How to determine the nationality of a corporation

The Constitution and various laws reserve certain areas of activities to Philippine citizens or to corporations that have a minimum percentage of Filipino ownership.  For example, with respect to corporations, ownership of land is limited to corporations “at least sixty per centum of whose capital is owned” by Philippine citizens.  If 60% of the capital of a Philippine corporation is owned by individuals who are Philippine citizens, then there would be no issue on whether the Philippine corporation is a Philippine national qualified to own land.  On the other hand, an issue would arise if 60% of the capital of the Philippine corporation is owned, in turn, by another Philippine corporation that has foreign stockholders.

If a Philippine corporation has corporate stockholders, how does one determine whether such Philippine corporation is a Philippine national?  Two tests have been employed in the Philippines:  (a)  the grandfather rule;  and (b)  the control test.

To illustrate how these tests are applied, let’s take a Philippine corporation (called “Corporation X”) with the following ownership structure:

(a) non-Philippine citizens own 40% of the capital stock outstanding and entitled to vote of Corporation X;

(b) another Philippine corporation (called “Corporation Y”) owns 60% of the capital stock outstanding and entitled to vote of Corporation X.

On other hand, Corporation Y has the following ownership structure:

(a) non-Philippine citizens own 40% of the capital stock outstanding and entitled to vote of Corporation Y;

(b) Philippine citizens own 60% of the capital stock outstanding and entitled to vote of Corporation Y.

Let’s also assume that Philippine citizens constitute at least 60% of the members of the board of directors of each of Corporation X and Corporation Y.

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December 2009 Philippine Supreme Court Decisions on Political Law

Here are selected December 2009 rulings of the Supreme Court of the Philippines on political law and related laws:

Constitutional Law

Bill of rights;  eminent domain.  Expropriation is not limited to the acquisition of real property with a corresponding transfer of title or possession. The right-of-way easement resulting in a restriction or limitation on property rights over the land traversed by transmission lines also falls within the ambit of the term expropriation.  National Power Corporation vs. Hon. Amer Ibrahim, etc., et al., G.R. No. 183297, December 23, 2009.

Bill of Rights; eminent domain. In computing for the value of the land subject to acquisition, the formula provided in DAO No. 6, Series of 1992, as amended, requires that figures pertaining to the Capitalized Net Income (CNI) and Market Value (MV) of the property be used as inputs in arriving at the correct land valuation. Thus, the applicable formula, as correctly used by the LBP in its valuation, is LV (Land Value) = (CNI x 0.9) + (MV x 0.1).

To arrive at the figure for the CNI of lands planted to a combination of crops, Item II B.5 of the said administrative order provides that the same should be computed based on the combination of actual crops produced on the covered land.  Land Bank of the Philippines vs. Kumassie Plantation Company Incorporated/Kumassie Plantation Company Incorporated vs. Land Bank of the Philippines, et al.  G.R. No. 177404/G.R. No. 178097. December 4, 2009.

Bill of rights; eminent domain; interest. The taking of property under CARL is an exercise by the State of the power of eminent domain. A basic limitation on the State’s power of eminent domain is the constitutional directive that private property shall not be taken for public use without just compensation. Just compensation refers to the sum equivalent to the market value of the property, broadly described to be the price fixed by the seller in open market in the usual and ordinary course of legal action and competition, or the fair value of the property as between one who receives and one who desires to sell. It is fixed at the time of the actual taking by the State. Thus, if property is taken for public use before compensation is deposited with the court having jurisdiction over the case, the final compensation must include interests on its just value, to be computed from the time the property is taken up to the time when compensation is actually paid or deposited with the court.  National Power Corporation vs. Hon. Amer Ibrahim, etc., et al., G.R. No. 183297, December 23, 2009.

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Disbarment for gross ignorance of the law

One of the fundamental principles of Philippine constitutional law is that ownership of land is generally reserved only to Filipinos.  Article XII, Section 7 of the Constitution provides:  “Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.”  On the other hand, Article XII, Section 8 provides:  “Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.”  To summarize:

Under the Constitution, private lands may be transferred or conveyed to the following:

(a)     Filipino citizens;

(b)    Corporations and associations at least 60% of the capital of which is owned by Filipino citizens, since they have the capacity to hold lands of the public domain;

(c)    Aliens but only in cases of hereditary succession;  and

(d)   Natural born citizens who have lost their Philippine citizenship subject to limitations provided by law.  (see 2 Philippine Constitutional Law, p. 917 [2004])

One would think that all Philippine lawyers know this fundamental principle but that does not appear to be the case.  In Keld Stemmerik, represented by Attys. Herminio. Liwanag and Winston P.L. Esguerra vs. Atty. Leonuel N. Mas, A.C. No. 8010, June 16, 2009, Keld Stemmerik, a Danish national, expressed interest in buying land in the Philippines and Atty. Mas advised him that he can legally acquire and own land in the Philippines.

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Not a Fairy Tale Ending (Version 2)

The post of March 8, 2009 began this way:

We have heard the story so many times. Foreigner goes to the Philippines. Foreigner meets Filipina girl.

They fall in love. They get married (or live together).  They buy a house and lot.

We wish it could always be a happy ending and they will live happily ever after. For some, the fairy tale becomes reality. For other couples, the ending is not what they have hoped for.

They fight. They go their separate ways. They fight over property.

Philip Matthews vs. Benjamin A. Taylor and Joselyn C. Taylor, G.R. No. 164584, June 22, 2009, involves a similar story, but this time, the Filipina wife prevailed.

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Not a Fairy Tale Ending

We have heard the story so many times.  Foreigner goes to the Philippines.  Foreigner meets Filipina girl.

They fall in love. They get married (or live together). They buy a house and lot.

We wish it could always be a happy ending and they will live happily ever after. For some, the fairy tale becomes reality. For other couples, the ending is not what they have hoped for.

They fight. They go their separate ways. They fight over property.

Because the Philippine Constitution does not allow foreigners to own land in the Philippines, it is not unusual for title to parcels of land to be placed in the name of the Filipina wife or girlfriend. What are the rights of a foreigner (and his successor-in-interest) who acquired real properties in the Philippines as against his former Filipina girlfriend in whose sole name the properties were registered in the Transfer Certificate of Title (TCT) covering the properties?

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