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.