1. CARGILL
1[20] Besides, under Section 3(d) of RA 7042, soliciting purchases
BATAS S CORP
Sec. 133. Doing business without a license. 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; but
such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.
Doing business
Since respondent is relying on Section 133 of the Corporation Code
to bar petitioner from maintaining an action in Philippine courts,
respondent bears the burden of proving that petitioners business
activities in the Philippines were not just casual or occasional, but
so systematic and regular as to manifest continuity and
permanence of activity to constitute doing business in the
Philippines. In this case, we find that respondent failed to prove
that petitioners activities in the Philippines constitute doing
business as would prevent it from bringing an action.
The determination of whether a foreign corporation is
doing business in the Philippines must be based on the facts of
each case.
In this case, the contract between petitioner and NMC involved the
purchase of molasses by petitioner from NMC. It was NMC, the domestic
corporation, which derived income from the transaction and not petitioner. To
constitute doing business, the activity undertaken in the Philippines should involve
profit-making.
has been deleted from the enumeration of acts or activities which constitute doing
business.
Other factors which support the finding that petitioner is not doing business in the
Philippines are: (1) petitioner does not have an office in the Philippines; (2)
petitioner imports products from the Philippines through its non-exclusive local
broker, whose authority to act on behalf of petitioner is limited to soliciting
purchases of products from suppliers engaged in the sugar trade in the Philippines;
and (3) the local broker is an independent contractor and not an agent of petitioner. 2
An exporter in one country may export its products to many foreign importing
countries without performing in the importing countries specific commercial acts
that would constitute doing business in the importing countries. The mere act of
exporting from ones own country, without doing any specific commercial act within
the territory of the importing country, cannot be deemed as doing business in the
importing country. The importing country does not require jurisdiction over the
foreign exporter who has not yet performed any specific commercial act within the
territory of the importing country. Without jurisdiction over the foreign exporter, the
importing country cannot compel the foreign exporter to secure a license to do
business in the importing country.
To be doing or transacting business in the Philippines for purposes of Section
133 of the Corporation Code, 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 to acquire jurisdiction over a foreign
corporation and thus require the foreign corporation to secure a Philippine
business license. If a foreign corporation does not transact such kind of business in
1
2
the Philippines, even if it exports its products to the Philippines, the Philippines has
no jurisdiction to require such foreign corporation to secure a Philippine business
license.3[23] (Emphasis supplied)
2. Steelcase
The following acts shall not be deemed doing business in the
Philippines:
1. 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;
2. Having a nominee director or officer to represent its interest
in such corporation;
3. Appointing a representative or distributor domiciled in
the Philippines which transacts business in the
representative's or distributor's own name and account;
4. The publication of a general advertisement through any print
or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in the
Philippines;
6. Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract
of sale which are not on a continuing basis, such as installing in
the Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to
operate it, and similar incidental services. (Emphases supplied)
3 6
DISTRIBUTOR WHEN OR WHEN NOT DOING BUSINESS
From the preceding citations, the appointment of a distributor in the Philippines is
not sufficient to constitute doing business unless it is under the full control of the
foreign corporation. On the other hand, if the distributor is an independent entity
which buys and distributes products, other than those of the foreign corporation, for
its own name and its own account, the latter cannot be considered to be doing
business in the Philippines.4[14] It should be kept in mind that the determination of
whether a foreign corporation is doing business in the Philippines must be judged in
light of the attendant circumstances.
APPLY S CASE
In the case at bench, it is undisputed that DISI was founded in 1979 and is
independently owned and managed by the spouses Leandro and Josephine Bantug. 5
[16] In addition to Steelcase products, DISI also distributed products of other
companies including carpet tiles, relocatable walls and theater settings. 6[17] The
dealership agreement between Steelcase and DISI had been described by the owner
himself as:
xxx basically a buy and sell arrangement whereby we would
inform Steelcase of the volume of the products needed for a
particular project and Steelcase would, in turn, give special
quotations or discounts after considering the value of the entire
package. In making the bid of the project, we would then add
out profit margin over Steelcases prices. After the approval of
the bid by the client, we would thereafter place the orders to
Steelcase. The latter, upon our payment, would then ship the
4
5
 goods to the Philippines, with us shouldering the freight charges
and taxes.7[18] [Emphasis supplied]
AS FOR PIERCING THE CORPORATE VEIL
Another point being raised by DISI is the delivery and sale of Steelcase products to
a Philippine client by Modernform allegedly an agent of Steelcase. Basic is the rule
in corporation law that a corporation has a separate and distinct personality from its
stockholders and from other corporations with which it may be connected. 8[19]
Thus, despite the admission by Steelcase that it owns 25% of Modernform, with the
remaining 75% being owned and controlled by Thai stockholders, 9[20] it is grossly
insufficient to justify piercing the veil of corporate fiction and declare that
Modernform acted as the alter ego of Steelcase to enable it to improperly conduct
business in the Philippines. The records are bereft of any evidence which might lend
even a hint of credence to DISIs assertions. As such, Steelcase cannot be deemed to
have been doing business in the Philippines through Modernform.
Estoppel
If indeed Steelcase had been doing business in the Philippines without a
license, DISI would nonetheless be estopped from challenging the formers legal
capacity to sue.
It cannot be denied that DISI entered into a dealership agreement with
Steelcase and profited from it for 12 years from 1987 until 1999. DISI admits that it
complied with its obligations under the dealership agreement by exerting more effort
and making substantial investments in the promotion of Steelcase products. It also
claims that it was able to establish a very good reputation and goodwill for Steelcase
7 the former and the later in so far, as the terms "banking institutions" and "bank" are
8 covered by special provisions applicable only to foreign banks, or their branches and
9 regulations applicable to domestic banking corporations of the same class, except
and its products, resulting in the establishment and development of a strong market
for Steelcase products in the Philippines. Because of this, DISI was very proud to be
awarded the Steelcase International Performance Award for meeting sales
objectives, satisfying customer needs, managing an effective company and making a
profit.
3. State Investment
Residence issue
The issue is whether these Philippine branches or units may be considered "residents
of the Philippine Islands" as that term is used in Section 20 of the Insolvency Law,
supra, 20 or residents of the state under the laws of which they were respectively
incorporated. The answer cannot be found in the Insolvency Law itself, which
contains no definition of the term, resident, or any clear indication of its meaning.
There are however other statutes, albeit of subsequent enactment and effectivity,
from which enlightening notions of the term may be derived.
The National Internal Revenue Code declares that the term "'resident foreign
corporation' applies to a foreign corporation engaged in trade or business within the
Philippines," as distinguished from a " "non-resident foreign corporation" . . . (which
is one) not engaged in trade or business within the Philippines." 21
The Offshore Banking Law, Presidential Decree No. 1034, states "that branches,
subsidiaries, affiliation, extension offices or any other units of corporation or
juridical person organized under the laws of any foreign country operating in the
Philippines shall be considered residents of the Philippines." 22
The General Banking Act, Republic Act No. 337, places "branches and agencies in
the Philippines of foreign banks . . . (which are) called Philippine branches," in the
same category as "commercial banks, savings associations, mortgage banks,
development banks, rural banks, stock savings and loan associations" (which have
been formed and organized under Philippine laws), making no distinction between
used in the Act, 23 declaring on the contrary that in "all matters not specifically
agencies in the Philippines, said foreign banks or their branches and agencies
lawfully doing business in the Philippines "shall be bound by all laws, rules, and
such laws, rules and regulations as provided for the creation, formation,
organization, or dissolution of corporations or as fix the relation, liabilities,
responsibilities, or duties of members, stockholders or officers or corporations." 24
This Court itself has already had occasion to hold 25 that a foreign corporation
licitly doing business in the Philippines, which is a defendant in a civil suit, may not
be considered a non-resident within the scope of the legal provision authorizing
attachment against a defendant not residing in the Philippine Islands;" 26 in other
words, a preliminary attachment may not be applied for and granted solely on the
asserted fact that the defendant is a foreign corporation authorized to do business in
the Philippines and is consequently and necessarily, "a party who resides out of
the Philippines." Parenthetically, if it may not be considered as a party not residing
in the Philippines, or as a party who resides out of the country, then, logically, it
must be considered a party who does reside in the Philippines, who is a resident of
the country. Be this as it may, this Court pointed out that:
. . . Our laws and jurisprudence indicate a purpose to assimilate
foreign corporations, duly licensed to do business here, to the
status of domestic corporations. (Cf. Section 73, Act No. 1459,
and Marshall Wells Co. vs. Henry W. Elser & Co., 46 Phil. 70,
76; Yu; Cong Eng vs. Trinidad, 47 Phil. 385, 411) We think it
would be entirely out of line with this policy should we make a
discrimination against a foreign corporation, like the petitioner,
and subject its property to the harsh writ of seizure by
attachment when it has complied not only with every
requirement of law made specially of foreign corporations, but
in addition with every requirement of law made of domestic
corporations. . . . .
Obviously, the assimilation of foreign corporations authorized to do business in the
Philippines "to the status of domestic corporations," subsumes their being found and
operating as corporations, hence, residing, in the country.
The petitioners next argue that "Philippine law is emphatic that only foreign
corporations whose own laws give Philippine nationals reciprocal rights may do
business in the Philippines." As basis for the argument they invoke Section 123 of
the Corporation Code which, however, does not formulate the proposition in the
same way. Section 123 does not say, as petitioners assert, that it is required that the
laws under which foreign corporations are formed "give Philippine nationals,
reciprocal rights." What it does say is that the laws of the country or state under
which a foreign corporation is "formed, organized or existing . . . allow Filipino
citizens and corporations to do business in its own country or state," which is not
quite the same thing. Now, it seems to the Court that there can be no serious debate
about the fact that the laws of the countries under which the three (3) respondent
banks were formed or organized (Hongkong and the United States) do "allow
Filipino citizens and corporations to do business" in their own territory and
jurisdiction. It also seems to the Court quite apparent that the Insolvency Law
contains no requirement that the laws of the state under which a foreign corporation
has been formed or organized should grant reciprocal rights to Philippine citizens to
apply for involuntary insolvency of a resident or citizen thereof. The petitioners'
point is thus not well taken and need not be belabored.
4. Hyatt
The resolution of this case rests upon a proper understanding of Section 2
of Rule 4 of the 1997 Revised Rules of Court:
Sec. 2. Venue of personal actions. All other actions
may be commenced and tried where the plaintiff or any of the
principal plaintiff resides, or where the defendant or any of the
principal defendant resides, or in the case of a non-resident
defendant where he may be found, at the election of the plaintiff.
Residence is the permanent home -- the place to which, whenever absent for
business or pleasure, one intends to return.[9] Residence is vital when dealing with
venue.[10] A corporation, however, has no residence in the same sense in which this
term is applied to a natural person. This is precisely the reason why the Court in
Young Auto Supply Company v. Court of Appeals[11] ruled that for practical
purposes, a corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation.[12] Even before
this ruling, it has already been established that the residence of a corporation is the
place where its principal office is established.
Inconclusive are the bare allegations of petitioner that it had closed its
Makati office and relocated to Mandaluyong City, and that respondent was well
aware of those circumstances. Assuming arguendo that they transacted business with
each other in the Mandaluyong office of petitioner, the fact remains that, in law, the
latters residence was still the place indicated in its Articles of Incorporation. Further
unacceptable is its faulty reasoning that the ground for the CAs dismissal of its
Complaint was its failure to amend its Articles of Incorporation so as to reflect its
actual and present principal office. The appellate court was clear enough in its ruling
that the Complaint was dismissed because the venue had been improperly laid, not
because of the failure of petitioner to amend the latters Articles of Incorporation.
5. Narra Nickel Mining
NOT YET MOOT
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public
interest is involved;
3.) When constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of this Court
note that a grave violation of the Constitution, specifically Section 2 of Article XII,
is being committed by a foreign corporation right under our countrys nose through a
myriad of corporate layering under different, allegedly, Filipino corporations. The
intricate corporate layering utilized by the Canadian company, MBMI, is of
exceptional character and involves paramount public interest since it undeniably
affects the exploitation of our Countrys natural resources. The corresponding
actions of petitioners during the lifetime and existence of the instant case raise
questions as what principle is to be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the Court; hence, the disposition of
the issues or errors in the instant case will serve as a guide "to the bench, the bar and
the public."35 Finally, the instant case is capable of repetition yet evading review,
since the Canadian company, MBMI, can keep on utilizing dummy Filipino
corporations through various schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition against foreign mining in
Philippine soil.
CONVERSION INTO FTAA DOES NOT CURE THE DEFECT
The filing of the Financial or Technical Assistance Agreement application is a clear
admission that the respondents are not capable of conducting a large scale mining
operation and that they need the financial and technical assistance of a foreign entity
in their operation that is why they sought the participation of MBMI Resources, Inc.
The participation of MBMI in the corporation only proves the fact that it is the
Canadian company that will provide the finances and the resources to operate the
mining areas for the greater benefit and interest of the same and not the Filipino
stockholders who only have a less substantial financial stake in the corporation.
GRANDFATHER TEST
Basically, there are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion
No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the controlling interests
in enterprises engaged in the exploitation of natural resources owned by Filipino
citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered as of Philippine nationality, but if
the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted
as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively,
of which belong to Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded
as belonging to aliens.
CORPORATE LAYERING
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used
to circumvent the Constitution and pertinent laws, then it becomes illegal. Further,
the pronouncement of petitioners that the grandfather rule has already been
abandoned must be discredited for lack of basis.
Questions on the validity of corporate layering as a means of structuring the
ownership of companies have been raised following a spate of Supreme Court
decisions relating to companies where minimum Filipino ownership is required by
our Constitution and laws.
Applying the control test, the Supreme Court recently recognized corporate layering
in the case of Narra Nickel Mining and Development Corp. v. Redmont Consoidated
Mines Corp. (G.R. No. 195580, April 21, 2014).
The control test basically provides that shares belonging to corporations or
partnerships at least 60 percent of the capital of which is owned by Filipino citizens
shall be considered of Philippine nationality.
At the same time, the Supreme Court said that while [c]orporate layering is
admittedly allowed by the [Foreign Investments Act] if it is used to circumvent
the Constitution and pertinent laws, then it becomes illegal.
In such case, the grandfather rule will be used to determine compliance with the
nationality requirement prescribed by our Constitution and laws.
Under the grandfather rule, the citizenship of the individuals who ultimately own or
control the shares of stock of the corporation must be looked into for purposes of
determining compliance with the Filipino ownership requirement.
According to the Supreme Court, where the 60-40 Filipino-foreign equity
ownership is not in doubt, the Grandfather Rule will not apply.
But where there exists doubt as to the proper representation of the Filipino-foreign
equity participation, the grandfather rule will be used in lieu of the control test to
determine compliance with the nationality requirement.
In Redmont, the Supreme Court found serious doubt as to the true nationality of the
corporations involved due to the following: 1) the presence of a common major
investor, a one hundred percent Canadian corporation, in three mining corporations;
2) the similarities of the corporate structures of the corporations; 3) the presence of
the same nominal shareholders in the corporations; and 4) the paid-in capital of the
corporate owners being paid only by the foreign investor, among many other
indicators showing the desire to circumvent the nationality requirement in mining
activities.
After a scrutiny of the evidence extant on record, the Court finds that this case calls
for the application of the grandfather rule since doubt prevails and persists in the
corporate ownership of petitioners. Also, doubt is present in the 60-40 Filipino
equity ownership of petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporation, MBMI, funded them, the Supreme Court
said.
Thus, the Supreme Court ruled that the foreign corporation, MBMI, owns majority
of the common stocks of the mining corporations through a web of corporate
layering, in violation of the nationality requirement prescribed by our Constitution
for mining companies.
As shown above, the control test is still the general rule. Only when there exists
genuine doubt as to the true ownership of the stockholdings in a corporation will the
grandfather rule be used to determine compliance with the Filipino ownership
requirement prescribed by our Constitution and laws.
Aside from avoiding the pitfalls like those identified by the Supreme Court in the
Redmont case, the minimum requirement to ensure that the control test will be
applied to corporate layering is to comply with the two-tiered test of the Securities
and Exchange Commission (SEC) under Memorandum Circular No. 8, series of
2013, otherwise known as the Guidelines on Compliance with the Filipino-Foreign
Ownership Requirements.
Under this circular, compliance with the necessary percentage of Filipino ownership
is required in BOTH (a) the total number of outstanding shares of stock entitled to
vote in the election of directors; AND (b) the total number of outstanding shares of
stock, whether or not entitled to vote in the election of directors.
6. Gamboa
Issue
The crux of the controversy is the definition of the term capital. Does the term
capital in Section 11, Article XII of the Constitution refer to common shares or to
the total outstanding capital stock (combined total of common and non-voting
preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public
utilities refers only to common shares because such shares are entitled to vote and it
is through voting that control over a corporation is exercised. Petitioner posits that
the term capital in Section 11, Article XII of the Constitution refers to the ownership
of common capital stock subscribed and outstanding, which class of shares alone,
under the corporate set-up of PLDT, can vote and elect members of the board of
directors. It is undisputed that PLDTs non-voting preferred shares are held mostly by
Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June
1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT
telephone line to subscribe to non-voting preferred shares to pay for the investment
cost of installing the telephone line.32
Classification of shares
The Corporation Code of the Philippines42 classifies shares as common or preferred,
thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations
may be divided into classes or series of shares, or both, any of which
classes or series of shares may have such rights, privileges or restrictions
as may be stated in the articles of incorporation: Provided, That no share
may be deprived of voting rights except those classified and issued as
preferred or redeemable shares, unless otherwise provided in this
Code: Provided, further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of the shares or series
of shares may have a par value or have no par value as may be provided
for in the articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such other preferences
as may be stated in the articles of incorporation which are not violative of
the provisions of this Code: Provided, That preferred shares of stock may
be issued only with a stated par value. The Board of Directors, where
authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided,
That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid
and non-assessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration less than the value
of five (P5.00) pesos per share: Provided, further, That the entire
consideration received by the corporation for its no-par value shares shall
be treated as capital and shall not be available for distribution as
dividends.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in
the certificate of stock, each share shall be equal in all respects to every
other share.
Where the articles of incorporation provide for non-voting shares in the
cases allowed by this Code, the holders of such shares shall nevertheless
be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition
of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
 5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this Code
shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the
control or management of the corporation.43 This is exercised through his vote in the
election of directors because it is the board of directors that controls or manages the
corporation.44 In the absence of provisions in the articles of incorporation denying
voting rights to preferred shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often excluded from any
control, that is, deprived of the right to vote in the election of directors and on other
matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. 45 In fact, under the
Corporation Code only preferred or redeemable shares can be deprived of the right
to vote.46 Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the right of
common shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term capital in
Section 11, Article XII of the Constitution refers only to common shares. However,
if the preferred shares also have the right to vote in the election of directors, then the
term capital shall include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right to vote in
the election of directors. In short, the term capital in Section 11, Article XII of
the Constitution refers only to shares of stock that can vote in the election of
directors.
This interpretation is consistent with the intent of the framers of the Constitution to
place in the hands of Filipino citizens the control and management of public utilities.
As revealed in the deliberations of the Constitutional Commission, capital refers to
the voting stock or controlling interest of a corporation,
ITO APPLICATION
The legal and beneficial ownership of 60 percent of the outstanding capital stock
must rest in the hands of Filipinos in accordance with the constitutional mandate.
Full beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is constitutionally required for the States grant
of authority to operate a public utility. The undisputed fact that the PLDT preferred
shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the
dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a
public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less
than 60 percent of the dividends, of PLDT. This directly contravenes the express
command in Section 11, Article XII of the Constitution that [n]o franchise,
certificate, or any other form of authorization for the operation of a public utility
shall be granted except to x x x corporations x x x organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens
x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class
of shares exercises the sole right to vote in the election of directors, and thus
exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common
shares, constituting a minority of the voting stock, and thus do not exercise control
over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights;
(4) preferred shares earn only 1/70 of the dividends that common shares earn; 63 (5)
preferred shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and common
shares only 22.15%. This kind of ownership and control of a public utility is a
mockery of the Constitution.
WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in
Section 11, Article XII of the 1987 Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock (common and non-
voting preferred shares). Respondent Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition of the term capital in
determining the extent of allowable foreign ownership in respondent Philippine
Long Distance Telephone Company, and if there is a violation of Section 11, Article
XII of the Constitution, to impose the appropriate sanctions under the law.
7. Filipinas Compania
The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner (a
Philippine corporation) had ceased to be valid and enforcible, and since the insured
goods were burned after December 10, 1941, and during the war, the respondent was
not entitled to any indemnity under said policy from the petitioner. However,
elementary rules of justice (in the absence of specific provision in the Insurance
Law) require that the premium paid by the respondent for the period covered by its
policy from December 11, 1941, should be returned by the petitioner.
There is no question that majority of the stockholders of the respondent corporation
were German subjects. This being so, we have to rule that said respondent became
an enemy corporation upon the outbreak of the war between the United States and
Germany. The English and American cases relied upon by the Court of Appeals have
lost their force in view of the latest decision of the Supreme Court of the United
States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92
Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test has been
adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the
Second International Conference of the Legal Profession held at the Hague
(Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations
has been discussion in many countries, belligerent and neutral. A
corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or
corporations, themselves considered as enemies. It was the English courts
which first the Daimler case applied this new concept of "piercing the
corporate veil," which was adopted by the peace of Treaties of 1919 and
the Mixed Arbitral established after the First World War.
The United States of America did not adopt the control test during the
First World War. Courts refused to recognized the concept whereby
American-registered corporations could be considered as enemies and thus
subject to domestic legislation and administrative measures regarding
enemy property.
World War II revived the problem again. It was known that German and
other enemy interests were cloaked by domestic corporation structure. It
was not only by legal ownership of shares that a material influence could
be exercised on the management of the corporation but also by long term
loans and other factual situations. For that reason, legislation on enemy
property enacted in various countries during World War II adopted by
statutory provisions to the control test and determined, to various degrees,
the incidents of control. Court decisions were rendered on the basis of
such newly enacted statutory provisions in determining enemy character
of domestic corporation.
The United States did not, in the amendments of the Trading with the
Enemy Act during the last war, include as did other legislations the
applications of the control test and again, as in World War I, courts refused
to apply this concept whereby the enemy character of an American or
neutral-registered corporation is determined by the enemy nationality of
the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and
other administrative practice in the treatment of foreign-owned property in
the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control
test. Court decisions sanctioned such administrative practice enacted under
the First War Powers Act of 1941, and more recently, on December 8,
1947, the Supreme Court of the United States definitely approved of the
control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing
with a Swiss corporation allegedly controlled by German interest, the
Court: "The property of all foreign interest was placed within the reach of
the vesting power (of the Alien Property Custodian) not to appropriate
friendly or neutral assets but to reach enemy interest which masqueraded
under those innocent fronts. . . . The power of seizure and vesting was
extended to all property of any foreign country or national so that no
innocent appearing device could become a Trojan horse."
8. Home insurance
On the basis of factual and equitable considerations, there is no question that the
private respondents should pay the obligations found by the trial court as owing to
the petitioner. Only the question of validity of the contracts in relation to lack of
capacity to sue stands in the way of the petitioner being given the affirmative relief it
seeks. Whether or not the petitioner was engaged in single acts or solitary
transactions and not engaged in business is likewise not in issue. The petitioner was
engaged in business without a license. The private respondents' obligation to pay
under the terms of the contracts has been proved.
When the complaints in these two cases were filed, the petitioner had already
secured the necessary license to conduct its insurance business in the Philippines. It
could already filed suits.
Petitioner was, therefore, telling the truth when it averred in its complaints that it
was a foreign insurance company duly authorized to do business in the Philippines
through its agent Mr. Victor H. Bello.
SUIT
We distinguish between the denial of a right to take remedial action and the penal
sanction for non-registration.
Insofar as transacting business without a license is concerned, Section 69 of the
Corporation Law imposed a penal sanction-imprisonment for not less than six
months nor more than two years or payment of a fine not less than P200.00 nor more
than P1,000.00 or both in the discretion of the court. There is a penalty for
transacting business without registration.
And insofar as litigation is concerned, the foreign corporation or its assignee may
not maintain any suit for the recovery of any debt, claim, or demand whatever. The
Corporation Law is silent on whether or not the contract executed by a foreign
corporation with no capacity to sue is null and void ab initio.
We are not unaware of the conflicting schools of thought both here and abroad
which are divided on whether such contracts are void or merely voidable. Professor
Sulpicio Guevarra in his book Corporation Law (Philippine Jurisprudence Series,
U.P. Law Center, pp. 233-234) cites an Illinois decision which holds the contracts
void and a Michigan statute and decision declaring them merely voidable:
Our jurisprudence leans towards the later view. Apart from the objectives earlier
cited from Marshall Wells Co. v. 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. The defendant American corporation in
General Corporation of the Philippines v. Union Insurance Society of Canton Ltd et
al. (87 Phil. 313) entered into insurance contracts without the necessary license or
authority. When summons was served on the agent, the defendant had not yet been
registered and authorized to do business. The registration and authority came a little
less than two months later.
ection 133 of the present Corporation Code provides:
SEC. 133. Doing business without a license.-No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shag be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency in the Philippines; but such
corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
The old Section 69 has been reworded in terms of non-access to courts and
administrative agencies in order to maintain or intervene in any action or
proceeding.
The prohibition against doing business without first securing a license is now given
penal sanction which is also applicable to other violations of the Corporation Code
under the general provisions of Section 144 of the Code.
It is, therefore, not necessary to declare the contract nun and void even as against the
erring foreign corporation. The penal sanction for the violation and the denial of
access to our courts and administrative bodies are sufficient from the viewpoint of
legislative policy.
Our ruling that the lack of capacity at the time of the execution of the contracts was
cured by the subsequent registration is also strengthened by the procedural aspects
of these cases.
The petitioner averred in its complaints that it is a foreign insurance company, that it
is authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello,
and that its office address is the Oledan Building at Ayala Avenue, Makati. These are
all the averments required by Section 4, Rule 8 of the Rules of Court. The petitioner
sufficiently alleged its capacity to sue. The private respondents countered either with
an admission of the plaintiff's jurisdictional averments or with a general denial based
on lack of knowledge or information sufficient to form a belief as to the truth of the
averments.
We find the general denials inadequate to attack the foreign corporations lack of
capacity to sue in the light of its positive averment that it is authorized to do so.
Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal
existence of any party or the capacity of any party to sue or be sued in a
representative capacity shall do so by specific denial, which shag include such
supporting particulars as are particularly within the pleader's knowledge. At the very
least, the private respondents should have stated particulars in their answers upon
which a specific denial of the petitioner's capacity to sue could have been based or
which could have supported its denial for lack of knowledge. And yet, even if the
plaintiff's lack of capacity to sue was not properly raised as an issue by the answers,
the petitioner introduced documentary evidence that it had the authority to engage in
the insurance business at the time it filed the complaints.