G.R. No. 142924. December 5, 2001.

TEODORO B. VESAGAS, and WILFRED D. ASIS v. The Honorable COURT OF

APPEALS and DELFINO RANIEL and HELENDA RANIEL

Facts: Spouses Delfino and Helenda Raniel are members in good standing of the Luz Village Tennis
Club, Inc. Teodoro B. Vesagas, who claims to be the club’s duly elected president, with Wilfred D.
Asis, who, in turn, claims to be its duly elected vice-president and legal counsel, allegedly summarily
stripped them of their lawful membership, without due process of law. Thereafter, the spouses filed a
Complaint with the Securities and Exchange Commission (SEC) on 26 March 1997 against the
Vesagas and Asis (SEC Case 03-97-5598). The spouses Raniel asked the Commission to declare as
illegal their expulsion from the club as it was allegedly done in utter disregard of the provisions of its
by-laws as well as the requirements of due process. They likewise sought the annulment of the
amendments to the by-laws made on 8 December 1996, changing the annual meeting of the club from
the last Sunday of January to November and increasing the number of trustees from nine to fifteen.
Finally, they prayed for the issuance of a Temporary Restraining Order and Writ of
Preliminary Injunction. 

The application for TRO was denied by SEC Hearing Officer Soller in an Order dated 29
April 1997. Before the hearing officer could start proceeding with the case, however, Vesagas
and Asis filed a motion to dismiss on the ground that the SEC lacks jurisdiction over the
subject matter of the case. The motion was denied on 5 August 1997. Their subsequent move
to have the ruling reconsidered was likewise denied. Unperturbed, they filed a petition for
certiorari with the SEC En Banc seeking a review of the hearing officer’s orders. The petition
was again denied for lack of merit, and so was the motion for its reconsideration in separate
orders, dated 14 July 1998 and 17 November 1998, respectively. Dissatisfied with the verdict,
Vesagas and Asis promptly sought relief with the Court of Appeals contesting the ruling of
the Commission en banc. The appellate court, however, dismissed the petition for lack of
merit in a Decision promulgated on 30 July 1999. Then, in a resolution rendered on 16 March
2000, it similarly denied their motion for reconsideration. Vesagas and Asis filed the petition
for review on certiorari. 

Issue: Whether the club has already ceased to be a corporate body. 

Held: The club, according to the SEC’s explicit finding, was duly registered and a certificate
of incorporation was issued in its favor. The question of whether the club was indeed
registered and issued a certification or not is one which necessitates a factual inquiry. The
finding of the Commission, as the administrative agency tasked with among others the
function of registering and administering corporations, is given great weight and accorded
high respect. Moreover, by their own admission contained in the various pleadings which
they have filed in the different stages of this case, Vesagas and Asis themselves have
considered the club as a corporation. Otherwise, there is no cogency in spearheading the
move for its dissolution. Vesagas and Asis were therefore well aware of the incorporation of
the club and even agreed to get elected and serve as its responsible officers before they
reconsidered dissolving its corporate form. On the other hand, at the time of the institution of
the case with the SEC, the club was not dissolved by virtue of an alleged Board resolution.
The Corporation Code establishes the procedure and other formal requirements a corporation
needs to follow in case it elects to dissolve and terminate its structure voluntarily and where
no rights of creditors may possibly be prejudiced. Section 118 (Voluntary dissolution where
no creditors are affected) of the Corporation Code provides that “If dissolution of a
corporation does not prejudice the rights of any creditor having a claim against it,
the dissolution may be effected by majority vote of the board of directors or trustees and by a
resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds
(2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members at a meeting
to be held upon call of the directors or trustees after publication of the notice of time, place
and object of the meeting for three (3) consecutive weeks in a newspaper published in the
place where the principal office of said corporation is located; and if no newspaper is
published in such place, then in a newspaper of general circulation in the Philippines, after
sending such notice to each stockholder or member either by registered mail or by personal
delivery at least 30 days prior to said meeting. A copy of the resolution authorizing
the dissolution shall be certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation. The Securities and Exchange Commission
shall thereupon issue the certificate of dissolution.” To substantiate their claim of dissolution,
Vesagas and Asis submitted only two relevant documents: the Minutes of the First Board
Meeting held on 5 January 1997, and the board resolution issued on 14 April 1997 which
declared “to continue to consider the club as a non-registered or a non-corporate entity and
just a social association of respectable and respecting individual members who have
associated themselves, since the 1970’s, for the purpose of playing the sports of tennis.”
These two documents will not suffice. The requirements mandated by the Corporation Code
should have been strictly complied with by the members of the club. The records reveal that
no proof was offered by Vesagas and Asis with regard to the notice and publication
requirements. Similarly wanting is the proof of the board members’ certification. Lastly, and
most important of all, the SEC Order of Dissolution was never submitted as evidence.

G.R. No. L-39050. February 24, 1981.

CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO v. THE

HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC.

Facts:

Private respondent Insular Sawmill, Inc. is a corporation with a corporate life of 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 at Paco, Manila for P1,200.00 a month. While private
respondent was leasing the aforesaid property, its officers and directors had come to know
petitioner-husband Carlos Gelano received from the corporation cash advances of P25,950.00
on account of rentals to be paid by the corporation on the land. The said sum was taken and
received by petitioner Carlos Gelano on the agreement that private respondent could deduct
the same from the monthly rentals of the leased premises until said cash advances are fully
paid. Sadly, 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 also 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. On May 4, 1948 to September 11,
1949, petitioners purchased lumber materials from private respondent on credit leaving
P946.46 unpaid. Then, to accommodate and help petitioners renew previous loans obtained
by them from the China Banking Corporation, private respondent, through Joseph Tan Yoc
Su, executed a joint and several promissory note with Carlos Gelano in favor of said bank in
the amount of P8,000.00. Carlos Gelano to pay the promissory note upon maturity, thus, the
bank collected from the respondent corporation the amount of P9,106.00 including interests,
by debiting it from the corporation's current account with 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 unsettled. Guillermina M. Gelano refused to pay on the ground that she had no
knowledge about said accommodation.

On May 29, 1959 the corporation, thru Atty. German Lee, filed a complaint for collection
against herein petitioners before the Court of First Instance of Manila. At the stage of
submitting memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F.
Elizalde took over and prepared the memorandum. In the meantime, private respondent
amended its Articles of Incorporation to shorten its term of existence up to December 31,
1960 only. The amended Articles of Incorporation was filed with, and approved by the
Securities and Exchange Commission, but the trial court was not notified of the amendment
shortening the corporate existence and no substitution of party was ever made. On November
20, 1964 and almost four (4) years after the dissolution of the corporation, the trial court
rendered a decision in favor of private respondent. Both parties appealed to the Court of
Appeals which rendered a decision modifying the judgment of the trial court by holding
petitioner spouses jointly and severally liable on private respondent's claim and increasing the
award to P8,160.00. Petitioners found out that the Insular Sawmill Inc. was dissolved way
back December 31, 1960 after receiving a copy of the decision. Hence, petitioners filed a
motion to dismiss the case and/or reconsideration of the decision of the Court of Appeals on
grounds that the case was prosecuted even after dissolution of private respondent as a
corporation and that a defunct corporation cannot maintain any suit for or against it without
first complying with the requirements of the winding up of the affairs of the corporation and
the assignment of its property rights within the required period. Incidentally, after receipt of
petitioners' motion to dismiss and/or reconsideration, private respondent thru its former
directors filed a Petition for Receivership before the Court of First Instance of Manila which
is still pending before said court. Private respondent filed a comment on the motion to
dismiss and or reconsideration; the Court of Appeals denied the aforesaid motion after the
parties have filed reply and rejoinder. Hence, this petition for review.

Issue:

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

Ruling:

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

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 CA and
finally to the SC. The SC holds that there was a substantial compliance with Section 78 of
the Corporation Law and as such, private respondent Insular Sawmill, Inc. could still
continue prosecuting the present case even beyond the period of three (3) years from the time
of its dissolution.

From the commentary of Justice Fisher, the trustee may commence a suit which can proceed
to final judgment even beyond the three-year period. No reason can be conceived why a suit
already commenced by the corporation itself during its existence, not by a mere trustee who,
by fiction, merely continues the legal personality of the dissolved corporation should not be
accorded similar treatment allowed — to proceed to final judgment and execution thereof.
The word "trustee" as used in the corporation statute must be understood in its general
concept which could include the counsel to whom was entrusted in the instant case, the
prosecution of the suit filed by the corporation. The purpose in the transfer of the assets of the
corporation to a trustee upon its dissolution is more for the protection of its creditor and
stockholders. Debtors like the petitioners herein may not take advantage of the failure of the
corporation to transfer its assets to a trustee, assuming it has any to transfer which petitioner
has failed to show, in the first place. To sustain petitioners' contention would be to allow
them to enrich themselves at the expense of another, which all enlightened legal systems
condemn.

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

PHILIPPINE VETERANS BANK EMPLOYEES UNION-N.U.B.E. and PERFECTO

V. FERNANDEZ vs. HONORABLE BENJAMIN VEGA, Presiding Judge of Branch 39
of the REGIONAL TRIAL COURT of Manila, the CENTRAL BANK OF THE
PHILIPPINES and THE LIQUIDATOR OF THE PHILIPPINE VETERANS BANK

Facts: Sometime 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 (Case SP- 32311). Thereafter, the Philippine Veterans Bank Employees
Union-N.U.B.E. (PVBEU-NUBE), represented by Perfecto V. Fernandez, filed claims for
accrued and unpaid employee wages and benefits with said court in SP-3231. After lengthy
proceedings, partial payment of the sums due to the employees was made. However, due to
the piecemeal hearings on the benefits, many remain unpaid. On 8 March 1991, PVBEU-
NUBE Fernandez moved to disqualify the Judge Benjamin Vega, Presiding Judge of Branch
39 of the Regional Trial Court of Manila, from hearing the above case on grounds of bias and
hostility towards petitioners. On 2 January 1992, the Congress enacted Republic Act 7169
providing for the rehabilitation of the Philippine Veterans Bank. Thereafter, PVBEU-NUBE
and Fernandez filed with the labor tribunals their residual claims for benefits and for
reinstatement upon reopening of the bank. Republic Act 7169 entitled "An Act To
Rehabilitate The Philippine Veterans Bank Created Under Republic Act 3518, Providing The
Mechanisms Therefor, And For Other Purposes", which was signed into law by President
Corazon C. Aquino on 2 January 1992 and which was published in the Official Gazette on 24
February 1992, provides in part for the reopening of the Philippine Veterans Bank together
with all its branches within the period of 3 years from the date of the reopening of the head
office.

The law likewise provides for the creation of a rehabilitation committee in order to facilitate
the implementation of the provisions of the same. Pursuant to said RA 7169, the
Rehabilitation Committee submitted the proposed Rehabilitation Plan of the PVB to the
Monetary Board for its approval. Meanwhile, PVB filed a Motion to Terminate Liquidation
of Philippine Veterans Bank dated 13 March 1992 with Judge Vega praying that the
liquidation proceedings be immediately terminated in view of the passage of RA 7169. On 10
April 1992, the Monetary Board issued Monetary Board Resolution 348 which approved the
Rehabilitation Plan submitted by the Rehabilitation Committee. Thereafter, the Monetary
Board issued a Certificate of Authority allowing PVB to reopen. Sometime in May 1992, the
Central Bank issued a certificate of authority allowing the PVB to reopen. Despite the
legislative mandate for rehabilitation and reopening of PVB, Judge Vega continued with the
liquidation proceedings of the bank. Moreover, PVBEU-NUBE and Fernandez learned that
the Central Bank was set to order the payment and release of employee benefits upon motion
of another lawyer, while PVBEU-NUBE's and Fernandez's claims have been frozen to their
prejudice.

On 3 June 1992, the liquidator filed A Motion for the Termination of the Liquidation
Proceedings of the Philippine Veterans Bank with Judge Vega. PVBEU-NUBE and
Fernandez, on the other hand, filed the petition for Prohibition with Petition for Preliminary
Injunction and application for Ex Parte Temporary Restraining Order. In a Resolution, dated
8 June 1992, the Supreme Court resolved to issue a Temporary Restraining Order enjoining
the trial court from further proceeding with the case. On 22 June 1992, MOP Security &
Detective Agency (VOPSDA) and its 162 security guards filed a Motion for Intervention
with prayer that they be excluded from the operation of the Temporary Restraining Order
issued by the Court. On 3 August 1992, the Philippine Veterans Bank opened its doors to the
public and started regular banking operations.

Issue: Whether a liquidation court can continue with liquidation proceedings of the
Philippine Veterans Bank (PVB) when Congress had mandated its rehabilitation and
reopening.

Held: The enactment of Republic Act 7169, as well as the subsequent developments has
rendered the liquidation court functus officio. Consequently, Judge Vega 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 opposite
end of the spectrum is rehabilitation which connotes a reopening or reorganization.
Rehabilitation contemplates a continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and
solvency. 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.

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

TAN TIONG BIO, ET AL. v. COMMISSIONER OF INTERNAL REVENUE

FACTS:

Central Syndicate, thru its GM, David Sycip, sent a letter to CIR:
 • Advising the CIR that it purchased from Dee Hong Lue the entire stock of surplus
properties, which the latter had bought from the Foreign Liquidation Commission

• That as it assumed Dee Hong Lue’s obligation to pay the the 3 1/2 % sales tax on the
said surplus goods, it was remitting P43,750 in his behalf 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

Central Syndicate again wrote the Collector:

• Requesting the refund of P1,103.28 representing the alleged excess payment of sales
tax due to the adjustment and reduction of the purchase price

The 2nd letter was referred to agent for verification and report, and after a thorough
investigation, the agent reported that:

1) Dee Hong Lue purchased the surplus goods as trustee for the Central Syndicate

2) It was the representatives of the Central Syndicate that removed the surplus goods
from their base at Leyte

3) The syndicate must have realized a gross profit of 18.8% from its sales thereof

4) If the sales tax were to be assessed on its gross sales it would still be liable for the
amount of P33,797.88 as deficiency sales tax and surcharge

Based on the finding of the agent, the Collector decided that the Central Syndicate was the
importer and original seller of the surplus goods and therefore, the one liable to pay the sales
tax. The Collector assessed against the Syndicate the amount of P33,797.88 and P300 as
deficiency sales tax. And also in a separate letter, he denied the request for the refund.

The Syndicate elevated the Case to the CTA.

CTA Decision: Central Syndicate has no personality to maintain the action then pending
before it. (syndicate is already a non-existing entity due to the expiration of its corporate
existence)

Syndicate appealed to the SC, intimated that that the appeal should not be dismissed because
it could be substituted but its successors-in-interest (the petitioners).

• The SC ordered to permit the substitution of the officers and directors of the defunct
Central Syndicate as appellants, and to proceed with the hearing of the appeal upon its
merits, under the premise that said officers and directors "may be held personally
liable for the unpaid deficiency assessments made by the Collector of Internal
Revenue against the defunct syndicate."

CTA Decision: Petitioners are ordered to pay to the CIR the sum of P33,797.88 as deficiency
sales tax and surcharge.
ISSUES:

1) Whether the importer of the surplus goods in question the sale of which is subject
to the present tax liability is Dee Hong Lue or the Central Syndicate who has been
substituted by the present petitioners;

2) Whether the deficiency sales tax has already prescribed

3) The Central Syndicate having already been dissolved because of the expiration of
its corporate existence, whether the sales tax in question can be enforced against its
successors-in-interest who are the present petitioners.

SC DECISION:

1) The importer is Central Syndicate. Petitioner contends that the Central Syndicate
cannot be held liable for the deficiency sales tax in question because it is not the
importer. The Court said that such contention could not be sustained. As correctly
observed by the CTA, the overwhelming evidence presented by the Collector points
to the conclusion that Dee Hong Lue purchased the surplus goods in question not for
himself but for the Central Syndicate, which was then in the process of incorporation.
The deed of sale which purports to show that Dee Hong Lue sold said goods to the
syndicate for a consideration of P1,250,000.00 (the same amount paid by Dee Hong
Lue to the Foreign Liquidation Commission) "is but a ruse to evade payment of a
greater amount of percentage tax."

2) NO. Since the Central Syndicate was the importer, it was its duty under Sec. 183 of
the Internal Revenue Code to file a return of its gross sales within 20 days after the
end of each quarter but, as the record shows, the Central Syndicate failed to file any
return of its quarterly sales on the pretext that it was Dee Hong Lue who imported the
surplus goods and it merely purchased them from said importer. The letter sent by the
Syndicate cannot be considered as a return that may set in operation the application of
the prescriptive period for the said letter if at all could only be considered as such in
behalf of Dee Hong Lue and not in behalf of the Central Syndicate because such is the
only nature and import of the letter. The syndicate having failed to file its quarterly
returns the period that has to be reckoned with is that embodied in Section 332 of the
same Code which provides that in case of failure to file the return the tax may be
assessed within 10 years after discovery of the falsity, fraud or omission of the
payment of the proper tax. Since it appears that the Collector discovered the failure of
the syndicate to file the return only on September 12, 1951 he has therefore up to
September 18, 1961 within which to assess or collect the deficiency tax in question.
Consequently the assessment made on January 4, 1952 was made within the
prescribed period.

3) YES. It should be stated at the outset that it was petitioners themselves who caused
their substitution as parties in the present case, being the successors-in-interest of the
defunct syndicate, when they appealed this case to the Supreme Court. In fact,
 because of this directive their substitution was effected. They cannot, therefore, be
now heard to complain if they are made responsible for the tax liability of the defunct
syndicate whose representation they assumed and whose assets were distributed
among them. There is good authority to the effect that the creditor of a dissolved
corporation may follow its assets once they passed into the hands of the stockholders.
Thus, recognized are the following rules in American jurisprudence: The dissolution
of a corporation does not extinguish the debts due or owing to it. A creditor of a
dissolve corporation may follow its assets, as in the nature of a trust fund, into the
hands of its 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"

G.R. No. 81123. February 28, 1989.

CRISOSTOMO REBOLLIDO, FERNANDO VALENCIA and EDWIN REBOLLIDO

v. HONORABLE COURT OF APPEALS and PEPSICO, INC.

FACTS:

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 Regional Trial Court of Makati.

The case arose out of a vehicular accident on March 1, 1984, involving a Mazda Minibus
used as a schoolbus with Plate Number NWK-353 owned and driven by petitioners
Crisostomo Rebollido and Fernando Valencia, respectively and a truck trailer with Plate
Number NRH-522 owned at that time by Pepsi Cola and driven by Alberto Alva. (p. 37,
Rollo)

On September 21, 1984, the sheriff of the lower court served the summons addressed to the
defendants. It was received by one Nenette Sison who represented herself to be the
authorized person receiving court processes as she was the secretary of the legal department
of Pepsi Cola. (pp. 33, 75, Rollo)

Pepsi Cola failed to file an answer and was later declared in default. The lower court heard
the case ex-parte and adjudged the defendants jointly and severally liable for damages in a
decision rendered on June 24, 1985. The dispositive portion of the decision reads:
WHEREFORE, judgment is rendered in favor of plaintiffs, ordering defendants Pepsi Cola
Bottling Company of the Philippines, Inc., and its driver Fernando (should be Alberto) G.
Alva to jointly and severally pay plaintiffs the following amounts:

"1) P12,126.10, for the hospitalization and medical expenses of plaintiff Fernando
Valencia;

"2) P326.35 as expenses for the medical treatment of plaintiff Edwin Rebollido;

"3) P9,922 .00, for the repair of and cost of replacement parts of the Mazda Minibus
belonging to plaintiff Crisostomo Rebollido;

"4) P16,200.00, for the expenses incurred by plaintiff Crisostomo Rebollido in hiring
another vehicle to transport school pupils;

"5) P102,261.90, as unrealized monthly net income due plaintiff from June 1984 to
March 30, 1985;

"6) P10,800.00, representing the unpaid salaries of plaintiff Fernando Valencia for the
period from March to December 1984;

"7) P20,000.00, as moral damages due plaintiff Fernando Valencia;

"8) P20,000.00, as moral damages due plaintiff Crisostomo Rebollido;

"9) A sum equivalent to ten (10%) per cent of the total amount due, as and for
attorney's fees; and

"10) The costs of suit." (pp. 38-39, Rollo)

On August 5, 1985, when the default judgment became final and executory, the petitioners
filed a motion for execution, a copy of which was received no longer by the defendant Pepsi
Cola but by private respondent PEPSICO, Inc., on August 6, 1985. At that time, the private
respondent was already occupying the place of business of Pepsi Cola at Ricogen Building,
Aguirre Street, Legaspi Village, Makati, Metro Manila. Private respondent, a foreign
corporation organized under the laws of the State of Delaware, USA, held offices here for the
purpose, among others, of settling Pepsi Cola's debts, liabilities and obligations which it
assumed in a written undertaking executed on June 11, 1983, preparatory to the expected
dissolution of Pepsi Cola.

The dissolution of Pepsi Cola as approved by the Securities and Exchange Commission
materialized on March 2, 1984, one day after the accident occurred. (p. 45, Rollo).

Earlier or in June 1983, the Board of Directors and the stockholders of Pepsi Cola adopted its
amended articles of incorporation to shorten its corporate term in accordance with Section
120 of the Corporation Code following the procedure laid down by Section 37 (power to
extend or shorten the corporate term) and Section 16 (amendment of the articles of
incorporation) of the same Code. Immediately after such amendment or on June 16, 23 and
30, 1983, Pepsi Cola caused the publication of a notice of dissolution and the assumption of
liabilities by the private respondent in a newspaper of general circulation. (p. 77, Rollo)

Realizing that the judgment of the lower court would eventually be executed against it,
respondent PEPSICO, Inc., opposed the motion for execution and moved to vacate the
judgment on the ground of lack of jurisdiction. The private respondent questioned the validity
of the 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 corporation and Section 14 of the
same rule on service upon a private foreign corporation. (p. 82, Rollo)

On August 14, 1985, the lower court denied the motion of the private respondent holding that
despite the dissolution and the assumption of liabilities by the private respondent, there was
proper service of summons upon defendant Pepsi Cola. The lower court said that under
Section 122 of the Corporation Code, the defendant continued its corporate existence for
three (3) years from the date of dissolution. (p. 87, Rollo)

On August 27, 1985, the private respondent filed a special civil action for certiorari and
prohibition with the respondent court to annul and set aside the judgment of the lower court
and its order denying the motion to vacate the judgment, for having been issued without
jurisdiction.

On December 29, 1986, the Court of Appeals granted the petition on the ground of lack of
jurisdiction ruling that there was no valid service 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 summons should be
made upon the private respondent itself in accordance with Section 14, Rule 14 of the Rules
of Court. It remanded the case to the lower court and ordered that the private respondent be
summoned and be given its day in court.

On November 27, 1987, a motion for reconsideration was denied.

Hence, this petition.

ISSUES:

(1) 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 damages

RULING:

On the first issue, the petitioner maintain that it is Pepsi Cola which is the real party in the
case before the trial court because when the accident happened on March 1, 1984 or one day
before the date of legal dissolution, Pepsi Cola was still the registered owner of the truck
involved. Being solidarily liable with its driver for damages under Articles 2176 and 2180 of
the Civil Code, there appears to be no question that the complaint and summons were
correctly filed and served on Pepsi Cola.

Section 2, Rule 3 of the Revised Rules of Court mandates that:

 "Parties in interest — Every action must be prosecuted and defended in the name of
the real party in interest. . . ."

The Court has defined the real party-in-interest in the recent case of Samahan ng mga
Nangungupahan sa Azcarraga Textile Market, Inc., et al. v. Court of Appeals (G.R. No.
68357, Sept. 26, 1988), as follows:

"The real party-in-interest is the party who stands to be benefited or injured by

the judgment or the party entitled to the avails the suit. 'Interest' within the meaning of
the rule means material interest, an interest in issue and to be affected by the decree,
as distinguished from mere interest in the question involved, or a mere incidental
interest . . . (Francisco, the Revised Rules of Court in the Phil., Vol. I, p. 126 cited in
House International Building Tenants Association, Inc. v. Intermediate Appellate
Court, 151 SCRA 705)."

Furthermore, the Court in Walter Ascona Lee, et al. v. Hon. Manuel Romillo, Jr., et al. (G.R.
No. 60937, May 28, 1988) said:

xxx xxx xxx

". . . A real party in interest-plaintiff is one who has a legal right while a real party in
interest-defendant is one who has a correlative legal obligation whose act or omission
violates the legal rights of the former." (Emphasis supplied)

For purposes of valid summons, the dissolved Pepsi Cola was the real party in interest-
defendant in the civil case filed by the petitioners not only because it is the registered owner
of the truck involved but also 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 right of
another.

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 violation of the legal right or rights of the other;
and its essential elements are a legal right of the plaintiff, correlative obligation of the
defendants and an act or omission of the defendant in violation of said legal right." (Santos v.
Intermediate Appellate Court, 145 SCRA 248 [1986] citing Ma-ao Sugar Central Co. v.
Barrios, et al., 79 Phil. 666 [1947]; See also Republic Planters Bank v. Intermediate
Appellate Court 131 SCRA 631 [1984]).

The law provides that a corporation whose corporate term has ceased can still he made a
party to suit. Under paragraph 1, Section 122 of the Corporation Code, a dissolved
corporation:

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". . . shall nevertheless be continued as a body corporate for three (3) years after the
time when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its affairs, to dispose
 of and convey its property and to distribute its assets, but not for the purpose of
continuing the business for which it was established."

In American jurisprudence, a similar provision in the Corporate Act of 1896 was construed
with respect to the kinds of suits that can be prosecuted against dissolved corporations:

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". . . The words 'defending suits against them' mean suits at law or in equity, in
contract or tort, or of what nature soever, and whether begun before or after
dissolution." (Hould v. John P. Squire and Co. [1911] 81 NJL 103, 79 A 282)

The rationale for extending the period of existence of a dissolved corporation is explained in
Castle's Administrator v. Acrogen Coal, Co. (145 Ky 591, 140 SW 1034 [1911]) as follows:

"This continuance of its legal existence for the purpose of enabling it to close up its
business is necessary to enable the corporation to collect the demands due it as well as
to allow its creditors to assert the demands against it. If this were not so, then a
corporation that became involved in liabilities might escape the payment of its just
obligations by merely surrendering its charter, and thus defeat its creditors or greatly
hinder and delay them in the collection of their demands. This course of conduct on
the part of corporations the law in justice to persons dealing with them does not
permit. The person who has a valid claim against a corporation, whether it arises in
contract or tort 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 it." (Emphasis supplied)

In the case at bar, the right of action of the petitioners against Pepsi 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 (Deter v. City of Delta 271 p. 67, 73 Colo 589, Keister v. Keister, 96
SE 315 123 Va 157, ALR 439), i.e. on March 1, 1984 which is the date of the accident and
when Pepsi Cola allegedly committed the wrong.