Classification of Corporations

I. Public or private
II. Stock or non-stock
III. Profit or non-profit
IV. Classification as to its character - Is it recognized by the state or the people?
a. De jure – corporations organized in strict compliance with everything that is mandatorily and
procedurally required by law. It is not only a substantial compliance with what the law
requires but it is in compliance with the mandatory and procedural requirements for the
organization of a corporation.
b. De facto (Sec. 19) – one that has complied substantially, in good faith, with the mandatory
requirements of the law but failed to comply with some procedural requirements. It is
merely something that is procedural but not mandatory. What is lacking does not necessarily
negate the existence of a corporation as long as the requisites are present.
i. Examples when mandatory requirements are not complied with:
1. Absence of articles of incorporation
2. Failure to meet the requisite capitalization
3. Certain jurisprudence which held that when a nationalized corporation
does not meet the nationalization requirement (60%-40% or 100%
ownership by Filipinos)
ii. Requisites of a de facto corporation:
1. There must be a valid law creating the corporation
2. The purpose for which the corporation was organized is legitimate or
legal
3. There must be compliance, in good faith, with that is required by law
(good faith to incorporate)
4. There must be assumption of corporate powers (they act as a
corporation)
iii. Suppose that a law was enacted by congress authorizing the establishment of a
farmers’ cooperative which can be recognized as a corporation. Subsequently,
some agricultural corporations questioned the law and was rendered
unconstitutional by the SC. However, those cooperatives previously created
pursuant to the law transacted with individuals.

Question: are the cooperatives organized pursuant to the law de facto

corporations?

Answer: No. The first requisite is absent because the law that authorized its
creation is not valid
iv. What is the reason to distinguish between a de jure and de facto corporation?
– Because the corporate existence of a de jure corporation cannot be
questioned in any proceedings, not by the State or by any individual. Thus, you
cannot raise a defense that a corporation is not duly incorporated if it is a de
jure corporation.
 Whereas, a de facto corporation’s existence may be questioned but only by the
State, through the OSG, in an action for quo warranto (In the matter of the
nonexistence of X corporation). It can only be through a quo warranto petition
because a corporation’s existence cannot be collaterally attacked, it may only be
question through a direct action attacking the personality of the corporation.

*Collateral attack – simply means that the existence cannot be made as a sub-
issue of the main case

*Quo Warranto – an action instituted by the Solicitor General against a public

officer to question his qualification, or to question the existence of a corporation
if it does not meet the requirements provided for under the Corporation Code.

v. In all other aspects like rights and obligations, a de jure and a de facto
corporation is the same
c. Corporation by estoppel (Sec. 20) – When a group of persons bind themselves to another and
made the other believe in entering into a transaction that they are a corporation and are
later on sued, they cannot deny that they are not a corporation because of the principle of
estoppel.
i. Is a corporation by estoppel a real corporation? – No.
*Estoppel – when one performs acts that would lead somebody to believe that
what the former is doing is correct in which he cannot later on deny that he has
done or performed the acts as against the person who was deceived or misled
by such acts.
ii. The persons who organized the corporation cannot escape liability as against a
third person who dealt with them in good faith, and neither can the third person
deny liability if he dealt with the corporation knowing that the corporation does
not have any corporate existence.
1. Missionary Sisters v. Alzona – Alzona cannot deny his liability under the
deed of donation because a corporation by estoppel was created not on
the part of missionary sisters’ part but on his part as he treated the
latter as a corporation knowing that it was only a religious
denomination by indicating it as the donee in the deed of donation.
Hence, Alzona is estopped from questioning the existence of the
petitioner as a juridical entity.
iii. Principle of corporation by estoppel only applies to third persons if the latter are
avoiding their liability, i.e., they dealt with the corporation and they seek to
avoid liability.
1. Int’l Travel and Tours v. CA – Phil Football Association cannot be
impleaded and be held liable, only Mr. Khan should be made liable
because even if the Association may be considered as a corporation by
estoppel, it cannot apply as against third persons if they are not
avoiding their liability. Here, the petitioners were not avoiding their
liability as against the association, in fact they are the ones
collecting/enforcing what is due to them.