XVI.

Dissolution
Buenaflor v. Camarines Sur Industry
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Loss of Juridical Personality
Facts:
1. On June 25, 1957, Buenaflor filed his said
application together with another application to
establish a cold storage and refrigeration
service of about 6,000 cubic feet capacity.
2. The Commission, by order of September 12,
1957, set the applications for hearing on
October 9, 1957, requiring applicant to publish
them in two newspapers, and to serve copy to
Iñigo Daza and Camarines Sur Industry
Corporation (Camarines Corporation). These
owned ice plants in neighboring municipalities
and had been apparently selling ice to
Sabang's inhabitants.
3. 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.
4. Inaddition, they 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 MD the Camarines
Corporation's applications, challenging its personality,
as its corporate life had expired in November 1953, in
accordance with its own articles of incorporation.
● 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.
● The Camarines Corporation (new) answered
the motion to dismiss, by alleging its recent
incorporation, plus its acquisition of the assets
and certificates of the old Camarines
Corporation with the Commission's approval.
Issue: WON Buenaflor has a better right to a 5-ton ice
plant
Held: YES
● 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 lawduring that period (1953-1957).
● On the other hand, when the old Camarines
Corporation docketed its application, 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

Evidence was presented in support of the applications

and oppositions.

According to Comission:

● Applicant Camarines Corporation has a better

right than Buenaflor to the certificate for a 5-
ton ice plant in Sabang. (As Pioneer Ice plant
Operator)
 ● As to the cold storage service, Buenaflor has a
better right to the certificate (Because he is the
first who filed the application and also
financially capable). A cold storage operator
also needs ice for the preservation of fish and
other perishable foodstuffs, so certificate for 1-
ton ice plant can also be granted to buenaflor.
Buenaflor appealed – certificate for 5 ton Ice plant
should be granted only to him.
National Abaca v. Pore
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Loss of Juridical Personality
Facts:
● National Abaca filed with MTC of Tacloban
against Apolonia Pore for recovery of
P1,213.64 allegedly advanced to her for the
purchase of hemp for the account of National
Abaca, which she failed to account for
● Pore alleged that she had accounted for all
cash advances received by her
● MTC held that Pore did not account for the
advances of P272.49
● 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
● National Abaca 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.
Cebu Port Labor Union v. State Marine
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Loss of Juridical Personality
Facts:
Cebu Port Labor Union filed a petition w/ CFI – Cebu
• For recognition of stevedoring service and
injunction against State Marine Corporation
Allegations:
o States Marine Corporation– corp duly
Issue:
Whether an action commenced within 3 years after the
abolition of plaintiff National Abaca, as a corporation
may be continued by the same after the expiration of
such period (no)
Held:
● 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.
● 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.
Issue:
W/N the Lower Court has jurisdiction:
a. To take cognizance of the case, and
b. Over the person of States Marine Corporation,
which appeared to be non-existent at the time of the
institution of the petition
Held:
Re: Lower Court’s jurisdiction to take cognizance of the
case:
organized under PH laws and could be served w/ Yes. The Lower Court has jurisdiction to take
summons through Mr. J. Gotianuy cognizance of the case. By the passage of RA 875, the
o The Union was awarded a contract for the jurisdiction of CIR has been limited to the following
exclusive right of loading and unloading of the cargoes cases:
of the vessel M/V Bisayas (formerly owned by Elizalde (1) when the labor dispute affects in industry
& Co.) which is indispensable to the national interest and is so
o At the time of the petition the said vessel was certified by the President to the industrial court (Section
owned & operated by States Marine 10, Republic Act 875)
o It came to the knowledge of the Union that the (2) when the controversy refers to minimum wage
stevedoring work will be given by the States Marine to under the Minimum Wage Law (Republic Act No. 602);
the other respondents (Pansacala, et. al) in violation of (3) when it involves hours of employment under
the agreement between the Manager of the States the eight hours of employment under the Eight-Hour
Marine and the President of the Union Labor Law Commonwealth Act 444):and
o Said award to the other respondents will cause (4) when it involves an unfair labor practice
the Petitioners irreparable loss and injury
It appearing that the present controversy is not one of
Prayer: the cases enumerated above which this Court held to
o Enjoin States Marine from giving the work to be cognizance by the Court of Industrial Relations, the
the other respondents lower Court acted rightly in maintaining that it had
o Enjoin States Marine from molesting & jurisdiction to try and decide this case.
preventing the Union from peacefully doing said loading
and unloading work Re: Lower Court’s jurisdiction over the person of States
o After the hearing, the injunction be made Marine Corporation
permanent
o The Union be declared w/ the right to load and Negative. In this case, the Union seeks to enforce the
unload cargoes of M/V Bisayas, thereby respecting the agreement entered into by Joseph Gotianuy and Alejo
contract entered into by the Union and Elizalde & Co. Cababajay, the President of said Union. Despite the fact
and subsequently enforced and continued by States that counsel for the other respondents called already
Marine the attention of the Court that the States Marine
Corporation was non-existing and suggested that
CFI-Cebu ordered ex parte the issuance of the writ of proper substitution or amendment of the petition be
prelim injunction upon Union’s filing a bond (P1K). The made. Sec. 77 of the Corporation Code states that:
Sheriff’s return of service or writ showed the
respondents Villajas, et.al. were personally served with SEC. 77. Every corporation whose charter expires by its
said order. It also showed a note saying that States own limitation or is annulled by forfeiture or otherwise,
Marine Corp was already dissolved. or whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be
Respondents Villajas, et. al., filed an ex parte motion for continued as a body corporate for three years after the
dissolution of the writ time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or
Allegation: against it and of enabling it gradually to settle and close
o Writ would cause great damage to the its affairs, to dispose of and convey its property and to
Respondents since the defunct States Marin never divide its capital stock, but not for the purpose of
awarded any contract to the petitioner/never entered continuing the business for which it was established.
into a contract with said Union relative to stevedoring
work Reading of the above-quoted provision would convey
• This motion was granted the idea clearly manifested in the limitation "but not for
After that, they also filed a motion to dismiss the purpose of continuing the business for which it was
• Based on the ff grounds: established", that the 3-year period allowed by the law
o Court has no jurisdiction as it involves an is only for the purpose of winding up its affairs. It
action of a labor union against management so it fails appearing that the said States Marine Corporation was
within the exclusive jurisdiction of the Court of Industrial already dissolved at the time said petition was filed, and
Relations the vessel subject of the agreement having changed
o Complaint states no cause of action - there hands, it cannot be compelled now to respect such
was no showing that in the transaction between EIizalde agreement specially considering the fact that it cannot
& Co. and the States Marine Corporation the even be made a party to this suit.
contractual obligation of the former to the Union was
considered in order that same may deserve the respect Appellee further contends that it seeks the enforcement
of the new owner of the vessel of the agreement entered into by Joseph Gotianuy as
o Corporation has no legal capacity to sue or be manager of the Royal Lines, Inc. If this is so, it must be
sued – it having been dissolved noted the provision of Section 7, Rule 3 regarding

CFI Decision:
• Denied Respondents’ motion to dismiss
• Found that Mr. J. Gotianuy Bisayas) agreed
verbally to award the stevedoring work to the union
headed by Alejo Cababajay and that such was made
orally because it was not the practice to put such kind of
agreement in writing
• Certification purportedly made by Joseph
Gotianuy to the effect that the stevedoring job - said
certification was made only after the filing of the present
petition thereby strengthening the allegation that
respondents' groups tried to grab from the Union the
work already given to them by said Gotianuy
• Issued permanent writ of injunction
Gonzales v. Sugar Regulatory Administration
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Loss of Juridical Personality
Facts:
Petitioner spouses Gonzales filed a complaint seeking
cancellation of a mortgage and recovery of a sum of
money against the Republic Planters Bank ("RPBank"),
Philippine Sugar Commission ("Philsucom") and the
SRA.
Petitioners loaned a total of Php l,041,610.55 from
RPBank; they repaid Php P 1,051,296.77. in other
words, they had more than fully repaid their loan.
The complaint further alleged that Philsucom had
deducted from the export sugar proceeds of petitioners
the amount of P 421,517.32 without the authority and
consent of petitioners with the result that petitioners had
overpaid the RPBank by P 289,260.88.
RPBank, Philsucom and SRA moved to dismiss the
complaint upon the ground of lack of cause of action.
The SRA also noted that while the deductions
complained of were made by the Philsucom during the
period from 1980 to 1984, the SRA itself had been
created by Executive Order No. 18 only on 18 May
1986 and that it was not a party to the real estate
mortgage between petitioners and the RPBank.
Respondent SRA further argues that according to Sec
13 of EO 18, did not provide for universal succession,
as it were, of SRA to Philsucom, or more specifically to
the assets and liabilities of Philsucom.
Trial Court dismissed the case in favor of SRA. Hence,
this petition.
indispensable parties, and that the Royal Lines, Inc.,
has not made a party to this case.
In summary, the alleged verbal contract between the
petitioning Union and Elizalde & Co. for the exclusive
right of loading and unloading could not give the
petitioner any right to exercise the award of said job
after the M/V BISAYAS was bought by the respondent
States Marine Corporation which by no means can be
compelled to fulfill the part of said company's contracted
obligation to the petitioner, because of the ff grounds:
• No sufficient and competent evidence - alleged
verbal contract entered into between the petitioner and
Elizalde & Co.,
• States Marine Corporation is not and was not
in existence at the time of the institution of this case and
has no personality
• M/V BISAYAS was not, at the time of the
institution of this case, the property of respondent
States Marine, Corporation but of the Royal Lines, Inc.,
• Bare testimony of the members of the
petitioning Union given in this case cannot overcome
the certification of Joseph Gotianuy
Issue: W/N the dismissal of the case against SRA
premature
Held: YES. Petitioners have a cause of action against
SRA to the extent that they are able to prove lawful
claims against Philsucom, and to the extent respondent
SRA did, or does, in fact take over all or some of the
assets of Philsucom.
Should the assets of Philsucom remaining in Philsucom
at the time of its abolition not be adequate to pay for all
lawful claims against Philsucom, respondent SRA must
be held liable for such claims against Philsucom to the
extent of the fair value of assets actually taken over by
the SRA from Philsucom, if any. To this extent,
claimants against Philsucom do have a right to follow
Philsucom's assets in the hands of SRA or any other
agency for that matter.
Sumera v. Valencia ISSUE:
Topic: Effects of Dissolution; winding up and liquidation Whether or not the CFI erred in dismissing the case.
(sec 122); Distribution of assets after payment of debts
Facts: HELD:
Yes. CFI order reversed; case remanded.
In the municipality of Paombong, Province of Bulacan,
Philippines, a corporation was organized in 1920 in
The time during which the corporation, through its own
accordance with the laws in force in these Islands,
officers, may conduct the liquidation of its assets and
under the style, "Devota de Nuestra Señora de la
sue and be sued as a corporation is limited to three
Correa", for the promotion of the filing industry or
years from the time the period of dissolution
business for a period of twenty years.
commences; but that there is no time limited within
which the trustees must complete a liquidation placed
Said corporation was already in operation when, on
in their hands. It is provided only (Corp. Law, sec. 78)
petition of various stockholders thereof, an
that the conveyance to the trustees must be made within
investigation into its financial condition was made by
the three-year period.
the provincial auditor in which it was discovered that
Eugenio Valencia, manager of the corporation, had
It may be found impossible to complete the work of
withdrawn the amount of P600 from the remaining
liquidation within the three-year period or to reduce
assets of the corporation.
disputed claims to judgment.
On September 26, 1927, a petition was filed for the
voluntary dissolution of the corporation referred to,
The authorities are to the effect that suits by or against
which was docketed as civil case No. 3560 of the Court
a corporation abate when the ceases to be an entity
of First Instance of Bulacan.
capable of suing or being sued; but trustees to whom
the corporate assets have been conveyed pursuant to the
After the requirements prescribed by law had been
authority of section 78 may sue and be sued as such in
complied with, the court approved the voluntary
all matters connected with the liquidation.
dissolution in an order dated February 14, 1928,
ordering the liquidation of the properties of the
If the corporation carries out the liquidation of its assets
corporation and appointing Damaso P. Nicolas assignee
through its own officers and continues and defends the
to take charge of sue liquidation.
actions brought by or against it, its existence shall
terminate at the end of three years from the time of
In compliance with his duty as such assignee, Damaso
dissolution; but if a receiver or assignee is appointed, as
P. Nicolas went on December 7 and 13, 1928 to the
has been done in the present case, with or without a
house of Eugenio Valencia and demanded of the latter
transfer of its properties within three years, the legal
the payment of the amount of P600 belonging the
interest passes to the assignee, the beneficial interest
corporation. As he did not have any money, Eugenio
remaining in the members, stockholders, creditors and
Valencia then promised to deliver the amount referred
other interested persons; and said assignee may bring
to in May, 1929.
an action, prosecute that which has already been
commenced for the benefit of the corporation, or
Upon being asked again to pay the aforesaid amount,
defend the latter against any other action already
Eugenio Valencia delivered to the assignee, Damaso P.
instituted or which may be instituted even outside of
Nicolas, the sum of P200, leaving a balance of P400.
the period of three years fixed for the offices of the
Damaso P. Nicolas, who had resigned from the office
corporation.
of assignee, was substituted by the herein appellant,
Tiburcio Sumera, who filed a motion with the court
The summary of everything underlined: When a
asking that Eugenio Valencia be ordered to deliver to
corporation is dissolved and the liquidation of its assets
him the P400 belonging to the funds of the corporation.
is placed in the hands of a receiver or assignee, the
period of three years prescribed by section 77 of Act
CFI denied his motion without prejudice to him
No. 1459 known as the Corporation Law is not
bringing the proper action.
applicable, and the assignee may institute all actions
leading to the liquidation of the assets of the
On June 5, 1936, by virtue of the authority given him
corporation even after the expiration of three years.
by the court in the order of April 27, 1936, Tiburcio
Sumera, in his capacity as such assignee of the
corporation referred to, filed a complaint the present CASE LAW:
Section 77 of Act No. 1459 provides that "Every
case against Eugenio Valencia for the recovery of the
sum of P400 with interest at the rate of 12 per cent per
annum from the year 1927, and the sum of P100 as
indemnity.
Defenses: Valencia has fully paid his obligation of
Php400, which he owes the corporation for fixing one
of its fish ponds; Sumera’s action has prescribed.
CFI: Sentenced Valencia to pay P400+interest
MR and MNT to CFI (based on challenge of
prescription): Amended the dispositive portion; the
petition is dismissed.
The action in this case was commenced on June 5,
1936, and the corporation "Devota de Nuestra Señora
de la Correa" was dissolved on February 14, 1928,
and according to section 77 of Act No. 1459, the action
should have been brought within the three years
following dissolution.
Hence, this appeal.
Gelano v. CA
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Distribution of assets after payment of debts
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.
corporation whose charter expires by its own limitation
or is annulled by forfeiture or otherwise, or whose
corporate existence for other purposes is terminated in
any other manner, shall nevertheless be continued as a
body corporate for three years after the time when it
would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of
enabling it gradually to settle and close its affairs to
dispose of and convey its property and to divide its
capital stock, but not for the purpose of continuing the
business for which it was established."
And section 77 of the same Act provides, "At any time
during said three years said corporation is authorized
and empowered to convey all of its property to trustees
for the benefit of members, stockholders, creditors, and
others interested. From and after any such conveyance
by the corporation of its property in trust for the benefit
of its members, stockholders, creditors, and others in
interest, all interest which the corporation had in the
property terminates, the legal interest vests in the
trustees, and the beneficial interest in the members,
stockholders, creditors, or other persons in interest."
Issue:
Whether or not a dissolved corporation, could still
continue prosecuting and defending suits after its
dissolution and beyond the period of three years.
Held: 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

Republic v. Marsman Development
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Distribution of assets after payment of debts
Facts:
1. Marsman Development corporation was a timber
licensee holding Timber Licensee Agreement , with
concessions in the Municipality of Basud and Mondazo,
Camarines Norte.
2.Sometime 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.
3.On October 15, 1953, the Deputy Collector of Internal
Revenue demanded the payment of P13,136.00
representing forest charges due from May 18, 1950 to
September 30, 1953, and a surcharge of 25%.
On September 13, 1954, after further investigation
another assessment was sent to the defendant
corporation by the Bureau of Internal Revenue
demanding from it the total sum of P45,541.66
representing deficiency sales tax, forest charges,
surcharges and penalties.
On November 8, 1954 another assessment
was addressed to the defendant corporation for the
payment of P456.12 as 25% surcharge for discharging
lumber without permit.
The three assessments totalling P59,133.78
are the subject matter of the instant case
for collection.
4. On April 27, 1956, the BIR issued "final tax notices"
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.
Issue: Whether or not the CA erred in not declaring that
suit against Burgess in his capacity as liquidator of
Marsman Development has prescribed and in ordering
him to pay the sums contained in its decision.
Held: NO,
1. It is to be recalled that the assessments against
appellant corporation for deficiency taxes due for its
operations since 1947 were made by the Bureau of
Internal Revenue on October 15, 1953, September 13,
1954 and November 8, 1954, such that the first was
before its dissolution and the last two not later than six
months after such dissolution.
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
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."
2. 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
to the defendant corporation. Marsman protested for the terminated and the one in charge thereof is still holding
said assessments and further requested for 30 days the assets of the corporation, obviously for the benefit of
from the receipt of the specifications within which to all the creditors thereof, the assessment
consider its tax liability, further reserving its right to aforementioned, made within the three years, definitely
contest the legality or validity of the assessment or any established the Government as a creditor of the
particular items thereof within the said period. The BIR corporation for whom the liquidator is supposed to hold
denied Marsman's protest and issued a warrant of assets of the corporation.
distraint and levy on July 3, 1956
3. And since the suit at bar is only for the collection of
5. According to the Record on Appeal to the CA, and as taxes finally assessed against the corporation within the
additionally stated also by the trial court, the original three years invoked by appellants, their fourth
complaint filed on September 5, 1958 prayed for the assignment of error cannot be sustained. As to the
payment of only P13,695.96, and it was only in an allegation that appellant Burgess has not in fact
amended complaint filed on August 26, 1959 and received any property or asset of the corporation, that is
admitted on September 23, 1959 that, for the first time, a matter that can well be taken care of in the execution
the amount of P59,133.78 was judicially demanded to of the judgment which may be rendered herein, albeit it
be paid. Hence, this appeal to the SC. seems some kind of fraud would be perceptible, if the
corporation had been dissolved without leaving any
assets whatsoever with the liquidator.
6. TC HELD:
● The defendants further 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.
● The record shows that the filing of the
amended complaint was intended, among
others, to include as a party defendant, in an
alternative capacity, Mr. F.H. Burgess, who is
the liquidator of the Marsman Development
Co. Although it is an admitted fact that the
defendant corporation was extrajudicially
dissolved on April 23, 1954, there is no claim
that the affairs of said corporation had already
been finally liquidated or settled. Evidently, Mr.
F.H. Burgess is still continuing in his aforesaid
capacity as liquidator of the Marsman
Development Co.
● While section 77 of the Corporation Law
provides for a three-year period for the
continuation of the corporate existence of
the corporation for purposes of liquidation,
there is nothing in said provision which
bars an action for the recovery of the debts
of the corporation against the liquidator
thereof, after the lapse of the said three-
year period.

Chung Ka Bio v. IAC Issue:

Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Distribution of assets after payment of debts
Facts:
● Philippine Blooming Mills Company was
incorporated for a term of 25 years, having
expired on Jan 19, 1977
● Members of its board of directors executed a
deed of assignment of all accounts
receivables, properties, obligations and
liabilities of the old PBM in favor of Chung
Siong Pek in his capacity as treasurer of the
NEW PBM
● On June 14, 1977 the new PBM was issued a
certificate of incorporation by the SEC
● Chung Ka Bio and others were stockholders of
the old PBM, filed for liquidation (not
dissolution) of both the old and new PBM
● Their contention was that the former had
become legally non-existent for failure to
extend its corporate life and that the latter had
likewise been ipso facto dissolved for non-use
of the charter and continuous failure to operate
within 2 years
Clemente v. CA
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Distribution of assets after payment of debts
Facts:
● The parties in this case wrestled concerning
the ownership of a piece of land.
● The defendants (herein private respondents),
claimed ownership of the property by virtue of
acquisitive prescription.
● Plaintiffs on the other hand claimed ownership
based on the following allegations:
The "Sociedad Popular Calambeña" organization
conceived by the parties as a "Sociedad Anonima," was
organized on or about the advent of the early American
occupation of the Philippines. Its principal business was
cockfighting or the operation and management of a
cockpit. On June 8, 1911, or during its existence, the
"Sociedad" acquired by installments the parcel of
land(subject of the case) above described from the Friar
Lands Estate of Calamba, Laguna at the total cost of
P2,676.00.
● Plaintiffs evidence also shows that Mariano
Elepaño and Pablo Clemente, now both
deceased, were original stockholders of the
Whether the board of directors of an already dissolved
corporation does not have the inherent power, without
the express consent of the stockholders, to convey all
its assets to a new corporation
Held:
● Under Section 28-1/2, "any stockholder who
did not vote to authorize the action of the
board of directors may, within forty days after
the date upon which such action was
authorized, object thereto in writing and
demand payment for his shares." The record
does not show, nor have the petitioners
alleged or proven, that they filed a written
objection and demanded payment of their
shares during the reglementary forty-day
period. This circumstance should bolster the
private respondents' claim that the
authorization was unanimous.
● While we agree that the board of directors is
not normally permitted to undertake any
activity outside of the usual liquidation of the
business of the dissolved corporation, there is
nothing to prevent the stockholders from
conveying their respective shareholdings
toward the creation of a new corporation to
continue the business of the old. Winding up is
the sole activity of a dissolved corporation that
does not intend to incorporate anew. If it does,
however, it is not unlawful for the old board of
directors to negotiate and transfer the assets
of the dissolved corporation to the new
corporation intended to be created as long as
the stockholders have given their consent.
Issue:
Whether or not petitioners can be held liable, given their
submissions, to have succeeded in establishing for
themselves a firm title to the property in question.
Held:
YES.
● The Court find petitioners' evidence to be direly
wanting. Except in showing that they are the
successors-in-interest of Elepaño and
Clemente, petitioners have been unable to
come up with any evidence to substantiate
their claim of ownership of the corporate asset.
● Absent a corporate liquidation, it is the
corporation, not the stockholders, which can
assert, if at all, any title to the corporate
assets. The court, even then, expressed some
reservations on the corporation's being able to
still validly pursue such a claim.
● It said: even assuming that their parents were
the only stockholders of Sociedad, and
 aforesaid "sociedad."
● Pablo Clemente subscribed and paid FOUR
HUNDRED EIGHTEEN (418) shares of
stocksworth TWO THOUSAND (P2,000.00)
PESOS.
● Pablo Clemente's shares of stocks were
however later distributed and apportioned to
his heirs, in accordance with a Project of
Partition to Luis Clemente, shares worth P510;
to Ricardo Clemente, shares worth P510; to
Leonor Clemente de Elepaño, shares also
worth P510, and to Placida Clemente de
Belarmino shares worth P510.
● On September 24, 1932, in accordance with
the aforesaid project of .partition, the
"sociedad" issued stock certificates to the
aforesaid heirs of Pablo Clemente.
Majority Shareholders of Ruby Industrial Corp v.
Lim
Topic: Effects of Dissolution; winding up and liquidation
(sec 122); Distribution of assets after payment of debts
Facts:
Ruby Industrial Corporation (RUBY) is a domestic
corporation engaged in glass manufacturing. Reeling
from severe liquidity problems beginning in 1980, RUBY
filed on December 13, 1983 a petition for suspension of
payments with the Securities and Exchange
Commission (SEC) docketed as SEC Case No. 2556.
On December 20, 1983, the SEC issued an order
declaring RUBY under suspension of payments and
enjoining the disposition of its properties pending
hearing of the petition, except insofar as necessary in
its ordinary operations, and making payments outside of
the necessary or legitimate expenses of its business.
On August 10, 1984, the SEC Hearing Panel created
the management committee (MANCOM) for RUBY,
composed of representatives from Allied Leasing and
Finance Corporation (ALFC), Philippine Bank of
Communications (PBCOM), China Banking Corporation
(China Bank), Pilipinas Shell Petroleum Corporation
(Pilipinas Shell), and RUBY represented by Mr. Yu Kim
Giang.
The MANCOM was tasked to perform the following
functions: (1) undertake the management of RUBY; (2)
take custody and control over all existing assets and
assuming further that Sociedad has ceased to
exist, these do not ipso facto vest ownership
over the property in the hands of plaintiffs-
appellants.
● Again, assuming that sociedad is a duly-
organized entity, under the laws of the
Philippines, its corporate existence is separate
and distinct from its stockholders and from
other corporations to which it may be
connected (If it was not organized and
registered under Philippine laws as a private
corporation, it is a de facto corporation, as
found by the court below, with the right to
exercise corporate powers, and thus it is
imperative that any of the modes of
transferring ownership from said entity must be
shown.
● If, indeed, the sociedad has long become
defunct, it should behoove petitioners, or
anyone else who may have any interest in the
corporation, to take appropriate measures
before a proper forum for a peremptory
settlement of its affairs.
● We might invite attention to the various modes
provided by the Corporation Code for
dissolving, liquidating or winding up, and
terminating the life of the corporation.
Issue: Whether the minority’s pre-emptive rights were
violated
Held:
Yes, THERE WAS BLATANT VIOLATION/.
Pre-emptive right under Sec. 39 of the Corporation
Code refers to the right of a stockholder of a stock
corporation to subscribe to all issues or disposition of
shares of any class, in proportion to their respective
shareholdings. The right may be restricted or denied
under the articles of incorporation, and subject to
certain exceptions and limitations.The stockholder must
be given a reasonable time within which to exercise
their preemptive rights. Upon the expiration of said
period, any stockholder who has not exercised such
right will be deemed to have waived it.
The validity of issuance of additional shares may be
questioned if done in breach of trust by the controlling
stockholders. Thus, even if the pre-emptive right does
not exist, either because the issue comes within the
exceptions in Section 39 or because it is denied or
limited in the articles of incorporation, an issue of
shares may still be objectionable if the directors acted in
breach of trust and their primary purpose is to
perpetuate or shift control of the corporation, or to
“freeze out” the minority interest.
In this case, the following relevant observations should
have signaled greater circumspection on the part of the
SEC — upon the third and last remand to it pursuant to
liabilities of RUBY; (3) evaluate RUBY’s existing assets
and liabilities, earnings and operations; (4) determine
the best way to salvage and protect the interest of its
investors and creditors; and (5) study, review and
evaluate the proposed rehabilitation plan for RUBY.
Subsequently, two (2) rehabilitation plans were
submitted to the SEC: the BENHAR/RUBY
Rehabilitation Plan of the majority stockholders led by
Yu Kim Giang, and the Alternative Plan of the minority
stockholders represented by Miguel Lim (Lim).
Both plans were endorsed by the SEC to the MANCOM
for evaluation.
On April 26, 1991, over ninety percent (90%) of RUBY’s
creditors objected to the Revised BENHAR/RUBY Plan
and the creation of a new management committee.
Instead, they endorsed the minority stockholders
Alternative Plan. At the hearing of the petition for the
creation of a new management committee, three (3)
members of the original management committee (Lim,
ALFC and Pilipinas Shell) opposed the Revised
BENHAR/RUBY Plan on grounds that:(1) it would
legitimize the entry of BENHAR, a total stranger, to
RUBY as BENHAR would become the biggest creditor
of RUBY;(2) it would put RUBY’s assets beyond the
reach of the unsecured creditors and the minority
stockholders; and (3) it was not approved by RUBY’s
stockholders in a meeting called for the purpose.
Notwithstanding the objections of 90% of RUBY’s
creditors and three members of the MANCOM, the SEC
Hearing Panel approved on September 18, 1991 the
Revised BENHAR/RUBY Plan and dissolved the
existing management committee.
It also created a new management committee and
appointed BENHAR as one of its members. In addition
to the powers originally conferred to the management
committee under Presidential Decree (P.D.) No. 902-A,
the new management committee was tasked to oversee
the implementation by the Board of Directors of the
revised rehabilitation plan for RUBY.
our January 20, 1998 decision — to demand
transparency and accountability from the majority
stockholders, in view of the illegal assignments and
objectionable features of the Revised BENHAR/RUBY
Plan, as found by the CA and as affirmed by this Court:
There can be no gainsaying the well-established rule in
corporate practice and procedure that the will of the
majority shall govern in all matters within the limits of
the act of incorporation and lawfully enacted by-laws not
prescribed by law.
It is, however, equally true that other stockholders are
afforded the right to intervene especially during critical
periods in the life of a corporation like reorganization, or
in this case, suspension of payments, more so, when
the majority seek to impose their will and through
fraudulent means, attempt to siphon off Rubys valuable
assets to the great prejudice of Ruby itself, as well as
the minority stockholders and the unsecured creditors.
Certainly, the minority stockholders and the unsecured
creditors are given some measure of protection by the
law from the abuses and impositions of the majority,
more so in this case, considering the give-away signs of
private respondents perfidy strewn all over the factual
landscape.
Indeed, equity cannot deprive the minority of a remedy
against the abuses of the majority, and the present
action has been instituted precisely for the purpose of
protecting the true and legitimate interests of Ruby
against the Majority Stockholders. On this score, the
Supreme Court, has ruled that:
“Generally speaking, the voice of the majority of the
stockholders is the law of the corporation, but there are
exceptions to this rule.There must necessarily be a limit
upon the power of the majority. Without such a limit the
will of the majority will be absolute and irresistible and
might easily degenerate into absolute tyranny.x x x”
(Additional emphasis supplied.)
Lamentably, the SEC refused to heed the plea of the
minority stockholders and MANCOM for the SEC to
order RUBY to commence liquidation proceedings,
which is allowed under Sec. 4-9 of the Rules on
Corporate Recovery.
Under the circumstances, liquidation was the only hope
of the minority stockholders for effecting an orderly and
equitable settlement of RUBY’s obligations, and
compelling the majority stockholders to account for all
funds, properties and documents in their possession,
and make full disclosure on the nullified credit
 assignments.

Oblivious to these pending incidents so crucial to the

protection of the interest of the majority of creditors and
minority shareholders, the SEC simply stated that in the
interim, RUBY’s corporate term was validly extended,
as if such extension would provide the solution to
RUBY’s myriad problems.

Extension of corporate term requires the vote of 2/3 of

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

XVII. Corporate Combinations (Merger)

Reyes v. Blouse Issue:
Topic: Sale of all or substantially all corporate assetsWON the real purpose of the disputed resolution
Facts: is the merger or consolidation of the properties
§ This is an action instituted by the plaintiffs as and franchises of the Laguna Tayabas Bus Co.
minority stockholders of the Laguna Tayabas Bus with those of the Batangas Transportation Co.
Co. to restrain its BOD composed of the within the meaning of the law.
defendants from carrying out a resolution approved
by approximately 92½% of the stockholders in a HELD:[ No, the real purpose was only to transfer
meeting held on July 30, 1947, authorizing the the assets of Laguna Tayabas Bus Co. to a
BOD to take the necessary steps to consolidate the different corporation in exchange for its stocks.]
properties and franchises of the Laguna Tayabas
Bus Co. with those of the Batangas Transportation § It is apparent that the purpose of the
Co.
resolution is not to dissolve the Laguna
§ The grounds on which plaintiffs predicate their Tayabas Bus Co. but merely to transfer its
action are: assets to a new corporation in exchange for
o That the proposed consolidation or merger of the two its corporation stock.
companies would be prejudicial to the L.T.B. Co. and
to the plaintiffs in particular who do not own shares of § This intent is clearly deducible from the
stock of B.T. Co. in that: provision that the Laguna Tayabas Bus Co.
will not be dissolved but will continue
§ During the last ten years prior to the last war, the existing until its stockholders decide to
dividends declared by L.T.B. Co. were increasing, dissolve the same.
whereas the dividends declared by B.T. Co. were
decreasing in amount;
§ This comes squarely within the purview of

§ In 1941, the shares of L.T.B. Co. cost Php 250 each
in the market, whereas the shares of B.T. Co. cost only
Php 150 each;
§ A comparative study of the net gains of each
company for the first six months of 1947 showed that
the profits of the L.T.B. Co. exceeded B.T. Co. by
approximately Php 67,000. As a consequence, the
shares of L.T.B. Co. were costing Php 360 a share,
while the shares of the B.T. Co. were quoted at only
Php 200.
o That the proposed consolidation or
merger was illegal because the
unanimous vote of the stockholders
was not secured and that the same
was contrary to the spirit of our laws.
§ CFI:Granted the writ of preliminary injunction
prayed for upon a nominal bond of P5,000, which
later was increased to P10,000.
§ Defendants twice moved to dissolve the writ of
preliminary injunction, but both motions were
denied by the lower court.
§ The defendantsalso asked for the dismissal of the
complaint on the ground that the facts alleged do
not constitute sufficient cost of action. In
connection with the determination of this incident,
defendants submitted an affidavit of Max Blouse,
President of the Laguna Tayabas Bus Co.,
outlining the steps to be taken by the BOD in
carrying out the merger or consolidation
authorized in the disputed resolution.
§ CFI: The controversial proposed acts to be
performed by the defendants, directors of the
Laguna Tayabas Bus Co., are within the authority
granted under Section 28 of the Corporation Law.
The complaint, therefore, is dismissed and the
preliminary injunction is hereby lifted without
pronouncement as to costs.
§ On the motion of the plaintiffs, the CFI revived
the writ of preliminary injunction which was
dissolved in its decision above mentioned and
maintained the status quo of the case pending
appeal upon a new indemnity bond of P30,000,
which was subsequently increased to P50,000.
§ The disputed resolution, which was approved on
July 20, 1947, at a special meeting held by the
stock holders of the Laguna Tayabas Bus Co. reads
as follows:
Section 28 of the corporation may sell,
exchange, lease or otherwise dispose of all
its property and assets, including its good
will, upon such terms and conditions as its
Board of Directors may deem expedient
when authorized by the affirmative vote of
the shareholders holding at least 2/3 of the
voting power.
§ The words "or otherwise disposed of" is very
broad and in a sense covers a merger or
consolidation. The action of the corporation
was taken having in view this provision of our
corporation law and in our opinion the
corporation has acted correctly.
§ Plaintiffs contend that the disputed
resolution calls for a real merger or
consolidation in the sense and in the manner
said terms are intended and understood under
the law and authorities of the United States,
citing in support of their contention a long line
of American authorities, and that view the
resolution in that light, the same cannot come
within the purview of Sec. 28 of the
Corporation Law.
§ Even if we view the resolution in the light of
the American authorities, we are of the
opinion that the transaction called for therein
cannot be considered, strictly speaking, as a
merger or consolidation of the two
corporations because, under said authorities, a
merger implies necessarily the termination
or cessation of the merged corporations and
not merely a merger of their properties and
assets. This situation does not here obtain.
The two corporations will not lose their
corporate existence or personality, or at
least the Laguna Tayabas Bus Co., but will
continue to exist even after the
consolidation. In other words, what is
intended by the resolution is merely a
consolidation of properties and assets, to be
managed and operated by a new
corporation, and not a merger of the
corporations themselves.
“Resolved that the Board of Directors of the Laguna
Tayabas Bus Company, be as it hereby is, authorized to
take the necessary steps to consolidate the properties
and franchises of the corporation with those of the
Batangas Transportation Company under a single
corporation by the organization of a new corporation
and to dispose to such new corporation all the
properties and franchises of the corporation in return
for stock of the new corporation, or by the exchange of
stock, and/or through such other means as may be
deemed most advisable by the BOD”

Nell v. Pacific Farms
Topic:Sale of all or substantially all corporate assets
Facts:
1. n March 1958, Pacific Farms (Pacific)
purchased as the highest bidder from a bank
auction 1,000 shares of stock of Insular Farms
for Php 285,126.00 and BOD of Insular as
reorganized, then caused its assets, including
its leasehold rights over a public land in
Bolinao, Pangasinan, to be sold to Insular for
Php 10,000.00 and paid for the other assets of
Insular Farms.
2. In October 1958, Edward Nell (Edward) in a
civil case of the Municipal Court of Manila
against Insular Farms (Insular) resulted in a
judgment for the sum of Php 1,853.80 unpaid
balance for a pump sold with interest plus Php
125.00 attorney’s fees and Php 84.00 as costs.
3. In August 1959, a writ of execution was issued
after the judgment had become final returned
unsatisfied, stating that the Insular Farms had
no leviable property.
4. In November 1959, Edward filed the present
action against Pacific upon the theory that
Pacific is the alter ego of Insular Farms.
5. The Court of Appeals affirmed the decision of
the Municipal Court which dismissed the case
Issue: WON Pacific Farms is an alter ego of Insular
Farms?
Held: NO
● Appeal affirmed.
● General Rule: Where one corporation sells or
otherwise transfers all of its assets to another
corporation, the latter is not liable for the debts
and liabilities of the transferor.
● Exception to the Rule:
○ Where the purchaser expressly or
impliedly agreed to assume such
debts – no proof
○ Where the transaction amounts to a
consolidation or merger of the
corporations – not claimed
○ Where the purchasing corporation is
merely a continuance of the selling
corporation – no proof
○ Where the transaction is entered into
fraudulently in order to escape liability
for such debts – no proof; further the
price paid was fair and reasonable