58 St. Aviation Services Co. v.

Grand International Airways

GR. No. 140288 (2006)
J. Sandoval-Gutierrez / Tita K

Subject Matter: Rule 38; foreign judgment enforced in the Philippines

Case Summary:
Petitioner, a foreign corporation based in Singapore, undertook the repair and maintenance of respondent’s aircrafts. However, respondent failed to pay despite petitioner’s repeated demands. Petitioner then filed a
complaint for collection of money before the High Court of Singapore. High Court issued Writ Summons to be served extra-territorially upon respondent. The Singapore court sought the assistance of the sheriff of Pasay
City but respondent failed to answer despite receipt of the summons. Singapore Court rendered a judgment by default in favor of the petitioner. Petitioner filed a Petition for Enforcement of Judgment with the RTC
Pasay. Respondent filed a MTD which the RTC denied. CA, however, set aside the RTC order deying the MTD and held the service of summons should be personal or substituted, not extraterritorial, in order to confer
jurisdiction on the court because the action before the Singapore High Court was a personal action.

WON the judgment by default in enforceable in the Philippines. SC ruled in the affirmative.

Under the Sec. 48, RULE 39 ROC, a foreign judgment against a person is merely presumptive evidence of a right as between the parties. It may be repelled, among others, by want of jurisdiction of the issuing authority or
by want of notice to the party against whom it is enforced. The party attacking a foreign judgment has the burden of overcoming the presumption of its validity. In this case, the laws of Singapore require that summons
be served outside Singapore in accordance with modes of service in the country where summons shall be served. The ROC of the Philippines allows service of summons personally or by substituted service. Service in this
case was made to the respondent in its office and received by the Secretary of the General Manager. However, respondent completely ignored the summons, hence it was declared in default. Considering that the Writ
of Summons was served upon respondent in accordance with our Rules, jurisdiction was acquired by the Singapore High Court over its person. Clearly, the judgment of default rendered by that court against respondent
is valid.
Doctrine/s:
In the absence of a special contract, no sovereign is bound to give effect within its dominion to a judgment rendered by a tribunal of another country; however, under the rules of comity, utility and convenience, nations
have established a usage among civilized states by which final judgments of foreign courts of competent jurisdiction are reciprocally respected and rendered efficacious under certain conditions that may vary in different
countries.

A foreign judgment or order against a person is merely presumptive evidence of a right as between the parties. It may be repelled, among others, by want of jurisdiction of the issuing authority or by want of notice to
the party against whom it is enforced. The party attacking a foreign judgment has the burden of overcoming the presumption of its validity.

Action Before SC: “This is a petition for review under Rule 45 of the Rules of Court”
Parties:
Petitioner ST. AVIATION SERVICES CO., PTE., LTD

Respondent GRAND INTERNATIONAL AIRWAYS, INC.

Antecedent Facts:
1. Petitioner is a foreign corporation based in Singapore, engaged in repair and maintenance of airplanes and aircrafts.
2. Respondent is a domestic corporation engaged in airline operations.
3. They had an agreement wherein the petitioner agreed to undertake the maintenance and modification works on respondent’s aircrafts.
4. They also agreed that the construction, validity and performance of such undertaking shall be governed by the laws of Singapore, and that any suit arising from the contract shall be submitted to the non-
exclusive jurisdiction of the Singapore Courts.
5. Petitioner undertook the contracted works and promptly delivered the aircrafts to the respondent.
6. However, respondent failed to pay despite repeated demands.
High Court of Singapore
1. Petitioner filed complaint for collection of sum of money before the High Court of Singapore.
 2. Upon petitioner’s motion, the court issued a Writ Summons to be served extra-territorially upon respondent.
3. The Singapore court sought the assistance of the sheriff of Pasay City but respondent failed to answer despite receipt of the summons.
4. On petitioner’s motion, the Singapore court rendered a judgment by default in favor of the petitioner.
RTC
1. Petitioner filed a Petition for Enforcement of Judgment with the RTC Pasay.
2. Respondent filed a MTD alleging that (1) the Singapore court did not acquire jurisdiction over its person and (2) the foreign judgment is void for having been rendered in violation of its right to due process.
3. RTC dismissed the MTD holding that the 2 grounds for MTD cited are not provided under Rule 16, ROC.
4. MR was also denied.
CA
1. Respondent filed a Petition for Certiorari with the CA.
2. CA granted the petition and set aside the orders of RTC without prejudice to the re-filing of the case. CA held that since the action before the Singapore High Court was a personal action, service of summons
should be personal or substituted, not extraterritorial, in order to confer jurisdiction on the court.
3. MR was denied.

Issues:
1. WON the judgment by default in enforceable in the Philippines. (YES)
Ratio:
Yes – the judgment by default is enforceable in the Philippines.
 In the absence of a special contract, no sovereign is bound to give effect, within its dominion, to a judgment rendered by a tribunal of another country.
 However, under the rules of comity, utility and convenience, nations have established a usage among civilized states by which final judgments of foreign courts of competent jurisdiction are reciprocally
respected and rendered efficacious under certain conditions that may vary in different countries.
 The conditions for the recognition and enforcement of a foreign judgment in our legal system are contained in Section 481, Rule 39 of the 1997 Rules of Civil Procedure, as amended:
“SEC. 48. Effect of foreign judgments.—The effect of a judgment or final order of a tribunal of a foreign country, having jurisdiction to render the judgment or final order is as follows:
(a) In case of a judgment or final order upon a specific thing, the judgment or final order is conclusive upon the title to the thing; and
(b) In case of a judgment or final order against a person, the judgment or final order is presumptive evidence of a right as between the parties and their successors in interest by a subsequent title;
In either case, the judgment or final order may be repelled by evidence of a want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.”

 Under the said rule, a foreign judgment against a person is merely presumptive evidence of a right as between the parties. It may be repelled, among others, by want of jurisdiction of the issuing authority
or by want of notice to the party against whom it is enforced.
 The party attacking a foreign judgment has the burden of overcoming the presumption of its validity.

WON the Singapore High Court acquired jurisdiction over the person of the respondent. (YES)
o The international law of the forum is the law of Singapore.
o The Singapore High Court ordered the service of the Writ of Summons on the Defendant by a method of service authorized by the law of the Philippines. Said service of summons outside Singapore is in
accordance with Order 11, r. 4(2)2 of the Rules of Court 19966 of Singapore.
o According to Philippine Rules of Court, jurisdiction over a party is acquired by service of summons by the sheriff, his deputy or other proper court officer either personally by handing a copy thereof to the
defendant or by substituted service.

2
(2) Where in accordance with these Rules, an originating process is to be served on a defendant in any country with respect to which there does not subsist a Civil Procedure Convention providing for service in that country of process of the High Court, the originating process may be served—
a) through the government of that country, where that government is willing to effect service;
b) through a Singapore Consular authority in that country, except where service through such an authority is contrary to the law of the country; or
c) by a method of service authorized by the law of that country for service of any originating process issued by that country.
 o In this case, the writ of summons issued by the Singapore High Court was served upon respondents at its office located at Mercure Hotel (formerly Village Hotel), MIA Road, Pasay City. The Sheriff’s
Return shows that it was received on May 2, 1998 by Joyce T. Austria, Secretary of the General Manager of respondent company.
o Therefore, the Writ of Summons was served upon respondent in accordance with our Rules. Hence, jurisdiction was acquired by the Singapore High Court over its person.

o However, respondent completely ignored the summons, hence it was declared in default.
o Considering that the Writ of Summons was served upon respondent in accordance with our Rules, jurisdiction was acquired by the Singapore High Court over its person. Clearly, the judgment of default
rendered by that court against respondent is valid.
Dispositive: Wherefore, we GRANT the petition. The challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 51134 are SET ASIDE. The RTC, Branch 117, Pasay City is hereby DIRECTED to hear Civil
Case No. 98-1389 with dispatch.

St. Aviation Services v. Grand International Airways

 Generally, in the absence of a special contract, no sovereign is bound to give effect within its dominion to a judgment rendered by a tribunal of another country; however, under the rules of comity, utility and
convenience, nations have established a usage among civilized states by which final judgments of civil courts of competent jurisdiction are reciprocally respected and rendered efficacious under certain
conditions.
 The conditions for the recognition and enforcement of a foreign judgment in our legal system are contained in Sec. 48, Rule 39 of the RoC:
o In a case of a judgment or final order upon a specific thing, the judgment or final order is conclusive upon the title to the thing; and
o In case of a judgment or final order against a person, the judgment or final order is presumptive evidence of a right between the parties and their successors in interest by a subsequent title.
 A foreign judgment or order against a person is merely presumptive evidence of a right as between the parties. It may be repelled, among others, by want of jurisdiction of the issuing authority or by want of
notice to the party against whom it is enforced. The party attacking a foreign judgment has the burden of overcoming the presumption of its validity.
 Generally, matters of remedy and procedure such as those relating to the service of process upon a defendant are governed by the lex fori or the internal law of the forum, which in this case is the law of
Singapore.

PHILIPPINE ALUMINUM WHEELS, INC., petitioner,

vs.
FASGI ENTERPRISES, INC., respondent.

Parties:
 FASGI Enterprises Incorporated
 Philippine Aluminum Wheels, Incorporated ("PAWI") – Philippine corporation
 Fratelli Pedrini Sarezzo S.P.A. ("FPS") – Italian corporation

Underlying transaction – Distributorship Agreement

 Purchase, importation and distributorship in the United States of aluminum wheels manufactured by PAWI
 8,594 wheels
 shipment was found to be defective and in non-compliance with stated requirements

 FASGI instituted an action against PAWI and FPS for breach of contract and recovery of damages before the US District Court
 During the pendency of the case, the parties entered into a settlement
o FPS and PAWI would accept the return of some of the wheels after restoring to FASGI the purchase price of US$268,750.00 via four (4) irrevocable letters of credit ("LC")
 PAWI twice failed to comply with the the settlement agreement
 FASGI pursued its complaint for damages earlier brought against PAWI before the US district court.
 During its pendency, entered into another settlement agreement
 o In the event of breach of the Supplemental Settlement Agreement, FASGI shall have the right to apply immediately to the Court for entry of Judgment pursuant to the Stipulation for Judgment
 PAWI managed to pay the first and second LC but defaulted on the remaining.
 FASGI filed with the US District Court the stipulation for judgment against PAWI
 FASGI filed a notice of entry of judgment. A certificate of finality of judgment was issued by the US District Judge
 Unable to obtain satisfaction of the final judgment within the United States, FASGI filed a complaint for "enforcement of foreign judgment" in February 1983, before the Regional Trial Court, Branch 61, of Makati.
 The Makati court on 11 September 1990, dismissed the case, thereby denying the enforcement of the foreign judgment within Philippine jurisdiction, on the ground that the decree was tainted with collusion, fraud,
and clear mistake of law and fact.
 The lower court ruled that the foreign judgment ignored the reciprocal obligations of the parties. According said court, while the assailed foreign judgment ordered the return by PAWI of the purchase amount, no
similar order was made requiring FASGI to return to PAWI the third and fourth containers of wheels, which was tantamount to unjust enrichment on the part of FASGI.
 Furthermore, the settlement agreement and motion for entry of judgment were a nullity for having been entered into by Mr. Thomas Ready, counsel for PAWI, without the latter's authorization
 FASGI appealed the decision of the trial court to the Court of Appeals. Appellate court reversed the decision of the trial court and ordered the full enforcement of the California judgment.

ISSUE: Should the foreign judgment be enforced?

HELD: Yes
 In this jurisdiction, a valid judgment rendered by a foreign tribunal may be recognized insofar as the immediate parties and the underlying cause of action are concerned so long as it is convincingly shown that it has
been rendered by a court of competent jurisdiction, impartially and according an opportunity for a full and fair hearing.
 A foreign judgment is presumed to be valid and binding in the country from which it comes, until a contrary showing, on the basis of a presumption of regularity of proceedings and the giving of due notice in the
foreign forum.
 PAWI claims that its counsel, Mr. Ready, has acted without its authority.
o In this jurisdiction, it is clear that an attorney cannot, without a client's authorization, settle the action or subject matter of the litigation even when he honestly believes that such a settlement will best serve his
client's interest.
o If Mr. Ready was indeed not authorized, PAWI could have disclaimed the settlement
o On the contrary, PAWI confirmed the supplemental settlement when it sought forbearance for the impending delay in its payments
 Even if PAWI claimed that there was collusion and fraud in the signing of the agreements, this cannot prevent the enforcement of the judgment. Although the US Court already adjudicated on this matter, PAWI
insisted on raising it again in this Court. Fraud, to hinder the enforcement within this jurisdiction of a foreign judgment, must be extrinsic, i.e., fraud based on facts not controverted or resolved in the case where
judgment is rendered, or that which would go to the jurisdiction of the court or would deprive the party against whom judgment is rendered a chance to defend the action to which he has a meritorious case or
defense. In fine, intrinsic fraud, that is, fraud which goes to the very existence of the cause of action - such as fraud in obtaining the consent to a contract - is deemed already adjudged, and it, therefore, cannot
militate against the recognition or enforcement of the foreign judgment.
 In line with the principle of international comity, a court of another jurisdiction should refrain, as a matter of propriety and fairness, from so assuming the power of passing judgment on the correctness of the
application of law and the evaluation of the facts of the judgment issued by another tribunal

G.R. No. 142820 June 20, 2003

WOLFGANG O. ROEHR, petitioner, vs.
MARIA CARMEN D. RODRIGUEZ, HON. JUDGE JOSEFINA GUEVARA-SALONGA, Presiding
Judge of Makati RTC, Branch 149, respondents.
 Facts:
Petitioner Wolfgang O. Roehr, a German citizen and resident of Germany, married private respondent Carmen Rodriguez, a Filipina, on December 11, 1980 in Hamburg, Germany. Their marriage was
subsequently ratified on February 14, 1981 in Tayasan, Negros Oriental.4 Out of their union were born Carolynne and Alexandra Kristine on November 18, 1981 and October 25, 1987, respectively.
On August 28, 1996, Rodriguez filed a petition for declaration of nullity of marriage before the Regional Trial Court (RTC) of Makati City. On February 6, 1997, Roehr filed a motion to dismiss then a motion for
reconsideration, but both were denied by the trial court. Roehr then filed a petition for certiorari with the Court of Appeals. However, the appellate court denied the petition and remanded the case to the RTC.
Meanwhile, Wolfgang obtained a decree of divorce from the Court of First Instance of Hamburg- Blankenese. Said decree also provides that the parental custody of the children should be vested to Wolfgang.
Wolfgang filed another motion to dismiss for lack of jurisdiction as a divorce decree had already been promulgated, and said motion was granted by the RTC.
Carmen filed a Motion for Partial Reconsideration, with a prayer that the case proceed for the purpose of determining the issues of custody of children and the distribution of the properties between her and
Wolfgang. The RTC partially set aside its previous order for the purpose of tackling the issues of support and custody of their children.

Issue: Whether or not respondent judge gravely abused her discretion when she assumed and retained jurisdiction over the present case despite the fact that petitioner has already obtained a divorce decree from
a German court.

Held: The Court ruled in the affirmative.

As a general rule, divorce decrees obtained by foreigners in other countries are recognizable in our jurisdiction. But the legal effects thereof, e.g. on custody, care and support of the children, must still be
determined by our courts.
Before our courts can give the effect of res judicata to a foreign judgment, such as the award of custody to Wolfgang by the German court, it must be shown that the parties opposed to the judgment had been
given ample opportunity to do so on grounds allowed under Rule 39, Section 50 of the Rules of Court (now Rule 39, Section 48, 1997 Rules of Civil Procedure).
In the present case, it cannot be said that private respondent was given the opportunity to challenge the judgment of the German court so that there is basis for declaring that judgment as res judicata with
regard to the rights of Wolfgang to have parental custody of their two children. The proceedings in the German court were summary. As to what was the extent of Carmen's participation in the proceedings in the
German court, the records remain unclear.
Absent any finding that private respondent is unfit to obtain custody of the children, the trial court was correct in setting the issue for hearing to determine the issue of parental custody, care, support and
education mindful of the best interests of the children.

Minoru Fujiki, petitioner vs. Maria Paz Galela Marinay, Shinichi Maekara, Local Civil Registrar of the Quezon City, and the Administrator and Civil Registrar General of the National Statistics Office, respondents

(G.R. No. 196049) June 26, 2013

Carpio, J.

Facts:
Minoru Fujiki, a Japanese national and Maria Paz Galela Marinay were married. Unfortunately, their marriage did not sit well to Fujiki’s parents. Minoru went to Japan and Maria was left to the Philippines. From
that time on, they lost communications.

Marinay subsequently, married to Maekara, another Japanese, without dissolving their marriage with Minoru Fujiki. Maekara brought Marinay to Japan. Marinay allegedly suffered gross physical abuse in the
hands of Maekara which led her to leave the latter and started to contact Minoru Fujiki.

Fujiki and Marinay met in Japan and started to re-establish their relationship. Minoru Fujiki helped Marinay to declare Marinay’s marriage with Maekara, void for being a bigamous marriage in the Family Court of
Japan which declared the marriage between Marinay and Maekara void on the grounds of bigamy.

Fujiki filed a petition in Regional Trial Court (RTC) for judicial recognition of foreign judgment (or decree of nullity of absolute nullity of marriage). He prayed that (1) the judgment of Japanese Family Court is
recognized; (2) that the bigamous marriage between Marinay and Maekara declared as void ab initio under Article 35 (4) of the Family Code; and (3) for the RTC to direct the Local Civil Registrar of Quezon City to
annotate the judgment of the Japanese Family Court on the Certificate of Marriage between Marinay and Maekara and to endorse such annotation to the Office of the Administrator and Civil Registrar General in the
National Statistics Office.

The RTC dismissed the petition and withdrew the case for it is in “gross violation of the provisions of the Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages (A.M. No.
02-11-10-SC), that it is only “the husband or the wife”, in this case Maekara and Marinay, can file the petition to declare their marriage void, and not Fujiki.

Fujiki sought for the reconsideration. The RTC considered the petition as a collateral attack on the validity of marriage between Marinay and Maekara. The Solicitor General; however, agreed with the petition,
arguing that Fujiki, as the spouse of the first marriage, is an injured party who can sue to declare the bigamous marriage void. Hence, this petition.

Issue:
1. Is the Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages [A.M. No. 01-11-10-SC] applicable?

Ruling:
1. No. The Supreme Court ruled that the Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages (A.M. No. 02-11-10-SC) does not apply in a petition to recognize a foreign
judgment relating to the status of a marriage where one of the parties is a citizen of a foreign country.

In Juliano-Llave v. Republic, this Court held that the rule in A.M. No. 02-11-10-SC that only the husband or wife can file a declaration of nullity or annulment of marriage "does not apply if the reason behind the
petition is bigamy.”

Recognition of a foreign judgment is not an action to nullify a marriage. It is an action for Philippine courts to recognize the effectivity of a foreign judgment, which presupposes a case which was already tried and
decided under foreign law.
A foreign judgment relating to the status of a marriage affects the civil status, condition and legal capacity of its parties. However, the effect of a foreign judgment is not automatic. To extend the effect of a foreign
judgment in the Philippines, Philippine courts must... determine if the foreign judgment is consistent with domestic public policy and other mandatory laws. Article 15 of the Civil Code provides that "[l]aws relating to
family rights and duties, or to the status, condition and legal capacity of persons are... binding upon citizens of the Philippines, even though living abroad."

This is the rule of lex nationalii in private international law. Thus, the Philippine State may require, for effectivity in the Philippines, recognition by Philippine courts of a foreign judgment... affecting its citizen, over
whom it exercises personal jurisdiction relating to the status, condition and legal capacity of such citizen.

A petition to recognize a foreign judgment declaring a marriage void does not require relitigation under a Philippine court of the case as if it were a new petition for declaration of nullity of marriage. Philippine
courts cannot presume to know the foreign laws under which the foreign judgment was rendered. They cannot substitute their judgment on the status, condition and legal capacity of the foreign citizen who is under the
jurisdiction of another state. Thus, Philippine courts can only recognize the foreign judgment as a fact according to the rules of evidence.

There is therefore no reason to disallow Fujiki to simply prove as a fact the Japanese Family Court judgment nullifying the marriage between Marinay and Maekara on the ground of bigamy. While the Philippines
has no divorce law, the Japanese Family Court judgment is fully... consistent with Philippine public policy, as bigamous marriages are declared void from the beginning under Article 35(4) of the Family Code. Bigamy is a
crime under Article 349 of the Revised Penal Code. Thus, Fujiki can prove the existence of the Japanese Family Court judgment... in accordance with Rule 132, Sections 24 and 25, in relation to Rule 39, Section 48(b) of
the Rules of Court.
GAMBOA VS TEVES (G.R. NO. 176579 JUNE 28, 2011)

Gamboa vs Teves

G.R. No. 176579 June 28, 2011

Facts: On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a
franchise and the right to engage in telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of
the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by
several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of
111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were
sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by
this Court to be owned by the Republic of the Philippines. Since PTIC is a stockholder of PLDT, the sale by
the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12 million
shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the
common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII
of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not
more than 40 percent.

Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to the common
shares of PLDT, a public utility.

Held: Yes. Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens;
nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than
fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied)

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation
to be granted authority to operate a public utility, at least 60 percent of its capital must be owned by
Filipino citizens.
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial
ownership and the controlling interest.

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that the legal and beneficial
ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is
already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the
acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the
nominee arrangements between the foreign principals and the Filipino owners is likewise admitted,
there is, therefore, a violation of Section 11, Article XII of the Constitution.

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Indisputably, one of the rights of a stockholder is the right to participate in the control or management
of the corporation. This is exercised through his vote in the election of directors because it is the board
of directors that controls or manages the corporation. 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. In
fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to
vote. 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.

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 shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per
share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares
have twice the par value of common shares but cannot elect directors and have only 1/70 of the
dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while
foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%.62 This
undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with
the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.
NARRA NICKEL MINING AND DEVELOPMENT CORP, TESORO MINING AND DEVELOPMENT CORP and
MCARTHUR MINING, INC vs. REDMONT CONSOLIDATED MINES CORP, April 21, 2014
Facts:
Sometime in December 2006, respondent Redmont Consolidated Mines Corp (Redmont), a
domestic corporation organized and existing under Philippine laws, took interest in mining and exploring
certain areas of the province of Palawan. After inquiring with the Department of Environment and
Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and
mining activities were already covered by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur. Petitioners filed an application for an MPSA and Exploration
Permit (EP) and the applications for such permits were granted and duly issued.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three
separate petitions for the denial of petitioners’ applications for MPSA. Redmont alleged that at least
60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc (MBMI), a 100% Canadian Corporation. Also, Redmont alleged that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioner’s filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital
stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities
through MPSAs, because of the nationality requirement.
Petitioners averred that they were qualified persons under Section 3 of RA 7942 or the
Philippine Mining Act of 1995. They stated that their nationality as applicants is immaterial because they
also applied for FTAA which are granted to foreign corporations. Nevertheless, they claimed that the
issue on nationality should not be raised since they are in fact Philippine nationals as 60% of their capital
is owned by citizens of the Philippines.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining
MPSAs. The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI,
a 100% Canadian company and declared their MPSAs null and void.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint with the Securities and Exchange Commission (SEC), seeking the revocation of the certificates
for registration of petitioners on the ground that they are foreign-owned or controlled corporations
engaged in mining in violation of Philippine laws.
CA found that there was doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant
to the first sentence of paragraph 7 of Department of Justice (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 exploitation of natural resources, the CA used the "grandfather rule" to determine the
nationality of petitioners.
In determining the nationality of petitioners, CA looked into their corporate structures and their
corresponding common shareholders. Using the grandfather rule, CA discovered that MBMI in effect
owned majority of the common stocks of the petitioners as well as at least 60% equity interest of other
majority shareholders of petitioners through joint venture agreements. CA found that through a web of
corporate layering, it is clear that one common controlling investor in all mining corporations involved is
MBMI. Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or
privies-in-interest of, MBMI.
ISSUE:
WON the Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on
the “Grandfather Rule” is contrary to law, particularly the express mandate of the Foreign Investments
Act of 1991, as amended, and the FIA Rules.
HELD:
No. There are two (2) acknowledged tests in determining the nationality of a corporation. That
is, 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 (Control Test), 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
(Grandfather Rule). 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.
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the
definition of a “Philippine National” under Sec 3 of the FIA does not provide for it. They further claim
that the grandfather rule “has been abandoned and is no longer the applicable rule.” They also opined
that the last portion of Sec 3 of the FIA admits the application of a “corporate layering” scheme of
corporations. Petitioners claim that clear and unambiguous wordings of the statute preclude the court
from construing it and prevent the court’s use of discretion in applying the law. They said that the plain,
literal meaning of the statute meant the application of the control test obligatory.
SC disagreed. “Corporate layering” is admittedly allowed by the FIA; but if 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.
Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. The “control test” is still the prevailing
mode of determining whether or not a corporation is a Filipino corporation, within the ambit of Sec 2,
Art II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation,
then it may apply the “grandfather rule.”

STATE INVESTMENT HOUSE, INC. ANS STATE FINANCING CENTER, INC. VS

CITIBANK, BANK OF AMERICA AND HONGKONG AND SHANGHAI BANK

ISSUE:
Whether or Not foreign banks licensed to do business in the Philippines, may be considered “residents
of the Philippine Islands” as contemplated in Sec. 20 of Insolvency Law

An adjudication of insolvency may be made on the petition of three or more creditors, residents of the
Philippine islands, whose credits or demands accrued int hr Philippine Islands, and the amount of which
credits or demands are in the aggregate not less than one thousand pesos.

FACTS:

The foreign banks involved in the case are Bank of America, Citibank, and Hongkong and Shanghai
Banking Corporation, all of whom are creditors of Consolidated Mines, Inc. (CMI).

On December 11, 1981, the three banks jointly filed with the RTC of Rizal a petition for Involuntary
Insolvency of CMI. Among the grounds alleged by the foreign banks is CMI’s commission of specific acts
of insolvency, i.e. that CMI suffered its property to remain under attachment for three days for the
purpose of hindering or delaying or defrauding its creditors and that CMI has defaulted in the payment
of its current obligations for a period of thirty days.

The petition for involuntary insolvency was opposed by herein petitioners State Investment House, Inc.
(SIHI) and State Financing Center, Inc. (SFCI). SIHI and SFCI claimed, among others, that the court had no
jurisdiction to take cognizance of the petition for insolvency because the foreign banks are not resident
creditors of CMI as required under the Insolvency Law.

The RTC rendered judgment in favour of SIHI and SFCI for lack of jurisdiction over the subject matter.
The court ruled that the insolvency court could not acquire jurisdiction to adjudicate the debtor (CMI) as
insolvent because the foreign banks are not “residents of the Philippines”.

On petition for review, the CA rendered order reversing the judgment of the RTC. The CA ruled that the
three banks are residents of the Philippines for the purpose of doing business in the Philippines, and
that the Insolvency Law was designed for the benefit of both the creditors and debtors. The CA also
reiterated that the authority granted to the three banks by the SEC covers not only transacting banking
business, but also maintaining suits for the recovery of any debt and claims.

Hence, SIHI and SFCI brought their appeal before the SC

RULING:

Tthe SC ruled that since the Insolvency Law did not mention of the meaning of “residents of the
Philippine Islands”, the better approach would be to harmonize the provisions of the Corporation Code,
the General Banking Act, the Offshore Banking Law and the NIRC.

Hence, the Court ruled that it is not really the grant of a license to a foreign corporation to do business
in the Philippines that makes it a resident. The license merely gives legitimacy to its doing business in the
country. What effectively makes such foreign corporation a resident corporation in the Philippines is its
actually being in the Philippines and licitly doing business here, or the “locality of existence”, which is
the necessary element.

SUABILITY OF FOREIGN CORPORATIONS

No foreign corporation transacting business in the Philippines without a license, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative agency in the
Philippines.

METHODS OF CORPORATE DISSOLUTION:

1. Voluntary dissolution – by filing proper papers with SEC.

2. Involuntary dissolution – upon verified complaint filed with SEC on grounds authorized by law,
i.e serious dissension /non-user of franchise, etc.
3. Expiration of the term of the corporation
4. Shortening of corporate term
5. Failure to organize and commence business within two years from date of issuance of certificate
of incorporation, or
6. Legislative dissolution

GROUNDS FOR INVOLUNTARY DISSOLUTION

1. Fraud or misrepresentation as to the paid-up capital of the corporation

2. Misinterpretation
3. Ultra vires – mala prohibita, but too numerous infractions, which is persistent despite SEC
warnings
4. Continuous inactivity of the corporation for at least 5 years
5. Refusal to adopt or approve by-laws

Steelcase, Inc. v. Design International Selections, Inc.

Doctrines:
 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; 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.
 A foreign corporation doing business in the Philippines without a license may still sue before the
Philippine courts a Filipino or a Philippine entity that had derived some benefit from their contractual
arrangement because the latter is considered to be estopped from challenging the personality of a
corporation after it had acknowledged the said corporation by entering into a contract with it.
Facts: Steelcase is a foreign corporation existing under the laws of Michigan, USA, and engaged in the
manufacture of office furniture with dealers worldwide. Respondent is a corporation existing under
Philippine Laws and engaged in the furniture business, including the distribution of furniture.

Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby
Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-user
customers within the Philippines. The business relationship continued smoothly until it was terminated
sometime in January 1999 after the agreement was breached with neither party admitting any fault.

Steelcase filed a complaint against DISI. Despite a showing that DISI transacted with the local customers
in its own name and for its own account, it was of the opinion that any doubt in the factual environment
should be resolved in favor of a pronouncement that a foreign corporation was doing business in the
Philippines, considering the twelve-year period that DISI had been distributing Steelcase products in the
Philippines.

Steelcase moved for reconsideration but it was denied by the RTC.

Steelcase elevated the case to the CA which affirmed the Decision of the RTC.

Issue: Whether or not Steelcase is doing business in the Philippines without a license

Held: The rule that an unlicensed foreign corporations doing business in the Philippine do not have the
capacity to sue before the local courts is well-established. 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. 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.

A foreign corporation doing business in the Philippines without a license may still sue before the
Philippine courts a Filipino or a Philippine entity that had derived some benefit from their contractual
arrangement because the latter is considered to be estopped from challenging the personality of a
corporation after it had acknowledged the said corporation by entering into a contract with it.

While it is essential to uphold the sound public policy behind the rule that denies unlicensed foreign
corporations doing business in the Philippines access to our courts, it must never be used to frustrate
the ends of justice by becoming an all-encompassing shield to protect unscrupulous domestic
enterprises from foreign entities seeking redress in our country.