Emailing Corpo Case Digests Set15

CORPORATION
LAW CASE DIGESTS

3C & 3S – ATTY. CARLO BUSMENTE
VESAGAS vs. CA Then, in a resolution rendered on March 16, 2000, it similarly denied
G.R. No. 142924 – December 5, 2001 their motion for reconsideration.

FACTS: Petitioner’s Contention:
The respondent spouses Delfino and Helenda Raniel are members in
good standing of the Luz Village Tennis Club, Inc. (club). They alleged 1. Petitioners contend that since its inception in the 1970's, the
that petitioner Teodoro B. Vesagas, who claims to be the club's duly club in practice has not been a corporation. They add that it
elected president, in conspiracy with petitioner Wilfred D. Asis, who, in was only the respondent spouses, motivated by their own
turn, claims to be its duly elected vice-‐president and legal counsel, personal agenda to make money from the club, who
summarily stripped them of their lawful membership, without due surreptitiously caused its registration with the SEC. They then
process of law. Thereafter, respondent spouses filed a complaint with assert that, at any rate, the club has already ceased to be a
the SEC on March 26, 1997 against the petitioners. corporate body. Therefore, no intra-‐corporate relations can
arise as between the respondent spouses and the club or any
In this case, respondents asked the Commission to declare as illegal of its members. Stretching their argument further, petitioners
their expulsion from the club as it was allegedly done in utter insist that since the club, by their reckoning is not a
disregard of the provisions of its by-‐laws as well as the requirements corporation, the SEC does not have the power or authority to
of due process. They likewise sought the annulment of the inquire into the validity of the expulsion of the respondent
amendments to the by-‐laws made on December 8, 1996, changing the spouses.
annual meeting of the club from the last Sunday of January to 2. They claim in gratia argumenti that while the club may have
November and increasing the number of trustees from nine to fifteen. been considered a corporation during a brief spell, still, at the
Finally, they prayed for the issuance of a Temporary Restraining Order time of the institution of this case with the SEC, the club was
and Writ of Preliminary Injunction. The application for TRO was already dissolved by virtue of a Board resolution.
denied by SEC Hearing Officer Soller in an Order dated April 29, 1997.
ISSUE:
Before the hearing officer could start proceeding with the case, Whether or not a corporation may be dissolved by a mere resolution?
however, petitioners filed a motion to dismiss on the ground that the
SEC lacks jurisdiction over the subject matter of the case. The motion HELD:
was denied. Their subsequent move to have the ruling reconsidered NO. The Corporation Code establishes the procedure and other formal
was likewise denied. They filed a petition for certiorari with the SEC En requirements a corporation needs to follow in case it elects to dissolve
Banc seeking a review of the hearing officer's orders. The petition was and terminate its structure voluntarily and where no rights of
again denied for lack of merit, and so was the motion for its creditors may possibly be prejudiced, thus:
reconsideration in separate orders, dated July 14, 1998 and November
17, 1998, respectively. Dissatisfied with the verdict, petitioners "Sec. 118.Voluntary dissolution where no creditors
promptly sought relief with the CA contesting the ruling of the are affected. — If dissolution of a corporation does
Commission en banc. The appellate court, however, dismissed the not prejudice the rights of any creditor having a
petition for lack of merit in a Decision promulgated on July 30, 1999. claim against it, the dissolution may be effected by
CORPO CASE DIGESTS 3C & 3S || 1

CORPORATION LAW CASE DIGESTS
majority vote of the board of directors or trustees board members' certification. Lastly, and most important of all, the
and by a resolution duly adopted by the affirmative SEC Order of Dissolution was never submitted as evidence.
vote of the stockholders owning at least two-‐thirds
(2/3) of the outstanding capital stock or at least ADDITIONAL INFO: The Court upheld the jurisdiction of the SEC as
two-‐thirds (2/3) of the members at a meeting to be the present dispute is intra-‐corporate in character, the parties involved
held upon call of the directors or trustees after are officers and members of the Corporation and the conflict relates to
publication of the notice of time, place and object of this relation, the case at bar should now be referred to the appropriate
the meeting for three (3) consecutive weeks in a RTC. The jurisdiction to resolve intra-‐corporate controversies has been
newspaper published in the place where the transferred to the courts of general jurisdiction under RA 8799. Finally,
principal office of said corporation is located; and if on the alleged failure of respondents to implead the club to the case,
no newspaper is published in such place, then in a the remedy thereof is to implead the non-‐party claimed to be
newspaper of general circulation in the Philippines, necessary or indispensable.
after sending such notice to each stockholder or
member either by registered mail or by personal GELANO vs. CA.
delivery at least 30 days prior to said meeting. A G.R. No. L-‐39050 – February 24, 1981
copy of the resolution authorizing the dissolution
shall be certified by a majority of the board of FACTS:
directors or trustees and countersigned by the Private respondent Insular Sawmill, Inc. is a corporation organized on
secretary of the corporation. The Securities and September 17, 1945 with a corporate life of fifty (50) years (up to
Exchange Commission shall thereupon issue the September 17, 1995), with the primary purpose of carrying on a
certificate of dissolution." general lumber and sawmill business. To carry on this business,
private respondent leased the paraphernal property of petitioner-‐wife
We note that to substantiate their claim of dissolution, petitioners Guillermina M. Gelano at the corner of Canonigo and Otis, Paco, Manila
submitted only two relevant documents: the Minutes of the First for P1,200.00 a month. It was while private respondent was leasing the
Board Meeting held on January 5, 1997, and the board resolution aforesaid property that its officers and directors had come to know
issued on April 14, 1997 which declared "to continue to consider petitioner-‐husband Carlos Gelano who received from the corporation
the club as a non-‐registered or a non-‐corporate entity and just a cash advances on account of rentals to be paid by the corporation on
social association of respectable and respecting individual the land.
members who have associated themselves, since the 1970's, for
the purpose of playing the sports of tennis . . . ." Obviously, these Between November 19, 1947 to December 26, 1950 petitioner Carlos
two documents will not suffice. The requirements mandated by Gelano obtained from private respondent cash advances of P25,950.00.
the Corporation Code should have been strictly complied with The said sum was taken and received by petitioner Carlos Gelano on
by the members of the club. The records reveal that no proof the agreement that private respondent could deduct the same from the
was offered by the petitioners with regard to the notice and monthly rentals of the leased premises until said cash advances are
publication requirements. Similarly wanting is the proof of the fully paid. Out of the aforementioned cash advances in the total sum of
P25,950.00, petitioner Carlos Gelano was able to pay only P5,950.00

thereby leaving an unpaid balance of P20,000.00 which he refused to court was not notified of the amendment shortening the corporate
pay despite repeated demands by private respondent. Petitioner existence and no substitution of party was ever made.
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 RTC: Rendered decision in favor of the private respondents
him, without her knowledge and consent and did not benefit the CA: Modified the decision of the RTC by holding petitioner spouses
family. jointly and severally liable on respondents claim.

On various occasions from May 4, 1948 to September 11, 1949 After petitioners received a copy of the decision on August 24, 1973,
petitioners husband and wife also made credit purchases of lumber they came to know that the Insular Sawmill Inc. was dissolved way
materials from private respondent with a total price of P1,120.46 in back on December 31, 1960. Hence, petitioners filed a motion to
connection with the repair and improvement of petitioners' residence. dismiss the case and/or reconsideration of the decision of the Court of
On November 9, 1949 partial payment was made by petitioners in the Appeals on grounds that the case was prosecuted even after
amount of P91.00 and in view of the cash discount in favor of dissolution of private respondent as a corporation and that a defunct
petitioners in the amount of P83.00, the amount due private corporation cannot maintain any suit for or against it without first
respondent on account of credit purchases of lumber materials is complying with the requirements of the winding up of the affairs of the
P946.46 which petitioners failed to pay. corporation and the assignment of its property rights within the
required period.
On July 14, 1952, in order to accommodate and help petitioners renew
previous loans obtained by them from the China Banking Corporation, ISSUE:
private respondent, through Joseph Tan Yoc Su, executed a joint and Whether or not a corporation whose corporate life had ceased by the
several promissory note with Carlos Gelano in favor of said bank in the expiration of its term of existence, could still continue prosecuting and
amount of P8,000.00 payable in sixty (60) days. For failure of Carlos defending suits after its dissolution and beyond the period of three
Gelano to pay the promissory note upon maturity, the bank collected years provided for under the Corporation law, to wind up its affairs,
from the respondent corporation the amount of P9,106.00 including without having undertaken any step to transfer its assets to a trustee
interests, by debiting it from the corporation's current account with or assignee?
the bank. Petitioner Carlos Gelano was able to pay private respondent
the amount of P5,000.00 but the balance of P4,106.00 remained HELD:
unsettled. Guillermina M. Gelano refused to pay on the ground that she The court ruled in the affirmative.
had no knowledge about the accommodation made by the corporation
in favor of her husband. Section 77 of the Corporation Law (now Sec. 122) provides that the
corporation shall "be continued as a body corporate for three (3) years
In the meantime, private respondent amended its Articles of after the time when it would have been ... dissolved, for the purpose of
Incorporation to shorten its term of existence up to December 31, 1960 prosecuting and defending suits By or against it ...," so that, thereafter,
only. The amended Articles of Incorporation was filed with, and it shall no longer enjoy corporate existence for such purpose. For this
approved by the Securities and Exchange Commission, but the trial reason, Section 78 of the same law (Sec. 122, 2nd par.) authorizes the
corporation, "at any time during said three years ... to convey all of its

property to trustees for the benefit of members, Stockholders, PHILIPPINE VETERANS BANK EMPLOYEES UNION vs. VEGA
creditors and other interested," evidently for the purpose, among G.R. No. 105364 – June 28, 2001
others, of enabling said trustees to prosecute and defend suits by or
against the corporation begun before the expiration of said period. FACTS:
The Central Bank of the Philippines filed with the Regional Trial Court
When Insular Sawmill, Inc. was dissolved on December 31, 1960, of Manila a Petition for Assistance in the Liquidation of the Philippine
under Section 77 (now 122) of the Corporation Law, it still has the Veterans Bank. Thereafter, the Philippine Veterans Bank Employees
right until December 31, 1963 to prosecute in its name the present Union-‐N.U.B.E., herein petitioner, represented by petitioner Perfecto V.
case. After the expiration of said period, the corporation ceased to exist Fernandez, filed claims for accrued and unpaid employee wages and
for all purposes and it can no longer sue or be sued. benefits with said court. After lengthy proceedings, partial payment of
the sums due to the employees were made. However, due to the
However, a corporation that has a pending action and which cannot be piecemeal hearings on the benefits, many remain unpaid. Petitioners
terminated within the three-‐year period after its dissolution is moved to disqualify the respondent judge from hearing the above case
authorized under Section 78 (122, 2nd par.) to convey all its property to on grounds of bias and hostility towards petitioners. In January 1992
trustees to enable it to prosecute and defend suits by or against the the Congress enacted Republic Act No. 7169 providing for the
corporation beyond the Three-‐year period although private rehabilitation of the Philippine Veterans Bank. Thereafter, petitioners
respondent (did not appoint any trustee, yet the counsel who filed with the labor tribunals their residual claims for benefits and for
prosecuted and defended the interest of the corporation in the instant reinstatement upon reopening of the bank. Sometime in May 1992, the
case and who in fact appeared in behalf of the corporation may be Central Bank issued a certificate of authority allowing the PVB to
considered a trustee of the corporation at least with respect to the reopen. Despite the legislative mandate for rehabilitation and
matter in litigation only. Said counsel had been handling the case when reopening of PVB, respondent judge continued with the liquidation
the same was pending before the trial court until it was appealed proceedings of the bank. Moreover, petitioners learned that
before the Court of Appeals and finally to this Court. We therefore hold respondents were set to order the payment and release of employee
that there was a substantial compliance with Section 78 (122, 2nd par.) benefits upon motion of another lawyer, while petitioners' claims have
of the Corporation Law and as such, private respondent Insular been frozen to their prejudice.
Sawmill, Inc. could still continue prosecuting the present case even
beyond the period of three (3) years from the time of its dissolution. Petitioners argue that with the passage of R.A. 7169, the liquidation
court became functus officio, and no longer had the authority to
The trustee may commence a suit which can proceed to final continue with liquidation proceedings. The Supreme Court resolved to
judgment even beyond the three-‐year period. No reason can be issue a Temporary Restraining Order enjoining the trial court from
conceived why a suit already commenced By the corporation itself further proceeding with the case.
during its existence, not by a mere trustee who, by fiction, merely
continues the legal personality of the dissolved corporation should not ISSUE:
be accorded similar treatment allowed — to proceed to final judgment Whether or not the RTC should not have continued the liquidation
and execution thereof. after RA 7169 had been enacted.


HELD: reinstate the corporation to its former position of successful operation
Yes. Pursuant to said R.A. No. 7169, the Rehabilitation Committee and solvency.
submitted the proposed Rehabilitation Plan of the PVB to the Monetary
Board for its approval. Meanwhile, PVB filed a Motion to Terminate It is crystal clear that the concept of liquidation is diametrically
Liquidation of Philippine Veterans Bank dated March 13, 1992 with the opposed or contrary to the concept of rehabilitation, such that both
respondent judge praying that the liquidation proceedings be cannot be undertaken at the same time. To allow the liquidation
immediately terminated in view of the passage of R.A. No. 7169. On proceedings to continue would seriously hinder the rehabilitation of
April 10, 1992, the Monetary Board issued Monetary Board Resolution the subject bank.
No. 348 which approved the Rehabilitation Plan submitted by the
Rehabilitation Committee. Thereafter, the Monetary Board issued a ADDITIONAL:
Certificate of Authority allowing PVB to reopen. On June 3, 1992, the Anent the claim of respondents Central Bank and Liquidator of PVB
liquidator filed A Motion for the Termination of the Liquidation that R.A. No. 7169 became effective only on March 10, 1992 or fifteen
Proceedings of the Philippine Veterans Bank with the respondent (15) days after its publication in the Official Gazette; and, the
judge. contention of intervenors VOP Security, et al., that the effectivity of said
law is conditioned on the approval of a rehabilitation plan by the
As stated above, the Court, in a Resolution dated June 8, 1992, issued a Monetary Board, among others, the Court is of the view that both
temporary restraining order in the instant case restraining respondent contentions are bereft of merit.
judge from further proceeding with the liquidation of PVB. On August
3, 1992, the Philippine Veterans Bank opened its doors to the public While as a rule, laws take effect after fifteen (15) days following the
and started regular banking operations. completion of their publication in the Official Gazette or in a
newspaper of general circulation in the Philippines, the legislature has
Clearly, the enactment of Republic Act No. 7169, as well as the the authority to provide for exceptions, as indicated in the clause
subsequent developments has rendered the liquidation courtfunctus "unless otherwise provided."
officio. Consequently, respondent judge has been stripped of the
authority to issue orders involving acts of liquidation. In the case at bar, Section 10 of R.A. No. 7169 provides: CDAEHS

Liquidation, in corporation law, connotes a winding up or settling Sec. 10.Effectivity. — This Act shall take effect upon
with creditors and debtors. It is the winding up of a corporation so its approval.
that assets are distributed to those entitled to receive them. It is the
process of reducing assets to cash, discharging liabilities and dividing Hence, it is clear that the legislature intended to make the law
surplus or loss. effective immediately upon its approval. It is undisputed that R.A. No.
7169 was signed into law by President Corazon C. Aquino on January 2,
On the opposite end of the spectrum is rehabilitation which connotes 1992. Therefore, said law became effective on said date. Assuming for
a reopening or reorganization. Rehabilitation contemplates a the sake of argument that publication is necessary for the effectivity of
continuance of corporate life and activities in an effort to restore and R.A. No. 7169, then it became legally effective on February 24, 1992,
the date when the same was published in the Official Gazette and not

on March 10, 1992, as erroneously claimed by respondents Central Collector decided that the Central Syndicate was the importer and
Bank and Liquidator. original seller of the surplus goods in question and, therefore, the one
liable to pay the sales tax.
TAN TION BIO vs. CIR
G.R. No. L-‐ 15778 – April 23, 1962 Central Syndicate elevated the case to the Court of Tax Appeals
questioning the ruling of the Collector which denies its claim for
FACTS: refund.
In 1946, Central Syndicate, a corporation organized under the laws of
the Philippines, thru its General Manager, Sycip, sent a letter to the CIR Collector filed a motion requiring the syndicate to file a bond to
advising the latter that it purchased from Dee Hong Lue the entire guarantee the payment of the tax assessed against it which motion was
stock of surplus properties which Dee bought from the Foreign denied by the Court of Tax Appeals on the ground that that cannot be
Liquidation Commission, and that as it assumed Dee’s obligation to pay legally done it appearing that the syndicate is already a non-‐existing
the 3.5% sales tax on said surplus goods, it was remitting the sum of entity due to the expiration of its corporate existence. In view of this
P43,750.00 in his behalf as deposit to answer for the payment of said development, the Collector filed a motion to dismiss the appeal on the
sales tax with the understanding that it would later be adjusted after ground of lack of personality on the part of the syndicate.
the determination of the exact consideration of the sale.
The Court of Tax Appeals dismissed the appeal primarily on the ground
In 1948, syndicate again wrote the Collector requesting the refund of that the Central Syndicate has no personality to maintain the action
P1,103.28 representing alleged excess payment of sales tax due to the then pending before it.
adjustment and reduction of the purchase price in the amount of
P31,522.18. Said letter was referred to an agent for verification and From this order the syndicate appealed to the Supreme Court wherein
report. it intimated that the appeal should not be dismissed because it could
be substituted by its successors-‐in-‐ interest, to wit: Tan Tiong Bio, Yu
Khe Thai, Alfonso Sycip, Dee Hong Lue, Lim Shui Ty, Sy Seng Tong, Sy
Agent reported (1) that Dee Hong Lue purchased the surplus goods as
En, Co Giap and David Sycip. This Court ruled against the dismissal. In
trustee for the Central Syndicate which was in the process of
permitting the substitution, this Court labored under the premise that
organization at the time of the bidding; (2) that it was the
said officers and directors "may be held personally liable for the
representative of the Central Syndicate that removed the surplus
unpaid deficiency assessments made by the Collector of Internal
goods from their base at Leyte on February 21, 1947; (3) that the
Revenue against the defunct syndicate."
syndicate must have realized a gross profit of 18.8% from its sales

thereof; and (4) that if the sales tax were to be assessed on its gross
After trial, the Court of Tax Appeals affirmed CIR’s ruling.
sales it would still be liable for the amount of P33,797.88 as deficiency
sales tax and surcharge in addition to the amount of P43,750.00 which
the corporation had deposited in the name of Dee Hong Lue as ISSUE:
estimated sales tax due from the latter. The Central Syndicate having already been dissolved because of the
expiration of its corporate existence, WON the sales tax in question can

be enforced against its successors-‐in-‐interest who are the present Considering that the Central Syndicate realized from the sale of the
petitioners. surplus goods a net profit of P229,073.83, and that the sale of said
goods was the only transaction undertaken by said syndicate, there
HELD: being no evidence to the contrary, the conclusion is that said net profit
Yes. It was petitioners themselves who caused their substitution as remained intact and was distributed among the stockholders when the
parties in the present case, being the successors-‐in-‐interest of the corporation liquidated and distributed its assets on August 15, 1948,
defunct syndicate, when they appealed this case to the Supreme Court. immediately after the sale of the said surplus goods.
They cannot, therefore, be now heard to complain if they are made
responsible for the tax liability of the defunct syndicate whose Petitioners are therefore the beneficiaries of the defunct corporation
representation they assumed and whose assets were distributed and as such should be held liable to pay the taxes in question. However,
among them. there being no express provision requiring the stockholders of the
corporation to be solidarily liable for its debts which liability must be
There is good authority to the effect that the creditor of a dissolved express and cannot be presumed, petitioners should be held to be
corporation may follow its assets once they passed into the hands of liable for the tax in question only in proportion to their shares in the
the stockholders. Thus, recognized are the following rules in American distribution of the assets of the defunct corporation.
jurisprudence: The dissolution of a corporation does not extinguish the
debts due or owing to it. A creditor of a dissolved corporation may OTHERS:
follow its assets, as in the nature of a trust fund, into the hands of its SYNDICATE IS AN IMPORTER. Person who buys surplus goods from
stockholders. And it has been stated, with reference to the effect of the Foreign Liquidation Commission and who removes the goods
dissolution upon taxes due from a corporation, "that the hands of the bought from the U.S. Military Bases in the Philippines is considered an
government cannot, of course, collect taxes from a defunct corporation, importer of such goods and is subject to the sales tax or compensation
it loses thereby none of its rights to assess taxes which had been due tax as the case may be. The Central Syndicate as, owner of the "Mystery
from the corporation, and to collect them from persons, who by reason Pile" before its removal from Base K and as the one which actually took
of transactions with the corporation, hold property against which the delivery thereof and removed the same from the U.S. Military Base, is
tax can be enforced and that the legal death of the corporation no more the importer within the meaning of Section 186 of the Revenue Code,
prevents such action than would the physical death of an individual as it stood before the enactment of Republic Act No. 594, and its sales
prevent the government from assessing taxes against him and of the surplus goods are the original sales taxable under said section
collecting them from his administrator, who holds the property which and not the sale to it by Dee Hong Lue.
the decedent had formerly possessed". Bearing in mind that our
corporation law is of American origin, the foregoing authorities have REBOLLIDO vs. CA
persuasive effect in considering similar cases in this jurisdiction. This G.R. No. 81123 – February 28, 1989
must have been taken into account when this Court said that
petitioners could be held personally liable for the taxes in question as FACTS:
successors-‐in-‐interest of the defunct corporation. On August 7, 1984, the petitioners filed Civil Case No. 8113 for
damages against Pepsi Cola Bottling Company of the Philippines, Inc.

(hereinafter referred to as Pepsi Cola) and Alberto Alva before the Earlier or in June 1983, the Board of Directors and the stockholders of
Regional Trial Court of Makati. Pepsi Cola adopted its amended articles of incorporation to shorten its
corporate term in accordance with Section 120 of the Corporation
The case arose out of a vehicular accident on March 1, 1984, involving Code following the procedure laid down by Section 37 (power to
a Mazda Minibus used as a schoolbus with Plate Number NWK-‐353 extend or shorten the corporate term) and Section 16 (amendment of
owned and driven by petitioners Crisostomo Rebollido and Fernando the articles of incorporation) of the same Code. Immediately after such
Valencia, respectively and a truck trailer with Plate Number NRH-‐522 amendment or on June 16, 23 and 30, 1983, Pepsi Cola caused the
owned at that time by Pepsi Cola and driven by Alberto Alva. (p. 37, publication of a notice of dissolution and the assumption of liabilities
Rollo) by the private respondent in a newspaper of general circulation.

On September 21, 1984, the sheriff of the lower court served the Realizing that the judgment of the lower court would eventually be
summons addressed to the defendants. It was received by one Nenette executed against it, respondent PEPSICO, Inc., opposed the motion for
Sison who represented herself to be the authorized person receiving execution and moved to vacate the judgment on the ground of lack of
court processes as she was the secretary of the legal department of jurisdiction. The private respondent questioned the validity of the
Pepsi Cola. service of summons to a mere clerk. It invoked Section 13, Rule 14 of
the Rules of Court on the manner of service upon a private domestic
Pepsi Cola failed to file an answer and was later declared in default. corporation and Section 14 of the same rule on service upon a private
The lower court heard the case ex-‐parte and adjudged the defendants foreign corporation.
jointly and severally liable for damages
On August 14, 1985, the lower court denied the motion of the private
On August 5, 1985, when the default judgment became final and respondent holding that despite the dissolution and the assumption of
executory, the petitioners filed a motion for execution, a copy of which liabilities by the private respondent, there was proper service of
was received no longer by the defendant Pepsi Cola but by private summons upon defendant Pepsi Cola. The lower court said that under
respondent PEPSICO, Inc., on August 6, 1985. At that time, the private Section 122 of the Corporation Code, the defendant continued its
respondent was already occupying the place of business of Pepsi Cola corporate existence for three (3) years from the date of dissolution.
at Ricogen Building, Aguirre Street, Legaspi Village, Makati, Metro
Manila. Private respondent, a foreign corporation organized under the On August 27, 1985, the private respondent filed a special civil action
laws of the State of Delaware, USA, held offices here for the purpose, for certiorari and prohibition with the respondent court to annul and
among others, of settling Pepsi Cola's debts, liabilities and obligations set aside the judgment of the lower court and its order denying the
which it assumed in a written undertaking executed on June 11, 1983, motion to vacate the judgment, for having been issued without
preparatory to the expected dissolution of Pepsi Cola. jurisdiction.

The dissolution of Pepsi Cola as approved by the Securities and On December 29, 1986, the Court of Appeals granted the petition on
Exchange Commission materialized on March 2, 1984, one day after the ground of lack of jurisdiction ruling that there was no valid service
the accident occurred of summons. The appellate court stated that any judgment rendered
against Pepsi Cola after its dissolution is a "liability" of the private

respondent within the contemplation of the undertaking, but service of ". . . shall nevertheless be continued as a body corporate for three (3)
summons should be made upon the private respondent itself in years after the time when it would have been so dissolved, for the
accordance with Section 14, Rule 14 of the Rules of Court. It remanded purpose of prosecuting and defending suits by or against it and
the case to the lower court and ordered that the private respondent be enabling it to settle and close its affairs, to dispose of and convey its
summoned and be given its day in court. property and to distribute its assets, but not for the purpose of
continuing the business for which it was established."
ISSUE:
Whether or not Pepsi Cola, the dissolved corporation, is the real party
in interest to whom summons should be served in the civil case for In American jurisprudence, a similar provision in the Corporate Act of
damages. 1896 was construed with respect to the kinds of suits that can be
prosecuted against dissolved corporations:
HELD:
Yes. (Sorry mahaba importante kse ang discussion ng SC baka itanong xxx xxx xxx
ni Sir eh).
". . . The words 'defending suits against them' mean suits at law or in
For purposes of valid summons, the dissolved Pepsi Cola was the real equity, in contract or tort, or of what nature soever, and whether
party in interest-‐defendant in the civil case filed by the petitioners not begun before or after dissolution." (Hould v. John P. Squire and Co.
only because it is the registered owner of the truck involved but also [1911] 81 NJL 103, 79 A 282)
because, when the cause of action accrued, Pepsi Cola still existed as a
corporation and was the party involved in the acts violative of the legal The rationale for extending the period of existence of a dissolved
right of another. corporation is explained in Castle's Administrator v. Acrogen Coal, Co.
(145 Ky 591, 140 SW 1034 [1911]) as follows:
The petitioners had a valid cause of action for damages against Pepsi
Cola. A cause of action is defined as "an act omission of one party in "This continuance of its legal existence for the purpose of enabling it to
violation of the legal right or rights of the other; and its essential close up its business is necessary to enable the corporation to collect
elements are a legal right of the plaintiff, correlative obligation of the the demands due it as well as to allow its creditors to assert the
defendants and an act or omission of the defendant in violation of said demands against it. If this were not so, then a corporation that became
legal right." involved in liabilities might escape the payment of its just obligations
by merely surrendering its charter, and thus defeat its creditors or
The law provides that a corporation whose corporate term has ceased greatly hinder and delay them in the collection of their demands. This
can still he made a party to suit. Under paragraph 1, Section 122 of the course of conduct on the part of corporations the law in justice to
Corporation Code, a dissolved corporation: cdrep persons dealing with them does not permit. The person who has a
valid claim against a corporation, whether it arises in contract or tort
xxx xxx xxx should not be deprived of the right to prosecute an action for the
enforcement of his demands by the action of the stockholders of the
corporation in agreeing to its dissolution. The dissolution of a

corporation does not extinguish obligations or liabilities due by or to "Service upon private domestic corporation or partnership. — If the
it." (Emphasis supplied) defendant is a corporation organized under the laws of the Philippines
or a partnership duly registered, service may be made on the
In the case at bar, the right of action of the petitioners against Pepsi president, manager, secretary, cashier, agent or any of its directors.
Cola and its driver arose not at the time when the complaint was filed
but when the acts or omission constituting the cause of action accrued The case of Castle's Administrator v. Acrogen Coal Co. (supra), is
i.e. on March 1, 1984 which is the date of the accident and when Pepsi illustrative of the manner by which service can nevertheless be made
Cola allegedly committed the wrong. despite the death of the entity: LibLex

On the second and main issue of whether or not the service of "[W]hen an action that might have been instituted against a foreign or
summons through Ms. Nenette C. Sison, upon Pepsi Cola operates to domestic corporation while it was a going concern is instituted after its
vest jurisdiction upon private respondent, it is important to know the dissolution, process in the action may be served upon the same person
circumstances surrounding the service. At the time of the issuance and upon whom the process could be served before the dissolution." (p.
receipt of the summons, Pepsi Cola was already dissolved. The Court is 1036).
of the opinion that service is allowed in such a situation. In the
American case of Crawford v. Refiners Co-‐operative Association, Therefore, service upon a dissolved corporation may be made through
Incorporation (71 NM 1, 375 p 2d 212 [1962]), it was held that a any of the persons enumerated in Section 13, Rule 14.
"defendant corporation is subject to suit and service of process even
though dissolved." The fact that the summons was received through Miss Sison is not
disputed by the parties. For which corporation was she acting? After
Nowhere in the Corporation Code is there any special provision on the dissolution and during the pendency of the case below, private
how process shall be served upon a dissolved defendant corporation. respondent PEPSICO held office at the same address of Pepsi Cola
The absence of any such provision, however, should not leave where Miss Sison was working. The petitioners argue that summons
petitioners without any remedy, unable to pursue recovery for wrongs was served through the secretary of the legal department who acted as
committed by the corporation before its dissolution. Since our law agent of Pepsi Cola. On the other hand, it is contended by private
recognizes the liability of a dissolved corporation to an aggrieved respondent PEPSICO that Miss Sison works for its legal department
creditor, it is but logical for the law to allow service of process upon a and not of Pepsi Cola. So that, private respondent avers, there was no
dissolved corporation. Otherwise, substantive rights would be lost by valid service upon Pepsi Cola since Miss Sison acted in PEPSICO's
the mere lack of explicit technical rules. behalf (p. 64, Rollo) Even assuming this contention to be true, the
private respondent had the obligation to act upon the summons
The Rules of Court on service of summons upon a private domestic received and to defend Pepsi Cola pursuant to the undertaking it
corporation is also applicable to a corporation which is no longer a executed on June 11, 1983.
going concern.
According to the undertaking executed in favor of Pepsi Cola, private
Section 13, Rule 14 mandates: respondent assumed:


xxx xxx xxx Therefore, we rule that the private respondent is bound to satisfy the
judgment by default which has become final and executory. The lower
". . . [A]ll the debts, liabilities and obligations (collectively, the court did not abuse its discretion in denying the motion of the private
'Liabilities') of PBC, whether firm or contingent, contractual or respondent to vacate judgment.
otherwise, express or implied, wherever located, and of whatever
nature and description (including, but without limiting the generality WHEREFORE, the petition is hereby GRANTED. The decision of the
of the foregoing, liabilities for damages and taxes), hereby agrees and Court of Appeals is REVERSED and SET ASIDE. The judgment of the
undertakes (i) to pay or cause to be paid or otherwise discharge or lower court and its order denying the motion to vacate judgment are
cause to be discharged all of the Liabilities of PBC, which Liabilities REINSTATED.
may be enforced against the Corporation to the same extent as if the
said Liabilities had been incurred or contracted originally by the SO ORDERED.
Corporation . . . and (iv) not to prejudice in any way the rights of
creditors of PBC." (p. 46, Rollo; Emphasis supplied)

It is clear that private respondent is aware that the liabilities of Pepsi
Cola are enforceable against it upon the dissolution of Pepsi Cola. As
correctly stated by the Court of Appeals, by virtue of the assumption of
the debts, liabilities and obligations of Pepsi Cola, "any judgment
rendered against Pepsi Cola after its dissolution is a 'liability' of
PEPSICO, Inc., within the contemplation of the undertaking." Hence it
was incumbent upon respondent PEPSICO, Inc., to have defended the
civil suit against the corporation whose liabilities it had assumed.
Failure to do so after it received the notice by way of summons
amounts to gross negligence and bad faith. The private respondent
cannot now invoke a technical defect involving improper service upon
Pepsi Cola and alleged absence of service of summons upon it. There is
the substantive right of the petitioners to be considered over and
above the attempt of the private respondent to avoid the jurisdiction of
the lower court.

In view of the above, the valid service of summons upon Pepsi Cola
operated as a sufficient service of summons upon the private
respondent. The lower court can enforce judgment against the private
respondent.


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CORPORATION

LAW CASE DIGESTS

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CORPO CASE DIGESTS 3C & 3S || 4

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