Corporation Law - 07/05/2019

CHARLES W. MEAD vs. E.C. MCCULLOUGH

GR 6217; December 26, 2011

FACTS: On March 15, 1902, the plaintiff (Mead will be referred to as the plaintiff in this opinion unless it is otherwise stated)
and the defendant organized the "Philippine Engineering and Construction Company.

Shortly after the organization, the directors held a meeting and elected the plaintiff as general manager. The plaintiff held this
position with the company for nine months, when he resigned to accept the position of engineer of the Canton and Shanghai
Railway Company.

The contract and work undertaken by the company during the management of Mead were the wrecking contract with the Navy
Department at Cavite for the raising of the Spanish ships sunk by Admiral Dewey; the contract for the construction of certain
warehouses for the quartermaster department; the construction of a wharf at Fort McKinley for the Government; The supervision
of the construction of the Pacific Oriental Trading Company's warehouse; and some other odd jobs not specifically set out in the
record.

Shortly after the plaintiff left the Philippine Islands for China, the other directors, the defendants in this case, held a meeting on
December 24, 1903, for the purpose of discussing the condition of the company at that time and determining what course to
pursue.

The assignees of the wrecking contract, including McCullough, formed was not known as the "Manila Salvage Association." This
association paid to McCullough $15,000 Mexican Currency cash for the assignment of said contract. In addition to this payment,
McCullough retained a one-sixth interest in the new company or association.

ISSUE: Whether or not the respondents are self-dealing directors.

RULING: NO. While a corporation remains solvent, there is no reason why a director or officer, by the authority of a majority of
the stockholders or board of managers, may not deal with the corporation, loan it money or buy property from it, in like manner as
a stranger. So long as a purely private corporation remains solvent, its directors are agents or trustees for the stockholders. They
owe no duties or obligations to others. But the moment such a corporation becomes insolvent, its directors are trustees of all the
creditors, whether they are members of the corporation or not, and must manage its property and assets with strict regard to their
interest; and if they are themselves creditors while the insolvent corporation is under their management, they will not be permitted
to secure to themselves by purchasing the corporate property or otherwise any personal advantage over the other creditors.
Nevertheless, a director or officer may in good faith and for an adequate consideration purchase from a majority of the directors or
stockholders the property even of an insolvent corporation, and a sale thus made to him is valid and binding upon the minority.

PRIME WHITE CEMENT vs. INTERMEDIATE APPELLATE COURT

GR 68555; March 19, 1993

FACTS: On the 16th day of July, 1969, plaintiff and defendant corporation thru its President, Mr. Zosimo Falcon and Justo C.
Trazo, as Chairman of the Board, entered into a dealership agreement (Exhibit A) whereby said plaintiff was obligated to act as the
exclusive dealer and/or distributor of the said defendant corporation of its cement products in the entire Mindanao area.

Prime, however, amended the agreement made with Te, forcing the latter to demand the performance of the conditions stated in
the original contract. Aside from that, Prime entered into a dealership contract with Napoleon Co, therefore violating the exclusive
rights of Te in Mindanao. Te thereafter filed for specific performance against Prime.

Prime questioned the validity of the contract, claiming it is null and void due to the fact that Te is a Director and the Auditor of the
cement company.

ISSUE: Whether or not the dealership contract between Prime and Te is valid.

RULING: NO. The requisites for the approval of a contract with a ‘self dealing director’ was not satisfied. A director of a
corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In case his interests conflict with
those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. As corporate managers, directors are
committed to seek the maximum amount of profits for the corporation. This trust relationship "is not a matter of statutory or
technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of
the property interests of the stockholders."

A director's contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made.

Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into with a person
other than a director or officer of the corporation, the fact that the other party to the contract was a Director and Auditor of the

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petitioner corporation changes the whole situation. First of all, the contract was neither fair nor reasonable. The "dealership
agreement" entered into in July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five
years starting September, 1970, at the fixed price of P9.70 per bag. Respondent Te is a businessman himself and must have known,
or at least must be presumed to know, that at that time, prices of commodities in general, and white cement in particular, were not
stable and were expected to rise. At the time of the contract, petitioner corporation had not even commenced the manufacture of
white cement, the reason why delivery was not to begin until 14 months later. He must have known that within that period of six
years, there would be a considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no provision
was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. Instead, the price was
pegged at P9.70 per bag for the whole five years of the contract. Fairness on his part as a director of the corporation from whom he
was to buy the cement, would require such a provision.

PNB vs. ANDRADA ELECTRIC

G.R. No. 142936; April 17, 2002

FACTS: The Plaintiff (herein respondent) alleged that it is a partnership duly organized, existing, and operating under the laws
of the Philippines, while the herein petitioner Philippine National Bank (PNB), is a semi-government corporation duly organized,
existing and operating under the laws of the Philippines; whereas, the other defendant, the National Sugar Development
Corporation (NASUDECO), is also a semi-government corporation and the sugar arm of the PNB; and the defendant Pampanga
Sugar Mills (PASUMIL), is a corporation organized, existing and operating under the 1975 laws of the Philippines.

The respondent is engaged in the business of general construction for the repairs and/or construction of different kinds of
machineries and buildings. On August 26, 1975, the defendant PNB acquired the assets of the defendant PASUMIL that were earlier
foreclosed by the Development Bank of the Philippines (DBP) under LOI No. 311. But prior to October 29, 1971, the defendant
PASUMIL engaged the services of plaintiff for electrical rewinding and repair, most of which were partially paid by the defendant
PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant
PASUMIL entered into a contract.

Out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P264,000.00, leaving an unpaid balance of
P513,263.80. Petitioners herein failed and refused to pay the plaintiff their just, valid and demandable obligation; that the President
of the NASUDECO is also the Vice-President of the PNB, inasmuch as PNB and NASUDECO now owned and possessed the assets of
the defendant PASUMIL. Accordingly, the plaintiff prayed that judgment be rendered against the defendants PNB, NASUDECO, and
PASUMIL, jointly and severally.

ISSUE: Whether or not petitioners should be held liable for the corporate debts of PASUMIL for taking over of the latter’s
foreclosed assets.

RULING: NO. As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the
following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the
transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in order to escape liability for
those debts.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is
just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil
will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.

ASSOCIATED BANK vs. CA and LORENZO SARMIENTO JR

G.R. No. 123793; June 29, 1998

FACTS: On or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to
form just one banking corporation known as Associated Citizens Bank, the surviving bank. On or about March 10, 1981, the
Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On
September 7, 1977, defendant LORENZO SARMIENTO JR., executed in favor of Associated Bank a promissory note whereby the
former undertook to pay the latter the sum of P2,500,000.00 payable on or before March 6, 1978. As per said promissory note, the
defendant agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and
attorney's fees, in case of litigation equivalent to 10% of the amount due. The defendant, to date, still owes plaintiff bank the
amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the
amount due.

However defendant denied all the allegations of petitioner and alleged as affirmative and/or special defenses, inter alia, that the
complaint states no valid cause of action and the plaintiff is not the proper party in interest because the promissory note was
executed in favor of Citizens Bank and Trust Company. On October 17, 1986, the RTC ordered Respondent Sarmiento to pay the
bank his remaining balance plus interests and attorney's fees. On appeal, Respondent Court held that the Associated Bank had no
cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor

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of Citizens Bank and Trust Company. The court ruled that the earlier merger between the two banks could not have vested
Associated Bank with any interest arising from the promissory note executed in favor of CBTC after such merger. Hence the instant
petition for review.

ISSUE: Whether or not Associated Bank, the surviving corporation, may enforce the promissory note made by private
respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed.
RULING: Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and
continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the
surviving corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or
liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as
their liabilities.

The merger, however, does not become effective upon the mere agreement of the constituent corporations. The procedure to be
followed is prescribed under the Corporation Code. Section 79 of said Code requires the approval by the Securities and Exchange
Commission of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of
the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC
of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation
ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving
corporation.

Assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has
any interest in the promissory note. A closer perusal of the merger agreement leads to a different conclusion. The provision of the
merger agreement has this clause:

Upon the effective date of the merger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or
nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as if such
references were direct references to [ABC]. . . (Emphasis supplied)

Thus, the fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner.
The agreement itself clearly provides that all contracts — irrespective of the date of execution — entered into in the name of CBTC
shall be understood as pertaining to the surviving bank, herein petitioner. Since, in contrast to the earlier aforequoted provision,
the latter clause no longer specifically refers only to contracts existing at the time of the merger, no distinction should be made. The
clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically,
to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation.

Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under
the very provisions of the merger agreement, as a reference to petitioner bank, "as if such reference [was a] direct reference to"
the latter "for all intents and purposes."

No other construction can be given to the unequivocal stipulation. Being clear, plain and free of ambiguity, the provision must be
given its literal meaning and applied without a convoluted interpretation. Verba lelegis non est recedendum.

In light of the foregoing, the Court holds that petitioner has a valid cause of action against private respondent. Clearly, the failure of
private respondent to honor his obligation under the promissory note constitutes a violation of petitioner's right to collect the
proceeds of the loan it extended to the former.

FILIPINAS PORT SERVICES, INC. vs. NLRC

G.R. No. 97237; August 16, 1991

FACTS: In view of the government policy which ordained that cargo handling operations should be limited to only one cargo
handling operator-contractor for every port, the different stevedoring and arrastre corporations operating in the Port of Davao
were integrated into a single dockhandlers corporation, known as the Davao Dockhandlers, Inc., which was registered with the SEC
on July 13, 1976.

Due to the late receipt of its permit to operate, Davao Dockhandlers, Inc., which was subsequently renamed Filport, actually started
its operation on February 16, 1977. As a result of the merger, Filport’s labor force was mostly taken from the integrating
corporations, among them were the private respondents.

Private respondent Paterno Liboon and 18 others filed a complaint with the DOLE Regional Office in Davao City, alleging: that they
were employees of Filport since 1955 through 1958 up to December 31, 1986 when they retired; that they were paid retirement
benefits computed from February 16,1977 up to December 31, 1986 only;and that taking into consideration their continuous length
of service, they are entitled to be paid retirement benefits differentials from the time they started working with the predecessors of
Filport up to the time they were absorbed by the latter in 1977.

Finding Filport a mere alter ego of the different integrating corporations, the Labor Arbiter held Filport liable for retirement benefits
due private respondents for services rendered prior to February 16, 1977. Said decision was affirmed by the NLRC on appeal. Filport

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filed a petition for certiorari with the claiming that it is an entirely new corporation with a separate juridical personality from the
integrating corporations; and that Filport is not a successor-employer, liable for the obligations of private respondents' previous
employers.

ISSUE: Whether or not Filport is liable for the retirement benefits due private respondents for services rendered prior to Feb.
16, 1977.

RULING: Filport is liable for the retirement benefits due private respondents for the services renderedprior to Feb. 16, 1977
being a survivor entity as it merely absorbed the integrating workers labor force.It was mandated that Filport shall absorb all labor
force and necessary personnel complement of the merging operators, thus, clearly indicating the intention to continue the
employer-employee relationships of the individual companies with its employees through Filport. Thus, Filport has the obligation
not only to absorb the workers of the dissolved companies but also to include the length of service earned by the absorbed
employees with their former employees as well. To rule otherwise would be manifestly less than fair,certainly, less than just and
equitable.

Finally, to deny the private respondents the fruits of their labor corresponding to the time they worked with their
previous employers would render at naught the constitutional provisions on labor protection.

In interpreting the protection to labor and social justice provisions of the Constitution and the labor laws, and rules and regulations
implementing the constitutional mandate, the Supreme Court has always adopted the liberal approach which favors the exercise of
labor rights.

PHILIPPINE VETERANS BANK EMPLOYEES UNION vs. VEGA

G.R. No. 105364; June 28, 2001

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: Whether or not a liquidation court may continue with the 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.

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Anent the claim of respondents Central Bank and Liquidator of PVB that R.A. 7169 became effective only on March 10, 1992 or 15
days after its publication in the Official Gazette, the Court is of the view that such contention is bereft of merit. While as a rule, laws
take effect after 15 days following the completion of their publication in the Official Gazette or in a newspaper of general circulation
in the Philippines, the legislature has the authority to provide for exceptions, as indicated in the clause "unless otherwise provided."

In the case at bar, Section 10 of R.A. 7169 provides:

Sec. 10. Effectivity. - This Act shall take effect upon its approval.

Hence, it is clear that the legislature intended to make the law effective immediately upon its approval. It is undisputed that R.A.
7169 was signed into law by President Corazon C. Aquino on January 2, 1992. Therefore, said law became effective on said
date. Assuming for the sake of argument that publication is necessary for the effectivity of R.A. 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 Bank and Liquidator.

PAL vs. SPOUSES SADIC

G.R. No. 146698; September 24, 2002

FACTS: In April 1997, respondents, all Muslim Filipinos, returned to Manila from their pilgrimage to the Holy City of Mecca,
Saudi Arabia, on board a Philippines Airlines (PAL) flight. Respondents claimed that they were unable to retrieve their checked-in
luggages. Thus, respondents filed a complaint with the Regional Trial Court (RTC) of Marawi City against PAL for breach of contract
resulting in damages due to negligence in the custody of the missing luggages.

PAL filed it answer invoking, among others, the limitations under the Warsaw Convention. Before the case could be heard on
pre-trial, PAL filed a petition for the approval of a rehabilitation plan and the appointment of a rehabilitation receiver before the
SEC, due to serious business losses brought by the Asian economic crisis and the massive strike of its employees, which the SEC
granted. Moreover, the SEC constituted a three-man panel to oversee PAL’s rehabilitation. Then, the SEC created a management
committee in accordance with Sec. 6 (d) of P.D. 902, declaring the suspension of all actions for money claims against PAL pending
before any court, tribunal, board or body. So PAL moved for the suspension of the proceedings before the Marawi City RTC which
the trial court denied on the ground that the claim of respondents was only yet to be established. PAL’s motion for reconsideration
was also denied.

PAL went to the Court of Appeals via a petition for certiorari which the latter denied. PAL’s motion for reconsideration was likewise
denied by the CA but it added that a second motion for reconsideration before the trial court could still be feasible inasmuch as the
assailed orders of the trial court were merely interlocutory in nature. Thus, PAL filed before the RTC a motion for leave to file a
second motion for reconsideration which the RTC denied. Again, PAL filed a motion for reconsideration which sought
reconsideration of the denial of the prayed leave to file a second motion for reconsideration which was again denied. On the thesis
that there was no other plain, speedy and adequate remedy available to it, PAL went to this Court via a petition for review
on certiorari under Rule 45 of the Rules of Court.

ISSUE: Whether the proceedings before the trial court should have been suspended after the court was informed that a
rehabilitation receiver was appointed over the petitioner by the Securities and Exchange Commission under Section 6(c) of
Presidential Decree No. 902-A?

RULING: YES. The proceedings before the trial court should have been suspended after the court was informed that a
rehabilitation receiver was appointed over the petitioner by the Securities and Exchange Commission under Section 6(c) of
Presidential Decree No. 902-A.

While a petition for review on certiorari under Rule 45 would ordinarily be inappropriate to assail an interlocutory order, in the
interest, however, of arresting the perpetuation of an apparent error committed below that could only serve to unnecessarily
burden the parties, the Court has resolved to ignore the technical flaw and, also, to treat the petition, there being no other plain,
speedy and adequate remedy, as a special civil action for certiorari.

The Supreme Court, in A.M. No. 00-8-10-SC, adopted the Interim Rules of Procedure on Corporate Rehabilitation and directed to be
transferred from the SEC to Regional Trial Courts, all petitions for rehabilitation filed by corporations, partnerships, and associations
under P.D. 902-A in accordance with the amendatory provisions of Republic Act No. 8799. The rules require trial courts to issue,
among other things, a stay order in the enforcement of all claims, whether for money or otherwise, and whether such enforcement
is by court action or otherwise, against the corporation under rehabilitation, its guarantors and sureties not solidarily liable with it.

The stay order is effective from the date of its issuance until the dismissal of the petition or the termination of the rehabilitation
proceedings.

The interim rules must likewise be read and applied along with Section 6 (c) of P.D. 902-A, as so amended, directing that upon the
appointment of a management committee, rehabilitation receiver, board or body pursuant to the decree, all actions for claims
against the distressed corporation pending before any court, tribunal, board or body shall be suspended accordingly.

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A claim is said to be a right to payment, whether or not it is reduced to judgment, liquidated or unliquidated, fixed or contingent,
matured or unmatured, disputed or undisputed, legal or equitable, and secured or unsecured. In Finasia Investments and Finance
Corporation, this Court has defined the word claim, contemplated in Section 6(c) of P.D. 902-A, as referring to debts or demands of
a pecuniary nature and the assertion of a right to have money paid as well.

Verily, the claim of private respondents against petitioner PAL is a money claim for the missing luggages, a financial demand that
the law requires to be suspended pending the rehabilitation proceedings.

RCBC vs. IAC

G.R. No. 74851; December 9, 1999

FACTS: On September 28, 1984, BF Homes filed a Petition for Rehabilitation and for Declaration of Suspension of Payments
with the SEC. One of the creditors listed in its inventory of creditors and liabilities was RCBC. On October 26, 1984, RCBC requested
the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate mortgage on some properties of BF Homes. A notice of
extra-judicial foreclosure sale was issued by the Sheriff on October 29, 1984, scheduled on November 29, 1984, copies furnished
both BF Homes as mortgagor and RCBC as mortgagee. On motion of BF Homes, the SEC a temporary restraining order effective for
20 days, enjoining RCBC and the sheriff from proceeding with the public auction sale. The sale was rescheduled to January 29, 1985.
On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioners filing of a bond. However,
petitioner did not file a bond until January 29, 1985, the very day of the auction sale, so no writ of preliminary injunction was issued
by the SEC. Presumably, unaware of the filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985,
in which RCBC was the highest bidder for the properties auctioned. On February 5, 1985, BF Homes filed in the SEC a consolidated
motion to annul the auction sale and to cite RCBC and the sheriff for contempt. RCBC opposed the motion.

Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of sale covering the auctioned
properties. On February 13, 1985, the SEC belatedly issued a writ of preliminary injunction stopping the auction sale which had
been conducted by the sheriff two weeks earlier.

ISSUE: Whether or not preferred creditors of distressed corporations stand on the same footing with all other creditors.

RULING: YES. The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other
creditors gains relevance and materiality only upon the appointment of a management committee, rehabilitation receiver, board,
or body. Insofar as petitioner RCBC is concerned, the provisions of Presidential Decree No. 902-A are not yet applicable and it may
still be allowed to assert its preferred status because it foreclosed on the mortgage prior to the appointment of the management
committee on March 18, 1985. Paragraph (c), Section 6 of Presidential Decree 902-A, providesthat upon appointment of a
management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly. It is thus adequately clear that suspension of claims against a corporation under rehabilitation is counted or
figured up only upon the appointment of a management committee or a rehabilitation receiver.

In other words, once a management committee, rehabilitation receiver, board or body is appointed pursuant to P.D. 902-A, all
actions for claims against a distressed corporation pending before any court, tribunal, board or body shall be suspended accordingly.
This suspension shall not prejudice or render ineffective the status of a secured creditor as compared to a totally unsecured creditor.
P.D. 902-A does not state anything to this effect. What it merely provides is that all actions for claims against the corporation,
partnership or association shall be suspended. This should give the receiver a chance to rehabilitate the corporation if there should
still be a possibility for doing so.

GOVERNMENT vs. PHIL SUGAR ESTATES DEVT CO.

G.R. No. 7992; March 04, 1915

FACTS: This is an action by the Attorney General seeking to forfeit the charter of the defendant corporation.

The complaint alleged that the defendant was a corporation duly organized under the laws of the Philippine Islands; that for a
period of eighteen months previous to the filing of the complaint (Nov. 21, 1914), it had continuously offended against the laws of
the Philippine Islands and had misused its corporate authority, franchises, and privileges and had assumed privileges and franchises
not granted; that it had engaged in the business of buying and selling real estate; that on the 31st of May, 1913, it entered into a
contract with the Tayabas Land Company for the purpose of engaging in the business of purchasing lands along the right of way of
the Manila Railroad Company through the Province of Tayabas with a view to reselling the same to the Manila Railroad Company at
a profit. A copy of the contract was made part of the complaint. The plaintiff alleged, that by the acts and omissions of the
defendant, it had forfeited its corporate rights, privileges, powers, and franchises, dissolving it as a corporation, and to grant such
other and further relief as might seem just and equitable to the court, and for costs.

ISSUE/S: (1) Whether or not the defendant engaged in the business of buying and selling land or was this transaction merely a
loan to a partnership, which was engaged in the business of buying and selling land
(2) Whether or not the law requires that it be dissolved or would the prohibition of future acts of this nature be
sufficient

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RULING: Under the facts stated in the decision, that the defendant and appellant had, in the management of its business,
violated the provisions of its charter and should, therefore, be dissolved as a corporation and prohibited from continuing to do
business in the Philippine Islands unless it complies with the conditions mentioned in the decision. Government vs. Philippine Sugar
Estates Co., 38 Phil. 15, No. 11789 April 2, 1918.

The court found that the defendant had interested itself in The Tayabas Land Company to such an extent that it was in effect
carrying on the business of buying and selling land. The court found that the law did not require that the charter of the defendant
be forfeited and it further found that the Government could not be benefited by such forfeiture.

The defendant-appellant contends that the contract was within its powers; that the contract was in reality merely a loan. It is
argued that the board of directors did not authorize Suarez to enter into a partnership agreement or a "cuentas en participacion"
but only to negotiate a loan and 25 per cent of the profits to be paid in lieu of interest. Any contract which is not authorized by the
board of directors (meeting of May 30, 1913) would, it is argued, be ultra vires on the part of the officer executing it and would not
bind the corporation. A comparison of the contract actually entered into with the minutes of the board of directors will show that
they are practically identical. Clause decima of the "condiciones" in the minutes of the board of directors is explained as follows:
The Philippine Sugar Estates Development Co., in order to raise part of the capital which they loaned to The Tayabas Land Company
sold P300,000 worth of Japanese bonds. The loss occasioned by this sale was to be paid by The Tayabas Land Company as provided
in the 4th section of the contract.

REPUBLIC vs. SECURITY CREDIT

G.R. No. L-20583; January 23, 1967

FACTS: The Articles of Incorporation of defendant corporation were registered with the Securities and Exchange Commission
on March 27, 1961. Thereafter, the Board of Directors of the corporation adopted a set of by-laws which were filed with said
Commission on April 5, 1961

On September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on
whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request,
on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative

On March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its
securities under the Securities Act. However, SCAC’s registration of its Articles of Incorporation was denied on the ground that it has
not complied with the requirements under the General Banking Act (RA No. 337). Later, a Search Warrant was issued against
SCAC where documents and records relative to its business operation were seized.

Even when SCAC was duly advised of the findings, SCAC and its BOD and Officers still continued operations prompting the Solicitor
General to file a quo warranto proceedings for the dissolution of SCAC.

ISSUE: Whether or not SCAC was illegally engaged in the business of banking.

RULING: YES. In dissolving SCAC, the Court held that the corporation was indeed engaged in the business of banking without
first securing the administrative authority required by RA No. 337.

Although, admittedly, SCAC has not secured the requisite authority to engage in banking, defendants deny that its transactions
partake of the nature of banking operations. Note however that, in consequence of their propaganda campaign, a total of 59,463
savings account deposits have been made by the public with SCAC and its 74 branches, with an aggregate deposit of P1,689,136.74,
which has been lent out to such persons as SCAC deemed suitable. It is clear that these transactions partake of the nature of
banking, as the term is used in Section 2 of RA No. 337. Indeed, a bank has been defined as: A moneyed institute founded to
facilitate the borrowing, lending, and safe-keeping of money and to deal in notes, bills of exchange, and credits; an investment
company which loans out the money of its customers, collects the interests, and charges a commission to both lender and borrower
is a bank; any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking
business, although but one of these functions is exercised.

The illegal transactions thus undertaken by SCAC to warrant its dissolution is apparent from the fact that the foregoing misuser of
the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,643 times, and that
its continuance inflicts injury upon the public, owing to the number of persons affected thereby.

BUENAFLOR vs. CAMARINES SUR INDUSTRY CORP.

G.R. Nos. L-14991-94; May 30, 1960

FACTS: On June 25, 1957, Buenaflor filed his application to install and operate a 5-ton ice plant in Sabang together with
another application to establish a cold storage and refrigeration service of about 6,000 cubic feet capacity. The Public Service
Commission set the applications for hearing on October 9, 1957, requiring applicant to publish them in two newspapers, and to
serve copy thereof to Iñigo Daza and Camarines Sur Industry Corp. These owned ice plants in neighboring municipalities and had
been apparently selling ice to Sabang's inhabitants.

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After receiving copy of Buenaflor's applications, the Camarines Corporation submitted to the Commission on October 1, 1957, its
own two applications: one for authority to construct and manage a 5-ton ice plant, and another for a cold storage and refrigeration
system, both in Sabang too. It 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.

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. Surprised, the counsel of
the corporation requested for time to file an answer. Immediately thereafter, the corporators of Camarines Corporation got busy
and executed on October 30, 1957, and registered October 31, 1957, new articles of incorporation of 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.

Without loss of time, the corporators of the defunct (old) corporation and the newly organized corporation petitioned the Public
Service Commission for the approval of the conveyance, and on November 7, 1957, the Commission provisionally approved the
transfer of assets, plus the certificates of public convenience.

On November 8, 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.

The Commission resolved the application for the construction of a 5-ton ice plant in favor of Camarines Corporation.

ISSUE: Whether or not the new Camarines Corporation, being the predecessor of the old corporation, has a better right as
opposed to the Petitioner.

RULING: NO. It is admitted — and the Commission found--that the needs of Sabang Barrio will be conveniently served with the
establishment of a 5-ton ice plant. But it elected to deny Buenaflor's application, even as it awarded the privilege to the new
Camarines Corporation on the ground that it (the old corporation) had been serving ice in Sabang up to the time of Buenaflor's
application, and was, consequently, the pioneer operator there.

The fact, however, is that since 1953, the old Corporation had been illegally plying its business of selling ice in Sabang because,
under the Corporation Law, Sec. 77, after November 1953, it could not lawfully continue the business for which it had been
established (operate ice plant, sell ice, etc). After November 1953, it could only continue to exist for three years for the purpose of
prosecuting and defending suits by or against it, and of enabling it gradually to settle and close its affairs, to dispose and convey its
property and to divide its capital stock. It could not, without violating the law, continue to sell ice. And yet, the Commission
awarded the certificate on the basis of such serve and distribution of ice — applying the "prior operator" rule. In other words, the
new Camarines Corporation is rewarded, precisely because the old corporation, its predecessor, had violated the law during that
period (1953-1957). We can not, and should not countenance such anomalous result.

On the other hand, when the old Camarines Corporation docketed its application October 1, 1957, it had no juridical personality, it
had ceased to exist as a corporation and could not 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 Camarines Corporation. Far from being mere
technicality, these point support a conclusion which appears to be just and equitable, not only for the reasons already indicated,
but also to compensate Buenaflor's diligence and courage in exposing the irregular 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 Corporation's automatic cessation in November 1956 (three years after November 1953) we must
decline to regard the new Camarines Corporation (formed October 30, 1957) as a continuation of the old. At most, it is the
transferee of the properties of the old corporation (or more properly, the assets of the stockholders) plus the certificate of public
convenience to operate the ice plant in Naga and Magarao. And yet, as stated, the new corporation has not filed any application for
certificate of public convenience in Sabang, and has not published such application.

On these grounds, we think it was error to grant preferential treatment to the new Camarines Corporation over Jaime T. Buenaflor
who, besides being qualified, in the eyes of the Commission, had applied for the privilege months in advance of the old Camarines
Corporation, and of the incorporation of the new Camarines Corporation.

NATIONAL ABACA vs. PORE

G.R. No. L-16779; August 16, 1961

FACTS: Plaintiff filed with the Municipal Court of Tacloban, Leyte, a complaint, against defendant for the recovery of the
amount allegedly advanced to her for the purchase of hemp for the account of the former and for which she had allegedly failed to
account. In her answer, defendant alleged that she had accounted for all cash advances received by her for the aforementioned
purpose from the plaintiff. In due course, said court rendering judgment finding that the defendant had not accounted for cash
advances, she was accordingly, sentenced to pay to the plaintiff with legal interest in addition to the costs.

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Said court having subsequently denied a reconsideration of this decision, as well a new trial prayed for the plaintiff, the latter
appealed to the Court of First Instance of Leyte, in which defendant moved to dismiss the complaint upon the ground that plaintiff
has no legal capacity to sue, it having abolished by Executive Order No. 372 of the President of the Philippines, dated November 24,
1950. Plaintiff objected thereto upon the ground that pursuant to said executive order, plaintiff “shall nevertheless be continued as
a body corporate for a period of three (3) years from the effective date” of said executive order, which was November 30, 1950,
“for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators” — thereby created —
“gradually to settle and close its affairs”, . . . and that this case was begun on November 14, 1953, or before the expiration of the
period aforementioned. After due hearing, the court of first instance issued an order directing plaintiff to amend the complaint,
within ten (10) days from notice, by including the Board of Liquidators as co-party plaintiff, with the admonition that otherwise the
case would be dismissed. Hence, an appeal by plaintiff National Abaca and other Fibers Corporation, from two (2) orders of the
Court of First Instance of Leyte.

ISSUE: Whether or not an action, commenced within three (3) years after the abolition of plaintiff, as a corporation, may be
continued by the same after the expiration of said period.

RULING: The rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or
against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs.

Our Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to
continue in its corporate name actions instituted by it within said period of three (3) years. in fact, section 77 of said law provides
that the corporation shall “be continued as a body corporate for three (3) years after the time when it would have been . . .
dissolved, for the purposed of prosecuting and defending suits by or against it . . .”, so that, thereafter, it shall no longer enjoy
corporate existence for such purpose. For this reason, section 78 of the same law authorizes the corporation, “at any time during
said three years . . . to convey all of its property to trustees for the benefit of members, stockholders, creditors and other
interested”, evidently for the purpose, among others, of enabling said trustees to prosecute and defend suits by or against the
corporation begun before the expiration of said period.

Obviously, the complete loss of plaintiff’s corporate existence after the expiration of the period of three (3) years for the settlement
of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may
then be pending. The first question must, therefore, be answered in the negative.

Wherefore, the orders appealed from are reversed, plaintiff’s amended complaint is hereby admitted, and the record remanded to
the lower court for further proceedings.

TAN TIONG BIO vs. COMMISSION OF INTERNAL REVENUE

G.R. No. L-15778; April 23, 1962

FACTS: On October 19, 1946, the Central Syndicate, a corporation organized under the laws of the Philippines, thru its General
Manager, David Sycip, sent a letter to the Collector of Internal Revenue advising the latter that it purchased from Dee Hong Lue the
entire stock of surplus properties which the said Dee Hong Lue had bought from the Foreign Liquidation Commission and that as it
assumed Dee Hong Lue's obligation to pay the 3-1/2% sales tax on said surplus goods, it was remitting the sum of P43,750.00 in his
behalf as deposit to answer for the payment of said sales tax with the understanding that it would later be adjusted after the
determination of the exact consideration of the sale.

On January 31, 1948, the syndicate again wrote the Collector requesting the refund of P1,103.28 representing alleged excess
payment of sales tax due to the adjustment and reduction of the purchase price in the amount of P31,522.18. The Collector decided
after a thorough investigation of the facts that the Central Syndicate was the importer and original seller of the surplus goods in
question and, therefore, the one liable to pay the sales tax. Accordingly, on January 4, 1952, the Collector assessed against the
syndicate the amount of P33,797.88 and P300.00 as deficiency sales tax, inclusive of the 25% surcharge and compromise penalty,
respectively, and on the same date, in a separate letter, he denied the request of the syndicate for the refund of the sum of
P1,103.28.

ISSUE: Whether or not the sales tax of a dissolved corporation can be enforced against its successors-in-interest who are the
present petitioners.

RULING: YES. The creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholders.
And it has been stated, with reference to the effect of dissolution upon taxes due from a corporation, "that the hands of the
government cannot, of course, collect taxes from a defunct corporation, it loses thereby none of its rights to assess taxes which had
been due from the corporation, and to collect them from persons, who by reason of transactions with the corporation, hold
property against which the tax can be enforced and that the legal death of the corporation no more prevents such action than
would the physical death of an individual prevent the government from assessing taxes against him and collecting them from his
administrator, who holds the property which the decedent had formerly possessed". Bearing in mind that our corporation law is of
American origin, the foregoing authorities have persuasive effect in considering similar cases in this jurisdiction. This must have
been taken into account when in G.R. No. L-8800 this Court said that petitioners could be held personally liable for the taxes in
question as successors-in-interest of the defunct corporation.

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Considering that the Central Syndicate realized from the sale of the 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 being no evidence to the contrary, the conclusion is that
said net profit remained intact and was distributed among the stockholders when the corporation liquidated and distributed its
assets on August 15, 1948, immediately after the sale of the said surplus goods. Petitioners are therefore the beneficiaries of the
defunct corporation and as such should be held liable to pay the taxes in question. However, there being no express provision
requiring the stockholders of the corporation to be solidarily liable for its debts which liability must be express and cannot be
presumed.

GELANO vs. COURT OF APPEALS

G.R. NO. L-39050; February 24, 1981

FACTS: Private respondent Insular Sawmill, Inc. is a corporation organized on September 17, 1945 with a corporate life of fifty
(50) years, or up to September 17, 1995, with the primary purpose of carrying on a general lumber and sawmill business. To carry
on this business, private respondent leased the paraphernal property of petitioner-wife Guillermina M. Gelano for P1,200.00 a
month. It was while private respondent was leasing the aforesaid property that its officers and directors had come to know
petitioner-husband Carlos Gelano who received from the corporation cash advances on account of rentals to be paid by the
corporation on the land

Out of the 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 pay despite repeated demands by private respondent. Petitioner 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.

ISSUE: Whether or not a dissolved corporation, could still continue prosecuting and defending suits after its dissolution and
beyond the period of three years.

RULING: YES. For this reason, Section 78 of the same law authorizes the corporation, "at any time during said three years to
convey all of its property to trustees for the benefit of members, Stockholders, creditors and other interested," evidently for the
purpose, among others, of enabling said trustees to prosecute and defend suits by or against the corporation begun before the
expiration of said period.
In the case at bar, when Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77 of the Corporation Law, it still
has the right until December 31, 1963 to prosecute in its name the present case. After the expiration of said period, the corporation
ceased to exist for all purposes and it can no longer sue or be sued.

However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution
is authorized under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by or against the
corporation beyond the Three-year period although private respondent (did not appoint any trustee, yet the counsel who
prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation
may be considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had been handling
the case when the same was pending before the trial court until it was appealed before the Court of Appeals and finally to this
Court.

It was therefore held by the Supreme Court that there was a substantial compliance with Section 78 of the Corporation Law and as
such, private respondent Insular Sawmill, Inc. could still continue prosecuting the present case even beyond the period of three (3)
years from the time of its dissolution.

The trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be
conceived why a suit already commenced By the corporation itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed to proceed to
final judgment and execution thereof.

CHINA BANKING vs. MICHELIN

58 Phil. 261 / G.R. No. 36930; June 30, 1933

FACTS: George O’Farrel & Cie Inc. is a domestic corporation acting as agent and representative of the Michelin & Cie, a foreign
corporation engaged in the sale and distribution of Michelin tires. Michelin decided to discontinue their business relations, and it
was discovered that O’Farrel failed to account for an amount representing the price of tires sold by the latter. Michelin claims the
money was disposed by O’Farrel for its own use and benefit and without the authority or consent of Michelin. Gaston O’Farrel (the
person) and Sanchez executed a mortgage on the house of O’Farrel and shares owned by both to guarantee payment of the amount
to the Michelin, but left a balance which the latter seeks to recover. The board of the corporation filed a petition for its dissolution
and sought the appointment of Gaston as receiver and liquidator, which was granted by the trial court. Michelin filed its claim
against O’Farrel Corp with a prayer that its claim be allowed as a preferred one against the latter. Notice was given only to the
corporation and to the claimant, no one else. The trial court granted the claim and nobody except Michelin and Gaston were
notified of the order. China Bank intervened and moved that Michelin’s claim be allowed as an ordinary one under the Insolvency
Law and that the sum of P5,000 paid by the receiver to the appellee on account of the latter’s claim be refunded to the funds of the

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corporation in liquidation for the benefit of the rest of the creditors. The lower court dismissed the case stating the decision has
become final and unappealable.

ISSUE: Whether or not the the court ca declare the claim preferred; whether or not the lower court’s decision has become
final and unappealable

RULING: NO. According to the Corporation Law, during the winding up proceedings after dissolution, no creditor will be
permitted by legal process or otherwise to acquire priority, or to enforce his claim against the property held for distribution as
against the rights of other creditors.

Furthermore, in so far as the service of notice is concerned, we adhere to the rule laid down in Whalen v. Pasig Iron Works (13 Phil.,
417), where this court held that." . . claims against a corporation in the hands of a receiver should not be approved and paid
without some formal and regular proceeding whereby their justice and correctness may be inquired into after a reasonable
opportunity has been given to all the parties in interest to present objections and submit evidence in support of such objections."
The said case is a parallel of the case at bar in that the receiver in that case, together with the claimant, appeared in open court and
without previous notice to any of the other parties in interest, the claim was submitted upon the favorable recommendation of the
receiver and allowed by the court, and upon appeal to this court it was held that the trial court erred in rendering judgment in such
a summary manner.

The applicable law is sec 77 and 78 of the Corporation Law.

The appointment of a receiver by the court to wind up the affairs of the corporation upon petition of voluntary dissolution does not
empower the court to hear and pass on the claims of the creditors of the corporation at first hand. In such cases the receiver does
not act as a receiver of an insolvent corporation. All claims must be presented for allowance to the receiver or trustee or other
proper persons during the winding up proceedings which in this jurisdiction would be within the three years as the term for the
corporate existence of the corporation, and if a claim is disputed or unliquidated so that the receiver cannot safely allow the same,
it should be transferred to the proper court for trial and allowance, and the amount so allowed then presented to the receiver or
trustee for payment. The rulings of the receiver on the validity of claims submitted are subject to review by the court appointing
such receiver though no appeal is taken to the latter’s ruling.

The decree of dissolution in the case at bar having been entered on August 22, 1930, and the motion of the appellant, China
Banking Corporation, appearing to have been filed on September 30, 1931, or about thirteen months later, it follows that the
motion was filed on time to have the appellee’s claim reviewed by the court under the provisions of the said sections of the
Corporation Law, and the trial court, therefore, erred in finding that the order of November 8, 1930, allowing appellee’s claim was
final and unappealable under the provisions of section 113 of the Code of Civil Procedure.

REPUBLIC vs. MARSMAN

G.R. NO. L-18956; April 27, 1972

FACTS: Sometime before October 15, 1953 an investigation was conducted on the business operation and activities of the
corporation leading to the discovery that certain taxes were due (from) it on logs produced from its concession. The Bureau of
Internal Revenue made three assessments, totalling P59,133.78, and demanded payment thereof. Defendants however failed to
pay the taxes hence the filing of charges in court. The defendants contend that the present action is already barred under section
77 of the Corporation Law, Act No. 1459, as amended, which allows the corporate existence of a corporation to continue only for
three years after its dissolution, for the purpose of presenting or defending suits by or against it, and to settle and close its affairs.

They point out that inasmuch as the Marsman Development Co. was extra-judicially dissolved on April 23, 1954, a fact admitted in
the amended complaint, the filing of both the original complaint on September 8, 1958 and the amended complaint on August 26,
1956 was beyond the aforesaid three-year period.

ISSUE: Whether or not the right of the government to collect the sums has already prescribed.

RULING: NO. The stress given by appellants to the extinction of the corporate and juridical personality as such of appellant
corporation by virtue of its extra-judicial dissolution which admittedly took place on April 23, 1954 is misdirected.

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

Thus, in whatever way the matter may be viewed, the Government became the creditor of the corporation before the completion
of its dissolution by the liquidation of its assets. Appellant F.H. Burgess, whom it chose as liquidator, became in law the trustee of all
its assets for the benefit of all persons enumerated in Section 78, including its creditors, among whom is the Government, for the
taxes herein involved. To assume otherwise would render the extra-judicial dissolution illegal and void, since, according to Section

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62 of the Corporation Law, such kind of dissolution is permitted only when it "does not affect the rights of any creditor having a
claim against the corporation."

It is immaterial that the present action was filed after the expiration of three years after April 23, 1954, for at the very least, and
assuming that judicial enforcement of taxes may not be initiated after said three years despite the fact that the actual liquidation
has not been terminated and the one in charge thereof is still holding the assets of the corporation, obviously for the benefit of all
the creditors thereof, the assessment aforementioned, made within the three years, definitely established the Government as a
creditor of the corporation for whom the liquidator is supposed to hold assets of the corporation. And since the suit at bar is only
for the collection of taxes finally assessed against the corporation within the three years invoked by appellants, their fourth
assignment of error cannot be sustained.

ALHAMBRA CIGAR vs. SEC

G.R. No. L-23606; July 29, 1968

FACTS: Incorporated under Philippine laws on January 15, 1912, petitioner Alhambra Cigars Mfg. Co (ACCMI) 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
and 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 amending Section 18 of the
Corporation Law and enabling 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.

On July 15, 1963 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. Its stockholders, representing more than
two-thirds of its subscribed capital stock, voted to approve the foregoing resolution. SEC, however, returned said amended articles
of incorporation with the ruling that RA 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."

ISSUE: Whether or not a corporation may 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. Provided by Section 77 of the Corporation Law, the 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. The provisions of RA 3531 merely empower a corporation to act in
liquidation, and not to extend its corporate existence.

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