THE

CORPORATION
CODE OF THE
PHILIPPINES
A Report by:
Ma. Graziella B.
Tanaleon

Nationality of
Corporation

Control Test

Grandfather Rule

Defnition of a
Philippine
National
The Foreign
Inest!ent "#t
R" $%&'

Traders Royal
Ban( s C" )$$
*#ra $++ ,)-+-.

/o0 to
deter!ine1
T/2 N"TI3N"4IT5
3F " C3RP3R"TI3N
If a Philippine
#orporation has
#orporate
sto#(holders6 ho0
does one deter!ine
0hether su#h
Philippine
#orporation is a
Philippine national7
T0o tests hae 9een
e!ployed in the
Philippines1 ,a. the
grandfather rule:
and ,9. the #ontrol
test.
The Grandfather Rule

;sed to deter!ine the

nationality of a #orporation 9y
0hi#h the per#entage of Filipino
e<uity in #orporations engaged
in nationalized and=or party
nationalized areas of a#tiities6
is #o!puted6 in #ases 0here
#orporate shareholders are
present in the situation6 9y
attri9uting the nationality of the
se#ond or een su9se<uent tier
of o0nership to deter!ine the
nationality of the #orporate
sto#(holder.
*2C F3RM;4"1 *2C
42TT2R 3PINI3N1
>*hares 9elonging to
#orporations or partnerships at
least ?%@ of the #apital of 0hi#h
is o0ned 9y Filipino #itizens shall
9e #onsidered as of Philippine
nationality6 9ut if the per#entage
of Filipino o0nership in the
#orporation or partnership is less
than ?%@ only the nu!9er of
shares #orresponding to su#h
per#entage shall 9e #onsidered
as of Philippine nationality.A
T/2 C3NTR34 T2*T

The #ontrol test deals 0ith a situation 0here

a #orporation and its nonBFilipino
sto#(holders o0n sto#(s in an *2CB
registered #o!pany.

It proides that6 0here at least ?% per#ent

of the #apital sto#( outstanding and entitled
to ote of ea#h of 9oth #orporations is
o0ned and held 9y #itizens of the
Philippines and at least ?% per#ent of the
!e!9ers of the 9oard of dire#tors of ea#h of
9oth #orporations are Filipino #itizens6 the
inestee #o!pany is #onsidered a Philippine
national.
Control Test s Grandfather
Rule

;nder the grandfather rule6 the sto#(s o0ned 9y or

registered in the na!e of foreigners are sorted out
and added to deter!ine if they !eet the allo0a9le
!aCi!u! per#entage of foreign o0nership in
nationalized 9usinesses6 e.g.6 D% per#ent for
adertising #o!panies6 'E per#ent for re#ruit!ent
agen#ies and ?% per#ent for fnan#ing #o!panies.

The past rulings of the *2C sho0 that it applies the

#ontrol test in deter!ining a #orporationFs
nationality6 unless there are <uestions a9out the
true #hara#ter of su#h o0nership.

If there are6 the #orporation is >grandfathered6A

!eaning6 the nationality of the o0ners of the
sto#(s under <uestion is eCa!ined to deter!ine if
it !eets the nationality re<uire!ents.
The term GPhilippine nationalG shall mean a citien o!
the Philippines or a "omestic partnership or association:

0holly o0ned 9y #itizens of the Philippines:

or a #orporation organized under the la0s of

the Philippines of 0hi#h at least ?%@ of the
#apital sto#( outstanding and entitled to ote
is o0ned and held 9y #itizens of the
Philippines:

or a trustee of funds for pension or other

e!ployee retire!ent or separation 9enefts6
0here the trustee is a Philippine national and
at least ?%@ of the fund 0ill a##rue to the
9eneft of the Philippine nationals.
T/2 P/I4IPPIN2
N"TI3N"4
Proided6 That 0here a #orporation
and its nonBFilipino sto#(holders o0n
sto#(s in a *e#urities and 2C#hange
Co!!ission ,*2C. registered
enterprise6 at least ?%@ of the #apital
sto#(s outstanding and entitled to
ote of 9oth #orporations !ust 9e
o0ned and held 9y #itizens of the
Philippines and at least ?%@ of the
!e!9ers of the Board of Dire#tors of
9oth #orporations !ust 9e #itizens of
the Philippines6 in order that the
#orporations shall 9e #onsidered a
Philippine national.
TRADERS
RO#AL $AN%
&s CA
)$$ *CR" $++ ,)-+-.
*tate!ent of the
Case:
This petition
forcertiorariassails
the Court of "ppealsH
de#ision in GAlfredo
Ching vs. Hon.
Baltazar M. Dizon and
Traders Royal BankG
nullifying the
Regional Trial CourtHs
orders and
prohi9iting it fro!
further pro#eeding.
On 'arch ()*+,-.* the Philippine $loomin/ 'ills*
Inc0 1P$'2 an" Al!re"o Chin/ 3ointly s4bmitte" to the
Sec4rities an" E5chan/e Commission a petition !or
s4spension o! payments 6here Al!re"o Chin/ 6as
3oine" as co7petitioner0
The ban8 then 9le" a case in the RTC* a/ainst
P$' an" Al!re"o Chin/* to collect P..*..:*:,;0)<
e5cl4si&e o! interests* penalties an" other ban8
char/es representin/ P$'=s o4tstan"in/ obli/ation to
the ban80
Al!re"o Chin/* a stoc8hol"er o! P$'* 6as
implea"e" as co7"e!en"ant !or ha&in/ si/ne" as a
s4rety !or P$'=s obli/ations to the e5tent o! ten
million pesos 1Pl)*)))*)))2 4n"er a Dee" o!
S4retyship0
F"CT*1
The *2C issued an 3rder pla#ing PBMHs 9usiness6
in#luding its assets and lia9ilities6 under reha9ilitation
re#eiership6 and ordered that Gall a#tions for #lai!s
listed in the petition pending 9efore any #ourt or tri9unal
are here9y suspended in 0hateer stage the sa!e !ay
9e6 until further orders fro! the Co!!issionG .
PBM and Ching Iointly fled a !otion to dis!iss6
ino(ing the penden#y in the *2C of PBMHs appli#ation for
suspension of pay!ents ,0hi#h Ching #oBsigned. and oer
0hi#h the *2C had already assu!ed Iurisdi#tion.
Before the !otion to dis!iss #ould 9e resoled6 the
#ourt dropped PBM fro! the #o!plaint6 on !otion of the
plaintiJ 9an(6 for the reason that the *2C had already
pla#ed PBM under reha9ilitation re#eiership.
The #ourt then denied ChingHs !otion to dis!iss the
#o!plaint against hi!self. The #ourt pointed out that
GP.D. )$E+ is only #on#erned 0ith the a#tiities of
#orporations6 partnerships and asso#iations. Neer 0as it
intended to regulate and=or #ontrol a#tiities of
indiiduals.
). Khether the #ourta quo#ould a#<uire
Iurisdi#tion oer Ching in his personal and
indiidual #apa#ity as a surety of PBM in
the #olle#tion suit fled 9y the 9an(6
despite the fa#t that PBMHs o9ligation to
the 9an( had 9een pla#ed under
re#eiership 9y the *2C.
,Khether or not Ching #an 9e sued
separately to enfor#e his lia9ility as
surety for PBM..
T/2 I**;2*1
T/2 R;4ING1
>pon appointment o! a rehabilitation recei&er* all actions !or
claims a/ainst corporation 4n"er mana/ement or recei&ership
pen"in/ be!ore any co4rt* trib4nal* boar" or bo"y shall be
s4spen"e" accor"in/ly* the 34"/e clearly acte" 0ithout
Iurisdi#tion in ta8in/ co/niance o! the ci&il case in the co4rta
quobro4/ht by the ban8 to en!orce the s4rety a/reement
a/ainst petitioner !or the p4rpose o! collectin/ payment o! P$'=s
o4tstan"in/ obli/ations0
Respon"ent ban8 sho4l" ha&e @4estione" the SEC=s ass4mption
o! 34ris"iction o&er petitioner in an appellate !or4m an" not in
the co4rta quo* a trib4nal 6ith 6hich the SEC en3oys a co7e@4al
an" coor"inate ran80

Altho4/h Chin/ 6as implea"e" as a co7petitioner o! P$'* the
SEC co4l" not ass4me 34ris"iction o&er his person an"
properties0 The *e#urities and 2C#hange Co!!ission 0as
e!po0ered6 as reha9ilitation re#eier6 to ta(e #ustody
and #ontrol of the assets and properties of PBM only* !or
the SEC has Iurisdi#tion oer #orporations only not oer
priate indiiduals*
2LC2PT1 stoc8hol"ers in an intra7corporate "isp4te0
Chin/ can be s4e" separately to en!orce his liability as
s4rety !or P$'0
It is elementary that a corporation has a personality
"istinct an" separate !rom its in"i&i"4al stoc8hol"ers or
members0 $ein/ an oAcer or stoc8hol"er o! a corporation "oes
not ma8e one=s property the property also o! the corporation*
!or they are separate entities0
Chin/=s act o! 3oinin/ as a co7petitioner 6ith P$' "i" not
&est in the SEC 34ris"iction o&er his person or property* !or
34ris"iction "oes not "epen" on the consent or acts o! the
parties b4t 4pon e5press pro&ision o! la60
K/2R2F3R26 the petition for reie0 is granted. The
de#ision of the Court of "ppeals is set aside.
Respondent Mudge of the Regional Trial Court in Pasay
City is ordered to reinstate Ciil Case No. )%'+BP and to
pro#eed therein against the priate respondent "lfredo
Ching. Costs against the priate respondent.
*3 3RD2R2D0