PART.

III

II. ENGAGING IN BUSINESS

E. Non-stock Corporations, Foundations and Special Corporations

Secs. 3, 13, 23, 43, 47, 49 (b), 76, 77, RCC

Secs. 86 – 94, RCC

Secs. 105 – 106, RCC (Educational corporations);

Sec. 25, BP Blg. 232

SEC Memorandum Circular No. 8, Series of 2006 (Revised Guidelines on Foundations)

SEC Memorandum Circular No. 10, Series of 2016 (Nationality of Non-stock corporations)

SEC OGC Opinion No. 16-12 (24 May 2016) (Nationality Requirement for Non-Stock, NonProfit
Corporations)

Cases:

Ao-as v. CA, 491 SCRA 339 (2006) - JOSIAH

FACTS:
This petition involves an intra-corporate dispute concerning the management of the Lutheran
Church of the Philippines (LCP), a religious organization which led SEC to organize and create
a Management Committee. Subsequent to the establishment of the said committee, LCP held a
national convention where members initiated an election, in line with the organization’s By-Laws
for a new set of church leaders because the incumbent directors were enjoined to act as Board.
As provided for in the LCP By-Laws, directors are elected by division, to the exception of the
President which is elected through the National Convention. Various issues were raised by the
parties before the SEC, which were all denied in favor of the SEC Management Committee.
When appealed to the CA, the latter aside from ruling on other relevant issues also nullified the
manner of election conducted by LCP for being in violation of the Corporation Code which
requires the presence of majority of the members entitled to vote at the election. Hence, this
petition

ISSUE: ​Whether or not the manner of election of the BOD of LCP as provided in its By-Laws is
invalid.
RULING:​ No.

The matter of how the directors or other leaders of a church shall be chosen is a matter of
ecclesiastical law or custom which is outside the jurisdiction of civil courts. In any case, the
stipulation in the By-Laws is not contrary to the Corporation Code. Section 89 of the Corporation
Code pertaining to non-stock corporations provides that "(t)he right of the members of any class
or classes (of a non-stock corporation) to vote may be limited, broadened or denied to the
extent specified in the articles of incorporation or the by-laws. This is an exception to Section 6
of the same code where it is provided that "no share may be deprived of voting rights except
those classified and issued as ‘preferred’ or ‘redeemable’ shares, unless otherwise provided in
this Code." The stipulation in the By-Laws providing for the election of the Board of Directors by
districts is a form of limitation on the voting rights of the members of a non-stock corporation as
recognized under the aforesaid Section 89. Section 24, which requires the presence of a
majority of the members entitled to vote in the election of the board of directors, applies only
when the directors are elected by the members at large, such as is always the case in stock
corporations by virtue of Section 6.

CIR v. St. Luke’s Medical Center, 682 SCRA 66 (2012) - NICH

Facts: St. Luke’s (respondent) is a hospital organized as a non-stock and non-profit

organization. Sometime in 2002, BIR assessed St. Luke’s deficiency taxes amounting to P76M
for 1998 which was subsequently reduced to P63M during trial in the CTA. St. Luke’s protested
and filed an administrative protest with BIR but was not acted by the latter within the 180 period
thus reaching to the CTA.

According to BIR, Section 27B of the NIRC imposing a 10% preferential tax rate applies to St.
Luke’s. Its reason is that it amends the exemption on non-profit hospitals and which prevails
over the exemption on income tax granted under Section 30 (E and G) for non-stock, nonprofit
charitable institution and civic organizations promoting social welfare. It further claimed that St.
Luke’s was actually operating for profit because only 13% came from charitable purposes and
that it had a total revenue of P1.73B from patient services in 1998.

Meanwhile, St. Luke’s contended that its operating income only totaled P334 M (less the
operating expenses) and out of that P218M (65%) made up its free services and further claimed
that its income does not inure to the benefit of anyone. Furthermore, it argued that it falls under
the exception provided under Sec. 30 (E) and (G) of NIRC and making of profit per se does not
destroy its tax exemption.

CTA En Banc ruled in favor of St. Luke’s exemption under Sec. 30 and reiterated its earlier
fiding in another case identifying St. Luke’s as a charitable institution. CTA adopted the test in
Hospital de San Juan de Dios, Inc. v. Pasay City, which states that "a charitable institution does
not lose its charitable character and its consequent exemption from taxation merely because
recipients of its benefits who are able to pay are required to do so, where funds derived in this
manner are devoted to the charitable purposes of the institution . . . ." (The generation of income
from paying patients does not per se destroy the charitable nature of St. Luke's.)

Issue: WON St. Luke’s is liable for deficiency income tax under Sec. 27 (B) of the NIRC which
imposes a 10% preferential rate.

Held: Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B) of the NIRC.

Under Sec. 30 (E) of the NIRC provides that a ​charitable institution must be: (1) non-stock
corporation or association; (2)ORGANIZED EXCLUSIVELY for charitable purposes; (3)
OPERATED EXCLUSIVELY ​for charitable purposes; (4) No part of its net income or asset shall
inure to the benefit of any member , officer or any person. Under the last paragraph of Sec. 30
of the NIRC if a tax exempt charitable institution conducts "any" activity for profit, such activity is
NOT TAX EXEMPT ​even as its not-for-profit activities remain tax exempt. It simply means that
even if a charitable institution organized and operated exclusively for charitable purposes is
nevertheless allowed to engage in “activities conducted for profit” without losing its tax exempt
status for its no-for-profit activities. However, as a consequence ​"income of whatever kind
and character" of a charitable institution "from any of its activities conducted for profit,
regardless of the disposition made of such income, shall be subject to tax." (Sec. 30, last
par.). ​Therefore, services rendered to paying patients are activities conducted for profit and thus
taxable under Sec. 27 (B) of the NIRC.

St. Luke's fails to meet the requirements under Section 30 (E) and (G) of the NIRC to be
completely tax exempt from all its income. ​However, it ​remains a proprietary non-profit
hospital under Section 27 (B) of the NIRC as long as it does not distribute any of its profits to
its members and such profits are reinvested pursuant to its corporate purposes. St. Luke's, as a
proprietary ​nonprofit hospital, is entitled to the preferential tax rate of 10% on its net
income from its for-profit activities.

Notes:

1. TEST OF CHARITY ​- as a gift, to be applied consistently with existing laws, ​for the
benefit of an indefinite number of persons, ​either by bringing their minds and hearts under
the influence of education or religion​, by assisting them to establish themselves in life or
[by] otherwise lessening the burden of government​." ​(In other words, charitable
institutions provide for free goods and services to the public which would otherwise fall
on the shoulders of government.)
2. Solely is synonymous with ​EXCLUSIVELY. (Lung center of the Phil.)
3.​ ​Proprietary​- means private.
4. ​Non-profit​- no net income accrues to the benefit of any person and with all its income
devoted to the institutions purpose and all its activities ​CONDUCTED NOT FOR PROFIT.

Long v. Basa, 366 SCRA 113 (2001) - MELO

FACTS:

In 1973, a religious group known as "The Church In Quezon City (Church Assembly Hall),
Incorporated" ("CHURCH" for brevity), located at 140 Talayan St., Talayan Village, Quezon City,
was organized as "an entity of the brotherhood in Christ."​1

It was registered in the same year with the Securities and Exchange Commission (SEC) as a
non-stock, non-profit religious corporation for the administration of its temporalities or the
management of its properties.​2

The Articles of Incorporation and By-laws of the CHURCH decree that its affairs and operation
shall be managed by a Board of Directors consisting of six (6) members,​3 who shall be members
of the CHURCH.​4

As a "brotherhood in Christ," the CHURCH embraced the "Principles of Faith" that "every
member or officer" thereof "shall, without mental reservation, adhere strictly to the doctrine,
teaching and faith being observed by the (CHURCH) in proclaiming the Gospel of Christ, to
save lost souls, to lead men in worshipping the true God, in accordance with the Holy Bible and
to believe:

(a) The Old and the New Testaments comprising the Holy Bible as inspired by God;

(b) The Trinity of the God-Head, which is God the Father, God the Son and God the Holy Spirit.

(c) That Jesus Christ, the only begotten Son of the Living God, conceived by the Virgin Mary
through the Holy Spirit, and possessing the nature of both God and man, and who died on the
cross to save mankind, was buried, rose again on the third day, has ascended up to heaven,
and will come back to reign as King someday.

(d) That the only way to salvation is solely by trusting on the shed blood of Jesus and the
conviction of the Holy Spirit."​5

Zealous in upholding and guarding their Christian faith, and to ensure unity and uninterrupted
exercise of their religious belief, the members of the CHURCH vested upon the Board of
Directors the absolute power "(to preserve and protect the(ir) faith"​6 and to ​admit​7 and ​expel​8 a
member of the CHURCH.
Admission for membership in the CHURCH is so exacting. Only "persons zealous of the Gospel,
faithful in Church work and of sound knowledge of the Truth, ​as the Board of Directors shall
admit to membership​, shall be members of the (CHURCH)."​9

The ​procedure for the ​expulsion of an erring or dissident member is prescribed in Article VII
(paragraph 4) of the CHURCH By-laws, which provides that "If it is ​brought to the notice of the
Board of Directors that any member ​has failed to observe any regulations and By-laws of the
Institution (CHURCH) ​or the conduct of any member has been dishonorable or improper or
otherwise injurious to the character and interest of the Institution, the Board of Directors may
b(y) resolution without assigning any reason therefor expel such member from such Institution
and he shall then forfeit his interest, rights and privileges in the Institution."

As early as 1988, the Board of Directors observed that certain members of the CHURCH,
including petitioners herein, exhibited "conduct which was dishonorable, improper and injurious
to the character and interest of the (CHURCH)"​10 by "introducing (to the members) doctrines and
teachings which were not based on the Holy Bible" and the Principles of Faith embraced by the
CHURCH.​11

Confronted with this situation, the respondents, as members of the Board of Directors, and
some responsible members of the CHURCH, advised the petitioners "to correct their ways"​12
and reminded them "that under the By-laws, this organization is only for worshipping the true
God, not to worship Buddha or men."​13 The respondents also ​warned them that if they persist in
their highly improper conduct, they will be dropped from the membership of the CHURCH.​14

These exhortations and warnings to the erring members were made during Sunday worship
gatherings, "in small group meetings and even one-on-one personal talk with them."​15 ​Since
1988,​ 16
​ these warnings were announced by the members of the Board "(s)ometimes once a
week (when they) meet together."​17

But petitioners ignored these repeated admonitions.

Alarmed that petitioners' conduct will continue to undermine the integrity of the Principles of
Faith of the CHURCH, the Board of Directors, during its August 30, 1993 regular meeting​18 held
for the purpose of reviewing and updating the membership list of the CHURCH, removed from
the said list certain names of members, including the names of herein petitioners Joseph Lim,
Liu Yek See, Alfredo Long and Felix Almeria.​19 They were removed for espousing doctrines
inimical or injurious to the Principles of Faith of the CHURCH. The Board also updated the list
by removing the names of those who have migrated to other countries, those deceased and
those whom the CHURCH had lost contact with.​20 The resolution adopted by the Board in that
August 30, 1993 meeting reads in part:

"Director Anthony Sayheeliam announced that the regular meeting is to review, update and
approve the list of corporate membership. After due deliberation and upon motion duly made
and seconded, the following resolutions were approved and adopted:
"RESOLVED, AS IT IS HEREBY RESOLVED, that the list of corporate membership of this
Institution as shown on Annex "A" is hereby reviewed, updated and approved by the Board.

"RESOLVED, FURTHER, AS IT IS HEREBY FURTHER RESOLVED, that the Board approved

that those who are not included in the said list of corporate membership of this Institution are no
longer considered as a corporate member of this Institution.

"RESOLVED, FINALLY, AS IT IS HEREBY RESOLVED, that any or all previous lists of

membership are hereby superseded, revoked and/or rendered null, void and of no effect..

"There being no further business and no other matter to transact, the meeting was thereupon
adjourned."​21

All the then six (6) members of the Board, namely, Directors Lim Che Boon, Tan Hon Koc
(herein petitioners), Anthony Sayheeliam, Leandro Basa, Yao Chec and Lydia L. Basa (herein
respondents) "were duly informed" of that meeting.​22 However, Directors Lim Che Boon and Tan
Hon Koc did not appear.​23 Thus, the above-quoted resolution was signed only by Directors
Anthony Sayheeliam, Leandro Basa, Yao Chec and Lydia L. Basa who composed the majority
of the Board.

The updated membership list approved by the Board on August 30, 1993, together with the
minutes of the meeting, were duly filed with the SEC on September 13, 1993.​24

On September 29, 1993, petitioners Lim Che Boon, Tan Hon Koc, Joseph Lim, Liu Yek See and
others questioned their expulsion by filing with the SEC Securities Investigation and Clearing
Department a petition,​25 docketed as SEC Case No. 09-93-4581 (and later a supplemental
petition) against Directors Yao Chek, Leandro Basa, Lydia Basa and Anthony Sayheeliam. It
sought mainly the annulment of the August 30, 1993 membership list and the reinstatement of
the original list ​on the ground that the expulsion was made without prior notice and hearing​. The
case was assigned to SEC Hearing Officer Manuel Perea (the "​Perea case​").

ISSUE: whether the expulsion of petitioners Joseph Lim, Liu Yek See, Alfredo Long and Felix
Almeria from the membership of the CHURCH by its Board of Directors through a resolution
issued on August 30, 1993 is in accordance with law.

RULING:​ Yes.

In the first place, the By-laws of the CHURCH, which the members have expressly adhered to,
does ​not require the Board of Directors to give prior notice to the erring or dissident members in
cases of expulsion. This is evident from the procedure for expulsion prescribed in Article VII
(paragraph 4) of the By-laws, which reads:

"4. If it is ​brought to the notice of the Board of Directors that any member ​has failed to observe
any regulations and By-laws of the Institution (CHURCH) ​or the conduct of any member has
been dishonorable or improper or otherwise injurious to the character and interest of the
Institution, the Board of Directors may b(y) resolution without assigning any reason therefor
expel such member from such Institution and he shall then forfeit his interest, rights and
privileges in the Institution." (Emphasis ours)

From the above-quoted By-law provision, the only requirements before a member can be
expelled or removed from the membership of the CHURCH are: (a) the Board of Directors has
been notified that a member has failed to observe any regulations and By-laws of the CHURCH,
or the conduct of any member has been dishonorable or improper or otherwise injurious to the
character and interest of the CHURCH, and (b) a resolution is passed by the Board expelling
the member concerned, without assigning any reason therefor.

It is thus clear that a member who commits any of the causes for expulsion enumerated in
paragraph 4 of Article VII may be expelled by the Board of Directors, through a resolution,
without giving that erring member any notice prior to his expulsion. The resolution need not
even state the reason for such action.

The CHURCH By-law provision on expulsion, as phrased, may sound unusual and
objectionable to petitioners as there is no requirement of prior notice to be given to an erring
member before he can be expelled. But that is how peculiar the nature of a religious corporation
is ​vis-à-vis an ordinary corporation organized for profit. It must be stressed that the basis of the
relationship between a religious corporation and its members is the latter’s absolute adherence
to a ​common religious or ​spiritual belief​. Once this basis ceases, membership in the religious
corporation must also cease. Thus, generally, there is no room for dissension in a religious
corporation. And where, as here, any member of a religious corporation is expelled from the
membership for espousing doctrines and teachings contrary to that of his church, the
established doctrine in this jurisdiction is that such action from the church authorities is
conclusive upon the civil courts. As far back in 1918, we held in ​United States vs. Canete45​
​ that:

"…in matters purely ecclesiastical the decisions of the proper church tribunals are ​conclusive
upon the civil tribunals. A church member who is expelled from the membership by the church
authorities, or a priest or minister who is by them deprived of his sacred office, ​is without remedy
in the civil courts, which will not inquire into the correctness of the decisions of the ecclesiastical
tribunals.​ "​46​ (Emphasis ours)

Obviously recognizing the peculiarity of a religious corporation, the Corporation Code leaves the
matter of ecclesiastical discipline to the religious group concerned.

Section 91 of the Corporation Code, which has been made explicitly applicable to religious
corporations by the second paragraph of Section 109 of the same Code, states:

"SEC. 91. ​Termination of membership.​ - Membership shall be ​terminated in the manner and for
the causes provided in the articles of incorporation or the by-laws.​ Termination of membership
shall have the effect of extinguishing all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the by-laws." (Emphasis ours)

Moreover, the petitioners really have no reason to bewail the lack of prior notice in the By-laws.
As correctly observed by the Court of Appeals, they have ​waived such notice by adhering to
those By-laws. They became members of the CHURCH ​voluntarily. They entered into its
covenant and subscribed to its rules. By doing so, they are bound by their consent​ .​47

Roman Catholic Apostolic Administrator of Davao, Inc. v. LRC and the Register of Deeds
of Davao City, 102 Phil. 596 (1957) - TOVY

FACTS:

Mateo L. Rodis​, executed a ​deed of sale of a parcel of land located in Davao city i​n favor of the
Roman ​Catholic Apostolic Administrator of Davao Inc​., a corporation sole, with ​Msgr.
Clovis Thibault​, a ​Canadian citizen​, as actual incumbent. ​When the deed of sale was
presented to Register of Deeds of Davao for registration, the ​latter required said
corporation sole to submit an affidavit declaring that ​60 per cent of ​the members thereof
were Filipino citizens​.

Msgr. Clovis Thibault​, expressed willingness to submit an affidavit, but said that the totality of
the Catholic population of Davao would become the owner of the property bought to be
registered, not the corporation sole.

The ​matter was referred to the Land Registration Commissioner which held that in view of the
provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, ​th​e vendee was not
qualifie​d to acquire private ​lands in the Philippines in the absence of proof that at least 60 per
centum of the capital, property, or assets of ​the Roman Catholic Apostolic Administrator of
Davao, Inc. was actually owned or controlled by Filipino citizens​, there being no question that
the present incumbent of the corporation sole was a Canadian citizen. It was also the opinion of
the Land Registration Commissioner that section 159 of the corporation Law relied upon by the
vendee was rendered operative by the aforementioned provisions of the Constitution with
respect to real estate, unless the precise condition set therein — that at least 60 per cent of its
capital is owned by Filipino citizens — be present, and, therefore, ordered the Registered
Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance
with such a condition.

After the motion to reconsider said resolution was denied​, an ​action for ​mandamus was
instituted with this Court by said corporation sole, ​alleging that under the Corporation Law as
well as the settled jurisprudence on ​the matter, the deed of sale executed by Mateo L. Rodis in
favor of petitioner is actually a deed of sale in favor ​of the Catholic Church which is qualified to
acquire private agricultural lands for the establishment and ​maintenance of places of worship​.
In its resolution of November 15, 1954, ​this Court gave due course to this petition.

ISSUE:

In virtue of the foregoing mandates of the Constitution​1​, what is the effect of these constitutional
prohibition of the right of a religious corporation recognized by our Corporation Law and
registered as a ​corporation sole,​ to possess, acquire and register real estates in its name when
the Head, Manager, Administrator or actual incumbent is an alien?

PETITIONER’S CONTENTION:

Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its
incumbent, is not prohibited or disqualified to acquire and hold real properties. The Corporation
Law and the Canon Law are explicit in their provisions that a corporation sole or "ordinary" is
not the owner of the of the properties that he may acquire but merely the administrator thereof.
The Canon Law also specified that church temporalities are owned by the Catholic Church as a
"moral person" or by the diocess as minor "moral persons" with the ordinary or bishop as
administrator.

COURT’S RULING:

A corporation sole consists of one person only, and his successors (who will always be one at a
time), in some particular station, who are incorporated by law in order to give them some legal
capacities and advantages, particularly that of perpetuity, which in their natural persons they
could not have had.

The ​bishops or archbishops, as the case may be, as corporation's sole are merely
administrators of the church ​properties that come to their possession​, in which they hold in trust
for the church. It could be seen that a corporation sole is created not only to administer the
temporalities of the church or religious society where he belongs but also to hold and transmit
the same to his successor in said office. ​If the ownership or title to the ​properties do not pass to
the administrators, who are the owners of church properties​?.

Considering that nowhere can We find any provision conferring ownership of church properties
on the Pope although he appears to be the supreme administrator or guardian of his flock, nor
on the corporation sole or heads of dioceses as they are admittedly mere ​administrators of said
properties, ​ownership of these ​temporalities logically fall and develop upon the church, diocese
or congregation acquiring the same.

To allow theory that the Roman Catholic Churches all over the world follow the citizenship of
their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of
a country who embrace the ​Catholic faith and become members of that religious society,
likewise citizens of the Vatican or of Italy​. And this is more so if We consider that the Pope
himself may be an Italian or national of any other country of the world. The same thing be said
with regard to the nationality or citizenship of the corporation sole created under the laws of the
Philippines, which is not altered by the change of citizenship of the incumbent bishops or head
of said corporation sole.

We must therefore, declare that although a branch of the Universal Roman Catholic
Apostolic Church, every Roman Catholic Church in different countries, if it exercises its
mission and is lawfully incorporated in accordance with the laws of the country where it
is located, is considered an entity or person with all the rights and privileges granted to
such artificial being under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See​, without prejudice to its religious relations
with the latter which are governed by the Canon Law or their rules and regulations.

The question now left for our determination is whether the Universal Roman Catholic Apostolic
Church in the Philippines, or better still, the corporation sole named the Roman Catholic
Apostolic Administrator of Davao, Inc. is qualified to acquire private agricultural lands in the
Philippines pursuant to the provisions of Article XIII of the Constitution.

The power of a corporation sole ​to purchase real property, like the power exercised in the case
at bar, it is not ​restricted, although the power ​to sell or mortgage sometimes is, depending upon
the rules, regulations, and ​discipline of the church concerned represented by said corporation
sole. If corporations sole can purchase and sell real estate for its church, charitable,
benevolent, or educational purposes, can they register said real properties?

It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which
are formed by no less than 5 incorporators, is composed of only one person, usually the head
or bishop of the diocese, a unit which is not subject to expansion for the purpose of determining
any percentage whatsoever; (2) the corporation sole is only the ​administrator and not the owner
of the temporalities located in the territory comprised by said corporation sole; (3) such
temporalities are administered for and on behalf of the faithful residing in the diocese or territory
of the corporation sole; and (4) the latter, as such, has no nationality and citizenship of the
incumbent Ordinary has nothing to do with the operation, management or administration of the
corporation sole, nor effects the citizenship of the faithful connected with their respective
dioceses or corporation sole.

In view of these peculiarities of the corporation sole, it would seem obvious that when the
specific provision of the Constitution invoked by respondent Commissioner (section 1, Art. XIII),
was under consideration, ​the ​framers of the same did not have in mind or overlooked this
particular form of corporation. If this were so, as the facts and circumstances already indicated
tend to prove it to be so, then the ​inescapable conclusion would ​be that this requirement of at
least 60 percent of Filipino capital was never intended to apply to corporations​ ​sole​.
Even if we were to go over the record to inquire into the composing membership to determine
whether the citizenship requirement is satisfied or not, we would find undeniable proof that the
members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly
Filipino citizens. As indicated before, petitioner has presented evidence to establish that the
clergy and lay members of this religion fully covers the percentage of Filipino citizens required
by the Constitution. These facts are not controverted by respondents and our conclusion in this
point is sensibly obvious.

Director of Land v. IAC, 146 SCRA 509 (1986) - SAB

FACTS:
The Director of Lands has brought this appeal by certiorari from a judgment of the Intermediate
Appellate Court affirming a decision of the Court of First Instance of Isabela, which ordered
registration in favor of Acme Plywood & Veneer Co., Inc. of five parcels of land measuring 481,
390 square meters, more or less, acquired by it from Mariano and Acer Infiel, members of the
Dumagat tribe.

The land sought to be registered is a private land pursuant to the provisions of Republic Act No.
3872 granting absolute ownership to members of the non-Christian Tribes on land occupied by
them or their ancestral lands, whether with the alienable or disposable public land or within the
public domain.

The Director of Lands assails the applicability of the 1935 Constitution to the matter at hand.
Concerning this, he asserts that, the registration proceedings have been commenced only on
July 17, 1981, or long after the 1973 Constitution had gone into effect, the latter is the correctly
applicable law; and since section 11 of its Article XIV prohibits private corporations or
associations from holding alienable lands of the public domain, except by lease not to exceed
1,000 hectares (a prohibition not found in the 1935 Constitution which was in force in 1962
when Acme purchased the lands in question from the Infiels), it was reversible error to decree
registration in favor of Acme Section 48, paragraphs (b) and (c), of Commonwealth Act No. 141,
as amended, reads:

SEC. 48. The following described citizens of the Philippines, occupying lands of the
public domain or claiming to own any such lands or an interest therein, but whose titles
have not been perfected or completed, may apply to the Court of First Instance of the
province where the land is located for confirmation of their claims, and the issuance of a
certificate of title therefor, under the Land Registration Act, to wit:

xxx xxx xxx

(b) Those who by themselves or through their predecessors-in-interest have been in

open, continuous, exclusive and notorious possession and occupation of agricultural
lands of the public domain, under a bona fide claim of acquisition or ownership, for at
 least thirty years immediately preceding the filing of the application for confirmation of
title except when prevented by war or force majeure. These shall be conclusively
presumed to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title under the provisions of this chapter.

(c) Members of the National Cultural minorities who by themselves or through their
predecessors-in-interest have been in open. continuous, exclusive and notorious
possession and occupation of lands of the public domain suitable to agriculture, whether
disposable or not, under a bona fide claim of ownership for at least 30 years shall be
entitled to the rights granted in subsection (b) hereof.

The Petition for Review does not dispute-indeed, in view of the quoted findings of the trial court
which were cited and affirmed by the Intermediate Appellate Court, it can no longer controvert
before this Court-the fact that Mariano and Acer Infiel, from whom Acme purchased the lands in
question on October 29, 1962, are members of the national cultural minorities who had, by
themselves and through their progenitors, possessed and occupied those lands since time
immemorial, or for more than the required 30-year period and were, by reason thereof, entitled
to exercise the right granted in Section 48 of the Public Land Act to have their title judicially
confirmed. Nor is there any pretension that Acme, as the successor-in-interest of the Infiels, is
disqualified to acquire and register ownership of said lands under any provisions of the 1973
Constitution other than Section 11 of its Article XIV already referred to.

ISSUE: W/N the title transferred to Acme in 1962 can be confirmed in proceedings instituted in
1981 or during the effectivity of the 1973 Constitution.

RULING:

The question turns upon a determination of the character of the lands at the time of institution of
the registration proceedings in 1981. If they were then still part of the public domain, it must be
answered in the negative. If, on the other hand, they were then already private lands, the
constitutional prohibition against their acquisition by private corporations or associations
obviously does not apply.

Jurisprudence, as traced by CJ Teehankee and penned in his dissenting opinion, developed,

affirmed and reaffirmed the doctrine that open, exclusive and undisputed possession of
alienable public land for the period prescribed by law creates the legal fiction whereby the land,
upon completion of the requisite period ​ipso jure and without the need of judicial or other
sanction, ceases to be public land and becomes private property.

Nothing can more clearly demonstrate the logical inevitability of considering possession of
public land which is of the character and duration prescribed by statute as the equivalent of an
express grant from the State than the dictum of the statute itself 13
​ that the possessor(s) "... shall
be conclusively presumed to have performed all the conditions essential to a Government grant
and shall be entitled to a certificate of title .... " No proof being admissible to overcome a
conclusive presumption, confirmation proceedings would, in truth be little more than a formality,
at the most limited to ascertaining whether the possession claimed is of the required character
and length of time; and registration thereunder would not confer title, but simply recognize a title
already vested. The proceedings would not ​originally convert the land from public to private
land, but only confirm such a conversion already affected by operation of law from the moment
the required period of possession became complete. As was so well put in ​Carino, "... (T)here
are indications that registration was expected from all, but none sufficient to show that, for want
of it, ownership actually gained would be lost. The effect of the proof, wherever made, was not
to confer title, but simply to establish it, as already conferred by the decree, if not by earlier law."

If it is accepted-as it must be-that the land was already private land to which the Infiels had a
legally sufficient and transferable title on October 29, 1962 when Acme acquired it from said
owners, it must also be conceded that Acme had a perfect right to make such acquisition, there
being nothing in the 1935 Constitution then in force (or, for that matter, in the 1973 Constitution
which came into effect later) prohibiting corporations from acquiring and owning private lands.

Even on the proposition that the land remained technically "public" land, despite immemorial
possession of the Infiels and their ancestors, until title in their favor was actually confirmed in
appropriate proceedings under the Public Land Act, there can be no serious question of Acmes
right to acquire the land at the time it did, there also being nothing in the 1935 Constitution that
might be construed to prohibit corporations from purchasing or acquiring interests in public land
to which the vendor had already acquired that type of so-called "incomplete" or "imperfect" title.
The only limitation then extant was that corporations could not acquire, hold or lease public
agricultural lands in excess of 1,024 hectares. The purely accidental circumstance that
confirmation proceedings were brought under the aegis of the 1973 Constitution which forbids
corporations from owning lands of the public domain cannot defeat a right already vested before
that law came into effect, or invalidate transactions then perfectly valid and proper. This Court
has already held, in analogous circumstances, that the Constitution cannot impair vested rights.

The fact, therefore, that the confirmation proceedings were instituted by Acme in its own name
must be regarded as simply another accidental circumstance, productive of a defect hardly
more than procedural and in nowise affecting the substance and merits of the right of ownership
sought to be confirmed in said proceedings, there being no doubt of Acme's entitlement to the
land. As it is unquestionable that in the light of the undisputed facts, the Infiels, under either the
1935 or the 1973 Constitution, could have had title in themselves confirmed and registered, only
a rigid subservience to the letter of the law would deny the same benefit to their lawful
successor-in-interest by valid conveyance which violates no constitutional mandate.

Jacobus Bernhard Hulst vs PR Builders, Inc., G.R. No. 156364 (September 3, 2007) -JV

FACTS:
Spouses Jacobus and Ida Hults are Dutch nationals, they entered into a CONTRACT TO SELL
with the respondents for the purchase of a residential unit in respondent’s townhouse project in
Batangas.

Respondent failed to comply with its verbal promise to complete the project in June 1995.
Spouses Hults filed a case for rescission of contract before the Housing and Land Use
Regulatory Board (HLURB).

The HLURB Arbiter ruled in favor of the Spouses Hults. Spouses Hults divorced, Ida assigned
her rights over the purchased property to Jacobus. HLURB arbiter issued a writ of execution.
RTC of Batangas execute the judgment. The sheriff tried to implement the judgment against the
personal property of the Respondent, but it was returned unsatisfied.

Then the sheriff levy 15 parcel of land of respondent. The said lot was set for a public auction.
Two days before the public auction, respondent filed a motion to quash the public auction on the
ground that the sheriff overlevy the property. But the auction proceed, and the winning bidder is
Holly Properties Realty Corporation.

Four months later HLRUB Arbiter set aside the sheriff’s levy on the ground that the sheriff must
have check first before levying the property. The disparity of the judgment and the value of the
property is so egregious (Masyadong Malaki yung difference ng judgment at ska ng value ng
property). CA affirmed the decision.

ISSUE:​ W/N Petitioner is entitled to recover the amount of the judgment value.

RULING:​ YES.

Section 7 of Article XII of the 1987 Constitution provides:Save in cases of hereditary

succession, no private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain. (Emphasis
supplied).

The capacity to acquire private land is made dependent upon the capacity to acquire or hold
lands of the public domain. Private land may be transferred or conveyed only to individuals or
entities "qualified to acquire lands of the public domain." The 1987 Constitution reserved the
right to participate in the disposition, exploitation, development and utilization of lands of the
public domain for Filipino citizens or corporations at least 60 percent of the capital of which is
owned by Filipinos. Aliens, whether individuals or corporations, have been disqualified from
acquiring public lands; hence, they have also been disqualified from acquiring private lands.

Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from
acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by
petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the
Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and
those expressly prohibited or declared void by law are inexistent and void from the beginning.
Article 1410 of the same Code provides that the action or defense for the declaration of the
inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces
no civil effect. It does not create, modify or extinguish a juridical relation.

It is significant to note that the agreement executed by the parties in this case is a Contract to
Sell and not a contract of sale. A distinction between the two is material in the determination of
when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the
resolution of the question on whether the constitutional proscription has been breached.

In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor
has lost and cannot recover the ownership of the property until and unless the contract of sale is
itself resolved and set aside. On the other hand, a contract to sell is akin to a conditional sale
where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to
the happening of a future and uncertain event, so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never existed. In other words,
in a contract to sell, the prospective seller agrees to transfer ownership of the property to the
buyer upon the happening of an event, which normally is the full payment of the purchase price.
But even upon the fulfillment of the suspensive condition, ownership does not automatically
transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by
executing a contract of absolute sale.

Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the
petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional
proscription on aliens owning real property was evident by virtue of the execution of the
Contract to Sell, such violation of the law did not materialize because petitioner caused the
rescission of the contract before the execution of the final deed transferring ownership.

Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the
agreement and demands his money before the illegal act has taken place is entitled to recover.
Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for
rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire
private land under the Philippine Constitution. But petitioner is entitled to the recovery only of
the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages
may be recovered on the basis of a void contract; being nonexistent, the agreement produces
no juridical tie between the parties involved.43 Further, petitioner is not entitled to actual as well
as interests thereon, moral and exemplary damages and attorney's fees.

The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has
long been final and executory. Nothing is more settled in the law than that a decision that has
acquired finality becomes immutable and unalterable and may no longer be modified in any
respect even if the modification is meant to correct erroneous conclusions of fact or law and
whether it was made by the court that rendered it or by the highest court of the land. The only
recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc
pro tunc entries which cause no prejudice to any party, void judgments, and whenever
circumstances transpire after the finality of the decision rendering its execution unjust and
inequitable. None of the exceptions is present in this case. The HLURB decision cannot be
considered a void judgment, as it was rendered by a tribunal with jurisdiction over the subject
matter of the complaint.

Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense
of respondent. Petitioner received more than what he is entitled to recover under the
circumstances.

International Academy of Management and Economics vs Litton and Company. GR No.

191525, December 13, 2017- SAB

FACTS:
Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by Litton, owed the
latter rental arrears as well as his share of the payment of realty taxes.

Consequently, Litton filed a complaint for unlawful detainer against Santos before the MeTC of
Manila. The MeTC ruled in Litton's favor and ordered Santos to vacate A.I.D. Building and Litton
Apartments and to pay various sums of money representing unpaid arrears, realty taxes,
penalty, and attorney's fees.

It appears however that the judgment was not executed. Litton subsequently filed an action for
revival of judgment, which was granted by the RTC. Santos then appealed the RTC decision to
the CA, which nevertheless affirmed the RTC. The said CA decision became final and executory
on 22 March 1994.

On 11 November 1996, the sheriff of the MeTC of Manila levied on a piece of real property
covered by Transfer Certificate of Title (TCT) No. 187565 and registered in the name of
International Academy of Management and Economics Incorporated (I/AME), in order to
execute the judgment against Santos. The annotations on TCT No. 187565 indicated that such
was "​only up to the extent of the share of Emmanuel T. Santos.​ "

I/AME filed with MeTC a "Motion to Lift or Remove Annotations Inscribed in TCT No. 187565 of
the Register of Deeds of Makati City." I/AME claimed that it has a separate and distinct
personality from Santos; hence, its properties should not be made to answer for the latter's
liabilities. The motion was denied in an Order dated 29 October 2004.

Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling and ordered the
cancellation of the annotations of levy as well as the writ of execution. Litton then elevated the
case to the RTC, which in turn reversed the Order granting I/AME's motion for reconsideration
and reinstated the original Order dated 29 October 2004.

I/AME then filed a petition with the CA to contest the judgment of the RTC, which was eventually
denied by the appellate court. It took note of how Santos had utilized I/AME to insulate the
Makati real property covered by TCT No. 187565 from the execution of the judgment rendered
against him, for the following reasons:

First, the Deed of Absolute Sale dated 31 August 1979 indicated that Santos, being the
.President, was representing I/AME as the vendee. However, records show that it was only in
1985 that I/AME was organized as a juridical entity. Obviously, Santos could not have been
President of a non-existent corporation at that time.

Second, the CA noted that the subject real property was transferred to I/AME during the
pendency of the appeal for the revival of the judgment in the ejectment case in the CA.

Finally, the CA observed that the Register of Deeds of Makati City issued TCT No. 187565 only
on 17 November 1993, fourteen (14) years after the execution of the Deed of Absolute Sale and
more than eight (8) years after I/AME was incorporated.

Thus, the CA concluded that Santos merely used I/AME as a shield to protect his property from
the coverage of the writ of execution; therefore, piercing the veil of corporate fiction is proper

ISSUE:
1. W/N there was a denial of due process when the court pierced the corporate veil of
I/AME and its property was made to answer for the liability of Santos. [NO]
2. W/N piercing the corporate veil is applicable to non-stock corporations. [YES]
3. W/N piercing the corporate veil is applicable to natural persons. [YES]

RULING:
[DUE PROCESS]
In general, corporations, whether stock or non-stock, are treated as separate and distinct legal
entities from the natural persons composing them. The privilege of being considered a distinct
and separate entity is confined to legitimate uses, and is subject to equitable limitations to
prevent its being exercised for fraudulent, unfair or illegal purposes. However, once equitable
limitations are breached using the coverture of the corporate veil, courts may step in to pierce
the same.

The resistance of the Court to offend the right to due process of a corporation that is a nonparty
in a main case, may disintegrate not only when its director, officer, shareholder, trustee or
member is a party to the main case, but when it finds facts which show that piercing of the
corporate veil is merited.[28]
Thus, as the Court has already ruled, a party whose corporation is vulnerable to piercing of its
corporate veil cannot argue violation of due process.[29]

In this case, the Court confirms the lower courts' findings that Santos had an existing obligation
based on a court judgment that he owed monthly rentals and unpaid realty taxes under a lease
contract he entered into as lessee with the Littons as lessor. He was not able to comply with this
particular obligation, and in fact, refused to comply therewith.

This Court agrees with the CA that Santos used I/AME as a means to defeat judicial processes
and to evade his obligation to Litton.[30] Thus, even while I/AME was not impleaded in the main
case and yet was so named in a writ of execution to satisfy a court judgment against Santos, it
is vulnerable to the piercing of its corporate veil. We will further expound on this matter.

[PIERCING THE CORPORATE VEIL OF NON-STOCK]

Petitioner I/AME argues that the doctrine of piercing the corporate veil applies only to stock
corporations, and not to non-stock, nonprofit corporations such as I/AME since there are no
stockholders to hold liable in such a situation but instead only members. Hence, they do not
have investments or shares of stock or assets to answer for possible liabilities. Thus, no one in
a non-stock corporation can be held liable in case the corporate veil is disregarded or pierced.

The CA disagreed. It ruled that since the law does not make a distinction between a stock and
non-stock corporation, neither should there be a distinction in case the doctrine of piercing the
veil of corporate fiction has to be applied. While I/AME is an educational institution, the CA
further ruled, it still is a registered corporation conducting its affairs as such.

This Court agrees with the CA.

In determining the propriety of applicability of piercing the veil of corporate fiction, this Court, in
a number of cases, did not put in issue whether a corporation is a stock or non-stock
corporation.

In the United States, from which we have adopted our law on corporations, non-profit
corporations are not immune from the doctrine of piercing the corporate veil. Their courts view
piercing of the corporation as an equitable remedy, which justifies said courts to scrutinize any
organization however organized and in whatever manner it operates. Moreover, control of
ownership does not hinge on stock ownership.

As held in​ Barineau v. Barineau:​ ]​

[t]he mere fact that the corporation involved is a nonprofit corporation does not by itself preclude
a court from applying the equitable remedy of piercing the corporate veil. The equitable
character of the remedy permits a court to look to the substance of the organization, and its
decision is not controlled by the statutory framework under which the corporation was formed
and operated. While it may appear to be impossible for a person to exercise ownership control
over a nonstock, not-for-profit corporation, a person can be held personally liable under the alter
ego theory if the evidence shows that the person controlling the corporation did in fact exercise
control, even though there was no stock ownership.

[PIERCING THE VEIL OF CORPORATE FICTION OF NATURAL PERSONS]

a) When the Corporation is the Alter Ego of a Natural Person

As cited in ​Sulo ng Bayan, Inc. v. Araneta, Inc.​, "[t]he doctrine of alter ego is based upon the
misuse of a corporation ​by an individual ​for wrongful or inequitable purposes, and in such
case the court merely disregards the corporate entity and holds the individual responsible for
acts knowingly and intentionally done in the name of the corporation." This, Santos has done in
this case. Santos formed I/AME, using the non-stock corporation, to evade paying his judgment
creditor, Litton.

The piercing of the corporate veil may apply to corporations as well as natural persons involved
with corporations. This Court has held that the "corporate mask may be lifted and the corporate
veil may be pierced when a corporation is just but the alter ego of ​a person or of another
corporation.”

This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the natural
person - is the alter ego of I/AME. Santos falsely represented himself as President of I/AME in
the Deed of Absolute Sale when he bought the Makati real property, at a time when I/AME had
not yet existed. Uncontroverted facts in this case also reveal the findings of MeTC showing
Santos and I/AME as being one and the same person:

b) Reverse Piercing of the Corporate Veil

This Court in Arcilla pierced the corporate veil of CSAR Marine Resources to satisfy a money
judgment against its erstwhile President, Arcilla.

We borrow from American parlance what is called reverse piercing or ​reverse corporate
piercing or piercing the corporate veil "in reverse."

As held in the ​U.S. Case, C.F. Trust, Inc., v. First Flight Limited Partnership​, "in a traditional
veil-piercing action, a court disregards the existence of the corporate entity so a claimant can
reach the assets of a corporate insider. In a reverse piercing action, however, the plaintiff seeks
to reach the assets of a corporation to satisfy claims against a corporate insider."
"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and
makes the corporation liable for the debt of the shareholders."

It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider reverse
piercing occurs when a party with a claim against an individual or corporation attempts to be
repaid with assets of a corporation owned or substantially controlled by the defendant. In
contrast, in insider reverse piercing, the controlling members will attempt to ignore the corporate
fiction in order to take advantage of a benefit available to the corporation, such as an interest in
a lawsuit or protection of personal assets.

Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment creditor,
seeks the Court's intervention to pierce the corporate veil of I/AME in order to make its Makati
real property answer for a judgment against Santos, who formerly owned and still substantially
controls I/AME.

Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may lead to
disastrous consequences for both stock and non-stock corporations. We are aware that ordinary
judgment collection procedures or other legal remedies are preferred over that which would risk
damage to third parties (for instance, innocent stockholders or voluntary creditors) with
unprotected interests in the assets of the beleaguered corporation.

Thus, this Court would recommend the application of the current 1997 Rules on Civil Procedure
on Enforcement of Judgments. Under the current Rules of Court on Civil Procedure, when it
comes to satisfaction by levy, a judgment obligor is given the option to immediately choose
which property or part thereof may be levied upon to satisfy the judgment. If the judgment
obligor does not exercise the option, personal properties, if any, shall be first levied and then on
real properties if the personal properties are deemed insufficient to answer for the judgment.

In the instant case, it may be possible for this Court to recommend that Litton run after the other
properties of Santos that could satisfy the money judgment - first personal, then other real
properties other than that of the school. However, if we allow this, we frustrate the decades-old
yet valid MeTC judgment which levied on the real property now titled under the name of the
school. Moreover, this Court will unwittingly condone the action of Santos in hiding all these
years behind the corporate form to evade paying his obligation under the judgment in the court
a quo​. This we cannot countenance without being a party to the injustice.

Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on execution of the
Makati real property where the school now stands is applied.

III. CORPORATE DISSOLUTION AND LIQUIDATION

Sec. 21, RCC

Sec. 133 – Sec. 139, RCC
Sec. 6 (h), RCC
Sec. 104, RCC
Sec. 113, RCC
Art. 93, 94, RCC
Sec. 146, RCC
Sec. 158, 170, 184, RCC

PD 902-A, Sec. 6 (i)

Section 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:

i) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided by
law, including the following:

1. Fraud in procuring its certificate of registration;

2. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice
of or damage to the general public;

3. Refusal to comply or defiance of any lawful order of the Commission restraining commission
of acts which would amount to a grave violation of its franchise;

4. Continuous in operation for a period of at least five (5) years;

5. Failure to file by-laws within the required period;

6. Failure to file required reports in appropriate forms as determined by the Commission within
the prescribed period;

See SEC Memorandum Circular No. 13, Series of 2019, paragraph nos. 14 and 16

14. The name of a corporation or partnership that has been dissolved or whose registration
has been revoked shall not be used by another corporation or partnership within five (5) years
from the approval of dissolution or five (5) years from the date of revocation, unless its use has
been allowed at the time of the dissolution or revocation by the stockholders, members or
partners who represent a majority of the outstanding capital stock or membership of the
dissolved corporation or partnership, as the case may be.
No application for re-registration of the expired corporation, however, shall be processed by the
Commission unless the application is accompanied by the following documents:
i. Board Resolution, executed and signed under oath by the hold-over board of
directors/trustees of the expired corporation, attesting that:
a) the applicant for re-registration is a new corporation intending to use the name of the
expired corporation (specially identifring the corporate name and registration number);
b) the re-registration is approved by the majority vote of the directors or trustees and the
vote of the stockholders representing the majority of the outstanding capital stock or
membership;
c) they shall include a statement in the articles of incorporation of the new corporation that
the same is using the name of the expired corporation; and
d) if applicable, they will no longer file a petition to set aside the order of revocation.

ii. Latest General Information Sheet of the expired corporation, stamped "received" by the
Commission; and iii. Affidavit, executed under oath by the hold-over corporate secretaor,
attesting that:
a) there are no properties owned by the dissolved/revoked corporation due for liquidation,
or in case there are properties owned by the expired corporation,
no property is transferred to the new corporation or, in case of stock corporations, used for
subscription payment without undergoing corporate liquidation process;
b) there is no pending intra-corporate dispute or claim involving the expired corporation
(**provision from mc no. 14 2017); and
c) that the expired corporation has no derogatory information with the Commission at the
time of its application for re-registration.
Upon approval of the re-registration, the certificate of registration to be issued to the new
corporation shall indicate its new SEC registration number and pre-generated Tax Identification
Number (TIN) as confirmation that the same is a separate and distinct entity from the expired
corporation.

16. Names of absorbed/constituent corporation may not be used unless it is the surviving
corporation intending to use the said absorbed/constituent corporate name. Provided, however,
that another corporation may use the names of absorbed/constituent corporation if consent of
the surviving corporation is obtained such as:

a) Directors' Certificate of the surviving corporation permitting the usage of the said
absorbed/constituent corporation by another corporation; and
b) Secretary's Certificate of non-existence of intracorporate dispute of the Corporation from
the Surviving Corporation.

Cases:
Vesagas v. Court of Appeals, 371 SCRA 509 (2002) - JOSIAH

Facts
1. Respondent spouses Delfino and Helenda Raniel are members in fgood standing of the
Luz Village Tennis Club, Inc.. They alleged that petitioner Teodoro B. Vesagas (club
president) in conspiracy with Wilfred D. Asis (VP), stripped them of their lawful
membership, withour due process of law.
2. Filed a complaint with the SEC against petitioners, asking to declare their expulsion
from the Club as illegal as it was done in utter disregard of the provisions of its by-laws
(requirement of due process).
4.They likewise sought the annulment of the amendments to the by-laws made on
December 8, 1996, changing the annual meeting of the club from the last Sunday of
January to November and increasing the number of trustees from nine to fifteen.
5.Finally, they prayed for the issuance of a Temporary Restraining Order and Writ of
Preliminary Injunction. SEC denied the application for TRO. Petitioners filed a motion to
dismiss on the ground that the SEC lacks jurisdiction over the subject matter of the case.
Motion denied. SC denied petition for certiorari. Hence the instant petition.

ISSUE: WON the SEC has jurisdiction over the subject matter? YES.

RATIO: Records show that the association is duly registered with the association and a
certificate of incorporation was issued. Clearly, the Commission has jurisdiction over the
said association. As to petitioner's allegation that the registration of the club was done
without the knowledge of the members, this is a circumstance, which was not duly
proven by the petitioner in his motion to dismiss." Moreover, by their own admission
contained in the various pleadings which they have filed in the different stages of this
case, petitioners themselves have considered the club as a corporation. This admission,
under the rules of evidence, binds them and may be taken or used against them.
Petitioners also argued that even if the club is considered as a corporation, by the time of
the institution of this case, it was already dissolved by virtue of BOR. This court finds the
argument unsustainable. The Corporation Code established the procedure and other
formal requirements to dissolve a corporation where no rights of creditors may be
prejudiced.

Sec. 118. Voluntary dissolution where no creditors are affected. - If dissolution of a

corporation does not prejudice the rights of any creditor having a claim against it, the
dissolution may be effected by majority vote of the board of directors or trustees and by
a resolution duly adopted by the affirmative vote of the stockholders owning at least
two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the
members at a meeting to be held upon call of the directors or trustees after publication of
the notice of time, place and object of the meeting for three (3) consecutive weeks in a
newspaper published in the place where the principal office of said corporation is
located; and if no newspaper is published in such place, then in a newspaper of general
circulation in the Philippines, after sending such notice to each stockholder or member
either by registered mail or by personal delivery at least 30 days prior to said meeting. A
copy of the resolution authorizing the dissolution shall be certified by a majority of the
board of directors or trustees and countersigned by the secretary of the corporation. The
Securities and Exchange Commission shall thereupon issue the certificate of dissolution.

In this case petitioners submitted only two relevant documents: the Minutes of the First
Board Meeting held on January 5, 1997, and the board resolution issued on April 14,1997
which declared "to continue to consider the club as a non-registered or a non-corporate
entity and just a social association of respectable and respecting individual members
who have associated themselves, since the 1970's, for the purpose of playing the sports
of tennis. Obviously, these two documents will not suffice. The requirements mandated
by the Corporation Code should have been strictly complied with by the members of the
club. The records reveal that no proof was offered by the petitioners with regard to the
notice and publication requirements. Similarly wanting is the proof of the board
members' certification Order of Dissolution was never submitted as evidence.

BPI v. Court of Appeals, 363 SCRA 840 (2001) - JHENY

Title based on SCRA: ​BANK OF THE PHILIPPINE ISLANDS ​vs. COMMISSIONER OF
INTERNAL REVENUE

FACTS:

Prior to its merger with petitioner BPI on July 1985, The Family Bank and Trust Co. (FBTC)
earned income consisting of rentals and interest for 1985. As required by the Expanded
Withholding Tax Regulation, the lessees of FBTC and the Central Bank from which the treasury
notes earning interest were purchased, withheld portion from the rental payments and interest
thereon. Creditable withholding taxes in the total amount of P174,065.77 were remitted to
respondent Commissioner of Internal Revenue.

Upon its dissolution, FBTC had a refundable tax of P2,320,138.34, representing that year's tax
credit of P174,065.77 and the previous year's excess credit of P2,146,072.57. As FBTC's
successor-in-interest, petitioner BPI claimed this amount as tax refund, but CIR refunded only
the amount of P2,146,072.57, leaving a balance of P174,065.77.

On petition for review filed in December 1987, CTA denied its claim for refund on the ground
that the two-year prescription period (Tax Code) commenced 30 days after the approval by SEC
of the plan of dissolution or July 31,1985 hence, the claim has prescribed. CTA’s basis is Sec.
78 of the Tax Code:
“Every corporation shall, within thirty days after the adoption by the corporation of a resolution or
plan for the dissolution of the corporation or for the liquidation of the whole or any part of its
capital stock, including corporations which have been notified of the possible involuntary
dissolution by the Securities and Exchange Commission, render a correct return to the
Commission of Internal Revenue, verified under oath, setting forth the terms of such resolution
or plan and such other information as the Minister of Finance shall, by regulations, prescribe.
The dissolving corporation prior to the issuance of the Certificate of Dissolution by the Securities
and Exchange Commission shall secure a certificate of tax clearance from the Bureau of
Internal Revenue which certificate shall be submitted to the Securities and Exchange
Commission.”

But the petitioner contends that the prescriptive period commenced only after it had filed FBTC's
Final Adjustment Return on April 15 1986. Their basis is Sec. 46 of the Tax Code:

“Corporation returns. – (a) Requirement. – Every corporation, subject to the tax herein imposed,
except foreign corporations not engaged in trade or business in the Philippines shall render, in
duplicate, a true and accurate quarterly income tax return and final or adjustment return in
accordance with the provisions of Chapter X of this Title. The return shall be filed by the
president, vice-president, or other principal officer, and shall be sworn to by such officer and by
the treasurer or assistant treasurer.”
CA affirmed the CTA. MR denied hence this petition.

ISSUE:
Whether or not the petitioner’s claim is already barred by prescription. ​YES, there was no need
to file the Final Adjustment Return. There was nothing to adjust as their operations
ceased on June 30,1985.
RULING:

Generally speaking, it is the Final Adjustment Return which is reflective of the results of the
operations of a business enterprise. It is only when the return, covering the whole year, is filed
that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed
based on the adjusted and audited figures. Hence, this Court has ruled that at the earliest, the
two-year prescriptive period for claiming a refund commences to run on the date of filing of the
adjusted final tax return.

However, as the FBTC did not file its quarterly income tax returns for the year 1985, there was
no need for it to file a Final Adjustment Return because there was nothing for it to adjust or to
audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six
months, from January 1, 1985 to June 30, 1985 The situation of FBTC is precisely what was
contemplated under Sec. 78 of the Tax Code. It thus became necessary for FBTC to file its
income tax return within 30 days after approval by the SEC of its plan or resolution of
dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost
10 months after it ceased its operations, before filing its income tax return.
CA is correct when it ruled that FEBTC lost its corporate existence on July 1, 1985 when the
Articles of Merger was approved by the Security and Exchange Commission. CA also
emphasized that "where one corporation succeeds another both are separate entities and the
income earned by the predecessor corporation before organization of its successor is not
income to the successor" The requirement of Final Adjustment Return applies only to instances
in which the corporation remains subsisting and its business operations are continuing which is
not the case here.

Petitioner contends further that it is not feasible for the certified public accountants to complete
their report and audited financial statements, which are required to be submitted together with
the plan of dissolution to the SEC, within the period contemplated by §78 (30 days). It maintains
that, in turn, the SEC would not have sufficient time to process the papers to approve the plan of
dissolution. This is without merit as petitioner could have asked for an extension of time of file its
income tax return under Sec. 47 of the Tax Code:

Extension of time to file returns. – The Commissioner of Internal Revenue may, in meritorious
cases, grant a reasonable extension of time for filing returns of income (or final and adjustment
returns in the case of corporations), subject to the provisions of section fifty-one of this Code.

Conclusion: two-year prescriptive period should be counted from July 30, 1985, i.e., 30 days
after the approval by the SEC of its plan for dissolution. Hence, July 30, 1985 should be
considered the date of payment by FBTC of the taxes withheld on the earned income.
Consequently, the two-year period of prescription ended on July 30, 1987. As petitioner's claim
for tax refund before the Court of Tax Appeals was filed only on December 29, 1987, it is clear
that the claim is barred by prescription. PETITION DENIED

Chase v. Buencamino, 136 SCRA 365 (1985) - NICH

FACTS:

Plaintiff Elton Chase was the owner of Production Manufacturing Company, of Portland,
Oregon, USA, a corporation primarily dedicated to the operation of a machine shop and
heat-treating plant for the production of tractor parts.

Sometime in 1954, Chase was advised to sell or face expropriation and warned to
remove his plant within a year. His distributor Craig Carrol told him of a Dr. Buencamino of
Manila who he said was interested in establishing a manufacturing plant in the Philippines.

Craig Carrol contacted Buencamino who told him to contact his associate William Cranker in the
United States. Thereafter, a series of negotiations took place both here in Manila, and in the US,
between Chase on the one hand, and Cranker and Buencamino, on the other, for the purchase
of Chase's factory (Production Manufacturing Company) and the establishment of a new factory
in Manila which was to be called the ​American Machinery Engineering Parts, Inc. (Amparts​).
These negotiations culminated in a final agreement to the effect that - Elton Chase was to be
paid $100,000.00 and he would also be given a one-third interest in Amparts, with the other two,
Dr. Buencamino and Cranker, as the owner of the other 2/3 interest, 1/3 interest each; that in
exchange for said $100,000.00 and the 1/3 interest, Chase was to transfer to Amparts his
tractor plant, ship his machineries to Manila, assuming all costs of dismantling, preserving and
crating for shipment to Manila, install said machineries at Amparts plant with the aid of 5
technicians and finally, he has to be the production manager of Amparts.

Chase had shipped his machineries and had them installed in the Amparts plant in
Pasig, Rizal. Amparts then began operation with Dr. Buencamino as President, William Cranker
as Manager and Elton Chase as Production Manager. For sometime the three maintained
harmonious relations but later on distrust came in until finally Chase tendered his letter of
resignation as Production Manager. ​He then filed a derivative suit against Buencamino and
Chase, who allegedly stole from the corporation​. He sought for the dissolution of the
corporation.

ISSUE: ​Whether or not the corporation may be dissolved.

RULING:​ ​NO.

The removal of a stockholder (in this case a majority stockholder) from the management of the
corporation and/or the dissolution of a corporation in a suit filed by a minority stockholder is a
drastic measure. It should be resorted to only when the necessity is clear which is not the
situation in the case at bar.

The case is of derivative in nature, therefore, it was filed for the benefit of the
corporation. The Court grant a dissolution because the action is a derivative one for the benefit
of Amparts and not for the personal benefit of Chase, and Amparts can not be benefited by its
extinction; as to the ouster of Dr. Buencamino from management, it should not be forgotten that
Dr. Buencamino is not only a manager, but is in fact 2/3 owner of Amparts and to oust him from
management would amount to his disenfranchisement as owner of the majority of the enterprise
apart from the fact that it is also established in the proofs that Amparts is already picking up and
has been a going concern after Cranker left unto him the direction of its affairs; the Court
therefore having in mind all these finds that the solution most equitable and just would be to limit
its decision to imposing a monetary judgment upon the guilty parties for the benefit of Amparts.

Majority Stockholders of Ruby Industrial Corp. v. Lim, 650 SCRA 461 (2011) - MELO
FACTS:

Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass

manufacturing.Reeling from severe liquidity problems beginning in 1980, RUBY filed
onDecember 13, 1983a petition for suspension of payments with the Securities and Exchange
Commission (SEC) docketed as SEC Case No. 2556.On December 20, 1983, the SEC issued
an order declaring RUBY under suspension of payments and enjoining the disposition of its
properties pending hearing of the petition, except insofar as necessary in its ordinary
operations, and making payments outside of the necessary or legitimate expenses of its
business.

OnAugust 10, 1984, the SEC Hearing Panel created the management committee (MANCOM)
for RUBY, composed of representatives from Allied Leasing and Finance Corporation (ALFC),
Philippine Bank of Communications (PBCOM), China Banking Corporation (China Bank),
Pilipinas Shell Petroleum Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu Kim
Giang.The MANCOM was tasked to perform the following functions: (1) undertake the
management of RUBY; (2) take custody and control over all existing assets and liabilities of
RUBY; (3) evaluate RUBYs existing assets and liabilities, earnings and operations; (4)
determine the best way to salvage and protect the interest of its investors and creditors; and (5)
study, review and evaluate the proposed rehabilitation plan for RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY
Rehabilitation Plan of the majority stockholders led by Yu Kim Giang, and the Alternative Plan of
the minority stockholders represented by Miguel Lim (Lim).

Both plans were endorsed by the SEC to the MANCOM for evaluation.

OnApril 26, 1991, over ninety percent (90%) of RUBYs creditors objected to the Revised
BENHAR/RUBY Plan and the creation of a new management committee.Instead, they endorsed
the minority stockholders Alternative Plan.At the hearing of the petition for the creation of a new
management committee, three (3) members of the original management committee (Lim, ALFC
and Pilipinas Shell) opposed the Revised BENHAR/RUBY Plan on grounds that:(1) it would
legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the
biggest creditor of RUBY;(2) it would put RUBYs assets beyond the reach of the unsecured
creditors and the minority stockholders; and (3) it was not approved by RUBYs stockholders in a
meeting called for the purpose.

Notwithstanding the objections of 90% of RUBYs creditors and three members of the MANCOM,
the SEC Hearing Panel approved on September 18, 1991the Revised BENHAR/RUBY Plan and
dissolved the existing management committee.It also created a new management committee
and appointed BENHAR as one of its members. In addition to the powers originally conferred to
the management committee under Presidential Decree (P.D.) No. 902-A, the new management
committee was tasked to oversee the implementation by the Board of Directors of the revised
rehabilitation plan for RUBY.

ISSUE:

Whether the minority pre-emptive rights were violated

RULING:

Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a stockholder of a
stock corporation to subscribe to all issues or disposition of shares of any class, in proportion to
their respective shareholdings.The right may be restricted or denied under the articles of
incorporation, and subject to certain exceptions and limitations.The stockholder must be given a
reasonable time within which to exercise their preemptive rights.Upon the expiration of said
period, any stockholder who has not exercised such right will be deemed to have waived it.

The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders.Thus, even if the pre-emptive right does not exist, either because the
issue comes within the exceptions in Section 39 or because it is denied or limited in the articles
of incorporation, an issue of shares may still be objectionable if the directors acted in breach of
trust and their primary purpose is to perpetuate or shift control of the corporation, or to "freeze
out" the minority interest. In this case, the following relevant observations should have signaled
greater circumspection on the part of the SEC -- upon the third and last remand to it pursuant to
our January 20, 1998 decision -- to demand transparency and accountability from the majority
stockholders, in view of the illegal assignments and objectionable features of the Revised
BENHAR/RUBY Plan, as found by the CA and as affirmed by this Court:

There can be no gainsaying the well-established rule in corporate practice and procedure that
the will of the majority shall govern in all matters within the limits of the act of incorporation and
lawfully enacted by-laws not proscribed by law.It is, however, equally true that other
stockholders are afforded the right to intervene especially during critical periods in the life of a
corporation like reorganization, or in this case, suspension of payments, more so,when the
majority seek to impose their will and through fraudulent means, attempt to siphon off Rubys
valuable assets to the great prejudice of Ruby itself, as well as the minority stockholders and the
unsecured creditors.

Certainly, the minority stockholders and the unsecured creditors are given some measure of
protection by the law from the abuses and impositions of the majority, more so in this case,
considering thegive-away signs of private respondents perfidy strewn all over the factual
landscape.Indeed, equity cannot deprive the minority of a remedy against the abuses of the
majority, and the present action has been instituted precisely for the purpose of protecting the
true and legitimate interests of Ruby against the Majority Stockholders.On this score, the
Supreme Court, has ruled that:

"Generally speaking, the voice of the majority of the stockholders is the law of the corporation,
but there are exceptions to this rule.There must necessarily be a limit upon the power of the
majority.Without such a limit the will of the majority will be absolute and irresistible and might
easily degenerate into absolute tyranny.x x x" (Additional emphasis supplied.)
Lamentably, the SEC refused to heed the plea of the minority stockholders and MANCOM for
the SEC to order RUBY to commence liquidation proceedings, which is allowed under Sec. 4-9
of the Rules on Corporate Recovery.Under the circumstances, liquidation was the only hope of
the minority stockholders for effecting an orderly and equitable settlement of RUBYs obligations,
and compelling the majority stockholders to account for all funds, properties and documents in
their possession, and make full disclosure on the nullified credit assignments.Oblivious to these
pending incidents so crucial to the protection of the interest of the majority of creditors and
minority shareholders, the SEC simply stated that in the interim, RUBYs corporate term was
validly extended, as if such extension would provide the solution to RUBYs myriad problems.

Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a
stockholders meeting called for the purpose.The actual percentage of shareholdings in RUBY
as of September 3, 1996 -- when the majority stockholders allegedly ratified the board resolution
approving the extension of RUBY's corporate life to another 25 years was seriously disputed by
the minority stockholders,and we find the evidence of compliance with the notice and quorum
requirements submitted by the majority stockholders insufficient and doubtful.Consequently, the
SEC had no basis for its ruling denying the motion of the minority stockholders to declare as
without force and effect the extension of RUBY's corporate existence.

DENIED​.

Buenaflor v. Camarines Industry, 108 Phil. 472 (1960) - TOVY

FACTS:

On 25 June 1957, Jaime T. Buenaflor filed his application (P.S. Case 107548) together with
another application to establish a cold storage and refrigeration service of about 6,000 cubic
feet capacity (P.S. Case 107549).

The Commission, by order of 12 September 1957, set the applications for hearing on 9
October 1957, requiring Buenaflor to publish them in two newspapers, and to serve copy
thereof to Iñigo Daza and Camarines Sur Industry Corporation (Camarines Corporation, for
brevity). The two owned ice plants in neighboring municipalities and had been apparently
selling ice to Sabang’s inhabitants.

After receiving a copy of Buenaflor’s application, the Camarines Corporation submitted to the
Commission on 1 October 1957, its own two applications: one for authority to construct and
manage a 5-ton ice plant, and likewise registered opposition to Buenaflor’s proposed ice
business, on the ground that it was the pioneer distributor of the commodity in that particular
locality. A joint hearing of the four applications of both parties was set on 25 October 1957.

On said hearing, Buenaflor’s attorneys presented a motion to dismiss the Camarines

Corporation’s applications, challenging its personality, inasmuch as its corporate life had
expired in November 1953, in accordance with its own articles of incorporation. The counsel of
Camarines Corporation was surprised by such motion and asked, and was granted time to
answer.

The corporators of Camarines Corporation got busy and executed on 30 October 1957, and
registered on 31 October 1957, ​new articles of incorporation o ​ f Camarines Sur Industry
Corporation, and at the same time, notarized a deed of conveyance assigning to the new
corporation, all the assets of the expired (old) corporation, together with its existing certificates
of public convenience to operate ice factories in Naga and Magarao.

On 8 November 1957, the Camarines Corporation (new) answered the motion to dismiss, by
alleging, to the amazement of Buenaflor, its recent incorporation, plus its acquisition of the
assets and certificates of the old Camarines Corporation with the Commission’s approval as
above described.

In the Commission’s decision as regards the applications of the corporations, the following
were held:

Ø Camarines Corporation is really the pioneer ice plant in Maragao since 1945. We believe,
therefore, that applicant Camarines Corporation has a better right than Buenaflor to the
certificate for a 5-ton ice plant in Sabang. However, in light of the fact that the services
rendered by Camarines Corporation in this aspect may not necessarily be adequate, Buenaflor
is granted a certificate for one ton ice plant in Sabang.

Ø As to the cold storage service, we think that Buenaflor has a better right to the certificate by
virtue of Buenaflor’s right of priority in the filing of his application and the fact that he is as
financially capable as the Camarines Corporation to install the service, we believe that the
certificate for the cold storage service in Sabang should be granted to Buenaflor. He is granted
a certificate of 5,000 cubic feet cold storage service.

Buenaflor appealed in so far as he was denied authority to erect a 5-ton ice plant.

ISSUE: ​Has the Camarines Sur Industry Corporation lost its standing as a juridical entity
upon the expiration/termination of its corporate life?

RULING: YES. ​Since 1953, the old Corporation had been ​illegally plying its business of
selling ice ​in Sabang because, under the Corporation Law, Section 77 (now Section 122 of
the Corporation Code), after November 1953, it could ​not lawfully continue the business f​ or
which it had been established (operate ice plant, sell ice, etc). 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.

When the ​old ​Corporation docketed its application on 1 October 1957, it had no
juridical personality, it had ceased to exist as a corporation and could not sue nor apply for
certificate, for it was incapable of receiving a grant. It was not even a corporation de facto.
And then there is no application subscribed by the ​new C ​ amarines Corporation. Far from
being mere technicality, these points 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 practice 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 tax and other burdens attached to
corporate existence.

Remembering the Camarines Corporatoin’s automatic cessation in November 1956 (3

years after November 1953), the Court must decline to regard the new Camarines
Corporation (formed 30 October 1957) as a ​continuation of the old​. At most, it is the
transferee of the properties of the old corporation (or more property, the assets of the
stockholders) plus the certificate of public convenience to operate the ice plant in Naga and
Magarao. And yet, as stated, the new corporation has not yet filed any application for
certificate of public convenience in Sabang, and has not published such application.

DOCTRINE: ​A corporation is deemed to lose its status as a juridical entity upon the expiration
of its corporate life according to its articles of incorporation (absent renewal). It cannot lawfully
continue the business for which it had been established. 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.

DISPOSTIVE: ​Buenaflor’s application for five tons, instead of one ton, subject to the usual
conditions imposed by the Public Service Commission on ice plant establishments was
approved.

Alhambra Cigar & Cigarette Mfg. Co. v. SEC, 24 SCRA 269 (1968) - SAB
FACTS:
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:j

"FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after
the date of 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."cry

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: May a corporation extend its life by amendment of its articles of incorporation effected
during the three-year statutory period for liquidation when its original term of existence had
already expired?

RULING:
NO. 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."

Plain from the language of this 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." 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." There is nothing left but to conduct, as it
were, the settlement of the estate of a deceased juridical person.

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, 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.

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 its term of existence as originally 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."

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’." 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 case 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.

Republic v. Tancinco, 394 SCRA 386 (2002) - KATE

FACTS:

The National Sugar Trading Corporation (NASUTRA), a domestic corporation created for the
purpose of engaging in the trading of sugar, and a subsidiary of the Philippine Sugar
Commission (Philsucom), an entity owned and controlled by the Philippine government, leased
the warehouse of Sulpicio Tancinco in Cagayan de Oro City. The contract was for a period of 3
months, renewable for another 3 years.

On December 29, 1984, the eastern wall of the warehouse collapsed causing death and injuries
to several persons and damage to houses within the area. Tancinco was constrained to incur
expenses for the repair and restoration of the warehouse and indemnity for the victims. Due to
NASUTRA's refusal to reimburse Tancinco, the latter filed on March 28, 1985 a complaint for
Damages with the Regional Trial Court of Cagayan de Oro City (Branch 23). NASUTRA filed its
Answer disclaiming any liability.

In the meantime, NASUTRA was converted into a private corporation called the Philippine
Sugar Marketing Corporation (Philsuma), the sole marketing agency for the sugar industry to be
owned completely by sugar producers. Thereafter, Philsucom was phased out by ​Executive
Order No. 18 in 1986, at same time creating petitioner SRA. NASUTRA substituted petitioner
SRA and filed on February 8, 1988, an Answer putting up the defenses that it cannot be liable
for NASUTRA's obligation as it was created after the incident took place and that it is a separate
and distinct entity from the former.

On May 17, 1990, respondent Tancinco died and he was substituted by his heirs.

On January 10, 1991, the trial court received Tancinco's evidence ​ex parte as SRA was
declared in default. On February 18, 1991, the RTC rendered its decision in favor of Tancinco.

The trial court ruled that under Section 13, paragraph 3 of ​E.O. No. 18 and reiterated in ​E.O.
No. 114​, SRA, as the liquidator of Philsuma, was, together with its co-defendants, jointly liable
to Tancinco.

SRA appealed to the CA which rendered the herein assailed the trial court’s decision. The
appellate court held that "(S)ince PHILSUCOM had succeeded NASUTRA, and the appellant
SRA in turn assumed the liabilities of PHILSUCOM, even if only to a ​limited extent​, it logically
follows that appellant SRA may still be held liable for the herein claim for damages of the
appellee," citing the case of ​Spouses Gonzales v. Sugar Regulatory Administration,​ 174 SCRA
377 [1989]. Hence, the present petition for review.

ISSUE:​ whether Tancinco or his heirs may recover NASUTRA's adjudged liability from SRA.

RULING:

We answer in the affirmative.

There is no question that ​Executive Order No. 18 abolished the Philippine Sugar Commission
(Philsucom) and created the Sugar Regulatory Administration (SRA). However, the abolition of
NASUTRA and eventually Philsucom did not abate the pendency of the suits filed against them.
The termination of the life of a juridical entity does not by itself cause the extinction or diminution
of the rights and liabilities of such entity; specially in this case where, pursuant to the transitory
provision of ​E.O. No. 18​, Philsucom, under the supervision of SRA, was allowed to continue as
a juridical entity for 3 years for the purpose of prosecuting and defending suits by or against it
and enabling it to settle and close its affairs, to dispose of and convey its property; and to
distribute its assets.

If and when a pending action cannot be terminated within said 3-year period, SRA, which has
been appointed by law to supervise the closing affairs of Philsucom, is considered a trustee
which shall continue to prosecute and defend suits filed by or against it.

It being the trustee, SRA must therefore continue the legal personality of the defunct NASUTRA
and Philsucom until final judgment and execution stage of the case. This is bolstered by our
pronouncement in the case of ​Gonzales vs. Sugar Regulatory Administration​, wherein we
stated that "(S)ection 13 of ​Executive Order No. 18 is not to be interpreted as authorizing
respondent SRA to disable Philsucom from paying Philsucom's demandable obligations by
simply taking over Philsucom's assets and immunizing them from legitimate claims against
Philsucom.

Contrary to SRA's contention, there is nothing in the ​Gonzales case which sets the condition
that a claimant should first prove that SRA is holding the assets of Philsucom before the former
could be made to assume liability. What was declared in the ​Gonzales case is that the claimants
can recover lawful claims against NASUTRA/Philsucom as determined by the trial court to have
been proved, to the extent of Philsucom's assets being held by SRA.

Accordingly, SRA can be held liable for Tancinco's claim for damages against NASUTRA, which
claim has already been proven before the trial court. However, the matter of whether the assets
being held by SRA is sufficient to answer for such claims is a different matter altogether, a
matter which we cannot resolve in the present petition.

Lastly, we agree with SRA that it cannot be made jointly and severally liable for NASUTRA's
obligation. As previously stated, it is merely a trustee of NASUTRA/Philsucom's assets, and as
such, its liability under the arrangement should merely be co-extensive with the amount of
assets it took over from NASUTRA/Philsucom. As stated in the ​Gonzales case​, SRA must be
held liable for such claims against Philsucom "​to the extent of the fair value of assets actually
taken over by the SRA from Philsucom, if any​".

WHEREFORE, the instant petition for review is hereby PARTIALLY GRANTED. The decision of
the Regional Trial Court of Cagayan de Oro City (Branch 24) in Civil Case No. 10117 is
MODIFIED to the effect that petitioner Sugar Regulatory Administration is hereby ORDERED to
pay respondents the sums awarded by the trial court but only up to the extent of Philsucom's
assets which are being held by petitioner as trustee, the same to be determined by the same
trial court in the same case.

No pronouncement as to costs.

SO ORDERED.

Aguirre II v. FQB+7, Inc., 688 SCRA 242 (2013) - JV

FACTS:

Petitioner filed in his individual capacity and on behalf of FQB+7 a complaint for intra-corporate
dispute against the respondent. Petitioner found out that the General Information Sheet (GIS)
dated Sept. 6, 2002 in the SEC

In the GIS, which is filed by Nathaniel and Priscila (respodents), as president and
secretary/treasurer, respectively. Also in the GIS, the company held a annual stockholders
meeting on Sept. 3, 2002. Nathaniel, as the president of the company, appointed Antonio
(Respondent) as the corporation attorney-in-fact with the power of administration over the
corporation’s farm in Quezon City. However, Fidel and his men prevented Antonio in entering
the said property.

Petitioner questioned the validity and the truthfulness of the said meeting.

TC ruled in favor of the petitioner.

Respondent sought the annulment of the judgment before the TC that the latter has no
jurisdiction over the case and it must be the DAR who has jurisdiction. They also informed the
CA that the SEC already revoked the company’s Certificate of Registration for non-filing of
reportorial requirements.

CA – dismissed the case.

the CA postulated that Section 122 of the Corporation Code allows a dissolved corporation to
continue as a body corporate for the limited purpose of liquidating the corporate assets and
distributing them to its creditors, stockholders, and others in interest. It does not allow the
dissolved corporation to continue its business. That being the state of the law, the CA
determined that Vitaliano’s Complaint, being geared towards the continuation of FQB+7, Inc.’s
business, should be dismissed because the corporation has lost its juridical personality.​35
Moreover, the CA held that the trial court does not have jurisdiction to entertain an
intra-corporate dispute when the corporation is already dissolved

ISSUE:
Whether the Complaint seeks to continue the dissolved corporation’s business. - YES
Whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved
corporation. – RTC still have jurisdiction

RULING:

Section 122 of the Corporation Code prohibits a dissolved corporation from continuing its
business, but allows it to continue with a limited personality in order to settle and close its
affairs, including its complete liquidation, thus:

Sec. 122. Corporate liquidation. – 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
(3) years after the time when it would have been so dissolved, for the purpose of prosecuting
and defending suits by or against it and enabling it to settle and close its affairs, to dispose of
and convey its property and to distribute its assets, but not for the purpose of continuing the
business for which it was established.

Petitioners concede that a dissolved corporation can no longer continue its business. They
argue, however, that Section 122 allows a dissolved corporation to wind up its affairs within 3
years from its dissolution. Petitioners then maintain that the Complaint, which seeks only a
declaration that respondents are strangers to the corporation and have no right to sit in the
board or act as officers thereof, and a return of Vitaliano’s stockholdings, intends only to resolve
remaining corporate issues. The resolution of these issues is allegedly part of corporate winding
up.

Plaintiffs further pray for costs and such other relief just and equitable under the premises.​42

The Court fails to find in the prayers above any intention to continue the corporate business of
FQB+7. The Complaint does not seek to enter into contracts, issue new stocks, acquire
properties, execute business transactions, etc. Its aim is not to continue the corporate business,
but to determine and vindicate an alleged stockholder’s right to the return of his stockholdings
and to participate in the election of directors, and a corporation’s right to remove usurpers and
strangers from its affairs. The Court fails to see how the resolution of these issues can be said
to continue the business of FQB+7.

Neither are these issues mooted by the dissolution of the corporation. A corporation’s board of
directors is not rendered functus officio by its dissolution. Since Section 122 allows a
corporation to continue its existence for a limited purpose, necessarily there must be a board
that will continue acting for and on behalf of the dissolved corporation for that purpose. In fact,
Section 122 authorizes the dissolved corporation’s board of directors to conduct its liquidation
within three years from its dissolution. Jurisprudence has even recognized the board’s authority
to act as trustee for persons in interest beyond the said three-year period.​43 Thus, the
determination of which group is the bona fide or rightful board of the dissolved corporation will
still provide practical relief to the parties involved.

The same is true with regard to Vitaliano’s shareholdings in the dissolved corporation. A party’s
stockholdings in a corporation, whether existing or dissolved, is a property right​44 which he may
vindicate against another party who has deprived him thereof. The corporation’s dissolution
does not extinguish such property right. Section 145 of the Corporation Code ensures the
protection of this right, thus:

Sec. 145. Amendment or repeal. – No right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability incurred by any such
corporation, stockholders, members, directors, trustees, or officers, shall be removed or
impaired either by the subsequent dissolution of said corporation or by any subsequent
amendment or repeal of this Code or of any part thereof.

Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out of
intra-corporate or partnership relations, and (b) the nature of the question subject of the
controversy must be such that it is intrinsically connected with the regulation of the corporation
or the enforcement of the parties’ rights and obligations under the Corporation Code and the
internal regulatory rules of the corporation. So long as these two criteria are satisfied, the
dispute is intra-corporate and the RTC, acting as a special commercial court, has jurisdiction
over it.

Examining the case before us in relation to these two criteria, the Court finds and so holds that
the case is essentially an intra-corporate dispute. It obviously arose from the intra-corporate
relations between the parties, and the questions involved pertain to their rights and obligations
under the Corporation Code and matters relating to the regulation of the corporation. We further
hold that the nature of the case as an intra-corporate dispute was not affected by the
subsequent dissolution of the corporation.

It bears reiterating that Section 145 of the Corporation Code protects, among others, the rights
and remedies of corporate actors against other corporate actors. The statutory provision
assures an aggrieved party that the corporation’s dissolution will not impair, much less remove,
his/her rights or remedies against the corporation, its stockholders, directors or officers. It also
states that corporate dissolution will not extinguish any liability already incurred by the
corporation, its stockholders, directors, or officers. In short, Section 145 preserves a corporate
actor’s cause of action and remedy against another corporate actor. In so doing, Section 145
also preserves the nature of the controversy between the parties as an intra-corporate dispute.

The dissolution of the corporation simply prohibits it from continuing its business. However,
despite such dissolution, the parties involved in the litigation are still corporate actors. The
dissolution does not automatically convert the parties into total strangers or change their
intra-corporate relationships. Neither does it change or terminate existing causes of action,
which arose because of the corporate ties between the parties. Thus, a cause of action
involving an intra-corporate controversy remains and must be filed as an intra-corporate dispute
despite the subsequent dissolution of the corporation.

Vigilla v. Philippine College of Criminology., 698 SCRA 247 (2013) - JOSIAH

SUMMARY: ​Petitioners in the case at bar are maintenance personnel of Philippine College of
Criminology (PCCr), but are allegedly under MBMSI which is a corporation engaged in providing
janitorial services to clients. Upon PCCr’s discovery that MBMSI’s Certification of Incorporation
was revoked, it dismissed the maintenance personnel. The dismissed employees not filed a
complaint for illegal dismissal against MBMSI, its president, and the president of PCCr.
However, quitclaims executed by the employees were presented by PCCr. The LA, NLRC, CA,
as well as the SC all held that facts show that PCCr was really the employee and being
engaged in a labor-only contracting, shall be held solidarily liable with MBMSI. However, by
virtue of the quitclaims, they cannot be held liable. In answering the argument that sad
documents have no validity for being executed after the dissolution of the corporation, the SC
held that the executed releases, waivers and quitclaims are valid and binding notwithstanding
the revocation of MBMSIÊs Certificate of Incorporation. The revocation does not result in the
termination of its liabilities. Section 122 of the Corporation Code provides for a three-year
winding up period for a corporation whose charter is annulled by forfeiture or otherwise to
continue as a body corporate for the purpose, among others, of settling and closing its affairs.
Even if said documents were executed in 2009, six (6) years after MBMSIÊs dissolution in 2003,
the same are still valid and binding upon the parties and the dissolution will not terminate the
liabilities incurred by the dissolved corporation pursuant to Sections 122 and 145 of the
Corporation Code.

DOCTRINE:

· ​What is provided in Section 122 of the Corporation Code is that the conveyance to the
trustees must be made within the three-year period. But it may be found impossible to complete
the work of liquidation within the three-year period or to reduce disputed claims to judgment.
The trustees to whom the corporate assets have been conveyed pursuant to the authority of
Section 122 may sue and be sued as such in all matters connected with the liquidation.

· ​Furthermore, Section 145 of the Corporation Code clearly provides that „no right or
remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said
corporation. Even if no trustee is appointed or designated during the three-year period of the
liquidation of the corporation, the Court has held that the board of directors may be permitted to
complete the corporate liquidation by continuing as trustees by legal implication.

FACTS:

· ​Philippine College of Criminology (PCCr) is a non-stock educational institution, while the

petitioners were janitors, janitresses and supervisor in the Maintenance Department of PCCr

· ​The ​petitioners were made to understand​, upon application with respondent school,
that they were ​under MBMSI, a corporation engaged in providing janitorial services to
clients.

· ​PCCr later on discovered that the ​Certificate of Incorporation of MBMSI had been
revoked​. Hence, PCCr, through its President Bautista, citing the revocation, terminated the
school’s relationship with MBMSI, resulting in the ​dismissal of the employees or
maintenance personnel under MBMSI​, except Alfonso Bongot (Bongot) who was retired.

· ​ he dismissed employees then filed their respective ​complaints for illegal dismissal
T
against MBMSI, Atty. Seril (president of MBMSI), and Bautista (president of PCCr). They
alleged that it was really PCCr which was their real employer based on the following
grounds:

o​ ​MBMSI’s certification had been revoked

o​ ​PCCr had direct control over MBMSI’s operations

o​ ​There was no contract between MCMSI and PCCr

o​ ​And, the selection and hiring of employees were undertaken by PCCr

· ​Labor Arbiter decision – ​PCCr was the real principal employer of the petitioners and
that MBMSI was a mere adjunct or alter ego/labor-only contractor

o ​The LA explained that PCCr was actually the one which exercised control
over the means and methods of the work of the petitioners, thru Atty. Seril, who
was acting, throughout the time in his capacity as Senior Vice President for
Administration of PCCr, not in any way or time as the supposed
employer/general manager or president of MBMSI.

· ​NLRC decision – ​affirmed LA decision but released PCCr and Bautista from liability by
virtue of the quitclaims executed by petitioners

·​ ​CA decision​ – upheld NLRC decision. Hence, this petition.

ISSUE # 1: ​WON petitioners executed the said releases, waivers and quitclaims – Yes

RATIO # 1:

·​ ​Petitioners raised this argument belatedly

·​ ​Issue is a question of fact which the SC cannot entertain

·​ ​Petitioners did not present any evidence to prove their claim

ISSUE # 2: WON a dissolved corporation can enter into an agreement such as releases,
waivers and quitclaims beyond the 3-year winding up period under Sec. 122 Corporation
Code - YEs

RATIO # 2:

· ​Petitioners argue that ​MBMSI had no legal personality to incur civil liabilities as it
did not exist as a corporation on account of the fact that its ​Certificate of Incorporation had
been revoked
· ​SC holds that the executed releases, waivers and quitclaims ​are valid and binding
notwithstanding the revocation of MBMSIE’s Certificate of Incorporation

o​ ​The revocation ​does not result in the termination of its liabilities

o ​Sec. 122 Corporation Code provides for a ​three-year winding up period for
a corporation whose charter is annulled by forfeiture or otherwise to continue as
a body corporate for the purpose, among others, of settling and closing its affairs.

o ​Even if said documents were executed six (6) years after MBMSI’s
dissolution, the same are still valid and binding upon the parties and the
dissolution will not terminate the liabilities incurred by the dissolved
corporation pursuant to Secs. 122 and 145 Corporation Code

·​ ​SC reiterated its ruling in Premiere Development Bank vs Flores:

o ​although 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, there is
no time limit within which the trustees must complete a liquidation placed in their
hands.

o ​What is provided in Section 122 of the Corporation Code is that the

conveyance to the trustees must be made within the three-year period. But it may
be found impossible to complete the work of liquidation within the three-year
period or to reduce disputed claims to judgment. The trustees to whom the
corporate assets have been conveyed pursuant to the authority of Section 122
may sue and be sued as such in all matters connected with the liquidation.

o ​Furthermore, Section 145 of the Corporation Code clearly provides that „no
right or remedy in favor of or against any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers, shall be removed or
impaired either by the subsequent dissolution of said corporation. Even if no
trustee is appointed or designated during the three-year period of the liquidation
of the corporation, the Court has held that the board of directors may be
permitted to complete the corporate liquidation by continuing as trustees by legal
implication.

ISSUE # 3: ​WON a labor-only contractor is solidarily liable with the employer – Yes

RATIO # 3:
· ​MBMSI is solidarily liable with the respondents for the valid claims of petitioners pursuant
to Article 109 of the Labor Code

· ​However, as already stated above, the quitclaims redounded to the benefit of PCCr
pursuant to Art. 1217 Civil Code

· ​In conclusion, considering that MBMSI, as the labor-only contractor, is solidarily liable with
the respondents, as the principal employer, then the NLRC and the CA correctly held that the
respondentsÊ solidary liability was already expunged by virtue of the releases, waivers and
quitclaims executed by each of the petitioners in favor of MBMSI pursuant to Article 1217 Civil
Code which provides that payment made by one of the solidary debtors extinguishes the
obligation.

DISPOSITIVE: Petition denied

Chua v. People, 801 SCRA 436, 449 (2016) -JHENY

FACTS:
On or about August 24, 2000, Joselyn Chua invoked her right as a stockholder under Sec. 74 of
the Corporation Code to inspect the records of the books of accounts, the minutes of the
meetings, as well as the financial statements of Chua Tee Corporation of Manila (CTCM). To aid
her, Joselyn hired the services of a lawyer and an accountant. However, they failed to complete
their objective since there were no books nor schedules presented to them. Allegedly, the
petitioners (who were president, corp. sec., and accountant of the corporation, respectively)
conspired in refusing without valid cause the exercise of her right under the Corporation Code.
This resulted to the filing of an Information indicting the petitioners for alleged violation of Sec.
74, in relation to Sec. 144, of the Corporation Code before the MeTC.
As a defense, the petitioners argued that the bookkeeper was severely occupied with winding
up the affairs of the corporation after it ceased operations and Joselyn never sought for an
appointment from them beforehand. Further, assuming arguendo that Joselyn was indeed
refused inspection of corporate records, no criminal liability can attach since the CTCM ceased
to exist as early as May 26,1999. Hence, in August 2000, there was no longer any duty
pertaining to corporate officers to allow a stockholder to inspect the records.
MeTC - convicted the petitioners, sentencing them to surfer the penalty of 30 days of
imprisonment.
RTC and CA – Affirmed

ISSUE: Can the petitioners be convicted for acts committed after it ceased to exist as a
corporation?
RULING:

Affirmed the conviction but directs the payment of fine, in lieu of the penalty of imprisonment.

Despite the expiration of CTCM's corporate term in 1999, duties as corporate officers still
pertained to the petitioners when Joselyn's complaint was filed in 2000. The corporation
continues to be a body corporate for three (3) years after its dissolution for purposes of
prosecuting and defending suits by and against it and for enabling it to settle and close its
affairs, culminating in the disposition and distribution of its remaining assets. The termination of
the life of a juridical entity does not by itself cause the extinction or diminution of the rights and
liabilities of such entity nor those of its owners and creditors.

Further, Sections 122 and 145 of the Corporation Code explicitly provide for the continuation of
the body corporate for three years after dissolution. The rights and remedies against, or
liabilities of, the officers shall not be removed or impaired by reason of the dissolution of the
corporation. A stockholder's right to inspect corporate records subsists during the period of
liquidation. Hence, Joselyn, as a stockholder, had the right to demand for the inspection of
records. Lodged upon the corporation is the corresponding duty to allow the said inspection.
On whether criminal intent was established?

While a cloud of doubt is cast upon the existence of criminal intent on the part of the petitioners,
it is jurisprudentially settled that proof of malice or deliberate intent (mens rea) is not essential in
offenses punishable by special laws, which are mala prohibita.

In the case at bar, petitioners were charged with violations of Section 74, in relation to Section
144, of the Corporation Code, a special law. Accordingly, since Joselyn was deprived of the
exercise of an effective right of inspection, offenses had in fact been committed, regardless of
the petitioners' intent. The Corporation Code provides for penalties relative to the commission of
offenses, which cannot be trivialized, lest the public purpose for which they are crafted be
defeated and put to naught.

No exceptional grounds exist justifying the reversal of the conviction previously rendered by the
MeTC, RTC and CA. However, in lieu of the penalty of 30 days of imprisonment, the Court finds
it more just to impose upon each of the petitioners a fine of Ten Thousand Pesos (P10,000.00)
considering the reasons below. First. Malicious intent was seemingly wanting. Permission to
check the records was granted, albeit not effected. Second. Joselyn had predeceased Alfredo
and Tomas, her uncles, who are in their twilight years. Third. Joselyn's mother, Rosario, had
executed an Affidavit of Desistance stating that the filing of the complaint before was "merely
the result of [a] serious misunderstanding anent the management and operation of [CTCM],
which had long ceased to exist as a corporate entity even prior to the alleged commission of the
crime in question, rather than by reason of any criminal intent or actuation on the part of the
[petitioners]."
Reyes v. Bancom Dev. Corp., G.R. No. 190286, 11 Jan. 2018 - NICH
FACTS:

The dispute originated from a Continuing Guaranty executed in favor of respondent Bancom by
Angel E. Reyes, Sr., Florencio ​Reyes, Jr., et al (the Reyes Group), agreed to guarantee the full
and due payment of obligations incurred by Marbella under an Underwriting Agreement with
Bancom. These obligations included certain Promissory Notes issued by Marbella in favor of
Bancom.

Marbella was unable to pay back the notes at the time of their maturity. After issuing four sets of
replacement Promissory Notes and defaulting on the payment each time, Bancom filed a
Complaint for Sum of Money with a prayer for damages against (a) Marbella as principal debtor;
and (b) the individuals comprising the Reyes Group as guarantors of the loan.

Marbella and the Reyes Group argued that they had been forced to execute the documents
against their will and that the documents should be interpreted in relation to the earlier Marbella
II contracts entered into by Bancom; that the Promissory Notes were not meant to be binding,
given that the funds released to Marbella by Bancom were not loans, but merely additional
financing. Also, they pointed out that the Certificate of Registration issued to Bancom had been
revoked by the SEC, and that no trustee or receiver had been appointed to continue the suit.

The RTC held Marbella and the Reyes Group solidarily liable to Bancom.

The CA denied the appeal and Motion for Reconsideration

ISSUES:
1. Whether the suit should be deemed abated by the revocation by the SEC of the Certificate of
Registration issued to Bancom. NO

2. Whether the petitioners are liable to Bancom. YES

RULING:

1. No. ​The revocation of Bancom's Certificate of Registration does not justify the abatement of
these proceedings.

Section 122 of the Corporation Code provides that a corporation whose charter is annulled, or
whose corporate existence is otherwise terminated, may continue as a body corporate for a
limited period of three years, but only for certain specific purposes enumerated by law. These
include the prosecution and defense of suits by or against the corporation, and other objectives
relating to the settlement and closure of corporate affairs.

Based on the provision, a defunct corporation loses the right to sue and be sued in its name
upon the expiration of the 3-year period provided by law. Jurisprudence, however, has carved
out an exception to this rule. In several cases, this Court has ruled that an appointed receiver,
an assignee, or a trustee may institute suits or continue pending actions on behalf of the
corporation, even after the winding-up period.

A receiver or an assignee need not even be appointed for the purpose of bringing suits or
continuing those that are pending.

Since its directors are considered trustees by legal implication, the fact that Bancom did not
convey its assets to a receiver or assignee was of no consequence. It must also be emphasized
that the dissolution of a creditor-corporation does not extinguish any right or remedy in its favor.

Sec. 145. Amendment or repeal. - No right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability incurred by any such
corporation, stockholders, members, directors, trustees, or officers, shall be removed or
impaired either by the subsequent dissolution of said corporation or by any subsequent
amendment or repeal of this Code or of any part thereof.

2. Yes. As guarantors of the loans of Marbella, petitioners are liable to Bancom.

The obligations of Marbella and the Reyes Group under the Promissory Notes and the
Continuing Guaranty, respectively, are plain and unqualified. Under the notes, Marbella
promised to pay Bancom the amounts stated on the maturity dates indicated. The Reyes Group,
on the other hand, agreed to become liable if any of Marbella's guaranteed obligations were not
duly paid on the due date. There is absolutely no support for the assertion that these
agreements were not meant to be binding. The clear terms of these agreements cannot be
negated and deemed non-binding simply on the basis of the self-serving testimony of Angel
Reyes, one of the guarantors of the loan.

Rich v. Paloma III, G.R. No. 210538, 07 March 2018 - MELO

FACTS:

Sometime in 1997, Dr. Gil Rich (petitioner) lent P1,000,000.00 to his brother, Estanislao Rich
(Estanislao).​3 The agreement was secured by a real estate mortgage over a 1000-square-meter
parcel of land with improvements.

When Estanislao failed to make good on his obligations under the loan agreement, the
petitioner foreclosed on the subject property via a public auction sale conducted on March 14,
2005 by respondent Guillermo Paloma III, Sheriff IV of the RTC. The petitioner was declared the
highest bidder, and subsequently, was issued a Certificate of Sale as purchaser/mortgagee.

Without the petitioner's knowledge, however, and prior to the foreclosure, it appeared from the
records that on January 24, 2005,​6 Estanislao entered into an agreement with Maasin Traders
Lending Corporation (MTLC), where loans and advances amounting to P2.6 million were
secured by a real estate mortgage over the same prope1iy.​7
On the strength of this document, respondent Ester L. Servacio (Servacio), as president of
MTLC, exercised equitable redemption after the foreclosure proceedings. She tendered the
amount of P2,090,000.00 as the redemption money in the extra-judicial foreclosure sale.​8 On
March 15, 2006, respondent Paloma III, again as sheriff of the RTC, issued a Deed of
Redemption in favor of MTLC.

The deed then became the subject of the complaint for "Annulment of Deed of Redemption,
Damages, Attorney's Fees, Litigation Expenses, Application for Issuance of T.R.O. &/or Writ of
Preliminary Prohibitory Injunction" filed before the RTC by the petitioner against respondent
Servacio.

According to the petitioner, MTLC no longer has juridical personality to effect the equitable
redemption as it has already been dissolved by the Securities and Exchange Commission as
early as September 2003.​9​He also asserted that there was a pending case against respondent
Servacio for allegedly forging Estanislao's signature on the same real estate mortgage that
respondent Servacio used as basis for her equitable redemption of the subject property.​1

ISSUE​: Whether or not a corporation not vested with corporate personality at the time of
redemption may redeem a property?

RULING:

A corporation which has already been dissolved, be it voluntarily or involuntarily, retains no

juridical personality to conduct its business save for those directed towards corporate
liquidation.

The reason for this is simple: the dissolution of the corporation carries with it the termination of
the corporation's juridical personality. Any new business in which the dissolved corporation
would engage in, other than those for the purpose of liquidation, "will be a void transaction
because of the non-existence of the corporate party.

From the foregoing, it is clear that, by the time MTLC executed the real estate mortgage
agreement, its juridical personality has already ceased to exist. The agreement is void as MTLC
could not have been a corporate party to the same. To be sure, a real estate mortgage is not
part of the liquidation powers that could have been extended to MTLC. It could not have been
for the purposes of "prosecuting and defending suits by or against it and enabling it to settle and
close its affairs, to dispose of and convey its property and to distribute its assets." It is, in fact, a
new business in which MTLC no longer has any business pursuing.

PVB Employees Union-N.U.B.E. v. Vega, 360 SCRA 33 (2001) - TOVY

Facts:
In 1985, the Central Bank of the Philippines filed with Branch 39 of the Regional Trial Court of
Manila a Petition for Assistance in the Liquidation of the Philippine Veterans Bank (PVB).
Thereafter, the Philippine Veterans Bank Employees Union-N.U.B.E. (petitioner) filed claims for
accrued and unpaid employee wages and benefits with said court. After lengthy proceedings,
partial payments to the employees were made. However, due to the piecemeal hearings on the
benefits, many remain unpaid. Petitioners then moved to disqualify the respondent judge from
hearing the case on grounds of bias and hostility towards petitioners.

On January 2, 1992, the Congress enacted Republic Act No. 7169 providing for the
rehabilitation of the Philippine Veterans Bank. Thereafter, petitioners filed with the labor
tribunals their residual claims for benefits and for reinstatement upon reopening of the bank.
Central Bank also issued a certificate of authority allowing the PVB to reopen.

Despite the legislative mandate for rehabilitation and reopening of PVB, respondent judge
continued with the liquidation proceedings of the bank. Moreover, petitioners learned that
respondents were set to order the payment and release of employee benefits upon motion of
another lawyer, while petitioners’ claims have been frozen to their prejudice.

Petitioners argue that with the passage of R.A. 7169, the liquidation court became functus
officio, and no longer had the authority to continue with liquidation proceedings.

Issue:
May a liquidation court continue with liquidation proceedings of the PVB when Congress had
mandated its rehabilitation and reopening?

Ruling:
No. SC ruled in favor of the Petitioner.

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"
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. The law
likewise provides for the creation of a rehabilitation committee to facilitate the implementation of
its provisions.

Pursuant to said R.A. 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 the liquidation proceedings with the respondent judge praying that the liquidation
proceedings be immediately terminated in view of the passage of R.A. 7169. The Monetary
Board then 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
PVB with the respondent judge. In a Resolution dated June 8, 1992, this court (SC) issued a
temporary restraining order in the instant case restraining respondent judge from further
proceeding with the liquidation of PVB. Thus, on August 3, 1992, the PVB opened its doors to
the public and started regular banking operations.

Clearly, the enactment of R.A. 7169, as well as the subsequent developments stated above,
has rendered the liquidation court functus officio. 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. ​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 other 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.

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.

WHEREFORE, the instant petition is hereby given due course and granted. Respondent judge
is hereby permanently enjoined from further proceeding with Civil Case No. SP- 32311.

Yu v. Yukayguan, 589 SCRA 588 (2009) - SAB

FACTS:

Herein petitioners are members of the Yu Family, particularly, the father, Anthony S. Yu
(Anthony); the wife, Rosita G. Yu (Rosita); and their son, Jason G. Yu (Jason).

Herein respondents composed the Yukayguan Family, namely, the father, Joseph S.
Yukayguan (Joseph); the wife, Nancy L. Yukayguan (Nancy); and their children Jerald Nerwin L.
Yukayguan (Jerald) and Jill Neslie Yukayguan (Jill).

Petitioner Anthony is the older half-brother of respondent Joseph.

Petitioners and the respondents were all stockholders of Winchester Industrial Supply, Inc.
(Winchester, Inc.), a domestic corporation engaged in the operation of a general hardware and
industrial supply and equipment business.

the case at bar was initiated before the RTC by respondents as a derivative suit, on their own
behalf and on behalf of Winchester, Inc., primarily in order to compel petitioners to account for
and reimburse to the said corporation the corporate assets and funds which the latter allegedly
misappropriated for their personal benefit. During the pendency of the proceedings before the
court a quo, the parties were able to reach an amicable settlement wherein they agreed to
divide the assets of Winchester, Inc. among themselves. This amicable settlement was already
partially implemented by the parties, when respondents repudiated the same, for which reason
the RTC proceeded with the case on its merits. On 10 November 2004, the RTC promulgated its
Decision dismissing respondents’ Complaint for failure to comply with essential pre-requisites
before they could avail themselves of the remedies under the Interim Rules of Procedure
Governing Intra-Corporate Controversies; and for inadequate substantiation of respondents’
allegations in said Complaint after consideration of the pleadings and evidence on record.

In its Decision dated 15 February 2006, the Court of Appeals affirmed, on appeal, the findings of
the RTC that respondents did not abide by the requirements for a derivative suit, nor were they
able to prove their case by a preponderance of evidence. Respondents filed a Motion for
Reconsideration of said judgment of the appellate court, insisting that they were able to meet all
the conditions for filing a derivative suit. Pending resolution of respondents’ Motion for
Reconsideration, the Court of Appeals urged the parties to again strive to reach an amicable
settlement of their dispute, but the parties were unable to do so. The parties were not able to
submit to the appellate court, within the given period, any amicable settlement; and filed,
instead, their Position Papers. This effectively meant that the parties opted to submit
respondents’ Motion for Reconsideration of the 15 February 2006 Decision of the Court of
Appeals, and petitioners’ opposition to the same, for resolution by the appellate court on the
merits.

In accordance with respondents’ allegation in their Position Paper that the parties subsequently
filed with the SEC, and the SEC already approved, a petition for dissolution of Winchester, Inc.,
the Court of Appeals remanded the case to the RTC so that all the corporate concerns between
the parties regarding Winchester, Inc. could be resolved towards final settlement.

ISSUE: W/N the CA gravely erred in remanding the case to the lower court for settlement of
corporate concerns.

RULING:
YES. In one stroke, with the use of sweeping language, which utterly lacked support, the Court
of Appeals converted the derivative suit between the parties into liquidation proceedings.

The general rule is that where a corporation is an injured party, its power to sue is lodged with
its board of directors or trustees. Nonetheless, an individual stockholder is permitted to institute
a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the
ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. A derivative action
is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary
party to the suit. And the relief which is granted is a judgment against a third person in favor of
the corporation. Similarly, if a corporation has a defense to an action against it and is not
asserting it, a stockholder may intervene and defend on behalf of the corporation.43 By virtue of
Republic Act No. 8799, otherwise known as the Securities Regulation Code, jurisdiction over
intra-corporate disputes, including derivative suits, is now vested in the Regional Trial Courts
designated by this Court pursuant to A.M. No. 00-11-03-SC promulgated on 21 November 2000.

In contrast, liquidation is a necessary consequence of the dissolution of a corporation. It is

specifically governed by Section 122 of the Corporation Code, which reads:

SEC. 122. Corporate liquidation. – 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
(3) years after the time when it would have been so dissolved, for the purpose of prosecuting
and defending suits by or against it and enabling it to settle and close its affairs, to dispose of
and convey its property and to distribute its assets, but not for the purpose of continuing the
business for which it was established.

At any time during said three (3) years, said corporation is authorized and empowered to
convey all of its property to trustees for the benefit of stockholders, members, creditors, and
other persons in interest. From and after any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors and others in interest, all interest
which the corporation had in the property terminates, the legal interest vests in the trustees, and
the beneficial interest in the stockholders, members, creditors or other persons in interest.

Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder
or member who is unknown or cannot be found shall be escheated to the city or municipality
where such assets are located.

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon lawful dissolution and after payment of all its
debts and liabilities.

Following the voluntary or involuntary dissolution of a corporation, liquidation is the process of

settling the affairs of said corporation, which 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.44 More particularly, it entails the following:

Winding up the affairs of the corporation means the collection of all assets, the payment of all its
creditors, and the distribution of the remaining assets, if any among the stockholders thereof in
accordance with their contracts, or if there be no special contract, on the basis of their
respective interests. The manner of liquidation or winding up may be provided for in the
corporate by-laws and this would prevail unless it is inconsistent with law.45
It may be undertaken by the corporation itself, through its Board of Directors; or by trustees to
whom all corporate assets are conveyed for liquidation; or by a receiver appointed by the SEC
upon its decree dissolving the corporation.46lawphil.net

Glaringly, a derivative suit is fundamentally distinct and independent from liquidation

proceedings. They are neither part of each other nor the necessary consequence of the other.
There is totally no justification for the Court of Appeals to convert what was supposedly a
derivative suit instituted by respondents, on their own behalf and on behalf of Winchester, Inc.
against petitioners, to a proceeding for the liquidation of Winchester, Inc.

While it may be true that the parties earlier reached an amicable settlement, in which they
agreed to already distribute the assets of Winchester, Inc., and in effect liquidate said
corporation, it must be pointed out that respondents themselves repudiated said amicable
settlement before the RTC, even after the same had been partially implemented; and moved
that their case be set for pre-trial. Attempts to again amicably settle the dispute between the
parties before the Court of Appeals were unsuccessful.

Moreover, the decree of the Court of Appeals to remand the case to the RTC for the "final
settlement of corporate concerns" was solely grounded on respondents’ allegation in its Position
Paper that the parties had already filed before the SEC, and the SEC approved, the petition to
dissolve Winchester, Inc. The Court notes, however, that there is absolute lack of evidence on
record to prove said allegation. Respondents failed to submit copies of such petition for
dissolution of Winchester, Inc. and the SEC Certification approving the same. It is a basic rule in
evidence that each party must prove his affirmative allegation. Since it was respondents who
alleged the voluntary dissolution of Winchester, Inc., respondents must, therefore, prove it.​47
This respondents failed to do.

[ISSUE ON DERIVATIVE SUIT]

[SUMMARY: Derivative suit did not prosper because of respondent’s failure to comply with the
legal requirements for its institution.]

In their said Motion for Reconsideration, respondents argued that: (1) they had sufficiently
exhausted all remedies before filing the derivative suit; and (2) respondent Joseph’s
Supplemental Affidavit and its annexes should have been taken into consideration, since the
submission thereof was allowed by the rules of procedure, as well as by the RTC in its Order
dated 26 August 2004.

As regards the first ground of sufficient exhaustion by respondents of all remedies before filing a
derivative suit, the Court subscribes to the ruling to the contrary of the Court of Appeals in its
Decision dated 16 February 2006.1avvphi1

The Court has recognized that a stockholder’s right to institute a derivative suit is not based on
any express provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a
stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a
special injury to him for which he is otherwise without redress. In effect, the suit is an action for
specific performance of an obligation owed by the corporation to the stockholders to assist its
rights of action when the corporation has been put in default by the wrongful refusal of the
directors or management to make suitable measures for its protection. The basis of a
stockholder’s suit is always one in equity. However, it cannot prosper without first complying
with the legal requisites for its institution

Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies

lays down the following requirements which a stockholder must comply with in filing a derivative
suit:

Sec. 1. Derivative action. – A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

A perusal of respondents’ Complaint before the RTC would reveal that the same did not allege
with particularity that respondents exerted all reasonable efforts to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to
obtain the relief they desire.

Respondents assert that their compliance with said requirement was contained in respondent
Joseph’s Affidavit, which was attached to respondents’ Complaint. Respondent Joseph averred
in his Affidavit that he tried for a number of times to talk to petitioner Anthony to settle their
differences, but the latter would not listen. Respondents additionally claimed that taking further
remedies within the corporation would have been idle ceremony, considering that Winchester,
Inc. was a family corporation and it was impossible to expect petitioners to take action against
themselves who were the ones accused of wrongdoing.

The Court is not persuaded.

The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner
Anthony regarding their dispute hardly constitutes "all reasonable efforts to exhaust all remedies
available." Respondents did not refer to or mention at all any other remedy under the articles of
incorporation or by-laws of Winchester, Inc., available for dispute resolution among
stockholders, which respondents unsuccessfully availed themselves of. And the Court is not
prepared to conclude that the articles of incorporation and by-laws of Winchester, Inc.
absolutely failed to provide for such remedies.

Neither can this Court accept the reasons proffered by respondents to excuse themselves from
complying with the second requirement under Section 1, Rule 8 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies. They are flimsy and insufficient, compared
to the seriousness of respondents’ accusations of fraud, misappropriation, and falsification of
corporate records against the petitioners. The fact that Winchester, Inc. is a family corporation
should not in any way exempt respondents from complying with the clear requirements and
formalities of the rules for filing a derivative suit. There is nothing in the pertinent laws or rules
supporting the distinction between, and the difference in the requirements for, family
corporations vis-à-vis other types of corporations, in the institution by a stockholder of a
derivative suit.

The Court further notes that, with respect to the third and fourth requirements of Section 1, Rule
8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, the respondents’
Complaint failed to allege, explicitly or otherwise, the fact that there were no appraisal rights
available for the acts of petitioners complained of, as well as a categorical statement that the
suit was not a nuisance or a harassment suit.

In the instant case, therefore, respondent Joseph’s Supplemental Affidavit and the additional
documentary evidence, appended by respondents only to their Memorandum submitted to the
RTC, were correctly adjudged as inadmissible by the Court of Appeals in its 15 February 2006
Decision for having been belatedly submitted. Respondents neither alleged nor proved that the
documents in question fall under any of the three exceptions to the requirement that affidavits
and documentary evidence should be attached to the appropriate pleading or pre-trial brief of
the party, which is particularly recognized under Section 8, Rule 2 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies.

De Guzman v. NLRC, 211 SCRA 723 (1992) - KATE

FACTS:

It is a fundamental principle of law and human conduct that a person "must, in the exercise of
his rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith." This is the principle we shall apply in the case at bar to gauge
the petitioner's motives in his dealings with the private respondents.

Arturo de Guzman was the general manager of the Manila office of the Affiliated Machineries
Agency, Ltd., which was based in Hongkong. He received a telex message from Leo A. Fialla,
managing director of AMAL in its main office, advising him of the closure of the company due to
financial reverses. This message triggered the series of events that are the subject of this
litigation.

Immediately upon receipt of the advise, De Guzman notified all the personnel of the Manila
office. The employees then sent a letter to AMAL accepting its decision to close, subject to the
payment to them of their current salaries, severance pay, and other statutory benefits. De
Guzman joined them in these representations.

These requests were, however, not heeded. Consequently, the employees, now herein private
respondents, lodged a complaint with the NLRC against AMAL, through Leo A. Fialla and Arturo
de Guzman, for illegal dismissal, unpaid wages or commissions, separation pay, sick and
vacation leave benefits, 13th month pay, and bonus.

For his part, the petitioner began selling some of AMAL's assets and applied the proceeds
thereof, as well as the remaining assets, to the payment of his claims against the company. He
also organized Susarco, Inc., with himself as its president and his wife as one of the
incorporators and a member of the board of directors. This company is engaged in the same
line of business and has the same clients as that of the dissolved AMAL.

With this development, Susarco and its officers were impleaded in the amended complaint of
the private respondents. Later, William Quasha and/or Cirilo Asperilla were also included in the
suit as the resident agents of AMAL in the Philippines.

The petitioner filed his own complaint with the NLRC against AMAL for his remaining unsatisfied
claims.

The Labor Arbiter Eduardo G. Magno, to whom the petitioner's complaint was assigned,
rendered a decision ordering AMAL to pay the petitioner the amount of P371,469.59 as
separation pay, unpaid salary and commissions, after deducting the value of the assets earlier
appropriated by the petitioner.

Labor Arbiter Ma. Lourdes A. Sales, who tried the private respondents' complaint, rendered a
decision —

1. Ordering Respondents AMAL and Arturo de Guzman to pay jointly and severally to each
Complainant separation pay computed at one-half month pay for every year of service,
backwages for one-month, unpaid salaries for June 16-30, 1986, 13th month pay from January
to June 30, 1986 and incentive leave pay equivalent to two and-a-half days pay;

2. Dismissing the complaint against respondents Leo Fialla, William Quasha, Susarco, Inc. and
its directors Susan de Guzman, Pacita Castaneda, George Estomata and Cynthia Serrano for
lack of basis and/or merit;

3. Dismissing the claims for damages for lack of basis;

4. Ordering respondents AMAL and Arturo de Guzman to pay jointly and severally attorney's
fees to Complainants equivalent to 10% of the monetary awards herein.

This decision was on appeal affirmed ​in toto by the NLRC, which is now faulted for grave abuse
of discretion in this petition for ​certiorari​.

The petitioner does not dispute the jurisdiction of the Labor Arbiter and NLRC over the
complaint of the private respondents against AMAL in view of their previous employment
relationship. He argues, however, that the public respondents acted without or in excess of
jurisdiction in holding him jointly and severally liable with AMAL as he was not an employer of
the private respondents.

The Solicitor General and the private respondents disagree. They maintain that the petitioner,
being AMAL's highest local representative in the Philippines, may be held personally
answerable for the private respondents' claims because he is included in the term "employer"
under Art. 212 (c), (now e) of the Labor Code.

The aforecited cases will not apply to the instant case, however, because the persons who were
there made personally liable for the employees' claims were stockholders-officers of the
respondent corporation. In the case at bar, the petitioner, while admittedly the highest-ranking
local representative of AMAL in the Philippines, is nevertheless not a stockholder and much less
a member of the board of directors or an officer thereof. He is at most only a managerial
employee under Art. 212 (m) of the Labor Code.

As such, the petitioner cannot be held directly responsible for the decision to close the business
that resulted in his separation and that of the private respondents. That decision came directly
and exclusively from AMAL. The petitioner's participation was limited to the enforcement of this
decision in line with his duties as general manager of the company. Even in a normal situation,
in fact, he would not be liable, as a managerial employee of AMAL, for the monetary claims of
its employees. There should be no question that the private respondents' recourse for such
claims cannot be against the petitioner but against AMAL and AMAL alone.

The judgment in favor of the private respondents could have been enforced against the
properties of AMAL located in this country except for one difficulty. The problem is that these
properties have already been appropriated by the petitioner to satisfy his own claims against the
company

ISSUE: ​WON the petitioner incurred liability to the private respondents.

RULING:

The Labor Arbiter believed he had because of his bad faith. Had Respondent A. de Guzman
given timely notice of his complaint, his case could have been consolidated with this case and
the issues in both cases could have been resolved in a manner that would give due
consideration to the rights and liabilities of all parties in interest. At the least, in case
consolidation is objected to or no longer possible, the Complainants herein could have been
given a chance to intervene in the other case so that whatever disposition might be rendered by
Arbiter Magno would include consideration of Complainants' claims herein.

It is not disputed that the petitioner in the case at bar had his own claims against AMAL and
consequently had some proportionate right over its assets. However, this right ceased to exist
when, knowing fully well that the private respondents had similarly valid claims, he took
advantage of his position as general manager and applied AMAL's assets in payment
exclusively of his own claims.

The modern tendency, he continues, is to depart from the classical and traditional theory, and to
grant indemnity for damages in cases where there is an abuse of rights, even when the act is
not illicit. Law cannot be given an anti-social effect. If mere fault or negligence in one's acts can
make him liable for damages for injury caused thereby, with more reason should abuse or bad
faith make him liable. A person should be protected only when he acts in the legitimate exercise
of his right, that is, when he acts with prudence and in good faith; but not when he acts with
negligence or abuse.

We hold that although the petitioner cannot be made solidarily liable with AMAL for the
monetary demand of its employees, he is nevertheless directly liable to them for his
questionable conduct in attempting to deprive them of their just share in the assets of AMAL.

The fact that no actual or compensatory damages was proven before the trial court does not
adversely affect the private respondents' right to recover moral damages. We have held that
moral damages may be awarded in the cases referred to in the chapter on Human Relations of
the Civil Code (Articles 19-36) without need of proof that the wrongful act complained of had
caused any physical injury upon the complainant.

When moral damages are awarded, exemplary damages may also be decreed. Exemplary
damages are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. According to the Code Commission,
"exemplary damages are required by public policy, for wanton acts must be suppressed. They
are an antidote so that the poison of wickedness may not run through the body politic." These
damages are legally assessible against him.

The petitioner asserts that, assuming the private respondents to have a cause of action against
him for his alleged bad faith, the civil courts and not the Labor Arbiter have jurisdiction over the
case.

Although the question of damages arising from the petitioner's bad faith has not directly sprung
from the illegal dismissal, it is clearly intertwined therewith. The predicament of the private
respondents caused by their dismissal was aggravated by the petitioner's act in arrogating to
himself all of AMAL's assets to the exclusion of its other creditors, including its employees. The
issue of bad faith is incidental to the main action for illegal dismissal and is thus properly
cognizable by the Labor Arbiter.

We agree that, strictly speaking, the determination of the amount thereof would require a
remand to the Labor Arbiter. However, inasmuch as the private respondents were separated in
1986 and this case has been pending since then, the interests of justice demand the direct
resolution of this motion in this proceeding.

It is stressed that the petitioners' liability to the private respondents is a direct liability in the form
of moral and exemplary damages and not a solidary liability with AMAL for the claims of its
employees against the company. He is being held liable not because he is the general manager
of AMAL but because he took advantage of his position by applying the properties of AMAL to
the payment exclusively of his own claims to the detriment of the other employees.

WHEREFORE, the questioned decision is AFFIRMED but with the modification that the
petitioner shall not be held jointly and severally liable with AMAL for the private respondents'
money claims against the latter. However, for his bad faith in arrogating to himself AMAL's
properties to the prejudice of the private respondents, the petitioner is ordered: 1) to pay the
private respondents moral damages in the sum of P20,000.00 and exemplary damages in the
sum of P20,000.00; and 2) to return the assets of AMAL that he has appropriated, or the value
thereof, with legal interest thereon from the date of the appropriation until they are actually
restored, these amounts to be proportionately distributed among the private respondents in
satisfaction of the judgment rendered in their favor against AMAL.

SO ORDERED.

Sumera v. Valencia, 67 Phil. 721 (1939) - JV

FACTS:

Devota de Nuestra Senora de la Correa is a corporation for the promoting of the fishing industry
for the period of 20 years. There was an investigation made by the provincial auditor for the
financial condition of the corporation. It was found out that Valencia, manager of the corporation,
withdrawn the amount of P600 from the remaining asset of the corporation

The corporation filed a voluntary dissolution and it was approved by the court. It assigned
Damaso Nicolas as the assignee of the corporation. He demanded Valencia for the said
amount. The latter only paid P200 and there is a remaining balance of P400.

Damaso resigned and he was replaced by Sumera. The latter filed a case for the collection case
against Valencia. The latter’s defense that he had no obligation because he already fully paid it
and the action is already prescribed.

TC – dismissed the case on the ground of prescription.

the court ruled that since the dissolution was made on Feb 14, 1928 and according to Sec. 77 of
the Corporation code, the action should be brought within 3 years from the dissolution of the
corporation.

ISSUE:
w/n the action is already prescribed.

RULING:

section 77 of Act No. 1459 provides 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." And section 77 of the same
Act provides, "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, stockholders,
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
trustees, and the beneficial interest in the members, stockholders, creditors, or other persons in
interest."

In the light of the legal provisions and authorities cited, interpretative of said laws, if the
corporation carries out the liquidation of its assets through its own officers and continues and
defends the actions brought by or against it, its existence shall terminate at the end of three
years from the time of dissolution; but if a receiver or assignee is appointed, as has been done
in the present case, with or without a transfer of its properties within three years, the legal
interest passes to the assignee, the beneficial interest remaining in the members, stockholders,
creditors and other interested persons; and said assignee may bring an action, prosecute that
which has already been commenced for the benefit of the corporation, or defend the latter
against any other action already instituted or which may be instituted even outside of the period
of three years fixed for the offices of the corporation.

For the foregoing considerations, we are o the opinion and so hold that when a corporation is
dissolved and the liquidation of its assets is placed in the hands of a receiver or assignee, the
period of three years prescribed by section 77 of Act No. 1459 known as the Corporation Law is
not applicable, and the assignee may institute all actions leading to the liquidation of the assets
of the corporation even after the expiration of three years.
Gelano v. Court of Appeals, 103 SCRA 90 (1981) - JOSIAH

Lessons Applicable: Who are liable after dissolution and winding-up? (Corporate Law)

FACTS:

· ​Insular Sawmill, Inc. leased the paraphernal property of Guillermina M. Gelano

(wife) for P1.2K/month

· ​November 19, 1947-December 26, 1950: Carlos Gelano (husband) obtained

cash advances of P25,950 on account of rentals

· ​agreement: Insular Sawmill, Inc. could deduct the same from the monthly rentals
of the leased premises until the cash advances are fully paid

· ​Carlos Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance
of P20,000.00 which he refused to pay

· ​Guillermina M. Gelano refused to pay on the ground that said amount was for the
personal account of her husband asked for by, and given to him, without her
knowledge and consent and did not benefit the family

· ​May 4, 1948 to September 11, 1949: Spouses Gelanos purchased lumber

materials on credit leaving P946.46 unpaid

· ​July 14, 1952: Joseph Tan Yoc Su, as accomodating party, executed a joint and
several promissory note with Carlos Gelano in favor of China Banking Corporation
bank in the amount of P8,000.00 payable in 60 days to help renew the previous loan of
the spouses
 · ​the bank collected P9,106.00 including interests by debiting the current account
of the corp.

·​ ​Carlos only paid P5,000

· ​Guillermina refused to pay on the ground that she had no knowledge of such
accomodation

· ​May 29, 1959: Insular thru Atty. German Lee, filed a complaint for collection
against the spouses before the CFI

· ​In the meantime, private respondent amended its Articles of Incorporation to

shorten its term of existence up to December 31, 1960 only

·​ ​November 20, 1964: CFI favored Insular holding Carlos Gelano liable

·​ ​August 23, 1973: held spouses jointly ad severally liable

ISSUE: W/N a corporation, whose corporate life had ceased by the expiration of its term of
existence, could still continue prosecuting and defending suits after its dissolution and beyond
the period of 3 years provided for under Act No. 1459, otherwise known as the Corporation law,
to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or
assignee.

HELD: YES. Affirmed with mod - conjugal property is liable

 · ​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 3 years 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

·​ ​only the conveyance to the trustees must be made within the 3-year period

· ​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

· ​trustee may commence a suit which can proceed to final judgment even beyond
the 3-year period

· ​"trustee" = general concept - include the counsel to whom was entrusted in the
instant case

· ​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 may not take advantage of the failure of the corporation to transfer its
assets to a trustee

· ​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 3
years after the time when it would have been dissolved, for the purpose of prosecuting
and defending suits by or against it

Clemente v. Court of Appeals, 242 SCRA 717 (1995) - JHENY

FACTS:
As alleged, the "Sociedad Popular Calambeña", a sociedad anonima organized on or about the
advent of the early American occupation of the Philippines was engaged in the principal
business of cockfighting. During its existence, it acquired by installments the subject parcel of
land from the Friar Lands Estate of Calamba, Laguna. Mariano Elepaño and Pablo Clemente,
now both deceased, were original stockholders of the sociedad who subscribed and paid for 40
shares of stocks 418 shares of stocks, respectively. Pablo’s share was later distributed and
apportioned to his heirs, in accordance with a Project of Partition. Hence, in 1932, the sociedad
issued stock certificates to the heirs of Pablo Clemente – the herein petitioners.
The petitioners (heirs of Pablo and Mariano) filed a case before the RTC for Declaration of
Ownership of the subject parcel of land based on the said stock certificates. They are asserting
that their fathers being the only known stockholders of "Sociedad Popular Calamba," they, to the
exclusion of all others, are entitled to be declared owners of the subject lot.
RTC – dismissed the complaint on the thesis that, absent a corporate liquidation, it is the
corporation, not the stockholders, which can assert, if at all, any title to the corporate assets.
Further, no proof was introduced demonstrating that the "sociedad" ever asserted its-right of
ownership over the property during the period of its existence.
CA – sustained the dismissal

ISSUE: ​Whether or not petitioners have a title to the property in question. NO

RULING:
All that appear to be certain are that the "Sociedad Popular Calambeña," believed to be a
sociedad anonima and for a while engaged in the operation and management of a cockpit, has
existed sometime in the past; that it has acquired the parcel of land here involved; and that the
plaintiffs' predecessors, Mariano Elepaño and Pablo Clemente, had been original stockholders
of the sociedad. Except in showing that they are the successors-in-interest of Elepaño and
Clemente, petitioners have been unable to come up with any evidence to substantiate their
claim of ownership of the corporate asset.

If, indeed, the sociedad has long become defunct, it should behoove petitioners, or anyone else
who may have any interest in the corporation, to take appropriate measures before a proper
forum for a peremptory settlement of its affairs. There are various modes provided by the
Corporation Code for dissolving, liquidating or winding up, and terminating the life of the
corporation. Among the causes for such dissolution are when the corporate term has expired or
when, upon a verified complaint and after notice and hearing, the Securities and Exchange
Commission orders the dissolution of a corporation for its continuous inactivity for at least five
(5) years. The corporation continues to be a body corporate for three (3) years after its
dissolution for purposes of prosecuting and defending suits by and against it and for enabling it
to settle and close its affairs, culminating in the disposition and distribution of its remaining
assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond
that period. The termination of the life of a juridical entity does not by itself cause the extinction
or diminution of the rights and liabilities of such entity nor those of its owners and creditors. If
the three-year extended life has expired without a trustee or receiver. having been expressly
designated by the corporation within that period, the board of directors (or trustees) itself,
following the rationale of the Supreme Court's decision in Gelano vs. Court of Appeals (103
SCRA 90) may be permitted to so continue as "trustees" by legal implication to complete the
corporate liquidation. Still in the absence of a board of directors or trustees, those having any
pecuniary interest in the assets, including not only the shareholders but likewise the creditors of
the corporation, acting for and in its behalf, might make proper representations with the
Securities and Exchange commission, which has primary and sufficiently broad jurisdiction in
matters of this nature, for working out a final settlement of the corporate concerns.

Alabang Dev. Corp. v. Alabang Hills Village Assn., 724 SCRA 321 (2014) - NICH
FACTS:

Petitioner ADC is the developer of Alabang Hills Village and still owns certain parcels of land
therein that are yet to be sold, as well as those considered open spaces that have not yet been
donated to [the] local government of Muntinlupa City or the Homeowner’s Association.

Sometime in Sep 2006, ADC learned that AHVAI started the construction of a multi-purpose hall
and a swimming pool on one of the parcels of land still owned by ADC without the latter’s
consent and approval, and that despite demand, AHVAI failed to desist from constructing the
said improvements. ADC thus prayed that an injunction be issued enjoining defendants from
constructing the multi-purpose hall and the swimming pool at the Alabang Hills Village.

AHVAI denied ADC’s asseverations and claimed that the latter has no legal capacity to sue
since its existence as a registered corporate entity was revoked by the SEC on May 26, 2003;
that ADC has no cause of action because by law it is no longer the absolute owner but is merely
holding the property in question in trust for the benefit of AHVAI as beneficial owner thereof;

RTC dismissed petitioner’s complaint due to lack of personality to file such complaint.

CA dimssed both appeals of petitioner and respondent.

CA relied on Columbia Pictures Inc v. CA for the definition of “lack of capacity to sue” and “lack
of personality to sue”

ISSUE: ​Whether the petitioner lacks capacity to sue

RULING: ​ Yes.

The SC upholds the CA when it relied on the case of ​Columbia for the definition of “lack of legal
capacity to sue”, to wit:

“[l]ack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights,
or does not have the necessary qualification to appear in the case, or does not have the
character or representation he claims[;] ‘lack of capacity to sue’ refers to a plaintiff’s general
disability to sue, such as on account of minority, insanity, incompetence, ​lack of juridical
personality ​or any other general disqualifications of a party. ...”

In the instant case, petitioner lacks capacity to sue because it no longer possesses juridical
personality by reason of its dissolution and lapse of the three-year grace period provided under
Section 122 of the Corporation Code

SEC. 122. ​Corporate liquidation.​—​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 (3) years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose
of continuing the business for which it was established.

At any time during said three (3) years, said corporation is authorized and empowered to
convey all of its property to trustees for the benefit of stockholders, members, creditors, and
other persons in interest. From and after any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors and others in interest, all interest
which the corporation had in the property terminates, the legal interest vests in the trustees, and
the beneficial interest in the stockholders, members, creditors or other persons in interest.

Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder
or member who is unknown or cannot be found shall be escheated to the city or municipality
where such assets are located.

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon lawful dissolution and after payment of all its
debts and liabilities.

In the absence of trustees, this Court ruled, thus:

... Still in the absence of a board of directors or trustees, those having any pecuniary interest in
the assets, including not only the shareholders but likewise the creditors of the corporation,
acting for and in its behalf, might make proper representations with the Securities and Exchange
Commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for
working out a final settlement of the corporate concerns.

In the instant case, there is no dispute that petitioner’s corporate registration was revoked on
May 26, 2003. Based on the above-quoted provision of law, it had three years, or until May 26,
2006, to prosecute or defend any suit by or against it. The subject complaint, however, was filed
only on October 19, 2006, more than three years after such revocation.

It is likewise not disputed that the subject complaint was filed by petitioner corporation and not
by its directors or trustees. In fact, it is even averred, albeit wrongly, in the first paragraph of the
Complaint that “[p]laintiff is a duly organized and existing corporation under the laws of the
Philippines, with capacity to sue and be sued. x x x”

In the present case, petitioner filed its complaint not only after its corporate existence was
terminated but also beyond the three-year period allowed by Section 122 of the Corporation
Code. Thus, it is clear that at the time of the filing of the subject complaint petitioner lacks the
capacity to sue as a corporation. To allow petitioner to initiate the subject complaint and pursue
it until final judgment, on the ground that such complaint was filed for the sole purpose of
liquidating its assets, would be to circumvent the provisions of Section 122 of the Corporation
Code.

As to the last issue raised, the basic and pivotal issue in the instant case is petitioner’s capacity
to sue as a corporation and it has already been settled that petitioner indeed lacks such
capacity. Thus, this Court finds no cogent reason to depart from the ruling of the CA finding it
unnecessary to delve on the other issues raised by petitioner.

Petition is ​DENIED​.

Chung Ka Bio v. IAC, 163 SCRA 534 (1988) - MELO

FACTS:

Philippine Blooming Mills Company, Inc. was incorporated for a term of 25 years. The members
of its board of directors executed a deed of assignment of all of the accounts receivables,
properties, obligations and liabilities of the old PBM in favor of Chung Siong Pek in his capacity
as treasurer of the new PBM, then in the process of reincorporation. The new PMB was issued
a certificate of incorporation by the Securities and Exchange Commission. Chung Ka Bio and
the other petitioners herein, all stockholders of the old PBM, filed with the SEC a petition for
liquidation of both the old PBM and the new PBM. The allegation was that the former had
become legally non-existent for failure to extend its corporate life and that the latter had likewise
been​ipso facto dissolved for non-use of the charter and continuous failure to operate within 2
years from incorporation.

ISSUE:

Whether or not the new corporation is accountable for the said assets to the stockholders of the
dissolved corporation who had not consented to the conveyance of the same to the new
corporation?

RULING: No

these are now Sections 122 and 40, respectively, with modifications, of the Corporation Code.
As the first contention is based on the negative averment that no stockholders' meeting was
held and the 2/3 consent vote was not obtained, there is no need for affirmative proof. Even so,
there is the presumption of regularity which must operate in favor of the private respondents,
who insist that the proper authorization as required by the Corporation Law was duly obtained at
a meeting called for the purpose. (That authorization was embodied in a unanimous resolution
dated March 19, 1977, which was reproduced ​verbatim in the deed of assignment.) Otherwise,
the new PBM would not have been issued a certificate of incorporation, which should also be
presumed to have been done regularly. It must also be noted that under Section 28-1/2, "any
stockholder who did not vote to authorize the action of the board of directors may, within forty
days after the date upon which such action was authorized, object thereto in writing and
demand payment for his shares." The record does not show, nor have the petitioners alleged or
proven, that they filed a written objection and demanded payment of their shares during the
reglementary forty-day period. This circumstance should bolster the private respondents' claim
that the authorization was unanimous.

While we agree that the board of directors is not normally permitted to undertake any activity
outside of the usual liquidation of the business of the dissolved corporation, there is nothing to
prevent the stockholders from conveying their respective shareholdings toward the creation of a
new corporation to continue the business of the old. Winding up is the sole activity of a
dissolved corporation that does not intend to incorporate anew. If it does, however, it is not
unlawful for the old board of directors to negotiate and transfer the assets of the dissolved
corporation to the new corporation intended to be created as long as the stockholders have
given their consent. This was not prohibited by the Corporation Act. In fact, it was expressly
allowed by Section 28-1/2.

What the Court finds especially intriguing in this case is the fact that although the deed of
assignment was executed in 1977, it was only in 1981 that it occurred to the petitioners to
question its validity. All of four years had elapsed before the petitioners filed their action for
liquidation of both the old and the new corporations, and during this period, the new PBM was in
full operation, openly and quite visibly conducting the same business undertaken earlier by the
old dissolved PBM. The petitioners and the private respondents are not strangers but relatives
and close business associates The PBM office is in the heart of Metro Manila. The new
corporation, like the old, employs as many as 2,000 persons, the same personnel who worked
for the old PBM. Additionally, one of the petitioners, Chung Siong Pek was one of the directors
who executed the deed of assignment in favor of the old PBM and it was he also who received
the deeded assets on behalf and as treasurer of the new PBM.Surely, these circumstances
must operate to bar the petitioners now from questioning the deed of assignment after this long
period of inaction in the protection of the rights they are now belatedly asserting. Laches has
operated against them.