9/8/2016 G.R.No.

L2598

TodayisThursday,September08,2016

RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.L2598June29,1950

C.ARNOLDHALLandBRADLEYP.HALL,petitioners,
vs.
EDMUNDOS.PICCIO,JudgeoftheCourtofFirstInstanceofLeyte,FREDBROWN,EMMABROWN,
HIPOLITACAPUCIONG,inhiscapacityasreceiveroftheFarEasternLumberandCommercialCo.,Inc.,
respondents.

ClaroM.Rectoforpetitioners.
RamonDioknoandJoseW.Dioknoforrespondents.

BENGZON,J.:

ThisispetitiontosetasidealltheproceedingshadincivilcaseNo.381oftheCourtofFirstInstanceofLeyteand
toenjointherespondentjudgefromfurtheractinguponthesame.

Facts:(1)onMay28,1947,thepetitionersC.ArnoldHallandBradleyP.Hall,andtherespondentsFredBrown,
Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of
incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber
businesstocarryonasgeneralcontractors,operatorsandmanagers,etc.Attachedtothearticlewasanaffidavit
of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties
transferredtothecorporationdescribedinalistappendedthereto.

(2)Immediatelyaftertheexecutionofsaidarticlesofincorporation,thecorporationproceededtodobusinesswith
theadoptionofbylawsandtheelectionofitsofficers.

(3)OnDecember2,1947,thesaidarticlesofincorporationwerefiledintheofficeoftheSecuritiesandExchange
Commissioner,fortheissuanceofthecorrespondingcertificateofincorporation.

(4)OnMarch22,1948,pendingactiononthearticlesofincorporationbytheaforesaidgovernmentaloffice,the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of
FirstInstanceofLeytethecivilcasenumbered381,entitled"FredBrownetal.vs.ArnoldC.Halletal.",alleging
amongotherthingsthattheFarEasternLumberandCommercialCo.wasanunregisteredpartnershipthatthey
wishedtohaveitdissolvedbecauseofbitterdissensionamongthemembers,mismanagementandfraudbythe
managersandheavyfinanciallosses.

(5)Thedefendantsinthesuit,namely,C.ArnoldHallandBradleyP.Hall,filedamotiontodismiss,contestingthe
court'sjurisdictionandthesufficientlyofthecauseofaction.

(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company and at the
requestofplaintiffs,appointedofthepropertiesthereof,uponthefilingofaP20,000bond.

(7)Thedefendantstherein(petitionersherein)offeredtofileacounterbondforthedischargeofthereceiver,but
therespondentjudgerefusedtoaccepttheofferandtodischargethereceiver.Whereupon,thepresentspecial
civilactionwasinstitutedinthiscourt.Itisbasedupontwomainpropositions,towit:

(a)ThecourthadnojurisdictionincivilcaseNo.381todecreethedissolutionofthecompany,becauseitbeinga
de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in
accordancewithsection19oftheCorporationLaw.

(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a
partnership.

Discussion:Thesecondpropositionmayatoncebedismissed.AllthepartiesareinformedthattheSecuritiesand
ExchangeCommissionhasnot,sofar,issuedthecorrespondingcertificateofincorporation.Allofthemknow,or
sought to know, that the personality of a corporation begins to exist only from the moment such certificate is
issuednotbefore(sec.11,CorporationLaw).Thecomplainingassociateshavenotrepresentedtotheothers
thattheywereincorporatedanymorethanthelatterhadmadesimilarrepresentationstothem.Andasnobody
wasledtobelieveanythingtohisprejudiceanddamage,theprincipleofestoppeldoesnotapply.Obviouslythisis
notaninstancerequiringtheenforcementofcontractswiththecorporationthroughtheruleofestoppel.

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9/8/2016 G.R.No.L2598
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and
CommercialCo.,isadefactocorporation,section19oftheCorporationLawapplies,andthereforethecourthad
notjurisdictiontotakecognizanceofsaidcivilcasenumber381.Section19readsasfollows:

...ThedueincorporationofanycorporationsclaimingingoodfaithtobeacorporationunderthisActand
itsrighttoexercisecorporatepowersshallnotbeinquiredintocollaterallyinanyprivatesuittowhichthe
corporation may be a party, but such inquiry may be had at the suit of the Insular Government on
informationoftheAttorneyGeneral.

Thereareleasttworeasonswhythissectiondoesnotgovernthesituation.Nothavingobtainedthecertificateof
incorporation,theFarEasternLumberandCommercialCo.evenitsstockholdersmaynotprobablyclaim
"ingoodfaith"tobeacorporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of
incorporationbytheDirectoroftheBureauofCommerceandIndustrywhichcallsacorporationintobeing.
Theimmunityifcollateralattackisgrantedtocorporations"claimingingoodfaithtobeacorporationunder
this act." Such a claim is compatible with the existence of errors and irregularities but not with a total or
substantialdisregardofthelaw.Unlesstherehasbeenanevidentattempttocomplywiththelawtheclaim
to be a corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law of
StockCorporations,p.75.SeealsoHumphreysvs.Drew,59Fla.,29552So.,362.)

Second,thisisnotasuitinwhichthecorporationisaparty.Thisisalitigationbetweenstockholdersofthealleged
corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be
terminatedinaprivatesuitforitsdissolutionbetweenstockholders,withouttheinterventionofthestate.

Theremightberoomforargumentontherightofminoritystockholderstosuefordissolution1butthatquestion
does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal.
Whkch brings us to one principal reason why this petition may not prosper, namely: the petitioners have their
remedybyappealingtheorderofdissolutionatthepropertime.

There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that
receivershipisproperinproceedingsfordissolutionofacompanyorcorporation,anditwasnoerrortorejectthe
counterbond, the court having declared the dissolution. As to the amount of the bond to be demanded of the
receiver,muchdependsuponthediscretionofthetrialcourt,whichinthisinstancewedonotbelievehasbeen
clearlyabused.

Judgment:Thepetitionwill,therefore,bedismissed,withcosts.Thepreliminaryinjunctionheretoforeissuedwill
bedissolved.

Ozaeta,Pablo,Tuason,Montemayor,andReyes,JJ.,concur.

Footnotes

1 Cf. Thompson on Corporations, 3rd. ed., secs. 64556457. But the suit might be viewed as one of the
rescissionofcontract,theagreementbetweenincorporatorsbeingcontractualinnature.Fisherop.cit.,p.
14.

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