1
PNB VS ANDRADA
FACTS:
ISSUE:
WON PNB SHOULD BE HELD LIABLE
FOR THE DEBT OF PASUMIL ON THE
GROUND OF MERGER (NO! THERE IS
NO VALID MERGER IN THE CASE AT
BAR)
HELD:
NO! Respondent further claims that
petitioners should be held liable for
the unpaid obligations of PASUMIL by
virtue of LOI Nos. 189-A and 311,
which expressly authorized PASUMIL
and PNB to merge or consolidate. On
the other hand, petitioners contend
that their takeover of the operations of
PASUMIL did not involve any corporate
merger or consolidation, because the
latter had never lost its separate
identity as a corporation.
A consolidation is the union of two
or more existing entities to form a
new entity called the consolidated
corporation. A merger, on the
other hand, is a union whereby
one or more existing corporations
are absorbed by another
corporation that survives and
continues the combined
business.54
*****The merger, however, does
not become effective upon the
mere agreement of the
constituent corporations.55 Since
a merger or consolidation involves
fundamental changes in the
corporation, as well as in the
rights of stockholders and
creditors, there must be an
express provision of law
authorizing them.56 For a valid
merger or consolidation, the
approval by the Securities and
Exchange Commission (SEC) of the
articles of merger or consolidation
is required.57 These articles must
likewise be duly approved by a
majority of the respective
stockholders of the constituent
corporations.58
In the case at bar, we hold that
there is no merger or
consolidation with respect to
PASUMIL and PNB. The procedure
prescribed under Title IX of the
Corporation Code59 was not
followed.
In fact, PASUMILs corporate existence,
as correctly found by the CA, had not
been legally extinguished or
terminated.60 Further, prior to PNBs
acquisition of the foreclosed assets,
PASUMIL had previously made partial
payments to respondent for the
formers obligation in the amount of
P777,263.80. As of June 27, 1973,
PASUMIL had paid P250,000 to
respondent and, from January 5, 1974
to May 23, 1974, another P14,000.
Neither did petitioner expressly or
impliedly agree to assume the debt of
PASUMIL to respondent.61 LOI No. 11
explicitly provides that PNB shall study
and submit recommendations on the
claims of PASUMILs creditors.62
Clearly, the corporate separateness
between PASUMIL and PNB remains,
despite respondents insistence to the
contrary.63
ASSOCIATED BANK VS CA
FACTS:
Associated Banking Corporation and
Citizens Bank and Trust Company
(CBTC) merged to form just one
banking corporation known as
Associated Citizens Bank (later
renamed Associated Bank), the
surviving bank. After the merger
agreement had been signed, but
before a certificate of merger was
issued, respondent Lorenzo Sarmiento,
Jr. executed in favor of Associated
Bank a promissory note, promising to
pay the bank P2.5 million on or before
due date at 14% interest per annum,
among other accessory dues. For
failure to pay the amount due,
Sarmiento was sued by Associated
Bank.
Respondent argued that the plaintiff is
not the proper party in interest
because the promissory note was
executed in favor of CBTC. Also, while
2
respondent executed the promissory
note in favor of CBTC, said note was a
contract pour autrui, one in favor of a
third person who may demand its
fulfillment. Also, respondent claimed
that he received no consideration for
the promissory note and, in support
thereof, cites petitioner's failure to
submit any proof of his loan
application and of his actual receipt of
the amount loaned.
ISSUE:
Whether or not Associated Bank, the
surviving corporation, may enforce the
promissory note made by private
respondent in favor of CBTC, the
absorbed company, after the merger
agreement had been signed, but
before a certificate of merger was
issued? (YES!!!)
HELD:
The petition is impressed with merit.
****Associated Bank assumed all
the rights of CBTC. Although
absorbed corporations are
dissolved, there is no winding up
of their affairs or liquidation of
their assets, because the
surviving corporation
automatically acquires all their
rights, privileges and powers, as
well as their liabilities. The
merger, however, does not
become effective upon the mere
agreement of the constituent
corporations. The Securities and
Exchange Commission (SEC) and
majority of the respective
stockholders of the constituent
corporations must have approved
the merger. (Section 79,
Corporation Code) It will be
effective only upon the issuance
by the SEC of a certificate of
merger. Records do not show
when the SEC approved the
merger.
But assuming that the effectivity date
of the merger was the date of its
execution, we still cannot agree that
petitioner no longer has any interest in
the promissory note. ****The
agreement itself clearly provides
that all contracts irrespective of
the date of execution entered
into in the name of CBTC shall be
understood as pertaining to the
surviving bank, herein petitioner.
Such must have been deliberately
included in the agreement in
order to avoid giving the merger
agreement a farcical
interpretation aimed at evading
fulfillment of a due obligation.
Thus, although the subject
promissory note names CBTC as
the payee, the reference to CBTC
in the note shall be construed,
under the very provisions of the
merger agreement, as a reference
to petitioner bank.
On the issue that the promissory note
was a contract pour autrui and was
issued without consideration, the
Supreme Court held it was not. In a
contract pour autrui, an incidental
benefit or interest, which another
person gains, is not sufficient. The
contracting parties must have clearly
and deliberately conferred a favor
upon a third person. The "fairest test"
in determining whether the third
person's interest in a contract is a
stipulation pour autrui or merely an
incidental interest is to examine the
intention of the parties as disclosed by
their contract. It did not indicate that a
benefit or interest was created in favor
of a third person. The instrument itself
says nothing on the purpose of the
loan, only the terms of payment and
the penalties in case of failure to pay.
Private respondent also claims that he
received no consideration for the
promissory note, citing petitioner's
failure to submit any proof of his loan
application and of his actual receipt of
the amount loaned. These arguments
deserve no merit. Res ipsa loquitur.
The instrument, bearing the signature
of private respondent, speaks for itself.
Respondent Sarmiento has not
questioned the genuineness and due
execution thereof. That he partially
paid his obligation is itself an express
acknowledgment of his obligation.
FILIPINAS PORT SERVICES VS
NLRC
3
FACTS:
ISSUE:
WON THE PETITIONERS ARE LIABLE
FOR THE RETIREMENT BENEFITS OF
(PR) BEFORE THE MERGER (YES! THEY
ARE LIABLE)
HELD:
The law enforced at the time of the
merger was Section 3 of Act No. 2772
which took effect on March 6, 1918.
Said law provides:
Sec. 3. Upon the perfecting, as
aforesaid, of a consolidation made
in the manner herein provided, the
several corporations parties
thereto shall be deemed and
taken as one corporation, upon
the terms and conditions set forth
in said agreement; or, upon the
perfecting of a merger, the
corporation merged shall be
deemed and taken as absorbed by
the other corporation and
incorporated in it; and all and
singular rights, privileges, and
franchises of each of said
corporations, and all property,
real and personal, and all debts
due on whatever account,
belonging to each of such
corporations, shall be taken and
deemed as transferred to and
vested in the new corporation
formed by the consolidation, or in
the surviving corporation in case
of merger, without further act or
deed; and the title to real estate,
either by deed or otherwise, under the
laws of the Philippine Islands vested in
either corporation, shall not be
deemed in any way impaired by
reason of this Act: Provided, however,
That the rights of creditors and all
liens upon the property of either of
said corporations shall be preserved
unimpaired; and all debts liabilities,
and duties of said corporations shall
thenceforth attach to the new
corporation in case of a consolidation,
or to the surviving corporation in case
of a merger, and be enforced against
said new corporation or surviving
corporation as if said debts, liabilities,
and duties had been incurred or
contracted by it.
As earlier stated, it was mandated
that Filport shall absorb all labor
force and necessary personnel
complement of the merging
operators, thus, clearly indicating
the intention to continue the
employer-employee relationships
of the individual companies with
its employees through Filport.
****The alleged memorandum of
the PPA Assistant General
Manager exonerating Filport from
any liability arising from and as a
result of the merger is contrary to
public policy and is violative of
the workers' right to security of
tenure. Said memorandum was
issued in response to a query of
the PMU Officer-in-Charge and
was not even published nor made
known to the workers who came
to know of its existence only at
the hearing before the NLRC. (G.R.
No. 86026, pp. 93-94, Rollo)
****The principle involved in the
case cited by the First Division
(Fernando v. Angat Labor Union
[supra]) applies only when the
transferee is an entirely new
corporation with a distinct
personality from the integrating
firms and NOT where the
transferee was found to be merely
an alter ego of the different
merging firms, as in this case.
Thus, Filport has the obligation
not only to absorb the workers of
the dissolved companies but also
to include the length of service
earned by the absorbed
employees with their former
employees as well. To rule
otherwise would be manifestly
less than fair, certainly, less than
just and equitable.
Finally, to deny the private
respondents the fruits of their labor
corresponding to the time they worked
with their previous employers would
render at naught the constitutional
provisions on labor protection. In
interpreting the protection to labor and
social justice provisions of the
4
Constitution and the labor laws, and
rules and regulations implementing
the constitutional mandate, the
Supreme Court has always adopted
the liberal approach which favors the
exercise of labor rights.
PHILIPPINE VETERANS BANK VS
VEGA
FACTS:
In 1985, the Central Bank of the
Philippines filed a petition for
assistance in the liquidation of the
Philippine Veterans Bank (PVB), in the
RTC of Manila, Branch 39. Thereafter,
the PVB Employees Union filed claim
for accrued and unpaid employee
wages and benefits.
On January 2, 1992, R.A. 7169 (An Act
to Rehabilitate the PVB) was signed
into law by then Pres. Corazon Aquino
and was published in the Official
Gazette on February 24, 1992. This
law sought the rehabilitation of the
PVB which means that Congress
mandated that the PVB be not
dissolved.
However, the liquidation judge, Judge
Benjamin Vega, did not immediately
stop the liquidation proceeding. In fact
he went on with it.
When questioned, Vega argued that
R.A. 7169 did not immediately take
effect and that it only took effect 15
days after publication in the Official
Gazette or on March 10, 1992.
ISSUE:
WON THE CONTINUING OF THE
LIQUIDATION PROCEEDING IS VALID
(NO! IT IS PREJUDCIAL TO THE ACT OF
REHABILITATION SINCE THEY ARE
OPPOSITE OF EACH OTHER)
HELD:
We find for the petitioners.
Republic Act No. 7169 entitled An Act
To Rehabilitate The Philippine Veterans
Bank Created Under Republic Act No.
3518, Providing The Mechanisms
Therefor, And For Other Purposes,
which was signed into law by President
Corazon C. Aquino on January 2, 1992
and which was published in the Official
Gazette on February 24, 1992,
provides in part for the reopening of
the Philippine Veterans Bank together
with all its branches within the period
of three (3) years from the date of the
reopening of the head office.7 The law
likewise provides for the creation of a
rehabilitation committee in order to
facilitate the implementation of the
provisions of the same.8
Pursuant to said R.A. No. 7169, the
Rehabilitation Committee submitted
the proposed Rehabilitation Plan of the
PVB to the Monetary Board for its
approval. Meanwhile, PVB filed a
Motion to Terminate Liquidation of
Philippine Veterans Bank dated March
13, 1992 with the respondent judge
praying that the liquidation
proceedings be immediately
terminated in view of the passage of
R.A. No. 7169.
On April 10, 1992, the Monetary Board
issued Monetary Board Resolution No.
348 which approved the Rehabilitation
Plan submitted by the Rehabilitation
Committee.
Thereafter, the Monetary Board issued
a Certificate of Authority allowing PVB
to reopen.
On June 3, 1992, the liquidator filed A
Motion for the Termination of the
Liquidation Proceedings of the
Philippine Veterans Bank with the
respondent judge.
As stated above, the Court, in a
Resolution dated June 8, 1992, issued
a temporary restraining order in the
instant case restraining respondent
judge from further proceeding with the
liquidation of PVB.
On August 3, 1992, the Philippine
Veterans Bank opened its doors to the
public and started regular banking
operations.
Clearly, the enactment of Republic Act
No. 7169, as well as the subsequent
developments has rendered the
liquidation court functus officio.
5
Consequently, respondent judge has
been stripped of the authority to issue
orders involving acts of liquidation.
****Liquidation, in corporation
law, connotes a winding up or
settling with creditors and
debtors.9 It is the winding up of a
corporation so that assets are
distributed to those entitled to
receive them. It is the process of
reducing assets to cash,
discharging liabilities and dividing
surplus or loss.
On the opposite end of the
spectrum is rehabilitation which
connotes a reopening or
reorganization. Rehabilitation
contemplates a continuance of
corporate life and activities in an
effort to restore and reinstate the
corporation to its former position
of successful operation and
solvency.10
It is crystal clear that the concept
of liquidation is diametrically
opposed or contrary to the
concept of rehabilitation, such
that both cannot be undertaken at
the same time. To allow the
liquidation proceedings to
continue would seriously hinder
the rehabilitation of the subject
bank.
Anent the claim of respondents Central
Bank and Liquidator of PVB that R.A.
No. 7169 became effective only on
March 10, 1992 or fifteen (15) days
after its publication in the Official
Gazette; and, the contention of
intervenors VOP Security, et. al. that
the effectivity of said law is
conditioned on the approval of a
rehabilitation plan by the Monetary
Board, among others, the Court is of
the view that both contentions are
bereft of merit.
While as a rule, laws take effect after
fifteen (15) days following the
completion of their publication in the
Official Gazette or in a newspaper of
general circulation in the Philippines,
the legislature has the authority to
provide for exceptions, as indicated in
the clause unless otherwise
provided.
In the case at bar, Section 10 of R.A.
No. 7169 provides:
Sec. 10. Effectivity. This Act shall
take effect upon its approval.
Hence, it is clear that the legislature
intended to make the law effective
immediately upon its approval. It is
undisputed that R.A. No. 7169 was
signed into law by President Corazon
C. Aquino on January 2, 1992.
Therefore, said law became effective
on said date.
PAL VS SPOUSES SADIC
FACTS:
In April 1997, respondents, all Muslim
Filipinos, returned to Manila from their
pilgrimage to the Holy City of Mecca,
Saudi Arabia, on board a Philippines
Airlines (PAL) flight. Respondents
claimed that they were unable to
retrieve their checked-in luggages. On
05 January 1998, respondents filed a
complaint with the Regional Trial Court
(RTC) of Marawi City against PAL for
breach of contract resulting in
damages due to negligence in the
custody of the missing luggages.
On 02 March 1998, PAL filed its answer
invoking, among its defenses, the
limitations under the Warsaw
Convention. On 19 June 1998, before
the case could be heard on pre-trial,
PAL, claiming to have suffered serious
business losses due to the Asian
economic crisis, followed by a massive
strike by its employees, filed a petition
for the approval of a rehabilitation plan
and the appointment of a
rehabilitation receiver before the
Securities and Exchange Commission
(SEC). On 23 June 1998, the SEC
issued an order granting the prayer for
an appointment of a rehabilitation
receiver, and it constituted a three-
man panel to oversee PALs
rehabilitation. On 25 September 1998,
the SEC created a management
committee conformably with Section
6(d) of Presidential Decree (P.D.) 902,
as amended, declaring the suspension
6
of all actions for money claims against
PAL pending before any court, tribunal,
board or body. Thereupon, PAL moved
for the suspension of the proceedings
before the Marawi City RTC. On 11
January 1999, the trial court issued an
order denying the motion for
suspension of the proceedings on the
ground that the claim of respondents
was only yet to be established. PALs
motion for reconsideration was denied
by the trial court.
PAL went to the Court of Appeals via a
petition for certiorari. On 16 April
1999, the appellate court dismissed
the petition for the failure of PAL to
serve a copy of the petition on
respondents. PAL moved for a
reconsideration. In its resolution, dated
08 October 1999, the appellate court
denied the motion but added that a
second motion for reconsideration
before the trial court could still be
feasible inasmuch as the assailed
orders of the trial court were merely
interlocutory in nature. Consonantly,
PAL filed before the trial court a
motion for leave to file a second
motion for reconsideration. The trial
court, however, denied leave of court
to admit the second motion for
reconsideration. Again, PAL filed a
motion for reconsideration which
sought reconsideration of the denial of
the prayed leave to file a second
motion for reconsideration. In an
order, dated 28 December 2000, the
trial court denied the motion.
ISSUE:
WON THE DENIAL TO SUSPEND WAS
VALID (NO! THE RIGHT TO SUSPEND IS
PART OF THE POWER OF THE
MANAGEMENT COMMITTEE IN
REHABILITATION UNDER Section 6(c) of
P.D. 902-A)
HELD:
The Supreme Court, in A.M. No. 00-8-
10-SC, ***adopted the Interim
Rules of Procedure on Corporate
Rehabilitation and directed to be
transferred from the SEC to
Regional Trial Courts,[2] all
petitions for rehabilitation filed by
corporations, partnerships, and
associations under P.D. 902-A in
accordance with the amendatory
provisions of Republic Act No.
8799. The rules require trial
courts to issue, among other
things, a stay order in the
enforcement of all claims,
whether for money or otherwise,
and whether such enforcement is
by court action or otherwise,
against the corporation under
rehabilitation, its guarantors and
sureties not solidarily liable with
it. Specifically, Section 6, Rule 4, of
the Interim Rules of Procedure On
Corporate Rehabilitation, provides:
SEC. 6. Stay Order. - If the court finds
the petition to be sufficient in form and
substance, it shall, not later than five
(5) days from the filing of the petition,
issue an Order (a) appointing a
Rehabilitation Receiver and fixing his
bond; (b) staying enforcement of all
claims, whether for money or
otherwise and whether such
enforcement is by court action or
otherwise, against the debtor, its
guarantors and sureties not solidarily
liable with the debtor; (c) prohibiting
the debtor from selling, encumbering,
transferring, or disposing in any
manner any of its properties except in
the ordinary course of business; (d)
prohibiting the debtor from making
any payment of its liabilities
outstanding as at the date of filing of
the petition; (e) prohibiting the debtors
suppliers of goods or services from
withholding supply of goods and
services in the ordinary course of
business for as long as the debtor
makes payments for the services and
goods supplied after the issuance of
the stay order; (f) directing the
payment in full of all administrative
expenses incurred after the issuance
of the stay order; (g) fixing the initial
hearing on the petition not earlier than
forty-five (45) days but not later than
sixty (60) days from the filing thereof;
(h) directing the petitioner to publish
the Order in a newspaper of general
circulation in the Philippines once a
week for two (2) consecutive weeks; (I)
directing all creditors and all interested
parties (including the Securities and
Exchange Commission) to file and
serve on the debtor a verified
7
comment on or opposition to the
petition, with supporting affidavits and
documents, not later than ten (10)
days before the date of the initial
hearing and putting them on notice
that their failure to do so will bar them
from participating in the proceedings;
and (j) directing the creditors and
interested parties to secure from the
court copies of the petition and its
annexes within such time as to enable
themselves to file their comment on or
opposition to the petition and to
prepare for the initial hearing of the
petition.
The stay order is effective from the
date of its issuance until the dismissal
of the petition or the termination of
the rehabilitation proceedings.[3]
The interim rules must likewise be
read and applied along with
Section 6(c) of P.D. 902-A, as so
amended, ****directing that upon
the appointment of a
management committee,
rehabilitation receiver, board or
body pursuant to the decree, all
actions for claims against the
distressed corporation pending
before any court, tribunal, board
or body shall be suspended
accordingly. Paragraph (c) of Section
6 of the law reads:
Section 6. In order to effectively
exercise such jurisdiction, the
Commission shall possess the
following powers:
xxx xxx xxx.
c) To appoint one or more receivers of
the property, real or personal, which is
the subject of the action pending
before the Commission in accordance
with the pertinent provisions of the
Rules of Court in such other cases
whenever necessary in order to
preserve the rights of the parties-
litigants and/or protect the interest of
the investing public and creditors: x x
x ****Provided, finally, That upon
appointment of a management
committee, the rehabilitation
receiver, board or body, pursuant
to this Decree, all actions for
claims against corporations,
partnerships, or associations
under management or
receivership pending before any
court, tribunal, board or body
shall be suspended accordingly.
A claim is said to be a right to
payment, whether or not It is reduced
to judgment, liquidated or
unliquidated, fixed or contingent,
matured or unmatured, disputed or
undisputed, legal or equitable, and
secured or unsecured.[4] In Finasia
Investments and Finance
Corporation[5] this Court has defined
the word claim, contemplated in
Section 6(c) of P.D. 902-A, as
referring to debts or demands of a
pecuniary nature and the
assertion of a right to have money
paid as well.
Verily, the claim of private
respondents against petitioner
PAL is a money claim for the
missing luggages, a financial
demand, that the law requires to
be suspended pending the
rehabilitation proceedings.[6] In
B.F. Homes, Inc. vs. Court of Appeals,
[7] the Court has ratiocinated:
x x x **********(T)he reason for
suspending actions for claims
against the corporation should not
be difficult to discover. it is not
really to enable the management
committee or the rehabilitation
receiver to substitute the
defendant in any pending action
against it before any court,
tribunal, board or body. Obviously,
the real justification is to enable
the management committee or
rehabilitation receiver to
effectively exercise its/his powers
free from any judicial or extra-
judicial interference that might
unduly hinder or prevent the
rescue of the debtor company. To
allow such other action to
continue would only add to the
burden of the management
committee or rehabilitation
receiver, whose time, effort and
resources would be wasted in
defending claims against the
corporation instead of being
8
directed toward its restructuring
and rehabilitation.[8]
RCBC VS IAC
FACTS:
ISSUE:
WON THE FORECLOSURE WAS
VALID( YES!, THERE WAS NO
APPOINTMENT YET OF THE
MANAGEMENT COMMITTEE HENCE THE
RIGHT OF SUSPENSION DOES NOT YET
TAKE EFFECT!!!)
HELD:
in BPI vs. Court of Appeals (229 SCRA
223 [1994] per Bellosilio, J.: First
Division) the Court explicitly stared
that ". . . the doctrine in the PCIB Case
has since been abrogated. In Alemar's
Sibal & Sons v. Elbinias, BF Homes,
Inc. v. Court of Appeals, Araneta v.
Court of Appeals and RCBC v. Court of
Appeals, we already ruled that
whenever a distressed corporation
asks SEC for rehabilitation and
suspension of payments,
preferred creditors may no longer
assert such preference, but shall
stand on equal footing with other
creditors . . ." (pp. 227-228).
It may be stressed, however, that of all
the cases cited by Justice Bellosillo in
BPI, which abandoned the Court's
ruling in PCIB, only the present case
satisfies the constitutional requirement
that "no doctrine or principle of law
laid down by the court in a decision
rendered en banc or in division may be
modified or reversed except by the
court sitting en banc" (Sec 4, Article
VIII, 1987 Constitution). The rest were
division decisions.
****It behooves the Court,
therefore, to settle the issue in
this present resolution once and
for all, and for the guidance of the
Bench and the Bar, the following
rules of thumb shall are laid
down:
1. All claims against corporations,
partnerships, or associations that are
pending before any court,
tribunal, or board, without
distinction as to whether or not a
creditor is secured or unsecured,
shall be suspended effective upon
the appointment of a
management committee,
rehabilitation receiver, board, or
body in accordance which the
provisions of Presidential Decree
No. 902-A.
2. Secured creditors retain their
preference over unsecured
creditors, but enforcement of such
preference is equally suspended
upon the appointment of a
management committee,
rehabilitation receiver, board, or body.
In the event that the assets of the
corporation, partnership, or
association are finally liquidated,
however, secured and preferred
credits under the applicable provisions
of the Civil Code will definitely have
preference over unsecured ones.
****In other words, once a
management committee,
rehabilitation receiver, board or
body is appointed pursuant to P.D.
902-A, all actions for claims
against a distressed corporation
pending before any court,
tribunal, board or body shall be
suspended accordingly.
This suspension shall not
prejudice or render ineffective the
status of a secured creditor as
compared totally unsecured
creditor P.D. 902-A does not state
anything to this effect. What it
merely provides is that all actions
for claims against the corporation,
partnership or association shall be
suspended. This should give the
receiver a chance to rehabilitate
the corporation if there should
still be a possibility of doing so.
(This will be in consonance with
Alemar's BF Homes, Araneta, and
RCBC insofar as enforcing liens by
preferred creditors are concerned.)
However, in the event that
rehabilitation is no longer feasible and
claims against the distressed
corporation would eventually have to
be settled, the secured creditors shall
9
enjoy preference over the unsecured
creditors (still maintaining PCIB ruling),
subject only to the provisions of the
Civil Code on Concurrence and
Preferences of Credit (our ruling in
State Investment House, Inc. vs. Court
of Appeals, 277 SCRA 209 [1997]).
The Majority ruling in our 1992
decision that preferred creditors
of distressed corporations shall, in
a way, stand an equal footing with
all other creditors, must be read
and understood in the light of the
foregoing rulings. All claims of
both a secured or unsecured
creditors, without distinction on
this score, are suspended once a
management committee is
appointed. Secured creditors, in
the meantime, shall not be
allowed to assert such preference
before the Securities and
Exchange Commission. It may be
stressed, however, that this shall
only take effect upon the
appointment of a management
committee, rehabilitation receiver,
board, or body, as opined in the
dissent.
****In fine, the Court grants the
motion for reconsideration for the
cogent reason that suspension of
actions for claims commences only
from the time a management
committee or receiver is
appointed by the SEC. Petitioner
RCBC, therefore, could have
rightfully, as it did, move for the
extrajudicial foreclosure of its
mortgage on October 26, 1984
because a management
committee was not appointed by
the SEC until March 18, 1985.
REPUBLIC VS BISAYA LAND
TRANSPORT
FACTS:
ISSUE:
HELD:
Appellant argues, on his first and
second assignments of error, that the
lower court should have rendered
judgment dissolving appellee
corporation on the strength of its
own motion consenting to and
praying for its dissolution, as such
Motion amounted to a confession
of judgment, besides the fact that it
had been formally agreed to by the
Solicitor General as well as by
appellant Miguel Cuenco. The claim is
without merit. As pointed out in the
brief for Petitioner-appellee Republic of
the Philippines, ***a motion for
judgment on consent is not to be
equated with a judgment by
confession. The former is one the
provisions and terms of which are
settled and a agreed upon by the
parties to the action, and which is
entered in the record by the
consent and sanction of the court,
Hence, there must be an
unqualified agreement among the
parties to be bound by the
judgment on consent before said
judgment may be entered. The
court does not have the Power to
supply terms, provisions, or essential
details not previously agreed to by the
parties (49 C.J.S. 308). On the other
hand, a judgment by confession is
not a Plea but an affirmative and
voluntary act of the defendant
himself, Here, the court exercises
a certain amount of supervision
over the entry of judgment, as
well as equitable jurisdiction over
their subsequent status (Ibid., pp.
268-269).
****The records would show that
there was no meeting of the
minds among the parties hereto
with respect to the motion for
judgment on consent filed by
appellee corporation and agreed
to by petitioner appellee.
Whereas, appellee corporation
conditioned its motion in that its
liquidation shall be effected by its
Board of Directors, appellant
Miguel Cuenco would agree to
such liquidation only if his cross-
claim was first summarily
adjudged and a receiver
appointed by the court to effect
said liquidation. On the other
hand, the petitioner-appellee
would have the matter regarding
the implementation of the
dissolution of appellee
10
corporation submitted to the
discretion of the lower court. And,
before the parties could come to
an unqualified agreement as to
the judgment requested to be
entered by appellee corporation,
the latter decided to withdraw its
motion for judgment on consent.
Clearly therefore, in view of the
non-agreement of the parties as
to the terms, and considering the
nature of a judgment by consent
as explained above, it can not be
said that the lower court erred in
not rendering judgment dissolving
respondent corporation on the
basis of the motion for judgment
by consent filed by appellee
corporation.
On the third assignment of error,
appellant Miguel Cuenco would
attribute error to the court a quo in not
holding that the evidence which
petitioner had presented in the
hearings established facts constituting
practically all the grounds for quo
warranto against a corporation.
It will be recalled that at the before the
Clerk of Court who was appointed
commissioner to remove the evidence
of the petitioner, the latter had
presented three wit , namely, Juan P.
Mata, Clemente Vasquez and Silverio
Mata, and several exhibits which were
Identified by said witnesses. After a
very careful and deliberate
consideration of the evidence adduced
by petitioner, the lower court came to
the conclusion that the same did not
really warrant a quo warranto by the
State that could truly justify to
decapitate corporate life, and that the
corporate acts or missions complained
of had not resulted in substantial
injury to the public, nor were they
wilful and clearly obdurate. The court
found that the several acts of misuse
and misapplication of the funds and/or
assets of the Bisaya Land
Transportation Co., Inc. were
committed new particularly by the
respondent Dr. Manuel Cuenco with
the cooperation of Jose P. Velez, for the
commission of which they may be
personally held liable. There appears
to be no reason for us to disregard the
findings of the trial court, which,
applying well settled doctrines, ought
to be given due weight and credit (De
la Rama vs. Ma-ao Sugar Central, L-
17504 & L-17506, Feb. 28, 1969).
Besides, the court a quo found that the
controversy between the parties was
more personal than anything else and
did not at all affect public interest.
Thus, the Court held:
A careful perusal of the above-quoted
letters patently reveals that rather
than public interest the personal
interests of both Dr. Manuel Cuenco
and Mr. Miguel Cuenco are principally
involved in this controversy. The
allegations, therefore, of Solicitor
Barredo in his motion for dismissal of
action filed on October 20, 1966
xxx xxx xxx
6. That in a large sense, this case
involves personal controversies among
the Cuenco's, and their relatives, by
consanguinity and affinity, involving
their respective interests as
stockholders in the Bisaya Land
Transportation Company, Inc., more
than anything else;
7. That, such private controversies
can be ventilated in appropriate
stockholders' suits which do not have
to occupy the time and attention of
government officials which can be
better devoted to matters of more
direct public interest.
are well founded.
After a very careful and conscientious
study of the records of this case, this
court is not prepared to say that
sufficient competent evidence has
been adduced to impeach the motive
of Solicitor General Barredo in filing his
motion for dismissal, since honesty
rather than dishonesty, good faith
rather than bad faith should always be
presumed in the absence of clear
contrary evidence. The Solicitor
General explained that after having
been briefed on the evidence by
Solicitor Rosete before the negotiation
of an amicable settlement between
the parties involved in this case
started, he had already in mind asking
for the dismissal of the quo warranto
11
proceeding for he believed in all
sincerity that the evidence so far
presented did not justify the
dissolution of the corporation through
a quo warranto proceeding. He
admitted that even after he had filed
the motion for dismissal he continued
the negotiation for the settlement of
the case, but he explained that it was
because of the request of the
respondent and cross-claimant Miguel
Cuenco and his wife that he continue
to use his good offices to effect an
amicable settlement between the
parties.
The Solicitor General himself asserts
that the only purpose of his ration for
the of this quo warranto is to take the
State out of an unnecessary court
litigation, so that the dismissal of the
case would result in the disposition
solely of the quo warranto by and
between petitioner Republic of the
Philippines and the respondents
named therein. Other interested
parties who might feel aggrieved,
therefore, would not be without their
remedies since they can still maintain
whatever claims they may have
against each other. It has been held
that relief by dissolution will be
awarded only where no other
adequate remedy is available, and is
not available where the rights of the
stockholders can be, or are, protected
in some other way.
GOVERNMENT VS PHILIPPINE
SUGAR ESTATE
FACTS:
ISSUE:
WON THE CONFISCATION OF THE
CHARTER OF RESPONDENT IS PROPER
(YES! SINCE THE ACT OF RESPONDENT
GAVE A UNNECCESSARY BURDEN TO
THE PEOPLE OF THE PHILIPPINES)
HELD:
In the case of State of Minnesota vs.
Minnesota Thresher Manufacturing Co.
(3 L.R.A. 510) the court said (p. 518):
***The scope of the remedy
furnished by its (quo warranto) is
to forfeit the franchises of a
corporation for misuser or
nonuser. It is therefore necessary
in order to secure a judicial
forfeiture of respondent's charter
to show a misuser of its franchises
justifying such a forfeiture. And as
already remarked the object being
to protect the public, and not to
redress private grievances, the
misuser must be such as to work
or threaten a substantial injury to
the public, or such as to amount
to a violation of the fundamental
condition of the contract by which
the franchise was granted and
thus defeat the purpose of the
grant; and ordinarily the wrong or
evil must be one remediable in no
other form of judicial proceeding.
Courts always proceed with great
caution in declaring a forfeiture of
franchises, and require the
prosecutor seeking the forfeiture
to bring the case clearly within
the rules of law entitling him to
exact so severe a penalty. (People
vs. North River Sugar Refining Co., 9
L.R.A., 33, 39; State vs. Portland
Natural Gas Co., 153, Ind., 483.)
While it is true that the courts are
given a wide discretion in ordering the
dissolution of corporations for
violations of its franchises, etc., yet
nevertheless, ***when such abuses
and violations constitute or
threaten a substantial injury to
the public or such as to amount to
a violation of the fundamental
conditions of the contract
(charter) by which the franchises
were granted and thus defeat the
purpose of the grant, then the
power of the courts should be
exercised for the protection of the
people. Under the law the people
of the Philippine Islands have
guaranteed the payment of the
interest upon cost of the
construction of the railroad which
occupied or occupies at least
some of the lands purchased by
the defendant. Every additional
dollar of increase in the price of
the land purchased by the railroad
company added that much to the
costs of construction and thereby
12
increased the burden imposed
upon the people. The very and
sole purpose of the intervention
of the defendants in the purchase
of the land from the original
owners was for the purpose of
selling the same to the Railroad
Company at profit at an
increased price, thereby directly
increasing the burden of the
people by way of additional
taxation. The purpose of the
intervention of the defendant in the
transactions in question, was to enrich
itself at the expense of the taxpayers
of the Philippine Islands, who had, by a
franchise granted, permitted the
defendant to exist and do business as
a corporation. The defendant was not
willing to allow the Railroad Company
to purchase the land of the original
owners. ***Its intervention with
The Tayabas Land Company was to
obtain an increase in the price of
the land in a resale of the same to
the railroad company. The conduct
of the defendant in the premises
merits the severest condemnation
of the law.
The judgment of the lower court
should be modified. It is hereby
ordered and decreed that the
franchise heretofore granted to
the defendant by which it was
permitted to exist and do
business as a corporation in the
Philippine Islands, be withdrawn
and annulled and that it be
disallowed to do and to continue
doing business in the Philippine
Islands, unless it shall within a
period of six months after final
decision, liquidate, dissolve and
separate absolutely in every
respect and in all of its relations,
complained of in the petition, with
The Tayabas Land Company,
without any findings to costs. And
it is hereby further ordered and
decreed that the record be returned to
the lower court with direction that a
judgment be entered in accordance
herewith. And be it further ordered and
decreed, upon the presentation of
positive proof that the defendant
corporation has complied in full with
the foregoing order and decree that
then and in that case the complaint
shall be dismissed, otherwise this
decree shall remain in full force and
effect. So ordered.
REPUBLIC VS SECURITY CREDIT
FACTS:
ISSUE:
WON the corp should be dissolved
(YES! THERE IS A MISUSE OF
CORPORATE AUTHORITY)
HELD:
admittedly, defendant corporation
has not secured the requisite
authority to engage in banking,
defendants deny that its
transactions partake of the nature
of banking operations. It is
conceded, however, that, in
consequence of a propaganda
campaign therefor, a total of 59,463
savings account deposits have been
made by the public with the
corporation and its 74 branches, with
an aggregate deposit of
P1,689,136.74, which has been lent
out to such persons as the corporation
deemed suitable therefor. It is clear
that these transactions partake of
the nature of banking, as the term
is used in Section 2 of the General
Banking Act. Indeed, a bank has
been defined as:
... a moneyed institute [Talmage vs.
Pell 7 N.Y. (3 Seld. ) 328, 347, 348]
founded to facilitate the
borrowing, lending and safe-
keeping of money (Smith vs. Kansas
City Title & Trust Co., 41 S. Ct. 243,
255 U.S. 180, 210, 65 L. Ed. 577) and
to deal, in notes, bills of
exchange, and credits (State vs.
Cornings Sav. Bank, 115 N.W. 937, 139
Iowa 338). (Banks & Banking, by
Zellmann Vol. 1, p. 46).
Moreover, it has been held that:
An investment company which
loans out the money of its
customers, collects the interest
and charges a commission to both
lender and borrower, is a bank.
(Western Investment Banking Co. vs.
13
Murray, 56 P. 728, 730, 731; 6 Ariz
215.)
... any person engaged in the business
carried on by banks of deposit, of
discount, or of circulation is doing a
banking business, although but one of
these functions is exercised.
(MacLaren vs. State, 124 N.W. 667,
141 Wis. 577, 135 Am. S.R. 55, 18 Ann.
Cas. 826; 9 C.J.S. 30.)
Accordingly, defendant
corporation has violated the law
by engaging in banking without
securing the administrative
authority required in Republic Act
No. 337.
***That the illegal transactions
thus undertaken by defendant
corporation warrant its dissolution
is apparent from the fact that the
foregoing misuser of the
corporate funds and franchise
affects the essence of its
business, that it is willful and has
been repeated 59,463 times, and
that its continuance inflicts injury
upon the public, owing to the
number of persons affected
thereby.
It is urged, however, that this case
should be remanded to the Court of
First Instance of Manila upon the
authority of Veraguth vs. Isabela Sugar
Co. (57 Phil. 266). In this connection, it
should be noted that this Court is
vested with original jurisdiction,
concurrently with courts of first
instance, to hear and decide quo
warranto cases and, that,
consequently, it is discretionary for us
to entertain the present case or to
require that the issues therein be
taken up in said Civil Case No. 52342.
The Veraguth case cited by herein
defendants, in support of the second
alternative, is not in point, because in
said case there were issues of fact
which required the presentation of
evidence, and courts of first instance
are, in general, better equipped than
appellate courts for the taking of
testimony and the determination of
questions of fact. In the case at bar,
there is, however, no dispute as to the
principal facts or acts performed by
the corporation in the conduct of its
business. The main issue here is one of
law, namely, the legal nature of said
facts or of the aforementioned acts of
the corporation. For this reason, and
because public interest demands an
early disposition of the case, we have
deemed it best to determine the
merits thereof.
Wherefore, the writ prayed for should
be, as it is hereby granted and
defendant corporation is, accordingly,
ordered dissolved. The appointment of
receiver herein issued pendente lite is
hereby made permanent, and the
receiver is, accordingly, directed to
administer the properties, deposits,
and other assets of defendant
corporation and wind up the affairs
thereof conformably to Rules 59 and
66 of the Rules of Court. It is so
ordered.
BUENAFLOR VS CAMARINES SUR
INDUSTRY
FACTS:
ISSUE:
WON THE AWARDING THE CERT FOR
DISTRIBUTION OF ICE TO CAM CORP IS
PROPER (NO!
HELD:
It is admitted and the Commission
found--that the needs of Sabang Barrio
will be conveniently served with the
establishment of a 5-ton ice plant. But
it elected to deny Buenaflor's
application, even as it awarded the
privilege to the new Camarines
Corporation on the ground that it (the
old corporation) had been serving ice
in Sabang up to the time of Buenaflor's
application, and was, consequently,
the pioneer operator there.
***The fact, however, is that since
1953, the old Corporation had
been illegally plying its business
of selling ice in Sabang because,
under the Corporation Law, Sec.
77, after November 1953, it could
not lawfully continue the business
for which it had been established
(operate ice plant, sell ice, etc).
14
After November 1953, it could
only continue to exist for three
years for the purpose of
prosecuting and defending suits
by or against it, and of enabling it
gradually to settle and close its
affairs, to dispose and convey its
property and to divide its capital
stock. It could not, without
violating the law, continue to sell
ice. And yet, the Commission
awarded the certificate on the
basis of such serve and
distribution of ice applying the
"prior operator" rule.1 In other
words, the new Camarines
Corporation is rewarded, precisely
because the old corporation, its
predecessor, had violated the law
during that period (1953-1957).
We can not, and should not
countenance such anomalous
result.
On the other hand, when the old
Camarines Corporation docketed its
application October 1, 1957, ***it had
no juridical personality, it had
ceased to exist as a corporation
and could not sue2 nor apply for
certificate, for it was incapable of
receiving a grant3 . It was not
even a corporation de facto4 . And
then, there is no application
subscribed by the new Camarines
Corporation. Far from being mere
technicality, these point support a
conclusion which appears to be
just and equitable, not only for
the reasons already indicated, but
also to compensate Buenaflor's
diligence and courage in exposing
the irregular practice5 of a
"ghost" corporation foisting its
services upon the unsuspecting
public of Sabang and neighboring
territory enjoying a franchise
without paying, perhaps, the
corporate income tax6 and other
burdens attached to corporate
existence.
Remembering the Camarines
Corporation's automatic cessation in
November 1956 (three years after
November 1953) *********we must
decline to regard the new
Camarines Corporation (formed
October 30, 1957) as a
continuation of the old.7 At most,
it is the transferee of the
properties of the old corporation
(or more properly, the assets of
the stockholders) plus the
certificate of public convenience
to operate the ice plant in Naga
and Magarao.8 And yet, as stated,
the new corporation has not filed
any application for certificate of
public convenience in Sabang, and
has not published such
application.
On these grounds, we think it was
error to grant preferential
treatment to the new Camarines
Corporation over Jaime T.
Buenaflor who, besides being
qualified, in the eyes of the
Commission, had applied for the
privilege months in advance of the
old Camarines Corporation, and of
the incorporation of the new
Camarines Corporation.
NATIONAL ABACA VS PORE
FACTS:
ISSUE:
Won the corporate body of a corp is
extinguished upon the termination of
the liquidation stage (Yes! But they
can still sue the trustees of the corp)
HELD:
the rule appears to be well settled
that, in the absence of statutory
provision to the contrary, pending
actions by or against a corporation are
abated upon expiration of the period
allowed by law for the liquidation of its
affairs.
***It is generally held, that where
a statute continues the existence
of a corporation for a certain
period after its dissolution for the
purpose of prosecuting and
defending suits, etc., the
corporation becomes defunct
upon the expiration of such
period, at least in the absence of
a provision to the contrary, so
that no action can afterwards be
brought by or against it, and must
15
be dismissed. Actions pending by
or against the corporation when
the period allowed by the statute
expires, ordinarily abate.
. . . This time limit does not apply
unless the circumstances are such as
to bring the corporation within the
provision of the statute. However, the
wording of the statutes, in some
jurisdictions authorize suits after
the expiration of the time limit,
where the statute provides that
for the purpose of any suit
brought by or against the
corporation shall continue beyond
such period for a further named
period after final judgment.
(Fletcher's Cyclopedia on
Corporations, Vol. 16, pp. 892-893.).
*****Our Corporation Law contains
no provision authorizing a
corporation, after three (3) years
from the expiration of its lifetime,
to continue in its corporate name
actions instituted by it within said
period of three (3) years. in fact,
section 77 of said law provides
that the corporation shall "be
continued as a body corporate for
three (3) years after the time
when it would have been . . .
dissolved, for the purposed of
prosecuting and defending suits
by or against it . . .", so that,
thereafter, it shall no longer enjoy
corporate existence for such
purpose. For this reason, section
78 of the same law authorizes the
corporation, "at any time during
said three years . . . to convey all
of its property to trustees for the
benefit of members, stockholders,
creditors and other interested",
evidently for the purpose, among
others, of enabling said trustees
to prosecute and defend suits by
or against the corporation begun
before the expiration of said
period. Hence, commenting on said
sections, Judge Fisher, in his work
entitled Philippines Law on Stock
Corporations (1929 ed.), has the
following to say:
It is to be noted that the time during
which the corporation, through its own
officers, may conduct the liquidation of
its assets and sue and be sued as a
corporation is limited to three years
from the time the period of dissolution
commences; ******but that there is
no time limited within the
trustees must complete a
liquidation placed in their hands.
It is provided only (Corp. Law, Sec.
78) that the conveyance to the
trustees must be made within the
three-year period. It may be found
impossible to complete the work
of liquidation within the three-
year period or to reduce disputed
claims to judgment. The
authorities are to the effect that
suits by or against a corporation
abate when it ceased to be an
entity capable of suing or being
sued (7 R.C.L. Corps., Par. 750);
but trustees to whom the
corporate assets have been
conveyed pursuant to the
authority of section 78 may used
and be sued as such in all matters
connected with the liquidation. By
the terms of the statute the effect
of the conveyance is to make the
trustees the legal owners of the
property conveyed, subject to the
beneficial interest therein of
creditors and stockholders. (pp.
389-390; see also Sumera v. Valencia
[67 Phil. 721, 726-727).
Obviously, the complete loss of
plaintiff's corporate existence
after the expiration of the period
of three (3) years for the
settlement of its affairs is what
impelled the President to create a
Board of Liquidators, to continue
the management of such matters
as may then be pending. The first
question must, therefore, be
answered in the negative.
TAN TIONG VS CIR
FACTS:
ISSUE:
Won the tax assessment to central
syndicate corp is valid (NO! THE CORP
NO LONGER EXISTS DUE TO THE
TERMINATION OF ITS CORPORATE
AFFAIRS)
16
HELD:
It is true that sections 77 and 78
of our Corporation Law
contemplate that corporate
existence can be prolonged only
for three years from and after the
termination of the corporate term,
for the purpose of winding up its
affairs; and in the case of the Central
Syndicate, ***the three years
expired in 1951. On this basis, if it
be true that the Syndicate
thereafter had no personality to
dispute the assessment, it would
be equally true that no valid
assessment could be imposed on a
corporation that no longer had
juridical personality.
***In any event, the government
cannot insist on making a tax
assessment against a corporation
that no longer exists and then
turn around and oppose the
appeal questioning the legality of
the assessment precisely on the
ground that the corporation is
non- existent, and has no longer
capacity to sue. The government
cannot adopt inconsistent stands
and thereby deprive the officers
and directors of the defunct
corporation of the remedy to
question the validity and
correctness of the assessment for
which, if sustained, they would be
held personally liable as
successors-in-interest to the
corporate property.
We therefore agree with Appellant that
its appeal should not have been
dismissed but that the Respondent
Court of Tax Appeals should have
allowed the substitution of its former
officers and directors as parties-
Appellants, since they are proper
parties in interest in so far as they
may be (and in fact are) held
personally liable for the unpaid
deficiency assessments made by the
Collector of Internal Revenue against
the defunct Syndicate.
The resolution appealed from is set
aside, and the Respondent Court is
ordered to permit the substitution of
the officers and directors of the
defunct Central Syndicate as
Appellants, and to proceed with the
hearing of the appeal upon its merits.
Without costs
GELANO VS CA
FACTS:
ISSUE:
WON INSULAR SAWMILL CAN
CONTINUE TO PURSUE THE ACTION
EVEN AFTER THE 3 YEAR PERIOD OF
THE LIQUIDATION STAGE (YES! AS
LONG AS THERE IS A TRUSTEE WHICH
IN THIS CASE IS THE LAWYER OF
INSULAR SAWMILL)
HELD:
In American corporate law, upon which
our Corporation Law was patterned,
***it is well settled that, unless
the statutes otherwise provide, all
pending suits and actions by and
against a corporation are abated
by a dissolution of the
corporation. 5 Section 77 of the
Corporation Law provides that the
corporation shall "be continued as
a body corporate for three (3)
years after the time when it would
have been ... dissolved, for the
purpose of prosecuting and
defending suits By or against
it ...," so that, thereafter, it shall
no longer enjoy corporate
existence for such purpose. For
this reason, Section 78 of the
same law authorizes the
corporation, "at any time during
said three years ... to convey all of
its property to trustees for the
benefit of members, Stockholders,
creditors and other interested,"
evidently for the purpose, among
others, of enabling said trustees
to prosecute and defend suits by
or against the corporation begun
before the expiration of said
period. 6 Commenting on said
sections, Justice Fisher said:
It is to be noted that the time during
which the corporation, through its own
officers, may conduct the liquidation of
its assets and sue and be sued as a
corporation is limited to three years
17
from the time the period of dissolution
commences; but that there is no time
limited within which the trustees must
complete a liquidation placed in their
hands. It is provided only (Corp. Law,
Sec. 78) that the conveyance to the
trustees must be made within the
three-year period. It may be found
impossible to complete the work of
liquidation within the three-year period
or to reduce disputed claims to
judgment. The authorities are to the
effect that suits by or against a
corporation abate when it ceased to
be an entity capable of suing or being
sued (7 R.C.L. Corps., Par. 750); but
trustees to whom the corporate
assets have been conveyed
pursuant to the authority of
Section 78 may sue and be sued
as such in all matters connected
with the liquidation. By the terms
of the statute the effect of the
conveyance is to make the
trustees the legal owners of the
property conveyed, subject to the
beneficial interest therein of
creditors and stockholders. 7
***When Insular Sawmill, Inc. was
dissolved on December 31, 1960,
under Section 77 of the
Corporation Law, it stin has the
right until December 31, 1963 to
prosecute in its name the present
case. After the expiration of said
period, the corporation ceased to
exist for all purposes and it can no
longer sue or be sued. 8
***However, a corporation that
has a pending action and which
cannot be terminated within the
three-year period after its
dissolution is authorized under
Section 78 to convey all its
property to trustees to enable it
to prosecute and defend suits by
or against the corporation beyond
the Three-year period although
private respondent (did not
appoint any trustee, yet the
counsel who prosecuted and
defended the interest of the
corporation in the instant case
and who in fact appeared in
behalf of the corporation may be
considered a trustee of the
corporation at least with respect
to the matter in litigation only.
Said counsel had been handling
the case when the same was
pending before the trial court
until it was appealed before the
Court of Appeals and finally to this
Court. We therefore hold that
there was a substantial
compliance with Section 78 of the
Corporation Law and as such,
private respondent Insular
Sawmill, Inc. could still continue
prosecuting the present case even
beyond the period of three (3)
years from the time of its
dissolution.
From the above quoted commentary of
Justice Fisher, ****the trustee may
commence a suit which can
proceed to final judgment even
beyond the three-year period. No
reason can be conceived why a
suit already commenced By the
corporation itself during its
existence, not by a mere trustee
who, by fiction, merely continues
the legal personality of the
dissolved corporation should not
be accorded similar treatment
allowed to proceed to final
judgment and execution thereof.
***The word "trustee" as sued in
the corporation statute must be
understood in its general concept
which could include the counsel to
whom was entrusted in the
instant case, the prosecution of
the suit filed by the corporation.
The purpose in the transfer of the
assets of the corporation to a
trustee upon its dissolution is
more for the protection of its
creditor and stockholders.
Debtors like the petitioners herein
may not take advantage of the
failure of the corporation to
transfer its assets to a trustee,
assuming it has any to transfer
which petitioner has failed to
show, in the first place. To sustain
petitioners' contention would be to
allow them to enrich themselves at the
expense of another, which all
enlightened legal systems condemn.
18
The observation of the Court of
Appeals on the issue now before Us
that:
Under Section 77 of the Corporation
Law, when the corporate existence is
terminated in any legal manner, the
corporation shall nevertheless
continue as a body corporate for three
(3) years after the time when it would
have been dissolved, for the purpose
of prosecuting and defending suits by
or against it. According to authorities,
the corporation "becomes incapable of
making contracts or receiving a grant.
It does not, however, cease to be a
body corporate for all purposes." In
the case of Pasay Credit and Finance
Corp. vs. Isidro Lazaro and others, 46
OG (11) 5528, this Court held that "a
corporation may continue a pending
'litigation even after the lapse of the 3-
year period granted by Section 77 of
Act 1459 to corporation subsequent to
their dissolution to continue its
corporate existence for the purpose of
winding up their affairs and settling all
the claims by and against same." We
note that the plaintiff Insular Sawmill,
Inc. ceased as a corporation on
December 30, 1960 but the case at
bar was instituted on May 29, 1959,
during the time when the corporation
was still very much alive. Accordingly,
it is our view that "any litigation filed
by or against it instituted within the
period, but which could not be
terminated, must necessarily prolong
that period until the final termination
of said litigation as otherwise
corporations in liquidation would lose
what should justly belong to them or
would be exempt from the payment of
just obligations through a mere
technicality, something that courts
should prevent" (Philippine
Commercial Laws by Martin, 1962 Ed.,
Vol. 2, p. 1716).
merits the approval of this Court.
BOARD OF LIQUIDATORS VS
KALAW (REPEAT CASE)
HELD:
Citing Mr. Justice Fisher, defendants
proceed to argue that even where it
may be found impossible within the 3
year period to reduce disputed claims
to judgment, nonetheless, "suits by or
against a corporation abate when it
ceases to be an entity capable of suing
or being sued" (Fisher, The Philippine
Law of Stock Corporations, pp. 390-
391). Corpus Juris Secundum
likewise is authority for the
statement that "[t]he dissolution
of a corporation ends its existence
so that there must be statutory
authority for prolongation of its
life even for purposes of pending
litigation"9 and that suit "cannot
be continued or revived; nor can a
valid judgment be rendered
therein, and a judgment, if
rendered, is not only erroneous,
but void and subject to collateral
attack." 10 So it is, that
abatement of pending actions
follows as a matter of course upon
the expiration of the legal period
for liquidation, 11 unless the
statute merely requires a
commencement of suit within the
added time. 12 For, the court
cannot extend the time alloted by
statute. 13
We, however, express the view that
the executive order abolishing
NACOCO and creating the Board of
Liquidators should be examined in
context. The proviso in Section 1
of Executive Order 372, whereby
the corporate existence of
NACOCO was continued for a
period of three years from the
effectivity of the order for "the
purpose of prosecuting and
defending suits by or against it
and of enabling the Board of
Liquidators gradually to settle and
close its affairs, to dispose of and
convey its property in the manner
hereinafter provided", is to be
read not as an isolated provision
but in conjunction with the whole.
So reading, it will be readily
observed that no time limit has
been tacked to the existence of
the Board of Liquidators and its
function of closing the affairs of
the various government owned
corporations, including NACOCO.
By Section 2 of the executive order,
while the boards of directors of the
19
various corporations were abolished,
their powers and functions and duties
under existing laws were to be
assumed and exercised by the Board
of Liquidators. The President thought it
best to do away with the boards of
directors of the defunct corporations;
at the same time, however, the
President had chosen to see to it that
the Board of Liquidators step into the
vacuum. And nowhere in the executive
order was there any mention of the
lifespan of the Board of Liquidators. A
glance at the other provisions of the
executive order buttresses our
conclusion. Thus, liquidation by the
Board of Liquidators may, under
section 1, proceed in accordance
with law, the provisions of the
executive order, "and/or in such
manner as the President of the
Philippines may direct." By
Section 4, when any property,
fund, or project is transferred to
any governmental instrumentality
"for administration or continuance
of any project," the necessary
funds therefor shall be taken from
the corresponding special fund
created in Section 5. Section 5, in
turn, talks of special funds
established from the "net
proceeds of the liquidation" of the
various corporations abolished.
And by Section, 7, fifty per
centum of the fees collected from
the copra standardization and
inspection service shall accrue "to
the special fund created in section
5 hereof for the rehabilitation and
development of the coconut
industry." Implicit in all these, is
that the term of life of the Board
of Liquidators is without time
limit. Contemporary history gives
us the fact that the Board of
Liquidators still exists as an office
with officials and numerous
employees continuing the job of
liquidation and prosecution of
several court actions.
Not that our views on the power of the
Board of Liquidators to proceed to the
final determination of the present case
is without jurisprudential support. The
first judicial test before this Court is
National Abaca and Other Fibers
Corporation vs. Pore, L-16779, August
16, 1961. In that case, the corporation,
already dissolved, commenced suit
within the three-year extended period
for liquidation. That suit was for
recovery of money advanced to
defendant for the purchase of hemp in
behalf of the corporation. She failed to
account for that money. Defendant
moved to dismiss, questioned the
corporation's capacity to sue. The
lower court ordered plaintiff to include
as co-party plaintiff, The Board of
Liquidators, to which the corporation's
liquidation was entrusted by Executive
Order 372. Plaintiff failed to effect
inclusion. The lower court dismissed
the suit. Plaintiff moved to reconsider.
Ground: excusable negligence, in that
its counsel prepared the amended
complaint, as directed, and instructed
the board's incoming and outgoing
correspondence clerk, Mrs. Receda
Vda. de Ocampo, to mail the original
thereof to the court and a copy of the
same to defendant's counsel. She
mailed the copy to the latter but failed
to send the original to the court. This
motion was rejected below. Plaintiff
came to this Court on appeal. We there
said that "the rule appears to be well
settled that, in the absence of
statutory provision to the contrary,
pending actions by or against a
corporation are abated upon
expiration of the period allowed by law
for the liquidation of its affairs." We
there said that "[o]ur Corporation Law
contains no provision authorizing a
corporation, after three (3) years from
the expiration of its lifetime, to
continue in its corporate name actions
instituted by it within said period of
three (3) years." 14 However, these
precepts notwithstanding, we, in
effect, held in that case that the Board
of Liquidators escapes from the
operation thereof for the reason that
"[o]bviously, the complete loss of
plaintiff's corporate existence after the
expiration of the period of three (3)
years for the settlement of its affairs is
what impelled the President to create
a Board of Liquidators, to continue the
management of such matters as may
then be pending." 15 We accordingly
directed the record of said case to be
returned to the lower court, with
instructions to admit plaintiff's
amended complaint to include, as
20
party plaintiff, the Board of
Liquidators.
****Defendants' position is
vulnerable to attack from another
direction.
By Executive Order 372, the
government, the sole stockholder,
abolished NACOCO, and placed its
assets in the hands of the Board
of Liquidators. The Board of
Liquidators thus became the
trustee on behalf of the
government. It was an express
trust. The legal interest became
vested in the trustee the Board
of Liquidators. The beneficial
interest remained with the sole
stockholder the government. At
no time had the government
withdrawn the property, or the
authority to continue the present
suit, from the Board of
Liquidators. If for this reason
alone, we cannot stay the hand of
the Board of Liquidators from
prosecuting this case to its final
conclusion. 16 The provisions of
Section 78 of the Corporation Law
the third method of winding up
corporate affairs find
application.
We, accordingly, rule that the
Board of Liquidators has
personality to proceed as: party-
plaintiff in this case.
CHINA BANK VS MICHELIN
FACTS:
George OFarrel & Cie Inc. is a
domestic corporation acting as agent
and representative of the
Michelin & Cie, a foreign
corporation engaged in the sale
and distribution of Michelin tires.
Michelin decided to discontinue
their business relations, and it
was discovered that OFarrel
failed to account for an amount
representing the price of tires
sold by the latter. Michelin claims
the money was disposed by
OFarrel for its own use and
benefit and without the authority
or consent of Michelin. Gaston
OFarrel (the person) and Sanchez
executed a mortgage on the house of
OFarrel and shares owned by both to
guarantee payment of the amount to
the Michelin, but left a balance which
the latter seeks to recover. The board
of the corporation filed a petition
for its dissolution and sought the
appointment of Gaston as receiver
and liquidator, which was granted
by the trial court. Michelin filed its
claim against OFarrel Corp with a
prayer that its claim be allowed as
a preferred one against the latter.
Notice was given only to the
corporation and to the claimant,
no one else. The trial court
granted the claim and nobody
except Michelin and Gaston were
notified of the order. China Bank
intervened and moved that
Michelins claim be allowed as an
ordinary one under the Insolvency
Law and that the sum of P5,000
paid by the
receiver to the appellee on
account of the latters claim be
refunded to the funds of the
corporation in liquidation for the
benefit of the rest of the creditors
. The lower court dismissed the case
stating the decision has become final
and unappealable.
ISSUE:
HELD:
A close examination of the record in
this case fails to disclose the
reasons which led the corporation
to resort to the court for a decree
of voluntary dissolution. If the
corporation was under such a financial
condition as alleged in its petition for
dissolution and did not desire to
continue doing business because of
failing conditions or of any other
reason, we are unable to understand
the necessity of its seeking judicial
intervention in the winding up of its
affairs coupled with the appointment
for a receiver to deal with its creditors
as though they were the creditors of
an insolvent corporation.
Section 176 of the Code of Civil
Procedure dealing with the
21
appointment of receiver upon decree
of dissolution of a corporation
provides that the court "may . . .
appoint a receiver to take charge"
of the estate and effects of the
corporation, "and to pay the
outstanding debts thereof, and to
divide the money and other
properties that shall remain over
among the stockholders or
members", and consistent with
said provision section 66 of the
Corporation Law provides with
respect to decrees of dissolution
rendered upon voluntary
application that the court "may
appoint receivers to collect and
take charge of the assets of the
corporation." Such language
found in both statutes on the
subject is permissive rather than
mandatory and tends to recognize
that in cases of voluntary
dissolution there is no occasion
for the appointment of a receiver
except under special
circumstances and upon proper
showing. There can be no doubt that
when enacting the Corporation Law
the Legislature intended to let the
shareholders have the control of the
assets of the corporation upon
dissolution in winding up its affairs.
The normal method of procedure is for
the directors and executive officers to
have charge of the winding up
operations, though there is the
alternative method of assigning the
property of the corporation to trustees
for the benefit of its creditors and
shareholders.
***Section 77 and 78 of the
Corporation Law make the general
purpose of the law manifest.
Section 77 provides that every
corporation whose charter expires
by its own limitation or whose
corporate existence terminates in
"any other manner", shall
nevertheless be continued as a
body corporate for three years
"after the time when it would
have been so dissolved" for
winding up operations; and
section 78 provides that "said
corporations at any time during
the three years term may convey
its property to trustees for the
benefit of creditors, stockholders
and others concerned."
Statutes authorizing voluntary
dissolutions are generally held to
apply only to a dissolution
brought about by the stockholders
themselves, and while the
appointment of a receiver rests
within the sound judicial
discretion of the court, such
discretion must, however, always
be exercised with caution and
governed by legal and equitable
principles, the violation of which
will amount to its abuse, and in
making such appointment the
court should take into
consideration all the facts and
weigh the relative advantages and
disadvantages of appointing a
receiver to wind up the corporate
business. The court should only
act on facts which have been
proved by competent legal
evidence. (8 Thompson on Corp. [2d
ed. ], pages 693, 701, 727, and 738.)
The appointment of a receiver by
the court to wind up the affairs of
the corporation upon petition of
voluntary dissolution does not
empower the court to hear and
pass on the claims of the creditors
of the corporation at first hand. In
such cases the receiver does not
act as a receiver of an insolvent
corporation. Since "liquidation" as
applied to the settlement of the
affairs of a corporation consists of
adjusting the debts and claims,
that is, of collecting all that is due
the corporation, the settlement
and adjustment of claims against
it and the payment of its just
debts, all claims must be
presented for allowance to the
receiver or trustee or other proper
persons during the winding up
proceedings which in this
jurisdiction would be within the
three years provided by sections
77 and 78 of the Corporation Law
as the term for the corporate
existence of the corporation, and
if a claim is disputed or
unliquidated so that the receiver
cannot safely allow the same, it
should be transferred to the
22
proper court for trial and
allowance, and the amount so
allowed then presented to the
receiver or trustee for payment.
The rulings of the receiver on the
validity of claims submitted are
subject to review by the court
appointing such receiver though no
appeal is taken to the latters ruling (8
Thompson on Corp., 718), and during
the winding up proceedings after
dissolution, no creditor will be
permitted by legal process or
otherwise to acquire priority, or to
enforce his claim against the property
held for distribution as against the
rights of other creditors. (5 Thompson
on Corp. [2d ed. ], pages 1389, 1391,
1402, and 1403.)
The decree of dissolution in the
case at bar having been entered
on August 22, 1930, and the
motion of the appellant, China
Banking Corporation, appearing to
have been filed on September 30,
1931, or about thirteen months
later, it follows that the motion
was filed on time to have the
appellees claim reviewed by the
court under the provisions of the
said sections of the Corporation
Law, and the trial court, therefore,
erred in finding that the order of
November 8, 1930, allowing
appellees claim was final and
unappealable under the provisions
of section 113 of the Code of Civil
Procedure.
REPUBLIC VS MARSMAN
FACTS:
As found by His Honor, the factual
setting of the decision is as follows:
Defendant corporation was a timber
licensee holding Timber Licensee
Agreement No. 37-A, with concessions
in the Municipality of Basud and
Mondazo, Camarines Norte. Sometime
before October 15, 1953 an
investigation was conducted on the
business operation and activities of
the corporation leading to the
discovery that certain taxes were due
(from) it on logs produced from its
concession. On October 15, 1953, the
Deputy Collector of Internal Revenue
demanded the payment of P13,136.00
representing forest charges due from
May 18, 1950 to September 30, 1953,
and a surcharge of 25% (Exh. M). On
September 13, 1954, after further
investigation another assessment was
sent to the defendant corporation by
the Bureau of Internal Revenue
demanding from it the total sum of
P45,541.66 representing deficiency
sales tax, forest charges, surcharges
and penalties (Exh. A). On November
8, 1954 another assessment was
addressed to the defendant
corporation for the payment of
P456.12 as 25% surcharge for
discharging lumber without permit
(Exh. P). The three assessments
totalling P59,133.78 are the subject
matter of the instant case for
collection.
xxx xxx xxx
The-contention of the defendant that
the assessment in question have not
yet become final and executory is not
borne out by the record. The Bureau of
Internal Revenue made its first
demand for the payment of
P13,136.00 as forest charges and
surcharges in the letter dated October
15, 1953 (Exh. M). After further
investigation, a second assessment in
the total amount of P45,541.66 was
demanded from the defendant
corporation representing sales tax and
surcharges, and is contained in the
letter dated September 13, 1954 (Exh.
A). The third assessment for the
payment of P456.12 representing 25%
surcharge for discharging lumber
without permit was made on
November 8, 1954 (Exh. B).
The first acknowledgment by the
defendant corporation of its receipt of
assessment contained in the letter of
September 13, 1954, Exh. A, was the
letter of the defendant corporation
under the signature of its counsel,
Atty. Pedro L. Moya dated December
28, 1954, wherein it is requested that
said defendant be furnished with an
itemized statement of the said taxes
and wherein notice is served of its
intention to question the validity and
the legality of the assessments and to
23
appear before the Conference Staff of
the Bureau of Internal Revenue in
connection with the said tax (Exhibit
B). In reply to the letter, Exhibit B, the
Bureau of Internal Revenue wrote Atty.
Moya a letter dated February 11, 1955
informing him that before the case
may be acted upon by the Conference
Staff, it was necessary that the
defendant corporation comply within
10 days from date of said letter, with
the provisions of Dept. Order No. 213
dated November 2, 1954 which
required, among others, that requests
for reinvestigation or reexamination of
tax assessments shall be made in
writing under oath of the taxpayer
concerned, specifying the ground or
grounds relied upon for the revision of
the assessment and accompanied by
such documents and other documents
relied upon in support of the request;
and that, as a general rule, the
revision will be granted only upon
payment of one-half of the total
assessments and upon filing of a bond
to guarantee the payment of the
balance of the tax (Exhibit C).
Acknowledgment of Exhibit C was
made by Atty. Moya in the latter's
letter of February 23, 1955 wherein,
for the reasons therein stated, he
requested exemption from the
requirements contained in the letter
Exhibit C (Exhibit D). In Reply to
Exhibit D, the Collector of Internal
Revenue wrote Atty. Moya on May 3,
1955 informing him that his request to
exempt his client from the
requirements contained in the letter
dated February 11, 1955, cannot be
favorably considered and that in order
that the Conference Staff may be
directed to hear the case on the
merits, the said requirements must be
complied with within five days from
receipt of said letter; otherwise, the
"assessment will be considered final"
(Exhibit E). A follow-up letter dated
June 4, 1955, was addressed to Atty.
Moya after discovering that the
requirements mentioned in the letters
dated February 11, 1955 and March 3,
1955 have not been complied with
inspite of the considerable length of
time that had already elapsed (Exhibit
F). In the last paragraph of the said
letter, Exhibit F, the defendant
corporation was warned that unless
the aforementioned requirements are
complied with within five (5) days from
receipt, the "case will be considered
abandoned and appropriate action will
be taken in accordance with law".
Again on November 14, 1955, after
discovering that the letters dated
February 11, 1955, March 3, 1955 and
June 4, 1955 have remained unheeded
by the defendant corporation, the
latter was given another chance of
complying with the requirements
mentioned within five days from
receipt of said letter otherwise, the
Bureau of Internal Revenue "will be
constrained to enforce the immediate
collection of the deficiency percentage
tax and forest charges due" (Exhibit
G).
On April 27, 1956, the Bureau of
Internal Revenue issued "final tax
notices" to the defendant corporation.
Although the letters containing the
"final tax notices" were not presented
in evidence, the defendants admit
having received the same, as shown
by the contents of defendant
corporation's letters dated May 10,
1956, Exhibit H, and August 7, 1956,
Exhibit J. In said Exhibit H defendant
corporation again protested the
assessment of P45,541.66 and
reiterated its request for specification
of the items disputing the assessment
in question. It further requests for a
period of 30 days from the receipt of
the specifications within which to
consider its tax liability, further
reserving its right to contest the
legality or validity of the assessment
or any particular items thereof within
the said period of 30 days. Defendant
corporation also protested the sending
of final notices and requested that
they be countermanded or withheld.
Finding no merit in the protests of the
defendant corporation, a warrant of
distraint and levy was issued against it
by the Bureau of Internal Revenue on
July 3, 1956 (Exhibit O).
On August 3, 1956, defendant
corporation again wrote the Collector
of Internal Revenue acknowledging the
receipt of the warrant of distraint and
levy served upon it and reiterating its
request for a specification of the
different items of the assessment,
24
subject to the right to contest the
legality and validity of the same within
30 days after receipt of said
specifications (Exh. J). The record does
not show what action was taken on the
request contained in said letter on
August 3, 1956. The next
communication appearing in the
record is that of the Commissioner of
Internal Revenue dated July 30, 1959,
addressed to the defendant
corporation demanding on the letter
the payment of the assessment of
P45,541.66 which has remained
unpaid, and informing the said
corporation that if they do not settle
said tax obligation within five days
from receipt thereof, the Bureau of
Internal Revenue will be constrained to
file an action in Court for the collection
thereof without further notice (Exhibit
I). Defendant corporation replied to
Exhibit I in a letter dated August 17,
1959 stating that it needed more time
to go over the records and vouchers,
and requesting for an extension of 10
days (Exhibit E). In another letter of
same date, the defendant corporation
reiterated its exception to the validity
and legality of the assessment against
it in the sum of P45,541.66 and its
request for a detailed statement of the
transactions involved (Exhibit L).
[Record on Appeal pp. 188-189, 190-
195.]
According to the Record on Appeal,
and as additionally stated also by the
trial court, the original complaint filed
on September 5, 1958 prayed for the
payment of only P13,695.96, and it
was only in an amended complaint
filed on August 26, 1959 and admitted
on September 23, 1959 that, for the
first time, the amount of P59,133.78
was judicially demanded to be paid.
ISSUE:
HELD:
We agree with His Honor. The stress
given by appellants to the extinction of
the corporate and juridical personality
as such of appellant corporation by
virtue of its extra-judicial dissolution
which admittedly took place on April
23, 1954 is misdirected. While
Section 77 of the Corporation Law
does provide that:
Every corporation whose charter
expires by its own limitation or is
annulled by forfeiture or
otherwise, or whose corporate
existence for other purposes is
terminated in any other manner,
shall nevertheless be continued as
a body corporate for three years
after the time when it would have
been so dissolved, for the purpose
of prosecuting and defending
suits by or against it and of
enabling it gradually to settle and
close its affairs, to dispose of and
convey its property and to divide
its capital stock, but not for the
purpose of continuing the
business for which it was
established.
the next provision, Section 78, adds
for clarification:
At any time during said three
years said corporation is
authorized and empowered to
convey all of its property to
trustees for the benefit of
members, stock-holders,
creditors, and others interested.
From and after any such
conveyance by the corporation of
its property in trust for the
benefit of its members,
stockholders, creditors, and
others in interest, all interest
which the corporation had in the
property terminates, the legal
interest vests in the trustee, and
the beneficial interest in the
members, stockholders, creditors,
or other persons in interest.
It is to be recalled*** that the
assessments against appellant
corporation for deficiency taxes
due for its operations since 1947
were made by the Bureau of
Internal Revenue on October 15,
1953, September 13, 1954 and
November 8, 1954, such that the
first was before its dissolution and
the last two not later than six
months after such dissolution.
Thus, in whatever way the matter
may be viewed, the Government
25
became the creditor of the
corporation before the completion
of its dissolution by the
liquidation of its assets. Appellant
F.H. Burgess, whom it chose as
liquidator, became in law the
trustee of all its assets for the
benefit of all persons enumerated
in Section 78, including its
creditors, among whom is the
Government, for the taxes herein
involved.
To assume otherwise would render
the extra-judicial dissolution
illegal and void, since, according
to Section 62 of the Corporation
Law, such kind of dissolution is
permitted only when it "does not
affect the rights of any creditor
having a claim against the
corporation." It is immaterial that
the present action was filed after
the expiration of three years after
April 23, 1954, for at the very
least, and assuming that judicial
enforcement of taxes may not be
initiated after said three years
despite the fact that the actual
liquidation has not been
terminated and the one in charge
thereof is still holding the assets
of the corporation, obviously for
the benefit of all the creditors
thereof, the assessment
aforementioned, made within the
three years, definitely established
the Government as a creditor of
the corporation for whom the
liquidator is supposed to hold
assets of the corporation. And
since the suit at bar is only for the
collection of taxes finally assessed
against the corporation within the
three years invoked by appellants,
their fourth assignment of error
cannot be sustained. As to the
allegation that appellant Burgess has
not in fact received any property or
asset of the corporation, that is a
matter that can well be taken care of
in the execution of the judgment which
may be rendered herein, albeit it
seems some kind of fraud would be
perceptible, if the corporation had
been dissolved without leaving any
assets whatsoever with the liquidator.
ALHAMBRA SUGAR VS SEC
FACTS:
Petitioner Alhambra Cigar and
Cigarette Manufacturing Company, Inc.
(hereinafter referred to simply as
Alhambra) was duly incorporated
under Philippine laws on January 15,
1912. By its corporate articles it was to
exist for fifty (50) years from
incorporation. Its term of existence
expired on January 15, 1962. On that
date, it ceased transacting business,
entered into a state of liquidation.
Thereafter, a new corporation.
Alhambra Industries, Inc. was
formed to carry on the business of
Alhambra.
On May 1, 1962, Alhambra's
stockholders, by resolution named
Angel S. Gamboa trustee to take
charge of its liquidation.
On June 20, 1963 within Alhambra's
three-year statutory period for
liquidation - Republic Act 3531 was
enacted into law. It amended Section
18 of the Corporation Law; it
empowered domestic private
corporations to extend their corporate
life beyond the period fixed by the
articles of incorporation for a term not
to exceed fifty years in any one
instance. Previous to Republic Act
3531, the maximum non-extendible
term of such corporations was fifty
years.
On July 15, 1963, at a special meeting,
Alhambra's board of directors resolved
to amend paragraph "Fourth" of its
articles of incorporation to extend its
corporate life for an additional fifty
years, or a total of 100 years from its
incorporation.
On August 26, 1963, Alhambra's
stockholders, representing more than
two-thirds of its subscribed capital
stock, voted to approve the foregoing
resolution. The "Fourth" paragraph of
Alhambra's articles of incorporation
was thus altered to read:
FOURTH. That the term for which said
corporation is to exist is fifty (50)
years from and after the date of
26
incorporation, and for an additional
period of fifty (50) years thereafter.
On October 28, 1963, Alhambra's
articles of incorporation as so
amended certified correct by its
president and secretary and a majority
of its board of directors, were filed with
respondent Securities and Exchange
Commission (SEC).
On November 18, 1963, SEC, however,
returned said amended articles of
incorporation to Alhambra's counsel
with the ruling that Republic Act 3531
"which took effect only on June 20,
1963, cannot be availed of by the said
corporation, for the reason that its
term of existence had already expired
when the said law took effect in short,
said law has no retroactive effect."
On December 3, 1963, Alhambra's
counsel sought reconsideration of
SEC's ruling aforesaid, refiled the
amended articles of incorporation.
On September 8, 1964, SEC, after a
conference hearing, issued an order
denying the reconsideration sought.
ISSUE:
HELD:
As we look in retrospect at the facts,
we find these: From July 15 to October
28, 1963, when Alhambra made its
attempt to extend its corporate
existence, its original term of fifty
years had already expired (January 15,
1962); it was in the midst of the
three-year grace period
statutorily fixed in Section 77 of
the Corporation Law, thus: .
SEC. 77. Every corporation whose
charter expires by its own
limitation or is annulled by
forfeiture or otherwise, or whose
corporate existence for other
purposes is terminated in any
other manner, shall nevertheless
be continued as a body corporate
for three years after the time
when it would have been so
dissolved, for the purpose of
prosecuting and defending suits
by or against it and of enabling it
gradually to settle and close its
affairs, to dispose of and convey
its property and to divide its
capital stock, but not for the
purpose of continuing the
business for which it was
established.2
Plain from the language of the
provision is its meaning:
continuance of a "dissolved"
corporation as a body corporate
for three years has for its purpose
the final closure of its affairs, and
no other; the corporation is
specifically enjoined from
"continuing the business for which
it was established". The
liquidation of the corporation's
affairs set forth in Section 77
became necessary precisely
because its life had ended. For
this reason alone, the corporate
existence and juridical personality
of that corporation to do business
may no longer be extended.
Worth bearing in mind, at this
juncture, is the basic development of
corporation law.
The common law rule, at the
beginning, was rigid and inflexible in
that upon its dissolution, a corporation
became legally dead for all purposes.
Statutory authorizations had to be
provided for its continuance after
dissolution "for limited and specified
purposes incident to complete
liquidation of its affairs".3 Thus, the
moment a corporation's right to
exist as an "artificial person"
ceases, its corporate powers are
terminated "just as the powers of
a natural person to take part in
mundane affairs cease to exist
upon his death".4 There is nothing
left but to conduct, as it were, the
settlement of the estate of a
deceased juridical person.
2. Republic Act 3531, amending
Section 18 of the Corporation Law,
is silent, it is true, as to when
such act of extension may be
made. But even with a superficial
knowledge of corporate principles,
it does not take much effort to
reach a correct conclusion. For,
27
implicit in Section 77 heretofore
quoted is that the privilege given
to prolong corporate life under
the amendment must be exercised
before the expiry of the term fixed
in the articles of incorporation.
Silence of the law on the matter is not
hard to understand. Specificity is not
really necessary. The authority to
prolong corporate life was
inserted by Republic Act 3531 into
a section of the law that deals
with the power of a corporation to
amend its articles of
incorporation. (For, the manner of
prolongation is through an
amendment of the articles.) And it
should be clearly evident that
under Section 77 no corporation in
a state of liquidation can act in
any way, much less amend its
articles, "for the purpose of
continuing the business for which
it was established".
All these dilute Alhambra's position
that it could revivify its corporate life
simply because when it attempted to
do so, Alhambra was still in the
process of liquidation. It is surely
impermissible for us to stretch the law
that merely empowers a corporation
to act in liquidation to inject therein
the power to extend its corporate
existence.
3. Not that we are alone in this view.
Fletcher has written: "Since the
privilege of extension is purely
statutory, all of the statutory
conditions precedent must be
complied with in order that the
extension may be effectuated.
And, generally these conditions
must be complied with, and the
steps necessary to effect the
extension must be taken, during
the life of the corporation, and
before the expiration of the term
of existence as original fixed by
its charter or the general law,
since, as a rule, the corporation is
ipso facto dissolved as soon as
that time expires. So where the
extension is by amendment of the
articles of incorporation, the
amendment must be adopted
before that time. And, similarly,
the filing and recording of a
certificate of extension after that
time cannot relate back to the
date of the passage of a
resolution by the stockholders in
favor of the extension so as to
save the life of the corporation.
The contrary is true, however, and
the doctrine of relation will apply,
where the delay is due to the
neglect of the officer with whom
the certificate is required to be
filed, or to a wrongful refusal on
his part to receive it. And statutes
in some states specifically provide
that a renewal may be had within
a specified time before or after
the time fixed for the termination
of the corporate existence".5
The logic of this position is well
expressed in a foursquare case
decided by the Court of Appeals of
Kentucky.6 There, pronouncement was
made as follows:
... *******But section 561 (section
2147) provides that, when any
corporation expires by the terms
of its articles of incorporation, it
may be thereafter continued to
act for the purpose of closing up
its business, but for no other
purpose. The corporate life of the
Home Building Association expired
on May 3, 1905. After that date,
by the mandate of the statute, it
could continue to act for the
purpose of closing up its business,
but for no other purpose. The
proposed amendment was not
made until January 16, 1908, or
nearly three years after the
corporation expired by the terms
of the articles of incorporation.
When the corporate life of the
corporation was ended, there was
nothing to extend. Here it was
proposed nearly three years after
the corporate life of the
association had expired to revivify
the dead body, and to make that
relate back some two years and
eight months. In other words, the
association for two years and
eight months had only existed for
the purpose of winding up its
business, and, after this length of
time, it was proposed to revivify it
28
and make it a live corporation for
the two years and eight months
daring which it had not been such.
The law gives a certain length of
time for the filing of records in
this court, and provides that the
time may be extended by the
court, but under this provision it
has uniformly been held that
when the time was expired, there
is nothing to extend, and that the
appeal must be dismissed... So,
when the articles of a corporation
have expired, it is too late to
adopt an amendment extending
the life of a corporation; for, the
corporation having expired, this is
in effect to create a new
corporation ..."7
True it is, that the Alabama
Supreme Court has stated in one
case.8 that a corporation
empowered by statute to renew
its corporate existence may do so
even after the expiration of its
corporate life, provided renewal is
taken advantage of within the
extended statutory period for
purposes of liquidation. That
ruling, however, is inherently
weak as persuasive authority for
the situation at bar for at least
two reasons: First. That case was
a suit for mandamus to compel a
former corporate officer to turn
over books and records that came
into his possession and control by
virtue of his office. It was there
held that such officer was obliged
to surrender his books and
records even if the corporation
had already expired. The holding
on the continued existence of the
corporation was a mere dictum.
Second. Alabama's law is
different. Corporations in that
state were authorized not only to
extend but also to renew their
corporate existence.That very
case defined the word "renew" as
follows; "To make new again; to
restore to freshness; to make new
spiritually; to regenerate; to begin
again; to recommence; to resume;
to restore to existence, to revive;
to re-establish; to recreate; to
replace; to grant or obtain an
extension of Webster's New
International Dict.; 34 Cyc. 1330;
Carter v. Brooklyn Life Ins. Co., 110
N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J.
379. Sec".9
On this point, we again draw from
Fletcher: "There is a broad distinction
between the extension of a charter
and the grant of a new one. To renew a
charter is to revive a charter which has
expired, or, in other words, "to give a
new existence to one which has been
forfeited, or which has lost its vitality
by lapse of time". To "extend" a
charter is "to increase the time for the
existence of one which would
otherwise reach its limit at an earlier
period".10 Nowhere in our statute
Section 18, Corporation Law, as
amended by Republic Act 3531 do
we find the word "renew" in reference
to the authority given to corporations
to protract their lives. Our law limits
itself to extension of corporate
existence. And, as so understood,
extension may be made only before
the term provided in the corporate
charter expires.
Alhambra draws attention to another
case11 which declares that until the
end of the extended period for
liquidation, a dissolved corporation
"does not become an extinguished
entity". But this statement was
obviously lifted out of context. That
case dissected the question whether
or not suits can be commenced by or
against a corporation within its
liquidation period. Which was
answered in the affirmative. For, the
corporation still exists for the
settlement of its affairs.
People, ex rel. vs. Green,12 also
invoked by Alhambra, is as unavailing.
There, although the corporation
amended its articles to extend its
existence at a time when it had no
legal authority yet, it adopted the
amended articles later on when it had
the power to extend its life and during
its original term when it could amend
its articles.
The foregoing notwithstanding,
Alhambra falls back on the
contention that its case is
29
arguably within the purview of the
law. It says that before cessation
of its corporate life, it could not
have extended the same, for the
simple reason that Republic Act
3531 had not then become law. It
must be remembered that
Republic Act 3531 took effect on
June 20, 1963, while the original
term of Alhambra's existence
expired before that date on
January 15, 1962. The mischief
that flows from this theory is at
once apparent. It would certainly
open the gates for all defunct
corporations whose charters
have expired even long before
Republic Act 3531 came into being
to resuscitate their corporate
existence.