FACTS No.

Section 19 reads as follows:

Petitioners Arnold and Bradley Hall, together with Respondents Fred and xxx The due incorporation of any corporations claiming in good faith to be
Emma Brown, et. al., signed and acknowledged the Articles of a corporation under this Act and its right to exercise corporate powers shall
Incorporation of Far Eastern Lumber and Commercial Co., Inc., organized not be inquired into collaterally in any private suit to which the corporation
to engage in a general lumber business as general contractors, operators may be a party, but such inquiry may be had at the suit of the Insular
and managers. Attached to the Articles was an affidavit of the treasurer, Government on information of the Attorney-General.
stating that 23,428 shares of stock had been subscribed and fully paid with
There are least two reasons why this section does not govern the situation.
certain properties transferred to the corporation. After the execution of
Not having obtained the certificate of incorporation, the Far Eastern
said Articles of Incorporation, the corporation adopted its by-laws and
Lumber and Commercial Co. — even its stockholders — may not probably
elected officers. On December 2 1947, the Articles were filed with the SEC
claim "in good faith" to be a corporation.
for the issuance of the corresponding Certificate of Incorporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is the
On March 22 1948, pending the action before the SEC, Respondents Brown
issuance of a certificate of incorporation by the Director of the Bureau of
et. al., filed a civil case before the CFI of Leyte alleging that Far Eastern
Commerce and Industry which calls a corporation into being. The
Lumber and Commercial Co. was an unregistered partnership; that they
immunity of collateral attack is granted to corporations "claiming in good
wished to have it dissolved because of bitter dissension among members,
faith to be a corporation under this act." Such a claim is compatible with
mismanagement, and fraud by the managers and heavy financial losses.
the existence of errors and irregularities; but not with a total or
Petitioners Hall moved to dismiss, contesting the court’s jurisdiction and
substantial disregard of the law. Unless there has been an evident
cause of action.
attempt to comply with the law, the claim to be a corporation "under this
After hearing the parties, Respondent Judge Piccio ordered the dissolution act" could not be made "in good faith."
of the company, and upon request by the Respondents, appointed the
Second, this is not a suit in which a corporation is a party. This is a litigation
properties thereof after filing a P20K bond. Petitioners offered to file a
between a stockholder of the alleged corporation, for the purpose of
counter-bond for the discharge of the receiver, but Judge Piccio refused to
obtaining its dissolution. Even the existence of a de jure corporation may
accept the offer and to discharge the receiver. Hence, this petition.
be terminated in a private suit for its dissolution between stockholders,
Petitioners argue that Far Eastern Lumber and Commercial Co. is a de facto without the intervention of the State.
corporation, and that its dissolution may only be done through a quo
One principal reason why this petition may not prosper, namely: the
warranto proceeding instituted by the State, in accordance with Sec. 19 of
petitioners have their remedy by appealing the order of dissolution at the
the Corporation Law. Further, since Respondents Brown signed the AOI,
proper time. PETITION DISMISSED.
they are estopped from claiming it was not a corporation.

ISSUE: WON Far Eastern Lumber and Commercial Co. is a de facto

corporation

RULING