municipality of malabang and hall-part 2

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G.R. No. L-28113 March 28, 1969

THE MUNICIPALITY OF MALAANG, LANAO !EL "UR, a#$ AMER MACAORAO

ALIN!ONG, petitioners,

vs.

PANGAN!APUN ENITO, HA!%I NOPO!IN MACAPUNUNG, HA!%I HA"AN MACARAMPA!,FRE!ERIC& '. !U%ERTE MON!ACO ONTAL, MARON"ONG AN!OY, MACALAA IN!AR

LAO. respondents.

FACTS:

The petitioner Amer Macaorao Balindong is the mayor of Malabang, Lanao del Sr, !hile the

respondent "angandapn Bonito is the mayor, and the rest of the respondents are the concilors, of

the mnicipality of Balabagan of the same province. Balabagan !as formerly a part of the

mnicipality of Malabang, having been created on March #$, #%&', by ()ective *rder +& of the

then "resident Carlos ". -arcia, ot of barrios and sitios# of the latter mnicipality.

The petitioners broght this action for prohibition to nllify ()ective *rder +& and to restrain the

respondent mnicipal officials from performing the fnctions of their respective office relying on the

rling of this Cort in Pelaez v. Auditor General and Municipality of San Joaquin v. Siva. +

/n Pelaez this Cort, throgh Mr. 0stice 1no! Chief 0stice2 Concepcion, rled: 1#2 that section +

of 3epblic Act +4' 5Barrio Charter Act, approved 0anary #, #%&'6, by vesting the po!er to

create barrios in the provincial board, is a 7stattory denial of the presidential athority to create a

ne! barrio 5and6 implies a negation of the bigger po!er to create mnicipalities,7 and 12 that section

& of the Administrative Code, insofar as it gives the "resident the po!er to create mnicipalities, is

nconstittional 1a2 becase it constittes an nde delegation of legislative po!er and 1b2 becase

it offends against section #' 1#2 of article 8// of the Constittion, !hich limits the "resident9s po!erover local governments to mere spervision. As this Cort smmed p its discssion: 7/n short, even

if it did not entail an nde delegation of legislative po!ers, as it certainly does, said section &, as

part of the 3evised Administrative Code, approved on March #', #%#4, mst be deemed repealed by

the sbseent adoption of the Constittion, in #%+$, !hich is tterly incompatible and inconsistent

!ith said stattory enactment.7

*n the other hand, the respondents, !hile admitting the facts alleged in the petition, nevertheless

arge that the rle annonced in Pelaez can have no application in this case becase nli;e the

mnicipalities involved in Pelaez , the mnicipality of Balabagan is at least a de facto corporation,

having been organi<ed nder color of a statte before this !as declared nconstittional, its officers

having been either elected or appointed, and the mnicipality itself having discharged its corporatefnctions for the past five years preceding the instittion of this action. /t is contended that as a de

facto corporation, its e)istence cannot be collaterally attac;ed, althogh it may be inired into

directly in an action for quo warranto at the instance of the State and not of an individal li;e the

petitioner Balindong.

/t is indeed tre that, generally, an iniry into the legal e)istence of a mnicipality is reserved to

the State in a proceeding for quo warranto or other direct proceeding, and that only in a fe!



e)ceptions may a private person e)ercise this fnction of government. = Bt the rle disallo!ing

collateral attac;s applies only !here the mnicipal corporation is at least a de

facto corporations. $ For !here it is neither a corporation de jure nor de facto, bt a nllity, the rle is

that its e)istence may be, estioned collaterally or directly in any action or proceeding by any one

!hose rights or interests ate affected thereby, inclding the citi<ens of the territory incorporated

nless they are estopped by their condct from doing so.

&

And so the threshold estion is !hether the mnicipality of Balabagan is a de facto corporation. As

earlier stated, the claim that it is rests on the fact that it !as organi<ed before the promlgation of

this Cort9s decision in Pelaez . 4

Accordingly, !e address orselves to the estion !hether a statte can lend color of validity to an

attempted organi<ation of a mnicipality despite the fact that sch statte is sbseently declared

nconstittional.lawphi.!et

This has been a litigiosly prolific estion, sharply dividing corts in the >nited States. Ths, some

hold that a de facto corporation cannot e)ist !here the statte or charter creating it isnconstittional becase there can be no de facto corporation !here there can be no de

jure one, !hile others hold other!ise on the theory that a statte is binding ntil it is condemned as

nconstittional. %

An early article in the ?ale La! 0ornal offers the follo!ing analysis:

/t appears that the tre basis for denying to the corporation a de facto stats lay in the

absence of any legislative act to give vitality to its creation. An e)amination of the cases

holding, some of them nreservedly, that a de facto office or mnicipal corporation can e)ist

nder color of an nconstittional statte !ill reveal that in no instance did the invalid act

give life to the corporation, bt that either in other valid acts or in the constittion itself theoffice or the corporation !as potentially created....

The principle that color of title nder an nconstittional statte can e)ist only !here there

is some other valid la! nder !hich the organi<ation may be effected, or at least an

athority in potentia by the state constittion, has its conterpart in the negative propositions

that there can be no color of athority in an nconstittional statte that plainly so appears

on its face or that attempts to athori<e the osting of a de jureor de facto mnicipal

corporation pon the same territory@ in the one case the fact !old imply the imptation of

bad faith, in the other the ne! organi<ation mst be regarded as a mere srper....

As a reslt of this analysis of the cases the follo!ing principles may be dedced !hichseem to reconcile the apparently conflicting decisions:

/. The color of athority reisite to the organi<ation of a de facto mnicipal

corporation may be:

#. A valid la! enacted by the legislatre.



. An nconstittional la!, valid on its face, !hich has either 1a2 been pheld

for a time by the corts or 1b2 not yet been declared void@ provided that a

!arrant for its creation can be fond in some other valid la! or in the

recognition of its potential e)istence by the general la!s or constittion of the

state.

//. There can be no de facto mnicipal corporation nless either directly or potentially,

sch a de jurecorporation is athori<ed by some legislative fiat.

///. There can be no color of athority in an nconstittional statte alone, the

invalidity of !hich is apparent on its face.

/8. There can be no de facto corporation created to ta;e the place of an e)isting de

jure corporation, as sch organi<ation !old clearly be a srper.#'

/n the cases !here a de facto mnicipal corporation !as recogni<ed as sch despite the fact that

the statte creating it !as later invalidated, the decisions cold fairly be made to rest on theconsideration that there !as some other valid la! giving corporate vitality to the organi<ation.

ence, in the case at bar, the mere fact that Balabagan !as organi<ed at a time !hen the statte

had not been invalidated cannot conceivably ma;e it a de factocorporation, as, independently of the

Administrative Code provision in estion, there is no other valid statte to give color of athority to

its creation. /ndeed, in Municipality of San Joaquin v. Siva, ## this Cort granted a similar petition for

prohibition and nllified an e)ective order creating the mnicipality of La!igan in /loilo on the basis

of the Pelaez rling, despite the fact that the mnicipality !as created in #%&#, before section & of

the Administrative Code, nder !hich the "resident had acted, !as invalidated. 9*f corse the isse

of de facto mnicipal corporation did not arise in that case.

/n "orton v. Shelby #ount ,#

Mr. 0stice Field said: 7An nconstittional act is not a la!@ it confersno rights@ it imposes no dties@ it affords no protection@ it creates no office@ it is, in legal

contemplation, as inoperative as thogh it had never been passed.7 Accordingly, he held that bonds

issed by a board of commissioners created nder an invalid statte !ere nenforceable.

()ective *rder +& 7created no office.7 This is not to say, ho!ever, that the acts done by the

mnicipality of Balabagan in the e)ercise of its corporate po!ers are a nllity becase the e)ective

order 7is, in legal contemplation, as inoperative as thogh it had never been passed.7 For the

e)istence of ()ective, *rder +& is 7an operative fact !hich cannot stly be ignored.7 As Chief

0stice ghes e)plained in #hicot #ounty $rainage $istrict v. %a&ter State %an' : #+

The corts belo! have proceeded on the theory that the Act of Congress, having beenfond to be nconstittional, !as not a la!@ that it !as inoperative, conferring no rights and

imposing no dties, and hence affording no basis for the challenged decree. orton v.

Shelby Conty, ## >.S. =$, ==@ Chicago, /. D L. 3y. Co. v. ac;ett, >.S. $$%, $&&. /t

is ite clear, ho!ever, that sch broad statements as to the effect of a determination of

nconstittionality mst be ta;en !ith alifications. The actal e)istence of a statte, prior

to sch a determination, is an operative fact and may have conseences !hich cannot

stly be ignored. The past cannot al!ays be erased by a ne! dicial declaration. The effect



of the sbseent rling as to invalidity may have to be considered in varios aspects E

!ith respect to particlar relations, individal and corporate, and particlar condct, private

and official. estions of rights claimed to have become vested, of stats of prior

determinations deemed to have finality and acted pon accordingly, of pblic policy in the

light of the natre both of the statte and of its previos application, demand e)amination.

These estions are among the most difficlt of those !hich have engaged the attention ofcorts, state and federal, and it is manifest from nmeros decisions that an allGinclsive

statement of a principle of absolte retroactive invalidity cannot be stified.

There is then no basis for the respondents9 apprehension that the invalidation of the e)ective

order creating Balabagan !old have the effect of nsettling many an act done in reliance pon the

validity of the creation of that mnicipality. #=

ACC*3H/-L?, the petition is granted, ()ective *rder +& is declared void, and the respondents

are hereby permanently restrained from performing the dties and fnctions of their respective

offices. o prononcement as to costs.

G.R. No. L-2(98 %)#* 29, 19(+

C. ARNOL! HALL a#$ RA!LEY P. HALL, petitioners,

vs.

E!MUN!O ". PICCIO, %)$* o h* Co)r o F/r0 I#0a#c* o L**, FRE! RON, EMMA

RON, HIPOLITA CAPUCIONG, /# h/0 caac/ a0 r*c*/4*r o h* Far Ea0*r# L)5*r a#$

Co55*rc/a7 Co., I#c.,respondents.

#laro M. (ecto for petitioners.

(a)on $io'no and Jose *. $io'no for respondents.

ENGON, J.

This is petition to set aside all the proceedings had in civil case o. +# of the Cort of First /nstance

of Leyte and to enoin the respondent dge from frther acting pon the same.

+acts: 1#2 on May , #%=4, the petitioners C. Arnold all and Bradley ". all, and the respondents

Fred Bro!n, (mma Bro!n, ipolita H. Chapman and Ceferino S. Abella, signed and ac;no!ledged

in Leyte, the article of incorporation of the Far (astern Lmber and Commercial Co., /nc., organi<ed

to engage in a general lmber bsiness to carry on as general contractors, operators and managers,

etc. Attached to the article !as an affidavit of the treasrer stating that +,= shares of stoc; had

been sbscribed and flly paid !ith certain properties transferred to the corporation described in alist appended thereto.

12 /mmediately after the e)ection of said articles of incorporation, the corporation proceeded to do

bsiness !ith the adoption of byGla!s and the election of its officers.

1+2 *n Hecember , #%=4, the said articles of incorporation !ere filed in the office of the Secrities

and ()change Commissioner, for the issance of the corresponding certificate of incorporation.



1=2 *n March , #%=, pending action on the articles of incorporation by the aforesaid governmental

office, the respondents Fred Bro!n, (mma Bro!n, ipolita H. Chapman and Ceferino S. Abella filed

before the Cort of First /nstance of Leyte the civil case nmbered +#, entitled 7Fred Bro!n et

al. vs. Arnold C. all et al.7, alleging among other things that the Far (astern Lmber and

Commercial Co. !as an nregistered partnership@ that they !ished to have it dissolved becase of

bitter dissension among the members, mismanagement and frad by the managers and heavyfinancial losses.

1$2 The defendants in the sit, namely, C. Arnold all and Bradley ". all, filed a motion to dismiss,

contesting the cort9s risdiction and the sfficiently of the case of action.

1&2 After hearing the parties, the on. (dmnd S. "iccio ordered the dissoltion of the company@ and

at the reest of plaintiffs, appointed of the properties thereof, pon the filing of a "',''' bond.

142 The defendants therein 1petitioners herein2 offered to file a conterGbond for the discharge of the

receiver, bt the respondent dge refsed to accept the offer and to discharge the receiver.

Iherepon, the present special civil action !as institted in this cort. /t is based pon t!o mainpropositions, to !it:

1a2 The cort had no risdiction in civil case o. +# to decree the dissoltion of the company,

becase it being ade facto corporation, dissoltion thereof may only be ordered in a quo

warranto proceeding institted in accordance !ith section #% of the Corporation La!.

1b2 /nasmch as respondents Fred Bro!n and (mma Bro!n had signed the article of incorporation

bt only a partnership.

$iscussion: The second proposition may at once be dismissed. All the parties are informed that the

Secrities and ()change Commission has not, so far, issed the corresponding certificate ofincorporation. All of them ;no!, or soght to ;no!, that the personality of a corporation begins to

e)ist only from the moment sch certificate is issed E not before 1sec. ##, Corporation La!2. The

complaining associates have not represented to the others that they !ere incorporated any more

than the latter had made similar representations to them. And as nobody !as led to believe anything

to his predice and damage, the principle of estoppel does not apply. *bviosly this is not an

instance reiring the enforcement of contracts with the corporation throgh the rle of estoppel.

The first proposition above stated is premised on the theory that, inasmch as the Far (astern

Lmber and Commercial Co., is a de facto corporation, section #% of the Corporation La! applies,

and therefore the cort had not risdiction to ta;e cogni<ance of said civil case nmber +#. Section

#% reads as follo!s:

. . . The de incorporation of any corporations claiming in good faith to be a corporation

nder this Act and its right to e)ercise corporate po!ers shall not be inired into collaterally

in any private sit to !hich the corporation may be a party, bt sch iniry may be had at

the sit of the /nslar -overnment on information of the AttorneyG-eneral.



There are least t!o reasons !hy this section does not govern the sitation. ot having obtained the

certificate of incorporation, the Far (astern Lmber and Commercial Co. E even its stoc;holders E

may not probably claim 7in good faith7 to be a corporation.

>nder or state it is to be noted 1Corporation La!, sec. ##2 that it is the issance of a

certificate of incorporation by the Hirector of the Brea of Commerce and /ndstry !hichcalls a corporation into being. The immnity if collateral attac; is granted to corporations

7claiming in good faith to be a corporation nder this act.7 Sch a claim is compatible !ith the

e)istence of errors and irreglarities@ bt not !ith a total or sbstantial disregard of the la!.

>nless there has been an evident attempt to comply !ith the la! the claim to be a

corporation 7nder this act7 cold not be made 7in good faith.7 1Fisher on the "hilippine La!

of Stoc; Corporations, p. 4$. See also mphreys vs. Hre!, $% Fla., %$@ $ So., +&.2

Second, this is not a sit in !hich the corporation is a party. This is a litigation bet!een stoc;holders

of the alleged corporation, for the prpose of obtaining its dissoltion. (ven the e)istence of a de

jure corporation may be terminated in a private sit for its dissoltion bet!een stoc;holders, !ithot

the intervention of the state.

There might be room for argment on the right of minority stoc;holders to se for dissoltion@# bt

that estion does not affect the cort9s risdiction, and is a matter for decision by the dge, sbect

to revie! on appeal. Ih;ch brings s to one principal reason !hy this petition may not prosper,

namely: the petitioners have their remedy by appealing the order of dissoltion at the proper time.

There is a secondary isse in connection !ith the appointment of a receiver. Bt it mst be admitted

that receivership is proper in proceedings for dissoltion of a company or corporation, and it !as no

error to reect the conterGbond, the cort having declared the dissoltion. As to the amont of the

bond to be demanded of the receiver, mch depends pon the discretion of the trial cort, !hich in

this instance !e do not believe has been clearly absed.

Judg)ent : The petition !ill, therefore, be dismissed, !ith costs. The preliminary innction heretofore

issed !ill be dissolved.

municipality of malabang and hall-part 2

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