In my previous article, I mentioned that under the Rules of Court quo warranto proceedings can be initiated by the Solicitor General against “an association which acts as a corporation without being legally incorporated or without lawful authority so to act.” Such provision is complemented by Section 19 of the Revised Corporation Code, to wit: “The due incorporation of any corporation claiming to be in good faith to be a corporation under this Code and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such a corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding”.
Corporate franchise is a privilege granted by the State. It is also the State that may revoke such privilege but it cannot unilaterally do so. It must file a quo warranto proceeding before the court. A characteristic use of quo warranto is against individuals assuming the functions of a corporation without having complied with the prerequisites to incorporation. In some jurisdictions, quo warranto proceedings involve also the “ultra vires” or “illegal acts” of corporations. However, it is firmly embedded in the decisions of the courts that quo warranto is too extraordinary and drastic measure to be sustained for an occasional, incidental or trivial violation. Where a corporation violates a statute or its articles of incorporation, or fails to exercise an exclusive franchise, the main considerations are the extent and seriousness of the violation, and the effect that the judgment may have on the public welfare (Yale Law Journal, 37 Yale L.J., 1927)
In the Philippine setting, the Rules of Court deleted the then Section 2 of Rule 66 providing that quo warranto may also be brought against a corporation: (a) when it has offended against a provision of the law for its creation; (b) when it has forfeited its franchise by non-user; (c) when it has committed or omitted an act which amounts to a surrender of its corporate rights, privileges or franchises; or (d) when it has misused a right, privilege or franchise conferred upon it by law.
Consequently, it can be argued that quo warranto is applicable only against an association which purports itself to have been incorporated when in truth it is not. The reason advanced for the deletion is that the grounds under Section 2 are now governed by the Corporation Code (Regalado, Remedial Law Compendium, Vol. I, p. 727). Indeed, under the Revised Corporation Code, the Securities and Exchange Commission (SEC) has powers to impose sanctions, to suspend or revoke certificates of incorporation, or even to cause the dissolution of corporations. In short, quo warrantocannot be resorted to against corporations but only against those who pretend to act and operate as corporations. This limitation all the more underscores the extraordinary character of a quo warranto remedy. It cannot be availed of if there are other adequate remedies available and, in the case of corporations, the SEC has sufficient authority to deal with the misuse, abuse, non-use or contravention of the corporate franchise.
It must be mentioned, that under the General Banking Law (Sec. 66, R.A. 8791), for the violation of said law committed by a corporation, the Solicitor General may institute quo warranto preceedings against said corporation. Since, as above discussed, quo warranto is no longer available for such violation, the Solicitor General may file, instead of a quo warranto petition with the court, a petition for the dissolution ofthe corporation with the SEC.
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The above comments are the personal views of the writer. His email address is [email protected]