De Facto Corporation

DE FACTO CORPORATION
 Filing or articles and issuance of certificate of incorporation are essential for the existence of a
de facto corporation.
 ACTOF REGISTRATION WITH SEC through issuance of certificate of incorporation that marks the
beginning of an entity’s corporate existence
 LIM TONG LIM vs. PHIL FISHING GEAR
o Under law on estoppel, those acting on behalf of a corporation and those benefitted by
it, knowing it to be without valid existence, are held liable as general partners
 PURIFICATION CASE
o Donated parcels of land to Peach Sisters of Laguna thru its superior general
o SEC registration of PS – 2001
o Donation was again executed
o 2001- Purification died
o One who assumes an obligation to an ostensible corporation cannot resist performance
thereof on the ground that there was in fact no coporation
PLACE OF INCORPORATION TEST
 State where corpo is incorporated
CONTROL TEST
 If percentage of Filipino ownership is atleast 60% the corpo is considered a Phil natl for
investment purposes
 Subject to:
o Gamboa/Herbosa ruling
o Voting shares/beneficial owner
 REMAINS TO BE THE PREVAILING MODE OF DETERMINING
 GRANDFATHER RULE
o Only resorted when there exist a doubt in the 60-40 equity
o Only when control test is first complied with that the grandfather rule can be applied
o If the subj corpo equity falls below 60% based solely as to direct owners, immediately
considered foreign ownership
DOUBT
 Significant indicators of dummy status

o That the foreign investor provide practically all the funds for the joint investment
undertaken by these Filipino business
o Technological support provided and undertaken by foreign investors
o Manage
HERBOSA CASE
 SEC 11, 1987 CONSTI

o Only to shares of sock entitled to vote in the election of directors, and not total
outstanding capital stock
 Sec 2 of sec-mc no 8
o FOR PURPOSES OF COMPLIANCE, Filipino ownership shall be applied to both
 Total outstanding share of stock entitled to vote in the election
 Total number of shares, whether or not entitled to vote
INCHOATE INTEREST (CORPO)
 No legal personality as interest of the intervenors in the legal proceedings is indirect,

contingent, remote, conjectural, consequential and collateral
CRIMINAL LIABILITY UNDER TRUST RECEIPTS LAW
 A corp may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a coporation may be prosecuted and,
if found guilty, may be fined (Alfredo Ching vs. Secretary of Justice GR No. 164317)
LIABILITY FOR TORTS
 Civilly liable in the same manner as natural persons

 Generally speaking, the rules governing the liability of a principal or master for a tort committed
by agent or servant are the same whether the principal or master be a natural or corp, and
whether the servant or agent be a natural or artificial
 A principal or master is liable
o Which he expressly directs or authorizes
o True for corpo as of natural persons
ENTITLEMENT TO MORAL DAMAGES
 GR: NOT ENTITLED

o CANNOT EXPERIENCE PHYSICAL SUFFERING OR SENTIMENTS, WOUNDED FEELINGS,
SERIOUS ANXIETY
 EX: WHEN IT HAS GOOD REPUTATION THAT IS DEBASED
o RESULTIG IN HUMILIATION IN THE BUSINESS REALM
o (Coastal Pacific Trading vs. Southern Rolling Mills, Co., Inc., GR No. 118692)
 Can pursue damages on account of LIBEL or DEFAMATION
o ART 2219(7)
CONSTITUTIONAL RIGHTS
 Due process (yes)

 Equal protection (yes)
 Right against reasonable searches and seizures (yes)
 Freedom to travel (no)
 Right against self-incrimination (no)
PIERCING THE VEIL

GR: CORPO should have been impleaded
 EX: If shown by clear and convincing proof that the separate and distincet personality of the
coporatuon was purposefully employed to evade a legitimate and binding commitment and
perpetuate a fraud or like wrongdoings
REVERSE VEIL PIERCING
 Plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate insider
 Permit a creditor to pierce the veil to satisfy the debts of an individual out of the corporation’s
assets (International Academy)
BUSINESS JUDGMENT RULE
 Question of policy or management are left solely to the honest decision of officers and directors
of a corporation and the courts are without authority to substitute thier judgment for the
judgment of the board of directors
 Board is the business manager of the corporation and so long as it acts in good faith its orders
are not reviewable by the courts or the SEC (Saber v. CA)

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DE FACTO CORPORATION

PLACE OF INCORPORATION TEST

 State where corpo is incorporated

 Significant indicators of dummy status

 SEC 11, 1987 CONSTI

INCHOATE INTEREST (CORPO)

 No legal personality as interest of the intervenors in the legal proceedings is indirect,

CRIMINAL LIABILITY UNDER TRUST RECEIPTS LAW

LIABILITY FOR TORTS

 Civilly liable in the same manner as natural persons

ENTITLEMENT TO MORAL DAMAGES

 GR: NOT ENTITLED

 Due process (yes)

PIERCING THE VEIL

REVERSE VEIL PIERCING

BUSINESS JUDGMENT RULE

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