSON Professor

SUBMITTED BY: LAISA AGUILA JOANNE CARLA CATALLA RON ERWIN ESQUIVEL LEA OBEJERA IRISH PRECION JO MARIE ANGELI VIBANDOR

15 FEBRUARY 2013

FOREIGN CORPORATION Is one formed, organized or existing under any laws other than those of the Philippines and whose laws allows Filipino citizens and corporations to do business in its own country or state.

PREREQUISITE FOR A FOREIGN CORPORATION TO LAWFULLY TRANSACT BUSINESS IN THE PHILIPPINES: The law of the of its incorporation allows Filipino citizens and corporations to do business in said country; There must be reciprocity in business relations between the country where the foreign corporation was incorporated and the Philippines, where it intends to do business. It must secure a license to transact business in this country in accordance with this code and a certificate of authority from the appropriate government agency. If it transacts business in the Philippines without such license, it may not be permitted to maintain or intervene in any action, suit or proceed in any court or administrative agency of the Philippines; its official or agent responsible therefor may also be held criminally thereof.

CLASSIFICATION OF FOREIGN CORPORATIONS: Under the Tax Code: RESIDENT FOREIGN CORPORATION are those which have been issued license to transact business in the country and are thus taxed in the same manner as domestic corporations insofar as their income from within the Philippines are concerned and are thus entitled to claim deductions for expenses. NON RESIDENT FOREIGN CORPORATIONS are those without license to do business in the country, whether or not they are actually doing business, and they are taxed on their gross income from within the Philippines by a certain percentage thereof. Under the Corporation Code: A domestic corporation or corporation organized under the Corporation code may, for certain purposes, be classified as corporation with foreign nationality or citizenship of the country of the foreign investors who own certain percentage of the capital stock of said corporation. In times of war, a domestic corporation will be regarded as a foreign corporation where its controlling stockholders are foreigners, which means that they own at least 51% of the outstanding capital stock of said corporation.

 For purposes of investment by foreign investors in partly nationalized industries or businesses, the test applied to determine when a corporation id Filipino corporation is whether at least 60% of its capital stock is owned by Filipino citizens or by corporations the capital stock of which is owned to the extent of at least 60% thereof. If the Filipino ownership is less than 60%, only the shares owned by Filipino citizens are considered Filipino owned, and the corporation is then disqualified from engaging in any business which requires Filipino ownership to the extent of at least 60% thereof. APPLICABLE LAW IN INTERNAL AFFAIRS AND INTRACORPORATE DISPUTES Under Section 129 of the Corporation Code of the Philippines, any corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class, save and except such only as 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. GENERAL RULE: Philippine laws applicable to domestic corporations are applicable to any foreign corporation lawfully doing business in the Philippines. EXCEPTIONS: 1. The creation, formation, organization or dissolution of the foreign corporation; 2. Those which fix the relations, liabilities, responsibilities, or duties of stockholders, members, or officers of foreign corporations to each other or to the corporation These are governed by the law of the country where the foreign corporation is incorporated and organized. INTRA-CORPORATE DISPUTE Is a controversy: (a) which arises out of intra-corporate or partnership relations between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist and (b) which is intrinsically connected with the regulation of corporations, partnerships or associations or with those dealing with the internal affairs of such entities. WHAT INTRACORPORATE DISPUTES INCLUDE: 1. Where a director/president of a corporation offered to sell his shares to the corporation and to resign as director and officer thereof effective as soon as his shares are fully paid, which the corporation accepted by passing a board resolution replacing him as

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director/president and executing a promissory note promising to pay said shares in installments and thereafter paying only part of the consideration, the suit to enforce the promissory note and to collect the balance of the purchase price involves an intracorporate controversy; Where it appears that a stockholder sold all his shares in a corporation to another stockholder for a sum of money payable in installment, whereby they agreed that the sale would be automatically rescinded upon failure to pay any amount due; that the last amount due was not paid, by reason of which the seller rescinded the sale; A complaint by a stockholder for annulment of the sale and transfer of shares questioning the validity thereof on the ground that his pre-emptive right to such shares have been violated or that the same is without consideration; A suit filed by a stockholder of a corporation against some stockholders and officers of the same corporation to enjoin them from voting the corporations shares pending resolution of the dispute concerning the ownership of said shares; The issue of whether or not a corporation is bound to replace a stockholders lost certificate of stock is a matter purely between the stockholder and the corporation; Controversies concerning the election of directors of the exclusion of certain number of share from the stockholders meeting or the validity of the sale of shares between stockholders and the corporation; Where the action filed with the regular court seeks to regain from the board of directors control and management of a corporation by a stockholder; Where the dispute concerns acts of the board of directors claimed to amount to fraud and misrepresentation which may be detrimental to the interest of the stockholders, raised by director/stockholder; Claims of a director and president of a corporation for salary, allowances and per diems against said corporation; Dispute among stockholders of a corporation which have to do with their rights or relations as such or with the conduct of the corporate business and affairs;

As to the foregoing intra-corporate disputes, the applicable and governing laws are those of the laws of the country of their creation. However, foreign laws are not taken judicial notice in the country; they have to be alleged and proved in an appropriate case by anyone who invokes them, otherwise, they will be presumed to be the same as those of the Philippines.

JURISDICTION OVER INTERNAL MATTERS Section 29 of the Corporation Code specifies the law which should govern internal disputes in a foreign corporation, namely the law of the country where the foreign corporation is incorporated, which country is named in the records on file with the Securities and Exchange Commissions submitted when it applied for license to do business in the country.

The fact that the law of the country of incorporation governs internal disputes and intracorporate controversies in a foreign corporation does not divest Philippine courts of jurisdiction over such subject matters, nor affect the same. When a case involving internal dispute or intra-corporate controversy in a foreign corporation licensed to do business in the Philippines is filed in a Philippine court, it will consider the nature of the suit, the availability of records and witnesses in the forum, the interest of the parties and of the public, the amenability to or availability of court processes, and whether it would be more convenient to file the case in the country of incorporation of the corporation. This involves the application of the doctrine of forum non conveniens, and it is discretionary from the court whether to assume or decline jurisdiction. If it assumes jurisdiction, it will apply the law of the country where the foreign corporation has been incorporated, which must be alleged and proved, in the absence of which the doctrine of processual presumption that the law is similar to that of the country may be invoked. It has been held that in accordance with such doctrine, a court will generally decline to interfere with or control by injunction or otherwise the management of internal affairs of a corporation organized under the laws of another state, leaving the controversies as to such matters to the court of the state of domicile. GENERAL RULE: Courts are loath to interfere in the management of the internal affairs of foreign corporations. RATIONALE: Disputes arising from internal affairs or intra-corporate controversies are governed by the law of the state or country under which the corporation is organized; The courts of that state afford the most appropriate forum for the adjudication of the disputes ad such courts alone possesses jurisdiction and power adequate to the enforcement of decrees that justice may require; Neither the officers, the board of directors, nor the records of the corporation are within the reach of the order or process of the court, except the domiciliary courts.

EXCEPTION: The court may assume jurisdiction over the case if it chooses to, PROVIDED: The Philippine court is one to which the parties may conveniently resort to; The Philippine court is in a position to make an intelligent decision as to the law and facts; The Philippine court has or is likely to have power to enforce its decision.

E.G: In Gray vs Insular Lumber Co. (67 Phil 139) involving the right of inspection of corporate record of a foreign corporation duly authorized to do business in our country, M.E. Gray, who owned shares of the capital stock of Insular Lumber Co., a corporation organized in New York, USA filed a complaint to compel the corporation to allow him to examine and inspect its corporate records. Under the laws of New York, at the time, the right of inspection is granted to a stockholder or group of stockholders owning 3% of the capital stock if he can show that he seeks information for an honest purpose or to protect his interest as stockholders. Our court denied the relief sought by M.E. Gray because he failed to prove the requirements of the New York law.

MERGER OR CONSOLIDATION OF FOREIGN CORPORATIONS Section 132 of the Corporation Code authorizes the merger or consolidation involving a foreign corporation licensed in the Philippines. One or more foreign corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation or corporations if such is permitted under Philippine laws and by the law of its incorporation; Provided, that the requirements on merger or consolidation as provided in this code are followed. When a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or consolidation in its home country or state as permitted by the law of its incorporation, such foreign corporation shall, within 60 days after such merger or consolidation becomes effective, file with the SEC, and in proper cases with the appropriate government agency, a copy of the articles of merger or consolidation duly authenticated by the proper official or officials of the country or state under the laws of which such merger or consolidation was effected; Provided, however that if the absorbed corporation is the foreign corporation doing business in the Philippines, the latter shall at the same time file a petition for withdrawal of its license in accordance with this title.

REQUIREMENTS FOR THE MERGER OR CONSOLIDATION OF ONE OR MORE FOREIGN CORPORATIONS WITH A DOMESTIC CORPORATION OR CORPORATIONS TO BE ALLOWED: 1. The law of the country where such foreign corporation is established permits such merger or consolidation; 2. The purpose or purposes for which the foreign corporation and the domestic corporation were created may legitimately be undertaken by the surviving or consolidated corporation under Philippine laws; 3. The merger or consolidation is done in accordance with the provisions of Sections 76 to 80 and 132 of the Corporation Code.

UNLICENSED COPORATIONS GENERAL RULE: Section 133 of the Corporation code provides that 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.

EXCEPTION: Estoppel When a foreign corporation, doing business, is sued in the country, it shall not be allowed, under any circumstance, to invoke lack of its license to impugn the jurisdiction of Philippine courts. A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. The principle rests on the axiom, commodum ex injura sua non hare debit no person ought to reap any advantage of his own wrong.