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3 contract of pledge, while the second is through a chattel mortgage


a. Non-stock  Educational, Religious
b. Stock  Section 105-132, RCC

Valley Golf and Country Club, Inc. vs. Vda. de Caram 3. FOREIGN CORPORATION
 The procedure under Section 67 of the Corporation Code for the stock OTHERS
corporation’s recourse on unpaid subscriptions is inapt to a non-stock
corporation vis-à-vis a member’s outstanding dues. 4. Subsidiary
 The right of a non-stock corporation to expel a member through the a. Wholly owned v. majority owned
forfeiture of such member’s share may be established in the by-laws 5. Affiliate
alone 6. Parent/holding company
 Generally in theory, a non-stock corporation has the power to effect the 7. Joint venture corporation
termination of a member without having to constitute a lien on the 8. Open vs. close
membership share or to undertake the elaborate process of selling the 9. Lay vs religious
same at public auction 10. Eleemosynary vs civil corp
 Share ownership introduces another dimension to the case—the reality VI. CREATION OF CORPORATION
that termination of membership may also lead to the infringement of
property rights. PROMOTION
 When the loss of membership in a non-stock corporation also entails
the loss of property rights, the manner of deprivation of such property Section 3. Definition of Terms. - 3.10. "Promoter" is a person who,
right should also be in accordance with the provisions of the Civil acting alone or with others, takes initiative in founding and organizing the
Code. business or enterprise of the issuer and receives consideration therefor.
 Non-stock corporations and their officers are not exempt from the CASES:
obligation imposed by Articles 19, 20, and 21 under the Chapter on
Human Relations of the Civil Code, which provisions enunciate a Cagayan Fishing Development vs. Sandiko
general obligation under law for every person to act fairly and in good
 Unquestionably, a duly organized corporation has the power to purchase
faith towards one another.
and hold such real property as the purposes for which such corporation
 The arrangement provided for in the by-laws of Valley Golf whereby a
was formed may permit and for this purpose may enter into such
lien is constituted on the membership share to answer for subsequent
contracts as may be necessary.
obligations to the corporation finds applicable parallels under the Civil
 But before a corporation may be said to be lawfully organized, many
Code—membership shares are considered as movable or personal
things have to be done. Among other things, the law requires the filing of
property, and they can be constituted as security to secure a principal
articles of incorporation.
obligation, such as the dues and fees; There are at least two
 Although there is a presumption that all the requirements of law have
contractual modes under the Civil Code by which personal property
been complied with in the case before us it cannot be denied that the
can be used to secure a principal obligation—the first is through a
plaintiff was not yet incorporated when it entered into the contract of sale.

 The contract itself referred to the plaintiff as "una sociedad en vías de Majority of the incorporators must be residents of the Philippines
incorporación." It was not even a de facto corporation at the time.
 Not being in legal existence then, it did not possess juridical capacity to  General rule: need not be a citizen
enter into the contract.  Exceptions:
 Corporations are creatures of the law, and can only come into existence a. public utilities (Art XII, Sec 11. Consti),
in the manner prescribed by law. b. schools (Art XIV, Sec 4(2), Consti),
 General laws authorizing the formation of corporations are general c. banks (General Banking Act),
offers to any persons who may bring themselves within their provisions; d. retail trade (RA 1180),
and if conditions precedent are prescribed in the statute, or certain acts e. savings and loan associations (RA 3799),
are required to be done, they are terms of the offer, and must be f. investment houses (Sec 5, PD 129), and
complied with substantially before legal corporate existence can be g. other areas of investment as congress may by law provide (Art XII,
acquired. Sec. 10, Consti).
 That a corporation should have a full and complete organization and
existence as an entity before it can enter into any kind' of a contract or  Even though there are no legal restrictions as to alien ownership, where
transact any business, would seem to be self-evident. > 40% of the outstanding capital stock will be owned and controlled by
 A corporation, until organized, has no life and, therefore, no faculties. It aliens, must get written authorization from BOI before it can register with
is, as it were, a child in ventre sa mere. SEC. (purpose is to enable BOI to determine whether such corporation
 This is not saying that under no circumstances may the acts of wherein aliens own a substantial number of shares would contribute to
promoters of a corporation be ratified by the corporation if and when the sound and balanced development of the national economy) 4)
subsequently organized. Incorporators must be of legal age
 There are, of course, exceptions, but under the peculiar facts and Conditions Precedent for Incorporation
circumstances of the present case the doctrine of ratification should not
be extended because to do so would result in injustice or fraud to the  Consent or agreement of at least 5 natural persons with respect to:
candid and unwary. 1. Compliance with the Corp Code;
2. Contribution/pooling of resources – delivered to and held in trust by a
INCORPORATION designated trustee;
 Who May Form a Corporation Incorporators 3. Governance of: Contributions; Distribution of contributions; Division
 Any number of natural persons not less than five (5) but not more than of profits/sharing of losses; Pursuit of purpose/objectives; Corporate
fifteen (15), all of legal age and a majority of whom are residents of the combination; and Transactions with third parties; and
Philippines, may form a private corporation for any lawful purpose or 4. Continuity or termination of existence.
purposes. Each of the incorporators of a stock corporation must own or
be a subscriber to at least one (1) share of capital stock of the  Mandatory Requirements of the Code:
corporation. 1. Execution of constitutive documents (AOI, By-laws);
2. Payment/delivery of contributions – delivered to and held in trust by a
 GENUINE INTEREST: designated trustee;
Each incorporator must own or subscribe to at least one share of 3. Submission of constitutive documents to SEC for review or evaluation;
stock of the corporation. and 4. SEC action – issuance of certificate of registration.

 Note that once contributions are made before incorporation, such

subscriptions are irrevocable for a period of 6 months (general rule).
 Exceptions:
1. When all of the other subscribers consent to the revocation; or  Although a non-stock corporation has a personality that is distinct from
2. When the incorporation fails to materialize (Sec. 61) those of its members who established it, its articles of incorporation
cannot be amended solely through the action of its board of trustees;
The amendment needs the concurrence of at least two-thirds of its
Mutual Agreement to perform certain acts required for organizing a
CARPIO, J., Separate Concurring Opinion:
1-Organize and establish a corporation  A corporation sole, as the lone trustee and member of the corporation,
2-Comply with requirements of corporation code can amend its articles of incorporation.—Section 16 requires the
3-Contribute capital/resources majority vote of the board of trustees and the vote or written assent of at
4-Mode of use of capital/resource and control/management of least two-thirds of the members of a non-stock corporation. Applying this,
capital/resource a corporation sole, as the lone trustee and member of the corporation,
5-distribution/disposition of capital/resource (embodied in constitutive can amend its articles of incorporation.
documents)  The votes of those members are not necessary in amending the articles
of incorporation of the corporation sole, the vote of the latter being
sufficient in effecting the amendment.—The religious denomination, sect
BINDING EFFECT OF AMENDMENT or church represented by the corporation sole has members who are
Philippine Trust Co. vs. Rivera distinct and different from the member of the corporation sole.
 The members of the religious organization should not be considered for
 A corporation has no power to release an original subscriber to its capital purposes of Section 16. Thus, the votes of those members are not
stock from the obligation of paying for his shares, without a valuable necessary in amending the articles of incorporation of the corporation
consideration. for such release; and as against creditors a reduction of sole, the vote of the latter being sufficient in effecting the amendment.
the capital stock can take place only in the manner and under the  Once the conversion from corporation sole to corporation aggregate is
conditions prescribed by law. perfected, the provisions of the Corporation Code specifically designed
for a corporation sole cease to apply to the corporation aggregate.
Iglesia Evangelista Metodism En Las Islas Filipinas (IEMELIF)
(Corporation Sole), Inc. vs. Lazaro NAME OF CORPORATION
 Section 110 of the Corporation Code, the Court said that a Republic Planters Bank vs. Court of Appeals
 Corporation sole is “one formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of a religious denomination, sect,  The corporation, upon such change in its name, is in no sense a new
or church, for the purpose of administering or managing, as trustee, the corporation, nor the successor of the original corporation. It is the same
affairs, properties and temporalities of such religious denomination, sect corporation with a different name, and its character is in no respect
or church.” changed.
 A corporation aggregate formed for the same purpose, on the other  A change in the corporate name does not make a new corporation and
hand, consists of two or more persons. whether affected by special act or under a general law has no effect on
 The Corporation Code provides no specific mechanism for amending the the identity of the corporation or on its property, rights or liabilities.
articles of incorporation of a corporation sole; Section 109 of the  The corporation continues as before responsible in its new name for all
Corporation Code allows the application to religious corporations of the debts or other liabilities which it had previously contracted or incurred.
general provisions governing non-stock corporations

 As a general rule, officers or directors under the old corporate name bear 
They are original and unexpected in relation to the products they
no personal liability for acts done or contracts entered into by officers of endorse, thus, becoming themselves distinctive.”
the corporation, if duly authorized. Inasmuch as such officers acted in  Suggestive marks
their capacity as agent of the old corporation and the change of name  are marks which merely suggest some quality or ingredient of goods.
meant only the continuation of the old juridical entity. x x x The strength of the suggestive marks lies on how the public
perceives the word in relation to the product or service.
P.C. Javier & Sons, Inc. vs. Court of Appeals

 Unless there is a law, regulation or circular from the SEC or BSP  The enforcement of the protection accorded by Section 18 of the
requiring the formal notification of all debtors of banks of any change in Corporation Code to corporate names is lodged exclusively in the SEC.
corporate name, such remains to be a mere internal policy that banks  The jurisdiction of the SEC is not merely confined to the adjudicative
may or may not adopt functions provided in Section 5 of the SEC Reorganization Act, as
 A change in the corporate name does not make a new corporation, amended.
whether effected by a special act or under a general law.  By express mandate, the SEC has absolute jurisdiction, supervision and
control over all corporations.
Industrial Refractories Corporation of the Philippines vs. Court of  It is the SEC’s duty to prevent confusion in the use of corporate names
Appeals not only for the protection of the corporations involved, but more so for
the protection of the public.
 It is the SEC’s duty to prevent confusion in the use of corporate names
 It has authority to de-register at all times, and under all circumstances
not only for the protection of the corporations involved but more so for
corporate names which in its estimation are likely to generate confusion.
the protection of the public, and it has authority to de-register at all times
 The certificate of registration of a mark shall be prima facie evidence
and under all circumstances corporate names which in its estimation are
of the validity of the registration, the registrant’s ownership of the mark,
likely to generate confusion. Clearly therefore, the present case falls
and of the registrant’s exclusive right to use the same in connection with
within the ambit of the SEC’s regulatory powers.
the goods or services and those that are related thereto specified in the
 Requisites to fall within the prohibition of the law.—As held in
Philips Export B.V. vs. Court of Appeals, to fall within the RESIDENCE OF CORPORATION
prohibition of the law, two requisites must be proven, to wit:
1. that the complainant corporation acquired a prior right over the use  A corporation is in a metaphysical sense a resident of the place where its
of such corporate name; and principal office is located as stated in the articles of incorporation
2. the proposed name is either:  The Corporation Code precisely requires each corporation to specify in
a. identical, or its articles of incorporation the “place where the principal office of the
b. deceptively or confusingly similar to that of any existing corporation is to be located which must be within the Philippines” (Sec.
corporation or to any other name already protected by law; or 14 [3]).
c. patently deceptive, confusing or contrary to existing law.  The purpose of this requirement is to fix the residence of a corporation in
a definite place, instead of allowing it to be ambulatory.
GSIS Family Bank-Thrift Bank [formerly Comsavings Bank, Inc.] vs. BPI A corporation cannot be allowed to file personal actions in a place other
Family Bank than its principal place of business unless such a place is also the
residence of a co-plaintiff or a defendant.
 Arbitrary marks
 “words or phrases used as a mark that appear to be random in the
context of its use. They are generally considered to be easily
Gamboa vs. Teves
remembered because of their arbitrariness.
 The term “capital” in Section 11, Article XII of the Constitution vein, if the dividends and other fruits and accessions of the share do not
refers only to shares of stock entitled to vote in the election of accrue to a Filipino citizen or national, then that share is also to be
directors, and thus in the present case only to common shares, excluded or not counted.
and not to the total outstanding capital stock comprising both
common and non-voting preferred shares  Given that beneficial ownership of the outstanding capital stock of the
public utility corporation has to be determined for purposes of
 Common shares cannot be deprived of the right to vote in any corporate compliance with the 60% Filipino ownership requirement, the definition
meeting, and any provision in the articles of incorporation restricting the in the SRC-IRR can now be applied to resolve only the question of who
right of common shareholders to vote is invalid. is the beneficial owner or who has beneficial ownership of each “specific
stock” of the said corporation.
 Considering that common shares have voting rights which translate to  Thus, if a “specific stock” is owned by a Filipino in the books of the
control, as opposed to preferred shares which usually have no voting corporation, but the stock’s voting power or disposing power belongs to
rights, the term “capital” in Section 11, Article XII of the Constitution a foreigner, then that “specific stock” will not be deemed as “beneficially
refers only to common shares. owned” by a Filipino.
 However, if the preferred shares also have the right to vote in the
election of directors, then the term “capital” shall include such preferred  If the Filipino has the “specific stock’s” voting power (he can vote the
shares because the right to participate in the control or management of stock or direct another to vote for him), or the Filipino has the
the corporation is exercised through the right to vote in the election of investment power over the “specific stock” (he can dispose of the stock
directors. In short, the term “capital” in Section 11, Article XII of the or direct another to dispose it for him), or he has both (he can vote and
Constitution refers only to shares of stock that can vote in the election of dispose of the “specific stock” or direct another to vote or dispose it for
directors. him), then such Filipino is the “beneficial owner” of that “specific
stock” — and that “specific stock” is considered (or counted) as part of
Roy III vs. Herbosa the 60% Filipino ownership of the corporation.
 As defined in the SRC-IRR, “[b]eneficial owner or beneficial  In the end, all those “specific stocks” that are determined to be Filipino
ownership (per definition of “beneficial owner” or “beneficial ownership”) will be
 any person who, directly or indirectly, through any contract, added together and their sum must be equivalent to at least 60% of the
arrangement, understanding, relationship or otherwise, has or shares total outstanding shares of stock entitled to vote in the election of
voting power (which includes the power to vote or direct the voting of directors and at least 60% of the total number of outstanding shares of
such security) and/or investment returns or power (which includes stock, whether or not entitled to vote in the election of directors.
the power to dispose of, or direct the disposition of such security).”
 To be sure, the application of the 60-40 Filipino-foreign ownership
 The term “full beneficial ownership” found in the FIA-IRR is to be requirement separately to each class of shares, whether common,
understood in the context of the entire paragraph defining the term preferred nonvoting, preferred voting or any other class of shares fails
“Philippine national.” to understand and appreciate the nature and features of stocks as
 Mere legal title is not enough to meet the required Filipino equity, which financial instruments.
means that it is not sufficient that a share is registered in the name of a
Filipino citizen or national, i.e., he should also have full beneficial  That stock corporations are allowed to create shares of different classes
ownership of the share. with varying features is a flexibility that is granted, among others, for the
 If the voting right of a share held in the name of a Filipino citizen or corporation to attract and generate capital (funds) from both local and
national is assigned or transferred to an alien, that share is not to be foreign capital markets.
counted in the determination of the required Filipino equity. In the same
 This access to capital — which a stock corporation may need for national and at least sixty (60%) of the fund will accrue to the benefit of
expansion, debt relief/repayment, working capital requirement and other the Philippine nationals: Provided, That where a corporation and its
corporate pursuits — will be greatly eroded with further unwarranted non-Filipino stockholders own stocks in a Securities and Exchange
limitations that are not articulated in the Constitution. Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stocks outstanding and entitled to vote of both
 In this regard, it should be noted that the 8 corporate matters corporations must be owned and held by citizens of the Philippines
enumerated in Section 6 of the Corporation Code require, at the outset, and at least sixty percent (60%) of the members of the Board of
a favorable recommendation by the management to the board. As Directors of both corporations must be citizens of the Philippines, in
mandated by Section 11, Article XII of the Constitution, all the executive order that the corporations shall be considered a Philippine national;
and managing officers of a public utility company must be Filipinos.
 Thus, the all-Filipino management team must first be convinced that any CONTROL TEST V. GRANDFATHER RULE
of the 8 corporate actions in Section 6 will be to the best interest of the CONTROL TEST GRANDFATHER RULE
company. uses only the voting stock to not enough that the corporation has
determine whether the corporation the required 60% Filipino
 Allowing stockholders holding preferred shares without voting rights to is a Philippine national - whether stockholdings of face value. To
vote in the 8 corporate matters enumerated in Section 6 is an 60% of the outstanding capital determine the percentage of
acknowledgment of their right of ownership. stock entitled to vote is owned by ultimate Filipino ownership, it must
 If the owners of preferred shares without right to vote/elect directors are Filipinos Exploitation of Natural first be traced to the level of
not allowed to vote in any of those 8 corporate actions, then they will not Resources – Section 2, Art. XII investing corporation and added to
be entitled to the appraisal right provided under Section 81 of the CONST. “only Filipino Citizens or the shares directly owned in the
Corporation Code in the event that they dissent in the corporate act. Corporations whose capital stock invested corporation.
are at least 60% owed by Filipinos
can qualify to exploit natural
 preferred shareholders are merely investors in the company for income
resources.” Public Utilities –
in the same manner as bondholders. Without a lucrative package,
including an attractive return of investment, preferred shares will not be Sec. 11, Art XII, CONST. “xxx no
subscribed and the much-needed additional capital will be elusive. franchise, certificate or any other
form of authorization for the
Republic Act No. 7042 June 13, 1991
operation of a public utility shall be
IN THE PHILIPPINES, AND FOR OTHER PURPOSES associations organized under the
laws of the Philippines at least 60%
Section 3. Definitions. - As used in this Act: of whose capital is owned by such
citizens. “
a) The term "Philippine national" shall mean a citizen of the Philippines
or a domestic partnership or association wholly owned by citizens of
the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock  Compliance with the constitutional limitation(s) on engaging in
outstanding and entitled to vote is owned and held by citizens of the nationalized activities must be determined by ascertaining if 60% of the
Philippines; or a trustee of funds for pension or other employee investing corporation’s outstanding capital stock is owned by "Filipino
retirement or separation benefits, where the trustee is a Philippine citizens", or as interpreted, by natural or individual Filipino citizens.

 If such investing corporation is in turn owned to some extent by another considered as of Philippine nationality,” pertains to the control
investing corporation, the same process must be observed. test or the liberal rule.
 One must not stop until the citizenships of the individual or natural  On the other hand, the second part of the DOJ Opinion which
stockholders of layer after layer of investing corporations have been provides, “if the percentage of the Filipino ownership in the
established. corporation or partnership is less than 60%, only the number of
 Used to determine the nationality of a corporation by which the shares corresponding to such percentage shall be counted as
percentage of Filipino equity in corporations engaged in nationalized Philippine nationality,” pertains to the stricter, more stringent
and/or partly nationalized areas of activities, provided for under the grandfather rule.
constitution and other nationalization laws, is computed, in cases where
corporate shareholders are present in the situation, by attributing the  The “control test” is still the prevailing mode of determining whether or
nationality of the second or even subsequent tier of ownership to not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art.
determine the nationality of the corporate stockholder. II of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines.
 Two acknowledged tests in determining the nationality of a When in the mind of the Court there is doubt, based on the attendant
corporation: facts and circumstances of the case, in the 60-40 Filipino-equity
a. the control test and ownership in the corporation, then it may apply the “grandfather rule.”
b. the grandfather rule.
 Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the  Grandfather Rule has no statutory basis. It is the Control Test that
1967 SEC Rules which implemented the requirement of the Constitution governs in determining Filipino equity in corporations.
and other laws pertaining to the controlling interests in enterprises  It is the Control Test that governs in determining Filipino equity in
engaged in the exploitation of natural resources owned by Filipino corporations. It is this test that is provided in statute and by our most
citizens, provides: recent jurisprudence.
 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, but if the percentage of NATIONALITY OF CORPORATION SOLE
Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality. Roman Cath. Apostolic Adm. of Davao, Inc. vs. Land Reg. Com., et al.
 Thus, if 100,000 shares are registered in the name of a
 A corporation sole is a special form of corporation usually associated
corporation or partnership at least 60% of the capital stock or
with the clergy * * * designed to facilitate the exercise of the functions of
capital, respectively, of which belong to Filipino citizens, all of
ownership of the church which was regarded as the property owner (
the shares shall be recorded as owned by Filipinos.
 It consists of one person only, and his successors (who will always be
 But if less than 60%, or say, 50% of the capital stock or capital
one at a time), in some particular station, who are incorporated by law in
of the corporation or partnership, respectively, belongs to
order to give them some legal capacities and advantages particularly
Filipino citizens, only 50,000 shares shall be counted as owned
that of perpetuity which in their natural persons they could not have. * *
by Filipinos and the other 50,000 shall be recorded as belonging
to aliens.
 Through this legal fiction, church properties acquired by the incumbent
 The first part of paragraph 7, DOJ Opinion No. 020, stating
of a corporation sole pass, by operation of law, upon his death not to his
“shares belonging to corporations or partnerships at least 60%
personal heirs but to his successor in office. A corporation sole,
of the capital of which is owned by Filipino citizens shall be
therefore, is created not only to administer the temporalities of the

church or religious society where he belongs, but also to hold and circumvent the real purpose of the constitution.
transmit the same to his successor in said office.
 The corporation sole by reason of their peculiar constitution and form of
 Although a branch of the Universal Roman Catholic Apostolic Church, operation have no designed owner of its temporalities, although by the
every Roman Catholic Church in different countries, if it exercises its terms of the law it can be safely implied that they ordinarily hold them in
mission and is lawfully incorporated in accordance with the laws of the trust for the benefit of the Roman Catholic faithful of their respective
country where it is located, is considered an entity or person with all the locality or diocese.
rights and privileges granted to such artificial being under the laws of They can not be considered as aliens because they have no nationality
that country, separate and distinct from the personality of the Roman at all. In determining, therefore, whether the constitutional provision
Pontiff or the Holy See, without prejudice to its religious relations with requiring 60 per centum Filipino capital is applicable to corporations sole,
the latter which are governed by the Cannon Law or their rules and the nationality of the constituents of the diocese, and not the
regulations. nationality of the actual incumbent of the parish, must be taken into
 Under the circumstances of the present case, it is safe to state that
even before the establishment of the Philippine Commonwealth and of DE JURE CORPORATION DE FACTO CORPORATION
the Republic of the Philippines every corporation sole then organized
a corporation created in strict or organized with a colorable
and registered had by express provision of law the necessary power
substantial conformity with the compliance with the requirements
and qualification to purchase in its name private lands located in the
mandatory statutory requirements of a valid law and its existence
territory in which it exercised its functions or ministry and for which it for incorporation and the right of cannot be inquired collaterally but
was created, independently of the nationality of its incumbent unique which to exist as a corporation such inquiry may be made by the
and single member and head, the bishop of the diocese. cannot be successfully attacked or Sol-Gen in a quo warranto
 It can be also maintained without fear of being gainsaid that the Roman questioned by any party even in a proceeding - one which actually
Catholic Apostolic Church in the Philippines has no nationality and direct [proceeding for that purpose exists for all practical purposes as a
that the framers of the Constitution did not have in mind the by the state -can resist a suit corporation but which has no legal
religious corporation sole when they provided that 60 per centum brought by the State challenging its right to corporate existence as
of the capital thereof be owned by Filipino citizens. Thus, if this existence. against the State - it is a
constitutional provision were not intended for corporation sole, it is corporation from the fact of its
obvious that this could not be regulated or restricted by said provision. acting as such, though not in law or
right a corporation.
With certificate of incorporation
 Both the Corporation Law and the Canon Law are explicit in their
 Requisites of De Facto Corporation
provisions that a corporation sole or "ordinary" is not the owner of the
1. A valid law under which the corporation is organized
properties that he may acquire but merely the administrator thereof and
2. An attempt in good faith to incorporate;
holds the same in trust for the church to which the corporation is an
3. An assumption of corporate powers
organized and constituent part.
 Quo warranto – to oust a corporation from the exercise of corporate
 Being mere administrator of the temporalities or properties titled in
powers usurped by it and to have it dissolved
his name, the constitutional provision requiring 60 per centum
Filipino ownership is not applicable. The said constitutional provision
1. valid law under which a corporation with powers assumed might be
is limited by its terms to ownership alone and does not extend to control
unless the control over the property affected has been devised to
2. bona fide attempt to organize a corporation under such law

3. actual user or exercise in good faith of corporate powers conferred or act of incorporation -taxation 1. In general. officers and directors are
upon it by law, i.e., the transaction of business in some way as if it were subject to all liabilities and penalties attending to officers and directors
a corporation. duly chosen by a corporation jure, including liability under criminal law
and their acts are binding when such acts would be within power of
DEFECTS THAT PRECLUDE CREATION OF A CORPORATION – such officers if the corp is a de jure
 absence of AOI failure to file AOI with the SEC lack of certificate of  Liability as partners to 3rd persons. not liable esp. if stockholders have
incorporation from the SEC no knowledge of defect in the formation of corp and had no intent to
become partners and ostensible corp is apparent to 3rd persons. But if
DEFECTS THAT RESULT IN CREATION OF DE FACTO attempt to organize fails because of omission of substantial
1. Corporation did not pass its by-laws step/proceeding required by law – members/stockholders liable as
2. AOI is not complete in its details - fails to state all the matters required partners 3. Liability among themselves. de jure/de facto liabilities are
by the Code to be stated, or state some of them incorrectly determined by the terms of their agreement, they are not partners
3. name of the corp. closely resembles that of a pre-existing corporation unless they agreed to be such
that it will tend to deceive public
4. incorporators or a certain number of them are not residents of the Phils  Can a corporation transact business as a ‘de facto’ corporation
5. acknowledgment of AOI or cert. of incorporation is insufficient or while application is still pending with SEC?
defective in form or it was acknowledged before the wrong officer
6. percentage of Filipino-ownership of the capital stock required for the No. In the case of Hall v. Piccio (86 Phil. 603; 1950), where the
business is less than that prescribed by law supposed corporation transacted business as a corporation pending
7. minimium paid-up capital stock has not been paid to and received by action by the SEC on its articles of incorporation, the Court held that
the corporate treasurer contrary to his affidavit there was no ‘de facto’ corporation on the ground that the corporation
8. failure to submit its AOI on time cannot claim to be in ‘good faith’ to be a corporation when it has not yet
obtained its certificate of incorporation.
Duty to correct defect if discovered –
 essential that corp must act in good faith in claiming to be a corporation CORPORATION BY ESTOPPEL
and exercising corporate powers. If after incorporation to be a  No COI issued
corporation and exercising corporate powers. If after incorporation the  Parties liable as general partners
incorporators discovered that they have not complied substantially with  It is a status acquired by persons who assume to act as a corporation
the law and still continued transacting business as a corporation, knowing it to be without authority. Such persons shall be liable as
without doing anything to correct the defect, the privelege of de facto general partners for all debts, liabilities and damages incurred or arising
existence can no longer be invoked dissolved? as a result thereof.

 POWERS – same as de jure, may legally do every act and thing which Sec. 21.Corporation by estoppel.- All persons who assume to act as a
the same entity could do were it a de jure corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as
 VALIDITY – cannot be collaterally attacked, only State can question its a result thereof: Provided, however, That when any such ostensible
existence by quo warranto corporation is sued on any transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be allowed to use as a defense
 LIABILITIES – de jure/de facto stockholders or members are not its lack of corporate personality. On who assumes an obligation to an
personally liable for debts except to the extent provided by the charter

ostensible corporation as such, cannot resist performance thereof on the  And as it is an elementary principle of law that a person who acts as an
ground that there was in fact no corporation. agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a
 There should also be no question that having contracted with the private principal, a person acting or purporting to act on behalf of a corporation
respondent every year for thirty two years and thus represented itself as which has no valid existence assumes such privileges and obligations
possessed of juridical personality to do so, the petitioner is now and becomes personally liable for contracts entered into or for other
estopped from denying such personality to defeat her claim against it. acts performed as such agent.
 The doctrine of corporation by estoppel may apply to the alleged
 According to Article 1431 of the Civil Code, “through estoppel an corporation and to a third party. In the first instance, an unincorporated
admission or representation is rendered conclusive upon the person association, which represented itself to be a corporation, will be
making it and cannot be denied or disproved as against the person estopped from denying its corporate capacity in a suit against it by a
relying on it.” third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a
 As the school itself may be sued in its own name, there is no need to contract it entered into and by virtue of which it received advantages
apply Rule 3, Section 15, under which the persons joined in an and benefits.
association without any juridical personality may be sued with such  A third party who, knowing an association to be unincorporated,
association. Besides, it has been shown that the individual members of nonetheless treated it as a corporation and received benefits from it,
the board of trustees are not liable, having been appointed only after the may be barred from denying its corporate existence in a suit brought
private respondent’s dismissal. against the alleged corporation.
 In such case, all those who benefited from the transaction made by the
 It is clear now that a charitable institution is covered by the labor laws ostensible corporation, despite knowledge of its legal defects, may be
although the question was still unsettled when this case arose in 1968. held liable for contracts they impliedly assented to or took advantage of.
At any rate, there was no law even then exempting such institutions
from the operation of the labor laws (although they were exempted by  A person who has reaped the benefits of a contract entered into by
the Constitution from ad valorem taxes) persons with whom he previously had an existing relationship is
. deemed to be part of said association and is covered by the scope of
 Hence, even assuming that the petitioner was a charitable institution as the doctrine of corporation by estoppel
it claims, the private respondent was nonetheless still entitled to the
protection of the Termination Pay Law, which was then in force. Corporations that are neither de jure, de facto nor by estoppels

Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc.  A corporation by estoppels has no real existence in law. It is neither a
de jure nor a de facto corp but is a mere fiction existing for the particular
 Even if the ostensible corporate entity is proven to be legally case and vanishing where the elements of estoppels is absent.
nonexistent, a party may be estopped from denying its corporate  It exists only between persons who misrepresented their status and the
existence. parties who relied on the misrepresentation. Its existence may be
 The reason behind this doctrine is obvious—an unincorporated attacked by any party except if stopped to treat the entity other than as
association has no personality and would be incompetent to act and a corporation.
appropriate for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority on another COMMENCEMENT OF BUSINESS VS FORMAL ORGANIZATION
to act in its behalf; thus, those who act or purport to act as its SEC. 18.
representatives or agents do so without authority and at their own risk. Registration, Incorporation and Commencement of Corporate Existence .
– A person or group of persons desiring to incorporate shall submit the
intended corporate name to the Commission for verification. If the
Commission finds that the name is distinguishable from a name already
reserved or registered for the use of another corporation, not protected
by law and is not contrary to law, rules and regulations, the name shall
be reserved in favor of the incorporators. The incorporators shall then
submit their articles of incorporation and bylaws to the Commission.

If the Commission finds that the submitted documents and information

are fully compliant with the requirements of this Code, other relevant
laws, rules and regulations, the Commission shall issue the certificate of

A private corporation organized under this Code commences its

corporate existence and juridical personality from the date the
Commission issues the certificate of incorporation under its official seal
and thereupon the incorporators, stockholders/members and their
successors shall constitute a body corporate under the name stated in
the articles of incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is sooner dissolved in
accordance with law.


 is an organization with a fixed set of rules of intra-

organization procedures and structures. As such, it is usually set out in
writing, with a language of rules that ostensibly leave little discretion
for interpretation. In some societies and in some organizations, such
rules may be strictly followed; in others, they may be little more than an
empty formalism.