Category Archives: Commercial Law

SEC Memorandum Circular No. 16 Series of 2014 (August 13, 2014): Principal Office Address of Corporations and Partnerships

A corporation whose principal office address in the Articles of Incorporation is specific, complete or fully compliant with relevant Circulars need not file an amended AOI if moving to another location within the same city or municipality. However, it must declare its new address in the General Information Sheet within 15 days from transfer to the new location.

Full text here.

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NARRA NICKEL MINING AND DEVELOPMENT CORP., et al. v. REDMONT CONSOLIDATED MINES CORP., G.R. No. 195580, April 21, 2014

Remedial law; When is a case deemed moot and academic. A case is said to be moot and/or academic when it “ceases to present a justiciable controversy by virtue of supervening events, so that a declaration thereon would be of no practical use or value.” Thus, the courts “generally decline jurisdiction over the case or dismiss it on the ground of mootness.”

Exceptions to assuming jurisdiction despite the case becoming moot. The “mootness” principle, however, does accept certain exceptions and the mere raising of an issue of “mootness” will not deter the courts from trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo, the Court provided four instances where courts can decide an otherwise moot case, thus: (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.

Commercial law; Tests to determine the nationality of a corporation. 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, adopts 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. The first part of paragraph 7, DOJ Opinion No. 020, stating “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,” pertains to the control test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, “if the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine nationality,” pertains to the stricter, more stringent grandfather rule.

Application of the Grandfather Rule. Based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.

Existence of doubt. The assertion of petitioners that “doubt” only exists when the stockholdings are less than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where “doubt” as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have “60% Filipino Ownership” at face value. It would be senseless for these applying corporations to state in their respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the Constitution.

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SEC-OGC OPINION No. 14-04 (April 21, 2014) Re: QUALIFICATION/DISQUALIFICATION OF BOARD OF DIRECTORS; CONFLICT OF INTEREST

The qualification that “a director shall not be the immediate member of the family of any stockholder in any other firm, company, or association which competes with the subject corporation” is a qualificational by-law provision which may be added to those specified in the Corporation Code, (i.e. Section 23 and Section 27), pursuant to the case of Gokongwei v. Securities and Exchange Commission et al (G.R. No. L-45911, 11 April 1979). Thus, corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation’s Board of Directors and a provision which renders ineligible, or if elected, subjects to removal, a director is he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid. However, these qualifications become effective only when the by-laws of the Corporation expressly provide for the same.

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SEC MEMORANDUM CIRCULAR NO. 6, SERIES OF 2014 (February 20, 2014)

The SEC directs all corporations whose Articles of Incorporation indicate “Metro Manila” or any other city, town or municipality as their principal office address to amend the same by specifying the complete address, including street number, street name, barangay, city or municipality, building name, building number, and room or unit number.

The deadline to apply for the amendment to the Articles of Incorporation is on December 31, 2014.

SEC Memo No. 6 s. 2014 

NUCCIO SAVERIO AND NS INTERNATIONAL, INC. (NSI) v. ALFONSO G. PUYAT, G.R. No. 186433, November 27, 2013

Commercial Law; Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation is not, by itself, a sufficient ground for disregarding the separate corporate personality. The Court ruled that mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation is not, by itself, a sufficient ground for disregarding the separate corporate personality. Before the corporate fiction can be disregarded, alter-ego elements must first be proven. Following Hi-Cement Corporation v. Insular Bank of Asia and America, the following circumstances should be established: (1) the stockholders had control or complete domination of the corporation’s finances and that the latter had no separate existence with respect to the act complained of; (2) they used such control to commit a wrong or fraud; and (3) the control was the proximate cause of the loss or injury.

It was not shown that Saverio had control or domination over NSI’s finances. The mere fact that it was Saverio who, in behalf of NSI, signed the MOA regarding the loan contract with Puyat is not sufficient to prove that he exercised control over its finances. Nor do the absence of a board resolution authorizing Saverio to contract the loan and NSI’s failure to object to his acts prove the same thing.  

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REPUBLIC ACT NO. 10607 (August 15, 2013): AN ACT STRENGTHENING THE INSURANCE INDUSTRY, FURTHER AMENDING PRESIDENTIAL DECREE NO. 612, OTHERWISE KNOWN AS “THE INSURANCE CODE”, AS AMENDED BY PRESIDENTIAL DECREE NOS. 1141, 1280, 1455, 1460, 1814 AND 1981, AND BATAS PAMBANSA BLG. 874, AND FOR OTHER PURPOSES

The Act has amended the rather antiquated Insurance Code and increased the paid-up capital for corporations intending to engage in the insurance business.

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