294

SUPREMECOURTREPORTSANNOTATED

Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

G.R.No.63201.May27,1992.*
PHILIPPINE NATIONAL BANK, petitioner, vs. THE
COURT OF FIRST INSTANCE OF RIZAL, PASIG
BRANCH XXI, PRESIDED BY JUDGE GREGORIO G.
PINEDA, CHUNG SIONG PEK @ BONIFACIO CHUNG
SIONG PEK AND VICTORIA CHING GENG TY @
VICTORIACHENGGENGTY,ANDTHEREGISTEROF
DEEDS OF RIZAL, PASIG, METRO MANILA AND/OR
HISDEPUTIESANDAGENTS,respondents.
Remedial Law; Civil Procedure; Notices; Service by registered
mail is complete upon actual receipt by the addressee but if he fails
to claim his mail from the post office within five (5) days from the
date of first notice of the postmaster, service shall take effect at the
expiration of such time.Section8ofRule13oftheRulesofCourt,
as amended, provides that service by registered mail is complete
uponactualreceiptbytheaddressee;butifhefailstoclaimhismail
fromthepostofficewithinfive(5)daysfromthedateoffirstnotice
ofthepostmaster,serviceshalltakeeffectattheexpirationofsuch
time. The fair and just application of that exception depends upon
theconclusiveproofthatthefirstnoticewassentbythepostmaster
to the addressee. The best evidence of that fact would be the
certificationfromthepostmaster.
Same; Same; Same; The postmaster has the official duty to send
notices of registered mail and the presumption is that official duty
was regularly performed.Hence, as between the denial of the
petitioners'counselthathereceivedthenoticeoftheregisteredmail
andthepostmaster'scertificationthatsaidnoticesweresenttohim,
the postmaster's claim should prevail. The postmaster has the
officialdutytosendnoticesofregisteredmailandthepresumption
isthatofficialdutywasregularlyperformed.
Civil Law; Contracts; Contracts are to be interpreted according
to their literal meaning and should not be interpreted beyond their

obvious intendment.Clearly,theoptionofthelesseetoextendthe
leaseforanotherperiodoftwentyyearscanbeexercisedonlyifthe
lessee as corporation renews or extends its corporate term of
existenceinaccor
_______________
*FIRSTDIVISION.

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Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

dance with the Corporation Code which is the applicable law.
Contracts are to be interpreted according to their literal meaning
and should not be interpreted beyond their obvious intendment.
Thus, in the instant case, the initial term of the contract of lease
whichcommencedonMarch1,1954endedonMarch1,1974.PBM
aslesseecontinuedtooccupytheleasedpremisesbeyondthatdate
withtheacquiescenceandconsentoftherespondentsaslessor.
Corporation Law; When the period of corporate life expires, the
corporation ceases to be a body corporate for the purpose of
continuing the business for which it was organized.Section11of
CorporationCodeprovidesthatacorporationshallexistforaperiod
notexceedingfifty(50)yearsfromthedateofincorporationunless
sooner dissolved or unless said period is extended. Upon the
expiration of the period fixed in the articles of incorporation in the
absenceofcompliancewiththelegalrequisitesfortheextensionof
theperiod,thecorporationceasestoexistandisdissolvedipso facto
(16Fletcher671citedbyAguedoF.Agbayani,Commercial Laws of
the Philippines, Vol. 3, 1988 Edition p. 617). When the period of
corporatelifeexpires,thecorporationceasestobeabodycorporate
for the purpose of continuing the business for which it was
organized. But it shall nevertheless be continued as a body
corporateforthreeyearsafterthetimewhenitwouldhavebeenso
dissolved, for the purpose of prosecuting and defending suits by or
againstitandofenablingitgraduallytosettleandcloseitsaffairs,
to dispose of and convey its property and to divide its assets (Sec.
122,CorporationCode),
Same; Involuntary Dissolution; Grounds for the involuntary

dissolution
of a corporation
under a quo warranto
proceedings.The quo warranto proceeding under Rule 66 of the
Rules of Court, as amended, may be instituted by the Solicitor
Generalonlyfortheinvoluntarydissolutionofacorporationonthe
following grounds: a) when the corporation has offended against a
provision of an Act for its creation or renewal; b) when it has
forfeited its privileges and franchises by nonuser; c) when it has
committed or omitted an act which amounts to a surrender of its
corporate rights, privilege or franchises; d) when it has misused a
right, privileges or franchise conferred upon it by law, or when it
hasexercisedaright,privilegeorfranchiseincontraventionoflaw.

PETITIONforcertioraritoreviewtheordersofthethen
CourtofFirstInstanceofPasig,MetroManila,Br.21.
ThefactsarestatedintheopinionoftheCourt.
296

296

SUPREMECOURTREPORTSANNOTATED

Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

MEDIALDEA,J.:
ThisisapetitionforcertiorariunderRule65oftheRulesof
Court seeking to annul and set aside the orders of
respondentCourtofFirstInstanceofRizal,Pasig,Branch
21 (now Regional Trial Court) dated April 22, 1982,
September14,1982andJanuary12,1983inLRCCaseNo.
R2744onthegroundthattheyhadbeenissuedwithoutor
inexcessofjurisdictionandwithgraveabuseofdiscretion.
Theantecedentfactsofthiscaseareasfollows:
Private respondents are the registered owners of three
parcelsoflandinPasig,MetroManilacoveredbyOCTNo.
853,TCTNos.32843and32897oftheRegistryofDeedsof
Rizal.
On March 1, 1954, private respondents entered into a
contract of lease with Philippine Blooming Mills, Co., Inc.,
(PBM for brevity) whereby the latter shall lease the
aforementioned parcels of land as factory site. PBM was
dulyorganizedandincorporatedonJanuary19,1952with
a corporate term of twentyfive (25) years. This leasehold
right of PBM covering the parcels of land was duly
annotatedatthebackoftheabovestatedcertificatesoftitle
asEntryNo.9367/TNo.32843.

Thecontractofleaseprovidesthatthetermoftheleaseis
fortwentyyearsbeginningfromthedateofthecontractand
"isextendableforanothertermoftwentyyearsattheoption
oftheLESSEEshoulditstermofexistencebeextendedin
accordancewithlaw."(p.76,Rollo).Thecontractalsostates
that the lessee agrees to "use the property as factory site
and for that purpose to construct whatever buildings or
improvementsmaybenecessaryorconvenientand/orxxx
foranypurposeitmaydeemfit;andbeforethetermination
oftheleasetoremoveallsuchbuildingsandimprovements"
(pp.7677Rollo).
Inaccordancewiththecontract,PBMintroducedonthe
land, buildings, machineries and other useful
improvements.Theseconstructionsandimprovementswere
registeredwiththeRegistryofDeedsofRizalandannotated
atthebackoftherespondents'certificatesoftitleasEntry
No.85213/TNo.43338.
On October 11, 1963, PBM executed in favor of
Philippine National Bank (PNB for brevity), petitioner
herein,adeedofassignment,conveyingandtransferringall
itsrightsandinterestsunderthecontractofleasewhichit
executedwithprivate
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Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

respondents.Theassignmentwasforandinconsiderationof
theloansgrantedbyPNBtoPBM.Thedeedofassignment
was registered and annotated at the back of the private
respondents' certificates of title as Entry No. 85215/TNo.
32843.
On November 6, 1963 and December 23, 1963
respectively, PBM executed in favor of PNB a real estate
mortgage for a loan of P100,000.00 and an addendum to
real estate mortgage for another loan of P1,590,000.00,
coveringalltheimprovementsconstructedbyPBMonthe
leased premises. These mortgages were registered and
annotated at the back of respondents' certificates as Entry
No.85214/TNo.43338andEntryNo.870971/TNo.32843,
respectively.
PBMfiledapetitionforregistrationofimprovementsin
the titles of real property owned by private respondents
docketedasCaseNo.6530.

OnOctober7,1981,privaterespondentsfiledamotionin
the same proceedings which was given a different case
number to wit, LRC Case No. R2744, because of the
paymentoffilingfeesforthemotion.Themotionsoughtto
cancel the annotations on respondents' certificates of title
pertaining to the assignment by PBM to PNB of the
former'sleaseholdrights,inclusionofimprovementsandthe
realestatemortgagesmadebyPBMinfavorofPNB,onthe
groundthatthecontractofleaseenteredintobetweenPBM
and respondentsmovants had already expired by the
failureofPBMand/oritsassigneetoexercisetheoptionto
renew the second 20year lease commencing on March 1,
1974andalsobythefailureofPBMtoextenditscorporate
existence in accordance with law. The motion also states
that since PBM failed to remove its improvements on the
leased premises before the expiration of the contract of
lease, such improvements shall accrue to respondents as
ownersoftheland,
On April 22,1982, respondent court issued an order
directingthecancellationoftheinscriptionsonrespondents'
certificates of title. The dispositive portion of the order
provides:
"WHEREFORE, the Register of Deeds having jurisdiction over the
movant's land Certificates of Title Nos. 853, 32843 and 32897 is
hereby ordered, upon the payment of the corresponding fees, to
cancel therein memoranda/inscriptions/entries Nos. 85213/TNo.
43338,
298

298

SUPREMECOURTREPORTSANNOTATED
Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

85215/TNo.32843,85214/TNo.43338and87097/TNo.32843.
"SOORDERED."(pp.147148,Rollo)

Petitioner PNB filed a motion for reconsideration of the

aboveorderoftherespondentcourtbutthelatterdeniedit
onJune28,1982.
On August 25, 1982, private respondents filed a motion
for entry of final judgment and issuance of a writ of
executionoftheorderofApril22,1982.
On September 14, 1982, respondent court granted the
aforesaidmotionforentryoffinaljudgmentandorderedthe
Register of Deeds of Pasig, Rizal to cancel the entries on

respondents'certificatesoftitlestatedintheorderofApril
22,1982.
PetitionerPNBfiledanomnibusmotiontosetasidethe
entryofjudgmentasorderedbytherespondentcourtonthe
groundthatithasnopriornoticeorknowledgeoftheorder
of respondent court dated June 28, 1982 which denied its
motionforreconsiderationoftheorderofApril22,1982and
thatwhiletherewasacertificationfromtheBureauofPosts
thatthreeregistrynoticesweresenttopetitioner'scounsel,
therewasnoallegationorcertificationwhatsoeverthatsaid
noticeswereactuallyreceivedbytheaddressee.
On January 12, 1983, the respondent court denied the
omnibusmotion.
Hence,thispetition.
Petitioner alleges that respondent court acted
capriciously and arbitrarily in issuing the orders of
September14,1982andJanuary12,1983whichconsidered
itspreviousorderofApril22,1982ashavingbecomefinal
on the ground that it had no notice or knowledge that the
order of June 28, 1982 denying its motion for
reconsideration was issued; that the notices of registered
mail allegedly containing the order of June 28, 1982 were
not received by petitioner's counsel of record, and that the
certification of the Bureau of Posts refers only to the fact
thatregistrynoticesweresent,andnottothefactthatthe
noticeswereactuallyreceivedbytheaddressee.
In resolving this matter, the respondent court stated in
thequestionedorderofJanuary12,1983asfollows:
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Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

"TherespondentPNBfiledamotionofMay20,1982tosetasidethe
OrderofApril22,1982.ThiswasdeniedbytheOrderofJune28,
1982.ThenthemovantsfiledamotionofAugust25,1982forentry
of judgment, based on the postmaster's certification that not only
onebutthreenoticesoftheregisteredmailcontainingacopyofthe
orderofJune28,1982wassenttorespondentPNB'scounselatthe
PNB Building at Escolta, Manila which is his address of record in
this case. Consequently the entry of judgment Order of September
14,1982.
"xxx.
"The respondent PNB's counsel at the hearing of said incidents

on October 12, 1982 admitted that the aforesaid registered notices

couldhavebeenreceivedbyPNB'sregularReceivingSectionatthe
PNBBuildingattheEscoltabutcouldnothavebeenforwardedby
said Receiving Section to said counsel's Litigation and Collection
Division,LegalDepartmentatanupperfloorofthesamebuilding.
Thusthepresumptionthatofficialdutywasregularlyperformedby
thepostmasterwasnotovercome,asmostrecentlyreiteratedbythe
Supreme Court in Feraren vs. Santos promulgated on April 27,
1982,113SCRA707xxx."(p.195,Rollo)

Section 8 of Rule 13 of the Rules of Court, as amended,

provides that service by registered mail is complete upon
actual receipt by the addressee; but if he fails to claim his
mailfromthepostofficewithinfive(5)daysfromthedateof
firstnoticeofthepostmaster,serviceshalltakeeffectatthe
expirationofsuchtime.Thefairandjustapplicationofthat
exception depends upon the conclusive proof that the first
noticewassentbythepostmastertotheaddressee.Thebest
evidence of that fact would be the certification from the
postmaster(Barrameda v. Castillo, L27211, July 6, 1977,
78SCRA1).
Intheinstantcase,therespondentcourtfoundthatthe
postmaster'scertificationstatedthatthree(3)noticesofthe
registeredmailwhichcontainedtheorderofJune28,1982
denyingthemotionforreconsiderationoftheorderofApril
22,1982,weresenttopetitionerPNB'scounselatEscolta,
Manilawhichistheaddressstatedintherecordofthecase.
Thefactualfindingsofthetrialcourtbeargreatweightand
isbindinguponthisCourt.Hence,asbetweenthedenialof
the petitioners' counsel that he received the notice of the
registered mail and the postmaster's certification that said
notices were sent to him? the postmaster's claim should
prevail.Thepostmasterhasthe
300

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SUPREMECOURTREPORTSANNOTATED

Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

official duty to send notices of registered mail and the
presumption is that official duty was regularly performed
(Aportadera,Sr.v.CourtofAppeals,G.R.No.41358,March
16,1988,158SCRA695).
Petitionerallegesthatitisnottherespondentcourtbut
the Securities and Exchange Commission which has

jurisdiction over the private respondents' motion, which

raised as issue the corporate existence of PBM. Petitioner
furthersubmitsthattherespondentcourtcommittedgrave
abuseofdiscretioninorderingthecancellationofentriesin
the certificates of title of respondents on the following
grounds: 1) the motion for cancellation would amount to a
collateralattackuponthedueincorporationofPBMwhich
cannot be done legally, 2) the contract of lease between
PBM as petitioner's assignor and private respondents did
notexpiresincePBMexerciseditsoptiontorenewthelease
with the acquiescence of private respondents, and 3)
respondent court's ruling that ownership over the
improvements passed from PBM to private respondents
upon the expiration of lease violates the law and the
contractbetweentheparties.
Even if We were to set aside the questioned orders
directingtheentryoffinalityoftheordercancellingentries
inthetitles,petitioner'scasemuststillfailonthemerits.
Private respondent's motion with the respondent court
wasforthecancellationoftheentriesontheirtitlesonthe
ground that the contract of lease executed between them
andPBMhadexpired.Thisactioniscivilinnatureandis
within the jurisdiction of the respondent court. The
circumstancethatPBMasoneofthecontractingpartiesisa
corporation whose corporate term had expired and which
fact was made the basis for the termination of the lease is
not sufficient to confer jurisdiction on the Securities and
Exchange Commission over the case. Presidential Decree
No. 902A, as amended, enumerates the cases over which
theSEChasexclusivejurisdictionandauthoritytoresolve.
Thecaseatbarisnotcoveredbytheenumeration.
Anenttheissueofwhetherthecancellationoftheentries
on respondent's certificates of title is valid and proper, We
find that the respondent court did not act in excess of its
jurisdiction,inorderingthesame.
Thecontractofleaseexpresslyprovidesthatthetermof
the
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Philippine National Bank vs, CFI of Rizal, Pasig, Br. XXI

lease shall be twenty years from the execution of the
contract but can be extended for another period of twenty

yearsattheoptionofthelesseeshouldthecorporateterm
be extended in accordance with law. Clearly, the option of
the lessee to extend the lease for another period of twenty
years can be exercised only if the lessee as corporation
renews or extends its corporate term of existence in
accordance with the Corporation Code which is the
applicablelaw.Contractsaretobeinterpretedaccordingto
theirliteralmeaningandshouldnotbeinterpretedbeyond
their obvious intendment. Thus, in the instant case, the
initial term of the contract of lease which commenced on
March 1, 1954 ended on March 1, 1974. PBM as lessee
continued to occupy the leased premises beyond that date
with the acquiescence and consent of the respondents as
lessor. Records show however, that PBM as a corporation
had a corporate life of only twentyfive (25) years which
endedonJanuary19,1977.Itshouldbenotedhoweverthat
PBMalloweditscorporatetermtoexpirewithoutcomplying
withtherequirementsprovidedbylawfortheextensionof
itscorporatetermofexistence.
Section 11 of Corporation Code provides that a
corporation shall exist for a period not exceeding fifty (50)
yearsfromthedateofincorporationunlesssoonerdissolved
orunlesssaidperiodisextended.Upontheexpirationofthe
periodfixedinthearticlesofincorporationintheabsenceof
compliancewiththelegalrequisitesfortheextensionofthe
period,thecorporationceasestoexistandisdissolvedipso
facto (16 Fletcher 671 cited by Aguedo F. Agbayani,
Commercial Laws of the Philippines,Vol.3,1988Editionp.
617). When the period of corporate life expires, the
corporationceasestobeabodycorporateforthepurposeof
continuing the business for which it was organized. But it
shall nevertheless be continued as a body corporate for
three years after the time when it would have been so
dissolved,forthepurposeofprosecutinganddefendingsuits
by or against it and of enabling it gradually to settle and
closeitsaffairs,todisposeofandconveyitspropertyandto
divide its assets (Sec. 122, Corporation Code). There is no
needfortheinstitutionofaproceedingforquo warrantoto
determinethetimeordateofthedissolutionofacorporation
becausetheperiodofcorporateexistenceisprovidedinthe
articles of incorporation. When such period expires and
withoutanyextensionhavingbeenmade
302

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SUPREMECOURTREPORTSANNOTATED

Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

pursuanttolaw,thecorporationisdissolvedautomatically
insofarasthecontinuationofitsbusinessisconcerned.The
quo warranto proceeding under Rule 66 of the Rules of
Court, as amended, may be instituted by the Solicitor
Generalonlyfortheinvoluntarydissolutionofacorporation
on the following grounds: a) when the corporation has
offended against a provision of an Act for its creation or
renewal; b) when it has forfeited its privileges and
franchisesbynonuser;c)whenithascommitted:oromitted
anactwhichamountstoasurrenderofitscorporaterights,
privileges or franchises; d) when it has misused a right,
privilege or franchise conferred upon it by law, or when it
hasexercisedaright,privilegeorfranchiseincontravention
of law. Hence, there is no need for the SEC to make an
involuntary dissolution of a corporation whose corporate
termhadendedbecauseitsarticlesofincorporationhadin
effectexpiredbyitsownlimitation.
Considering the foregoing in relation to the contract of
leasebetweenthepartiesherein,whenPBM'scorporatelife
endedonJanuary19,1977andits3yearperiodforwinding
upandliquidationexpiredonJanuary19,1980,theoption
ofextendingtheleasewaslikewiseterminatedonJanuary
19, 1977 because PBM failed to renew or extend its
corporate life in accordance with law. From then on, the
respondentscanexercisetheirrighttoterminatethelease
pursuanttothestipulationsinthecontract.
Wenowcometothequestionoftheownershipoverthe
improvements constructed by PBM over the leased
premises, which improvements were mortgaged in favor of
PNB,petitionerherein.
The rights of the lessor and the lessee over the
improvements which the latter constructed on the leased
premises is governed by Article 1678 of the Civil Code
whichprovides:
"Art. 1678. If the lessee makes, in good faith, useful improvements
which are suitable to the use for which the lease is intended,
without altering the form or substance of the property leased, the
lessorupontheterminationoftheleaseshallpaythelesseeonehalf
of the value of the improvements at that time. Should the lessor
refuse to reimburse said amount, the lessee may remove the
improvements,eventhoughtheprincipalthingmaysufferdamage

thereby.Heshall
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Philippine National Bank vs. CFI of Rizal, Pasig, Br. XXI

nothowever,causeanymoreimpairmentuponthepropertyleased
thanisnecessary.
xxx"

The aforequoted provision gives the lessee the right to

remove the improvements if the lessor chooses not to pay
onehalf of the value thereof. However, in the case at bar,
the law will not apply because the parties herein have
stipulated in the contract their own terms and conditions
concerning the improvements, to wit, that the lessee,
namely PBM, bound itself to remove the improvements
before the termination of the lease. Petitioner PNB, as
assignee of PBM succeeded to the obligation of the latter
underthecontractoflease.Itcouldnotpossessrightsmore
than what PBM had as lessee under the contract. Hence,
petitioner was duty bound to remove the improvements
beforetheexpirationoftheperiodofleaseaswhatwehave
alreadydiscussedintheprecedingparagraphs.Itsfailureto
dosowhentheleasewasterminatedwastantamounttoa
waiverofitsrightsandinterestsovertheimprovementson
theleasedpremises.
Inviewoftheforegoing,thisCourtfindsthatrespondent
courtdidnotactwithgraveabuseofdiscretionindirecting
the cancellation of entries on private respondents'
certificatesoftitleassetforthinthequestionedorder.
ACCORDINGLY, the petition is DISMISSED and the
assailed orders of respondent court dated April 22,1982,
September14,1982andJanuary12,1983areAFFIRMED.
SOORDERED.
Cruz, GrioAquinoandBellosillo, JJ.,concur.
Petition dismissed; orders affirmed.
o0o
304

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