CHAPTER 28: CORPORATIONS
PRINCIPLES AND CASES IN PRIVATE INTERNATIONAL LAW:
A PROCEDURAL APPROACH
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MARK ANGELO S. DELA PEÑA
To cite this online book, please use the following:
Dela Peña. 2023. "Principles and Cases in Private International Law: A Procedural Approach." Published by Project Jurisprudence - Philippines. Published: September 17, 2023. Link: [Insert link] Last accessed: [Insert date of access].
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GREY V. INSULAR LUMBER
In the case of Grey v. Insular Lumber,[1] the question was whether the plaintiff was entitled, as a stockholder of defendant Insular Lumber Company, to inspect and examine the books and records of the transactions of said defendant. What complicated the case was the fact that defendant was a corporation organized and existing under the laws of the State of New York, licensed to engage in business in the Philippines, with offices in the City of Manila, in Fabrica, Occidental Negros, in New York and in Philadelphia. Plaintiff, who owned 57 shares of defendant’s stock, asked the offices of the defendant in Manila and in Fabrica to permit him to examine the books and records of the business of said defendant, but he was not allowed to do so.
Under New York law, the right of a stockholder to examine the books and records of a corporation organized under the laws of New York is limited to those holding at least three percent of the shares of the corporation. This, plaintiff was not. On the other hand, such limitation did not exist under the Philippine Corporation Code which was prevailing at the time. Which law should apply?
Plaintiff contended that, in accordance with Philippine law, under which the defendant company was registered to do business in the Philippines, he as a stockholder, was entitled to inspect the record of the transactions of the defendant corporation, and this right can be enforced via mandamus. Defendant corporation countered this by saying that, in the first place, plaintiff was bound to adhere to the agreement to the effect that the rights of a stockholder should be governed by the law of New York.
Unfortunately, the Supreme Court was not able to resolve the question of choice of law because, first and foremost, plaintiff failed to show that the information he desired to obtain through the examination and inspection of defendant’s books was necessary to protect his interests as stockholder of the corporation, or that it was for a specific and honest purpose, and not to gratify curiosity, nor for speculative or vexatious purposes.
In case this problem reoccurs in life or in jurisprudence, the student is thus left with the question of whether New York law – which limits the examination rights of a stockholder to those holding three percent of the shares – or Philippine law – which provides no such limits – should apply. The question is answerable by the doctrine of internal affairs, i.e., the internal affairs of a corporation are governed by the law of the state in which that corporation is registered or created.[2]
SHAFFER V. HEITNER
The case of Shaffer v. Heitner[3] was about a plaintiff, a non-resident of Delaware, who filed a derivative suit in a Delaware forum against a corporation, as well as against its officers and directors, alleging that the individual defendants had violated their duties to the corporation by causing it and its subsidiary to engage in actions (which occurred in Oregon) that resulted in corporate liability for substantial damages in a private antitrust suit and a large fine in a criminal contempt action. Attachment was issued to seize and stop the transfers of shares of stock of the defendant corporation. Considering that the defendants were also all non-residents of Delaware, they argued that the property seized was not capable of attachment in Delaware and that they did not have sufficient contacts with Delaware to sustain jurisdiction of that state’s courts under the rule of International Shoe Co. v. Washington[4] Note that the International Shoe case established the minimum contact rule.
The United States Supreme Court ruled that Delaware-resident defendant’s ownership of stock in a corporation incorporated within a different state, without other factors, would be insufficient to allow that Delaware’s courts to exercise jurisdiction over the defendant corporation. In order to justify an exercise of jurisdiction in rem,[5] the basis for jurisdiction must be sufficient to justify exercising “jurisdiction over the interests of persons in the thing.” The presence of property in a state may bear upon the existence of jurisdiction by providing contacts among the forum state, the defendant, and the litigation, as for example, when claims to the property itself are the source of the underlying controversy between the plaintiff and defendant, where it would be unusual for the state where the property is located not to have jurisdiction. Regarding the in personam aspect of the case, it would be legally anomalous for a court to acquire personal jurisdiction over a non-resident defendant corporation that is absent from the forum state when the only contact is property owned by the defendant located within the forum state. Even if the property is connected to the suit, minimum contacts must still be established in order to comply with the parameters set by the International Shoe case.
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[1] 67 Phil. 139 [ G.R. No. 45144. April 03, 1939 ].
[2] DeMott, D. A. (1985). Perspectives on Choice of Law for Corporate Internal Affairs. Law and Contemporary Problems, 48(3), 161-198.
[3] 433 U.S. 186 (1977).
[4] 326 U. S. 310.
[5] The matter relates to proceedings in rem because of the attachment of the shares of stock of a non-Delaware-resident corporation by a Delaware court.
