BUSINESS ASSOCIATIONS

A. CORPORATION

1. How do you define a corporation

A corporation, according to Sec. 2 of the Corporation Code of the Philippines, is an
artificial being created by the operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence,
while Section 123 , of the same Code, defines a foreign corporation as one formed,
organized of existing under any laws other than those of the Philippines and whose laws
allow Filipino citizens and corporations to do business in its own country or state.

2. What are the different theories in determine the personal or governing law of a
corporation?

There are at least three (3) theories, namely:

(1) The theory that the personal law is the law of the place of incorporation:

Under this theory, however, a corporation can evade many responsibilities by simply
organizing in one state and performing its functions in other state.

(2) The theory of the place or center of management:

One difficulty of this theory is that the Board may meet in different states, although
this defect may be cured by expressly providing in the articles of incorporation or by-
laws where the principal meeting place of the Board is.

(3) The theory of the place of exploitation.

The defect of this theory is that the corporation may have its enterprise scattered all
over the world. Besides, the physical acts of the corporation are not as important as
the decision reached by its board of directors.
(Paras, supra, and authorities cited, pp. 420-421)

3. Among the foregoing three theories, what theory do we follow in the Philippines?

In the Philippine, we follow the theory of the place of incorporation.

This is implied from the definition of a foreign corporation by our Corporation Code as
one formed, organized or existing under any laws other than those of the Philippines
xxx. In other words, if the corporation was organized in the Philippines, it is a Philippine
or domestic corporation; if organized elsewhere or abroad, it is foreign corporation.


4. What about the domicile of a corporation? Where is it?

According to Article 51 of the New Civil Code, When the law creating or
recognizing them or any other provision does not fix the domicile of judicial persons, the
same shall be understood to be established or where they exercise their principal
functions.

Even a defectively organized corporation which the law regards as de facto insofar as
innocent third persons are concerned can possess a domicile for its de facto existence
(Macdonald v. FNCBNY, L-7991, May 21, 1956).

For the purpose of determining a corporations domicile, Sec. 14 of the Corporation
Code requires that the articles of incorporation of a Philippine corporation first state the
place where the original office of the corporation is to be established or located, which
place must be within the Philippines. Thus, the place of the corporation of a Philippine
corporation is also its domicile.

As a foreign corporation that has been granted a license to operate or to do business in
the Philippines, it acquires domicile in this country by virtue of said license. As held by
the Supreme Court in Granger Asociates v. Microwave Systems, Inc., 189 SCRA 631
(1990), the purpose of the rule requiring foreign corporations to secure a license to do
business in the Philippines is to enable the courts to exercise jurisdiction over them or the
regulation of their activities in our country.

5. What are the exceptions to the theory that the personal law or the nationality of a
corporation follows the place of its incorporation?

The exceptions are:

(a) For Constitutional purposes, even if a corporation was incorporated in the
Philippines, it cannot exploit or develop our natural resources nor operate public
utilities unless 60% of the capital is Filipino owned (Art. XII, secs. 2, 10-11 1987
Constitution).
(b) For Wartime purposes, we adopt the control test; i.e., we peirce the veil of
corporation identity and go into the nationality of the controlling stockholders to
determine whether a corporation is an enemy corporation.

Thus, a German-controlled corporation, even if incorporated in the Philippines,
was considered an enemy corporation during the last World War for the purpose of
freezing its assets (David Wineshop v. Phil Trust, L-3869, Jan. 31, 1952).

The doctrine of piercing the corporate veil or disregarding the corporate fiction
also permit the courts to impose personal liability on the stockholders if the
corporation form has been used to defeat the public convenience, justify wrongs, or
protect fraud or crime ( Tan Boon Bee and Co. v. J. Jerencio, 163 SCRA 205).



6. What matters are governed by the personal law of the corporation?

The personal law of the corporation (which in the Philippines, is the place of incorporation)
governs the requisites for the formation of the corporation, the required number of
incorporators and the members of the Board of Directors, the kinds of shares of stock allowed,
the transfer of stocks in a way that it would be binding on the corporation, the issuance, amount
and legality of the dividends, and the powers and duties of the officers, stockholders, and
members.
7. What law determines the validity of corporate acts and contracts?
The validity of corporate acts and contracts is determined by the law of the place of
incorporation and by the law of the place of performance. To be valid and binding, such acts or contracts
must be authorized by both laws. If valid in the place of incorporation but void in the place of
performance, or vice versa, the validity of said acts or contracts is doubtful and it may not given effect at
all, without prejudice to the principle of estoppels (Sec. 129, Corporation Code; Paras, supra, and
authorities cited, p. 429).
8. May a foreign corporation sue and be sued in the Philippines?
Yes, if it has the necessary license to do business here 9Sec. 123 Corporation Code). The license
is required not to forbid the foreign corporation from performing single acts but to prevent it from
acquiring a domicile for purposes of business without taking the steps necessary to render if amenable
to suit in the local courts (Marshall Wells & Co. v. Elser Co., 46 Phil. 71)
Transacting or doing business connotes a continuity of business dealings and arrangements
(Mentholatum Co. v. Elser Co., 72 Phil. 524).
Even a single act or transaction may, however, be an act of ordinary business of the corporation
if it is not merely incidental or casual but of such character as to distinctly indicate a purpose to do other
business in the state and to make a state a base of operations for the conduct of a part of the foreign
corporations ordinary business (Far East international Import and Export Corporation v. Nankai Kogyo
Co., Ltd., L-13525, Nov. 30, 1962).
9. How may courts acquire jurisdiction over a foreign corporation doing business in the
Philippines?
By service of summons on:
(a) Its resident agent designated in accordance with law for that purpose;
(b) If no such agent, on the government official designated by law to that effect; or
(c) On any of its officers or agents within the Philippines.
(Sec. 12, Rule 14, 1997 Rules on Civil Procedure.)
10. Suppose a foreign corporation transacts business without first obtaining the necessary
license, what is the status of its contract?
The contract is unenforceable; i.e., the corporation cannot sue in our courts until the necessary
license is obtained. After the issuance of the license, suits may be instituted even on the pre-license
contracts which are considered valid (Marshell-Wells & Co. v. Elser Co., supra)
But the person who contracted with the corporation may be considered in estoppels if he had
received benefits from the contract (Fletcher, Vol. I, Cyclopedia of Law of Private Corporations,
sec.8520).
11. May a person sue a foreign corporation that transacted business with him without a
license?
No, since the corporation has no agent here to receive the summons. But if jurisdiction over the
corporation is acquired by the court, yes, because the corporation cannot put up by way of defense its
own failure to comply with the law (Gen. Cor. Of the Phil. V. Union Ins. Society of Canton, 48 OG #1, Jan.
1952, p. 73)
12. If the corporation sells its products in the Philippines through an agent, is that doing
business here?
If the foreign corporation sells its products in the Philippines through a resident merchant on
commission on basis, it is the merchant, not the corporation, that is doing business here. But if the
foreign corporation sells its goods in the Philippines through an exclusive distributing agent, it is doing
business here, because the agent is acting only in behalf of its principal 9Metholatum Co. v. Mangalinan,
supra).
13. May a foreign corporation not doing business in the Philippines sue in our courts?
Yes, in:
(a) Isolated transactions:
(b) to protect its reputation, corporate name, and good will;
Thus, a foreign corporation can ask a local court to restrain some Filipinos from organizing a
local corporation with the same name and the same business (Western Equipment Supply Co., v. Reyes,
51 Phil. 115), provided a similar privilege is granted to Philippine corporations by the plaintiffs home
state (Sec.3, Rep. Act 8293).
(c) for infringement of trademark or trade-name, unfair competition or false description of products,
and infringement of patent (Sec. 160, id.).


14. What about multinational or transnational corporations, what law applies to them?
These are actually branches of a big, mother corporation in a highly industrialized, highly
developed foreign country but doing business in many countries of the world through branches that
have been incorporated under the law of each country or state where it has extended its business, in
association with local businessmen. Since they are incorporated under the local law of each state where
they are doing business, the branches are separate entities governed by the said local laws, but in
reality, the major decisions in their operation and management are controlled by their mother or parent
corporation. However, the branches, having incorporated in the states where they are established, are
governed by the internal law of the said states, and their personal law are the local laws of the host
states.
15. May a foreign corporation be sued after it had already withdrawn from business in the
Philippines?
Yes, on contracts previously entered into it. After all, fairness demands that the citizens and
residents of the Philippines be afforded the opportunity to sue these foreign corporations locally,
instead of requiring them to sue in the foreign countries where they are domiciled. By the same token,
the foreign corporation that has withdrawn should also be allowed to sue on validity existing
transactions, entered into previous to the cessation of its business here. And an identical rule should
also apply to contracts entered into prior to the revocation of the foreign corporations license. (Paras,
supra, and authorities cited, p. 438).
B. PARTNERSHIPS
1. When does a partnership exist?
A partnership exists when two or more persons bind themselves to contribute money, property
or industry to a common fund with the intention of dividing the profits among themselves (Art.1767,
Civil Code of the Philippines).
2. Does a partnership, like a corporation, have juridical personality of its own?
In the Philippines, yes, a partnership has juridical personality separate and distinct from that of
each of the partners (Art. 1768, id.).
However, in the United States and some countries in Europe and Latin America, partnerships are
not regarded as independent persons with juridical personalities of their own except for the purpose of
insolvency proceedings (See Campos Rueda & Co. v. Pac. Com. Co. 44 Phil. 916). However, in the United
States today, a new theory has been developed, getting away from the old common law conception that
a partnership is simply an aggregate of individuals, and instead treating it as a separate entity distinct
from the partners.
3. What is the personal or governing law of a partnership?
Like a Philippine corporations, the personal or governing law of a partnership is the law of the
country where it is created (See Art.15 , Code of Commerce).
Thus, matters like organization, capacity to contract and validity of its contracts, the liability of
the partnership and the partners to third persons, dissolution and winding up, are all governed by trhe
partnerships personal law or the law of the state where it was created.
For example, in a New York case where a limited partner under Cuban law was sued in New York
for breach of contract entered into by the Cuban partnership in New York, it was held that the limited
partner was not liable, and that New York could not enlarge the liability of a limited partner under
Cuban law simply because the contract was entered into New York (King v. Sarria, 69 NY 24 [1877]).
4. Where is the domicile of a partnership?
Under Article 51 of the New Civil Code, the domicile or partnership organized under Philippine
law is, like domestic corporations, the place where their legal representation is established or where
they exercise their principal functions.
Consequently, a partnership created in one state but which conducts its main business in
another state may be considered domiciled in the latter state.
5. Are the constitutional limitations on the powers of corporations also applicable to
partnerships?
Yes, so that unless at least 60% of the capital of a partnership is owned by Filipinos, the
partnership cannot engage in the development and exploitation of our natural resources, nor operate
public utilities .
Neither can a partnership 60% of the capital of which is not owned by Filipinos acquire by
purchase or otherwise agricultural lands I the Philippines.
Foreign partnerships may be mortgagees of land in the Philippines for 5 years, renewable for
another 5 years, but they cannot acquire said land in a foreclosure proceeding (Rep. Act No.133).
6. If a Philippine court appoints a receiver for a foreign partnership in the Philippines, does the
receiver also act as such with respect to assets of said partnership in its home estate?
No because the authority of the receiver is only within the territorial boundaries of the
Philippines, or coextensive with the jurisdiction of the court that appointed him.