By: Atty. Sarah T. Ganto on October 19,2023

Quo warranto is a remedy to assail an illegal intrusion into a public office or position (not a private one).  It is also the proper remedy when the State questions the existence of a de facto corporation or the unlawful exercise of a franchise by a de jure or legally incorporated corporation.

Section 1 of Rule 66 of the 1997 Rules of Court provides that an action for the usurpation of a public office, position or franchise may be commenced by a verified petition brought in the name of the Republic of the Philippines against: 

1. A person who usurps, intrudes into, or unlawfully holds or exercises a public office, position or franchise; 
2. A public officer who does or suffers an act which, by the provision of law, constitutes a ground for the forfeiture of his office; or 
3. An association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act.”

Sections 2 and 3 of Rule 66 provide that the petition for quo warranto must be initiated or commenced by the Solicitor General or a public prosecutor, when directed by the President of the Philippines, or when upon complaint or otherwise, he has good reason that such action must be commenced.  Such action may also be commenced by the same officials with the permission of the court if the action is at the request and upon the relation of another person.

It should be noted that Section 1(a) of Rule 66 of the 1997 Rules of Court no longer contains the phrase “or an office in a corporation created by authority of law” which was found in the old (1964) Rules of Court.  Thus, the present Rule 66 only applies to actions of quo warranto against persons who usurp a public office, position or franchise; public officers who forfeit their office; and associations which act as corporations without being legally incorporated.

Accordingly, in the case of Calleja v. Panday (G.R. No. 168696, February 28, 2006), the Supreme Court categorically states that quo warranto does not apply against persons who usurp various positions or offices (i.e., director and officers) of a private corporation.

Section 19 of the Revised Corporation Code (RCC) sets out the rule that the due incorporation of any corporation claiming to be in good faith to be a corporation under said 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.

Thus, when irregularities exist in the due incorporation of a corporation, said corporation attains the status of a de facto corporation whose legal existence can be questioned in a quo warranto proceeding initiated by the Solicitor General.

That only the State, through the Office of the Solicitor General, can initiate quo warranto proceedings against a corporation is based on the principle that a  corporation’s legislative franchise is not a right, but rather a mere privilege granted by the State, emanating from its sovereign power and owing its existence to a grant, and thus is subject to regulation by the State itself by virtue of its police power through its administrative agencies. The State giveth and the State taketh away. However, the State cannot unilaterally revoke a previously granted franchise to a corporation for such unilateral act would be a violation of due process; it must avail the proper legal remedy of quo warranto.

To illustrate, in GMA Network, Inc. v. ABC Development Corporation (ABC) (G.R. No. 205986, January 11, 2023) involving ABC’s franchise, the Supreme Court held that the issues relating to the exercise of ABC’s franchise should be resolved in a quo warranto proceeding.  While said case was a civil action to declare void ab initio a block-time agreement, the Supreme Court stated that the real issue is properly the subject of a quo warranto proceedings to determine whether or not defendants violated its franchise. To rule otherwise, the Supreme Court explained that there is a risk that the status of the plaintiffs shall be elevated to an agency of the State, which has the prerogative to institute such action through the Office of the Solicitor General. 

A similar rule was held in PLDT v. National Telecommunications Commission (G.R. No. 88404, October 18, 1990), where the Supreme Court held that PLDT’s allegation that the franchise of another telecommunications company has lapsed partakes of a collateral attack on a franchise, which is not allowed.  The determination of the right to the exercise of a franchise, or whether the right to enjoy such privilege has been forfeited by non-use, is more properly the subject of the prerogative writ of quo warranto, the right to assert of which belongs to the State, since the abuse of a franchise is a public wrong and not a private injury.  In Republic v. Sereno (G.R. No. 237428, June 19, 2018), the Court stated that even a certiorari petition also lacks the safeguards installed in a quo warranto action. 

Thus, when a corporation unlawfully exercises its franchise or an association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act, quo warranto is the appropriate remedy.  The action, however, shall be instituted only by the government, through the Office of the Solicitor General.  

#QuoWarranto #Corporation #CorporationCode #DeFactoCorporation

Sarah Rose T. Ganto is an associate of Mata-Perez, Tamayo and Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment, you can email the author at info@mtfcounsel.com or visit the MTF website at www.mtfcounsel.com.

https://www.manilatimes.net/2023/10/19/business/top-business/quo-warranto/1915420