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.

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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HEIRS OF FE TAN UY v. INTERNATIONAL EXCHANGE BANK, G.R. No. 166283, February 13, 2013

Corporation law; Personal liability of a director or officer. Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.

While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a misapprehension of facts.

In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an act as an officer of Hammer that would permit the piercing of the corporate veil. A reading of the complaint reveals that with regard to Uy, iBank did not demand that she be held liable for the obligations of Hammer because she was a corporate officer who committed bad faith or gross negligence in the performance of her duties such that the lifting of the corporate mask would be merited. What the complaint simply stated is that she, together with her errant husband Chua, acted as surety of Hammer, as evidenced by her signature on the Surety Agreement which was later found by the RTC to have been forged.

Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified document, there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and severally liable to iBank for the unpaid loan of Hammer. Neither did the CA explain its affirmation of the RTC’s ruling against Uy. The Court cannot give credence to the simplistic declaration of the RTC that liability would attach directly to Uy for the sole reason that she was an officer and stockholder of Hammer.

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VITALIANO N. AGUIRRE II, ET. AL. v. FQB+7, INC., ET. AL., G.R. No. 170770, January 9, 2013

Corporation Law; Intra-corporate disputes after corporate dissolution. Intra-corporate disputes remain even when the corporation is dissolved.

Jurisdiction over the subject matter is conferred by law. R.A. No. 8799 conferred jurisdiction over intra-corporate controversies on courts of general jurisdiction or RTCs, to be designated by the Supreme Court. Thus, as long as the nature of the controversy is intra-corporate, the designated RTCs have the authority to exercise jurisdiction over such cases.

Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out of intra-corporate or partnership relations, and (b) the nature of the question subject of the controversy must be such that it is intrinsically connected with the regulation of the corporation or the enforcement of the parties’ rights and obligations under the Corporation Code and the internal regulatory rules of the corporation. So long as these two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as a special commercial court, has jurisdiction over it.

It bears reiterating that Section 145 of the Corporation Code protects, among others, the rights and remedies of corporate actors against other corporate actors. The statutory provision assures an aggrieved party that the corporation’s dissolution will not impair, much less remove, his/her rights or remedies against the corporation, its stockholders, directors or officers. It also states that corporate dissolution will not extinguish any liability already incurred by the corporation, its stockholders, directors, or officers. In short, Section 145 preserves a corporate actor’s cause of action and remedy against another corporate actor. In so doing, Section 145 also preserves the nature of the controversy between the parties as an intra-corporate dispute

The dissolution of the corporation simply prohibits it from continuing its business. However, despite such dissolution, the parties involved in the litigation are still corporate actors. The dissolution does not automatically convert the parties into total strangers or change their intra-corporate relationships. Neither does it change or terminate existing causes of action, which arose because of the corporate ties between the parties. Thus, a cause of action involving an intra-corporate controversy remains and must be filed as an intra-corporate dispute despite the subsequent dissolution of the corporation.

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