1) DE JURE & DE FACTO CORPORATION

De jure Corporation-
-A Corporation créated in strict or substantial compliance with the mandatory requirements for
incorporation, and the right of which to exist as corporation cannot be successfully attacked or .
questioned by any party (including the State) – in a direct proceeding for that purpose by ~ the
State

De facto Corporation
-An association of persons existing under a valid law under which it may be incorporated after
having attempted in good faith to incorporate, and assuming corporate powers.
The personality of a de facto corporation is subject to attack by the State in a proper proceeding.
However, so long as it exists, a de facto corporation is a reality and has substantial, legal
existence and independent status recognized by the law as distinct from that of its members or
SHs.

It enjoys the attributes of a corporation until the State questions its existence.

The only difference between a de facto and a de jure corp. is that the former may have its
existence inquired into and forfeited by the State.

2.) Corporation by Estoppel

There is a corporation by estoppel when a group of persons assumes to act as a corporation knowing it
to be without the authority to do so, and enters into a transaction with a third person on the strength of
such appearance.
Effects of Corporation By Estoppel - Liability as General Partner
Those who assume to act as a 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 a result
thereof.

3.1)
Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII
of the Constitution refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term "capital" shall include such preferred
shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term "capital" in
Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the
hands of Filipino citizens the control and management of public utilities. Thus, 60 percent of the
"capital" assumes, or should result in, "controlling interest" in the corporation and thus in the
present case, only to common shares, and not to the total outstanding capital stock (common
and non-voting preferred shares).
 Section 11, Article XII of the Constitution provides: "No franchise, certificate, or any other form
of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens.

The constitutional requirement of at least 60 percent Filipino ownership applies not only to
voting control of the corporation but also to the beneficial ownership of the corporation. Mere
legal title is insufficient to meet the 60 percent Filipino owned “capital” required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required. Full beneficial ownership of the stocks, coupled
with appropriate voting rights, is essential.

It is therefore imperative that such requirement apply uniformly and across the board to all
classes of shares, regardless of nomenclature and category, comprising the capital of a
corporation.

The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific corporate matters. Thus, common shares as well
as preferred shares which may have different rights, privileges or restrictions as stated in the
articles of incorporation. Thus, if a corporation, engaged in a partially nationalized industry,
issues a mixture of common and preferred non-voting shares, at least 60 percent of the
common shares and at least 60 percent of the preferred non-voting shares must be owned by
Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens must apply
separately to each class of shares, whether common, preferred non-voting, preferred voting or
any other class of shares.

There is no change in the longstanding definition of capital. For more than 75 years since the
1935 Constitution, the Court has not interpreted or defined the term “capital” found in various
economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial
precedent interpreting the term “capital” in the 1935, 1973 and 1987 Constitutions, until now.
Hence, it is patently wrong and utterly baseless to claim that the Court, in defining the term
“capital” in its 28 June 2011 Decision modified, reversed, or set aside the purported long-
standing definition of the term “capital”, which supposedly refers to the total outstanding
shares of stock, whether voting or non-voting.

3.2) these two cases never mentioned, discussed or cited Section 11, Article XII of the
Constitution or any of its economic provisions, and thus cannot serve as precedent in the
interpretation of Section 11, Article XII of the Constitution. These two cases dealt solely with the
determination of the correct regulatory fees under Section 40(e) and (f) of the Public Service
Act, to wit:

(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of
other public services and/or in the regulation or fixing of their rates, twenty centavos for each
 one hundred pesos or fraction thereof, of the capital stock subscribed or paid, or if no shares
have been issued, of the capital invested, or of the property and equipment whichever is higher.

(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or
fraction thereof, of the increased capital. (Emphasis supplied)

The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid,"
"capital stock" and "capital" does not pertain to, and cannot control, the definition of the term
"capital" as used in Section 11, Article XII of the Constitution, or any of the economic provisions
of the Constitution where the term "capital" is found. The definition of the term "capital" found
in the Constitution must not be taken out of context. A careful reading of these two cases
reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" were
defined solely to determine the basis for computing the supervision and regulation fees under
Section 40(e) and (f) of the Public Service Act.

PART 2

1. LOYOLA GRND VILLAS v. CA

Although the Corporation Code requires the filing of by-laws, it does not expressly
provide for the consequences of the non-filing of the same within the period provided for
in Section 46. However, such omission has been rectified by Presidential Decree No.
902-A, the pertinent provisions on the jurisdiction of the SEC, even under the foregoing
express grant of power and authority, there can be no automatic corporate dissolution
simply because the incorporators failed to abide by the required filing of by-laws
embodied in Section 46 of the Corporation Code. There is no outright "demise" of
corporate existence. Proper notice and hearing are cardinal components of due process
in any democratic institution, agency or society.
In other words, the incorporators must be given the chance to explain their neglect or
omission and remedy the same. As the "rules and regulations or private laws enacted
by the corporation to regulate, govern and control its own actions, affairs and concerns
and its stockholders or members and directors and officers with relation thereto and
among themselves in their relation to it," by-laws are indispensable to corporations in
this jurisdiction. These may not be essential to corporate birth but certainly, these are
required by law for an orderly governance and management of corporations.
Nonetheless, failure to file them within the period required by law by no means tolls the
automatic dissolution of a corporation.

2. GOKONGWEI JR. v. SEC, et al

In this jurisdiction, under Section 21 of the Corporation Law, a corporation may
prescribe in its by-laws “the qualifications, duties and compensation of directors, officers
and employees…” This must necessarily refer to a qualification in addition to that
specified by section 30 of the Corporation Law, which provides that “every director must
own in his right at least one share of the capital stock of the stock corporation of which
he is a director…”

3. GRACE CHRISTIAN HIGHSCHOOL v. CA

The board of directors of corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected members in the
board but it is clear that in the examples cited by petitioner, the unelected members sit
as ex officio members, i.e., by virtue of and for as long as they hold a particular office.

4. SALAFRANCA v. PHILAMLIFE HOMEOWNERS

The right to amend the bylaws lies solely in the discretion of the employer, this
being in the exercise of management prerogative or business judgment. However
this right, extensive as it may be, cannot impair the obligation of existing
contracts or rights.

It would enable an employer to remove any employee from his

employment by the simple expediency of amending its bylaws and providing that
his/her position shall cease to exist upon the occurrence of a specified event.

5. FLEISCHER v. BOTICA NOLASCO

The Supreme Court held that the by-law restricting the transfer of shares cannot have
any effect on the transferee of the shares in question as he "had no knowledge of such
by-law when the shares were assigned to him. He obtained them in good faith and for a
valuable consideration. He was not a privy to the contract created by the by-law
between the shareholder and the Botica Nolasco, Inc. Said by-law cannot operate to
defeat
his right as a purchaser.

6. PMI COLLEGES v. NLRC

The court cannot concede that such contract would be invalid just because the
signatory thereon was not the Chairman of the Board which allegedly violated
petitioner’s bylaws. Since bylaws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same. No proof appears on record that
private respondent ever knew anything about the provisions of said bylaws.

7. SAWADJAAN v. CA
A corporation which has failed to file its by-laws within the prescribed period does not
ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the
Certificate of Registration of Corporations, details the procedures and remedies that
may be availed of before an order of revocation can be issued. There is no showing that
such a procedure has been initiated in this case.

8. SMC v. MANDAUE PACKING RODUCTS

By-laws has traditionally been defined as regulations, ordinances, rules or laws adopted
by an association or corporation or the like for its internal governance, including rules for
routine matters such as calling meetings and the like. The importance of by-laws to a
labor organization cannot be gainsaid. Without such provisions governing the internal
governance of the organization, such as rules on meetings and quorum requirements,
there would be no apparent basis on how the union could operate. Without a set of by-
laws which provides how the local/chapter arrives at its decisions or otherwise wields its
attributes of legal personality, then every action of the local/chapter may be put into
legal controversy.

However, if those key by-law provisions on matters such as quorum requirements,

meetings, or on the internal governance of the local/chapter are themselves already
provided for in the constitution, then it would be feasible to overlook the requirement for
by-laws. Indeed in such an event, to insist on the submission of a separate document
denominated as "By-Laws" would be an undue technicality, as well as a redundancy.

9. LONG V. BASA
Section 91 of the Corporation Code has been made explicitly applicable to religious
corporations pursuant to the second paragraph of Section 109 of the same Code.
Accordingly, membership shall be terminated in the manner and for the causes provided
in the articles of incorporation or the by-laws. Likewise, termination of membership shall
have the effect of extinguishing all rights of a member in the corporation or in its
property, unless otherwise provided in the articles of incorporation or the by-laws.