[G.R. No. 142924. December 5, 2001] TEODORO B.

VESAGAS, and WILFRED D. ASIS, petitioners, vs. The

Honorable COURT OF APPEALS and DELFINO RANIEL and
HELENDA RANIEL,respondents.
DECISION
PUNO, J.:
Before
us
is
the
instant
Petition
for
Review
on Certiorari assailing the Decision, dated July 30, 1999, of the
Court of Appeals in CA-G.R. SP No. 51189, as well as its
Resolution, dated March 16, 2000, which denied petitioners
Motion for Reconsideration.
The respondent spouses Delfino and Helenda Raniel are
members in good standing of the Luz Village Tennis Club, Inc.
(club). They alleged that petitioner Teodoro B. Vesagas, who
claims to be the clubs duly elected president, in conspiracy
with petitioner Wilfred D. Asis, who, in turn, claims to be its
duly elected vice-president and legal counsel, summarily
stripped them of their lawful membership, without due process
of law. Thereafter, respondent spouses filed a Complaint with
the Securities and Exchange Commission (SEC) on March 26,
1997 against the petitioners. It was docketed as SEC Case No.
03-97-5598.[1] In this case, respondents 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 December 8, 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 April 29,
1997.

Before the hearing officer could start proceeding with the

case, however, petitioners 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 August 5, 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 officers
orders. The petition was again denied for lack of merit, and so
was the motion for its reconsideration in separate orders, dated
July
14,
1998
and
November
17,
1998,
respectively. Dissatisfied with the verdict, petitioners 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 July 30, 1999. Then, in a resolution rendered
on March 16, 2000, it similarly denied their motion for
reconsideration.
Hence, the present course of action where the petitioners
raise the following grounds:
C.1. The respondent Court of Appeals committed a reversible
error when it determined that the SEC has jurisdiction in 03-975598.[2]
C.2. The respondent Court of Appeals committed a reversible
error when it merely upheld the theoretical power of the SEC
Hearing Officer to issue a subpoena and to cite a person in
contempt (actually a non-issue of the petition) while it shunted
away the issue of whether that hearing officer may hold a
person in contempt for not obeying a subpoena where his
residence is beyond fifty (50) kilometers from the place of
hearing and no transportation expense was tendered to him.[3]
In support of their first assignment of error, petitioners
contend that since its inception in the 1970s, the club in
practice has not been a corporation. They add that it was only
the respondent spouses, motivated by their own personal

agenda to make money from the club, who surreptitiously

caused its registration with the SEC. They then assert that, at
any rate, the club has already ceased to be a corporate
body. Therefore, no intra-corporate relations can arise as
between the respondent spouses and the club or any of its
members. Stretching their argument further, petitioners insist
that since the club, by their reckoning is not a corporation, the
SEC does not have the power or authority to inquire into the
validity
of
the
expulsion
of
the
respondent
spouses. Consequently, it is not the correct forum to review
the challenged act. In conclusion, petitioners put respondent
spouses to task for their failure to implead the club as a
necessary or indispensable party to the case.
These arguments cannot pass judicial muster.
Petitioners attempt to impress upon this court that the
club has never been a corporation is devoid of merit. It must
fail in the face of the Commissions explicit finding that the
club was duly registered and a certificate of incorporation was
issued in its favor, thus:
We agree with the hearing officer that the grounds raised by
petitioner in their motion to dismiss are factual issues, the
veracity of which can only be ascertained in a full blown
hearing. Records show that the association is duly
registered with the association and a certificate of
incorporation was issued. Clearly, the Commission has
jurisdiction over the said association. As to petitioners
allegation that the registration of the club was done without
the knowledge of the members, this is a circumstance which
was not duly proven by the petitioner (sic) in his (sic) motion to
dismiss.[4]
It ought to be remembered that the question of whether the
club was indeed registered and issued a certification or not is
one which necessitates a factual inquiry. On this score, 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. We therefore have no reason to disturb this
factual finding relating to the clubs registration and
incorporation.
Moreover, by their own admission contained in the various
pleadings which they have filed in the different stages of this
case, petitioners themselves have considered the club as a
corporation. This admission, under the rules of evidence, binds
them and may be taken or used against them. [5] Since the
admission was made in the course of the proceedings in the
same case, it does not require proof, and actually may be
contradicted only by showing that it was made through
palpable mistake or that no such admission was made.
[6]
Noteworthy is the Minute of the First Board Meeting [7] held
on January 5, 1997, which contained the following pertinent
portions:
11. Unanimously approved by the Board a Resolution to
Dissolve the corporate structure of LVTC which is filed
with the SEC. Such resolution will be formulated by Atty. Fred
Asis to be ready on or before the third week of January
1997. Meanwhile, the operational structure of the LVTC will
henceforth be reverted to its former status as an ordinary
club/Association.[8]
Similarly, petitioners Motion to Dismiss[9] alleged:
1. This Commission has no jurisdiction over the Luz Village
Tennis Club not only because it was not impleaded
but because since 5 January 1997, it had already rid
itself, as it had to in order to maintain respect and
decency among its members, of the unfortunate
experience of being a corporate body. Thus at the time
of the filing of the complaint, the club had already
dissolved its corporate existence and has functioned as a
mere association of respectable and respecting individual
members who have associated themselves since the 1970s x x
x[10]

The necessary implication of all these is that petitioners

recognized and acknowledged the corporate personality of the
club. Otherwise, there is no cogency in spearheading the move
for its dissolution. Petitioners 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.

secretary of the corporation. The Securities and Exchange

Commission shall thereupon issue the certificate of
dissolution.[11]

Again, the argument will not carry the day for the
petitioner. 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,
thus:

We note that to substantiate their claim of dissolution,

petitioners submitted only two relevant documents: the
Minutes of the First Board Meeting held on January 5, 1997, and
the board resolution issued on April 14, 1997 which declared
to continue to consider the club as a non-registered or a noncorporate entity and just a social association of respectable
and respecting individual members who have associated
themselves, since the 1970s, for the purpose of playing the
sports of tennis x x x.[12] Obviously, 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
the petitioners 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.

Sec. 118. Voluntary dissolution where no creditors are

affected.- 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

We now resolve whether the dispute between the

respondents and petitioners is a corporate matter within the
exclusive competence of the SEC to decide. In order that the
commission can take cognizance of a case, the controversy
must pertain to any of the following relationships: a) between
the corporation, partnership or association and the public; b)
between the corporation, partnership or association and its
stockholders, partners, members, or officers; c) between the
corporation, partnership, or association and the state as far as
its franchise, permit or license to operate is concerned; and d)
among the stockholders, partners or associates themselves.
[13]
The fact that the parties involved in the controversy are all
stockholders or that the parties involved are the stockholders
and the corporation, does not necessarily place the dispute
within the loop of jurisdiction of the SEC.[14] Jurisdiction should
be determined by considering not only the status or
relationship of the parties but also the nature of the question
that is the subject of their controversy.[15]

This brings us to petitioners next point. They claim

in gratia argumenti that while the club may have been
considered a corporation during a brief spell, still, at the time
of the institution of this case with the SEC, the club was already
dissolved by virtue of a Board resolution.

We rule that the present dispute is intra-corporate in

character. In the first place, the parties here involved are
officers and members of the club. Respondents claim to be
members of good standing of the club until they were
purportedly stripped of their membership in illegal fashion.
Petitioners, on the other hand, are its President and VicePresident, respectively. More significantly, the present conflict
relates to, and in fact arose from, this relation between the
parties. The subject of the complaint, namely, the legality of
the expulsion from membership of the respondents and the
validity of the amendments in the clubs by-laws are,
furthermore, within the Commissions jurisdiction.
Well to underscore is the date when the original complaint
was filed at the SEC, which was March 26, 1997. On that date,
the SEC still exercised quasi-judicial functions over this type of
suits. It is axiomatic that jurisdiction is conferred by the
Constitution and by the laws in force at the time of the
commencement of the action. [16] In particular, the Commission
was thereupon empowered, under Sec. 5 of P.D. 902-A, to hear
and decide cases involving intra-corporate disputes, thus:
SEC. 5. In addition to the regulatory and adjudicative functions
of the Securities and Exchange Commission over corporations,
partnerships and other forms of association registered with it
as expressly granted under existing laws and decrees, it shall
have original and exclusive jurisdiction to hear and
decide cases involving:
xxx
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members or
associates; between any or all of them and the corporation,
partnership or association of which they are the stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the state insofar as
it concerns their individual franchise or right to exist as such
entity;

x x x.[17]
The enactment of R.A. 8799, otherwise known as the
Securities Regulation Code, however, transferred the
jurisdiction to resolve intra-corporate controversies to courts of
general jurisdiction or the appropriate Regional Trial Courts,
thus:
5.2. The Commissions jurisdiction over all cases
enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general
jurisdiction
or
the
appropriate
Regional
Trial
Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional trial Court branches that
shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intracorporate disputes submitted for final resolution which should
be resolved within one (1) year from the enactment of this
Code. The Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of 30 June
2000 until finally disposed.[18]
On August 22, 2000, we issued a resolution, in A.M. No. 00-810-SC, wherein we DIRECT(ed) the Court Administrator and
the Securities and Exchange Commission to cause the actual
transfer of the records of such cases and all other SEC cases
affected by R.A. No. 8799 to the appropriate Regional Trial
Courts x x x.[19] We also issued another resolution designating
certain branches of the Regional Trial Court to try and decide
cases formerly cognizable by the SEC. [20] Consequently, the
case at bar should now be referred to the appropriate Regional
Trial Court.
Before we finally write finis to the instant petition,
however, we will dispose of the two other issues raised by the
petitioners.
First is the alleged failure of the respondents to implead
the club as a necessary or indispensable party. Petitioners

contend that the original complaint should be dismissed for not

including the club as one of the respondents therein. Dismissal
is not the remedy for non-joinder of parties. Under the Rules,
the remedy is to implead the non-party, claimed to be
necessary or indispensable, in the action, thus:
SEC. 11. Misjoinder and non-joinder of parties. Neither
misjoinder nor non-joinder of parties is a ground for dismissal
of an action. Parties may be dropped or added by order of the
court on motion of any party or on its own initiative at any
stage of the action and on such terms as are just. Any claim
against a misjoined party may be severed and proceeded with
separately.[21]
The other issue is with regard to the alleged oppressive
subpoenas and orders issued by Hearing Officer Soller,
purportedly without or in excess of authority. In light of PD
902-As repeal, the need to rule on the question of the extent
of the contempt powers of an SEC hearing officer relative to his
authority to issue subpoenas and orders to parties involved in
intra-corporate cases, or potential witnesses therein has been
rendered academic. The enactment of RA 8799 mooted this
issue as SEC hearing officers, now bereft of any power to
resolve disputes, are likewise stripped of their power to issue
subpoenas and contempt orders incidental to the exercise of
their quasi-judicial powers.
At any rate, it taxes our credulity why the petitioners insist
in raising this issue in the case at bar. The so-called oppressive
subpoenas and orders were not directed to them. They were
issued to the clubs secretary, Purita Escobar, directing her to
appear before the Commission and bring certain documents of
the club, that were supposedly under her possession or control.
It is obvious that the petitioners are not the proper parties to
assail the oppressiveness of the subpoenas or the orders, and
impugn their validity. Elementary is the principle that only
those who expect to be adversely affected by an order can
complain against it. It is their addressee, Purita Escobar, who

can
assail
their
alleged
oppressiveness. Petitioners
protestation has therefore no legal leg to stand on.
IN VIEW WHEREOF, finding no cogent reason to disturb
the assailed Decision, the petition is DENIED. In conformity
with R.A. 8799, SEC Case No. 03-97-5598, entitled Delfino
Raniel and Helenda Raniel v. Teodoro B. Vesagas and Wilfred D.
Asis is referred to the Regional Trial Court of the Ninth Judicial
Region, Branch 33[22] located in Agusan del Norte (Butuan City),
one of the designated special commercial courts pursuant to
A.M. No. 00-11-03-SC.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, Pardo, and YnaresSantiago, JJ., concur.

FIRST DIVISION
G.R. No. L-39050 February 24, 1981
CARLOS GELANO and GUILLERMINA MENDOZA DE
GELANO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and INSULAR
SAWMILL, INC., respondents.

DE CASTRO, J.:
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

at the corner of Canonigo and Otis, Paco, Manila 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.
Between November 19, 1947 to December 26, 1950 petitioner
Carlos Gelano obtained from private respondent cash advances
of P25,950.00. 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. Out
of the aforementioned cash advances in the total sum of
P25,950.00, petitioner Carlos Gelano was able to pay only
P5,950.00 thereby leaving an unpaid balance of P20,000.00
which he refused to 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.
On various occasions from May 4, 1948 to September 11, 1949
petitioners husband and wife also made credit purchases of
lumber materials from private respondent with a total price of
P1,120.46 in connection with the repair and improvement of
petitioners' residence. On November 9, 1949 partial payment
was made by petitioners in the amount of P91.00 and in view
of the cash discount in favor of petitioners in the amount of
P83.00, the amount due private respondent on account of
credit purchases of lumber materials is P946.46 which
petitioners failed to pay.
On July 14, 1952, in order 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
payable in sixty (60) days. For failure of Carlos Gelano to pay

the promissory note upon maturity, 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 the
accommodation made by the corporation in favor of her
husband.
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. Trial was held and when the
case was 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 the dispositive portion of which reads as
follows:
WHEREFORE, judgment is rendered, ordering:
1. Defendant Carlos Gelano to pay plaintiff the
sum of:
(a)
P19,650.00
with
interest
thereon at the legal rate from the
date of the filing of the complaint
on May 29, 1959, until said sum is
fully paid;

(b)
P4,106.00,
with
interest
thereon at the legal rate from the
date of the filing of the complaint
until said sum is fully paid;
2. Defendants Carlos Gelano and Guillermina
Mendoza to pay jointly and severally the sum of:
(a) P946.46, with interest thereon,
at the agreed rate of 12% per
annum from October 6, 1946, until
said sum is fully paid;
(b) P550.00, with interest thereon
at the legal rate from the date of
the filing of the complaint until the
said sum is fully paid;
(c) Costs of the suit; and
3. Defendant Carlos Gelano to pay the plaintiff
the sum of P2,000.00 attorney's fees.
The Countered of defendants are dismissed.
SO ORDERED.

Both parties appealed to the Court of Appeals, private

respondent also appealing because it insisted that both Carlos
Gelano and Guillermina Gelano should be held liable for the
substantial portion of the claim.
On August 23, 1973, the Court of Appeals 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 of P4,106.00. The dispositive
portion of the decision reads as follows:

WHEREFORE, modified in the sense that the

amount of P4,160.00 under paragraph 1 (b) is
raised to P8,160.00 and the clarification that the
conjugal partnership of the spouses is jointly and
severally liable for the obligations adjudged
against defendant Carlos Gelano, the judgment
appealed from is affirmed in all other respects. 2
After petitioners received a copy of the decision on August 24,
1973, they came to know that the Insular Sawmill Inc. was
dissolved way back on December 31, 1960. 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 or on October 28, 1973, private
respondent thru its former directors filed a Petition for
Receivership before the Court of First Instance of Manila,
docketed as Special Proceedings No. 92303, 3 which petition is
still pending before said court.
On November 5, 1973, private respondent filed comment on
the motion to dismiss and or reconsideration and after the
parties have filed reply and rejoinder, the Court of Appeals on
July 5, 1974 issued a resolution 4 denying the aforesaid motion.
Hence, the present petition for review, petitioners assigning
the following errors:
I
THE "RESPONDENT COURT" ERRED IN DENYING
PETlTIONERS MOTION TO DISMISS THIS CASE

DESPITE
THE
CLEAR
FINDING
THAT
"RESPONDENT" HAD ALREADY CEASED TO EXIST
AS A CORPORATION SINCE DECEMBER 31, 1960
YET.
II
THE "RESPONDENT COURT" ERRED IN NOT
HOLDING THAT ACTIONS PENDING FOR OR
AGAINST A DEFUNCT CORPORATION ARE
DEEMED ABATED.
III
THE "RESPONDENT COURT" ERRED IN HOLDING
INSTEAD THAT EVEN IF THERE WAS NO
COMPLIANCE WITH SECTIONS 77 AND 78 OF THE
CORPORATION LAW FOR THE WINDING UP OF
THE AFFAIRS OF THE CORPORATION BY THE
CONVEYANCE OF CORPORATE PROPERTY AND
PROPERTY RIGHTS TO AN ASSIGNEE, OR
TRUSTEE OR THE APPOINTMENT OF A RECEIVER
WITHIN THREE YEARS FROM THE DISSOLUTION
OF SUCH CORPORATION, ANY LITIGATION FILED
BY OR AGAINST THE DISSOLVED CORPORATION,
INSTITUTED WITHIN THREE YEARS AFTER SUCH
DISSOLUTION BUT WHICH COULD NOT BE
TERMINATED WITHIN SAID PERIOD, MAY STILL BE
CONTINUED AS IT IS NOT DEEMED ABATED.
IV
THE "RESPONDENT COURT" ERRED IN THE
APPLICATION TO THIS CASE OF ITS RULING IN
PASAY CREDIT AND FINANCE CORPORATION,
VERSUS LAZARO, ET AL., 46 O.G. (11) 5528, AND
IN OVERLOOKING THE DISTINCTION LAID DOWN
BY THIS HONORABLE COURT IN NUMEROUS
DECIDED CASES THAT ONLY CASES FILED IN THE

NAME OF ASSIGNEES, TRUSTEES OR RECEIVERS

(FOR A DEFUNCT CORPORATION), AI)POINTED
WITHIN THREE YEARS FROM ITS DISSOLUTION,
MAY BE PROSECUTED BEYOND THE SAID THREE
YEAR PERIOD, AND THAT, ALL OTHERS ARE
DEEMED ABATED.
V
THE "RESPONDENT COURT" ERRED IN HOLDING
THAT
WITH
THE
FILING
OF
SPECIAL
PROCEEDINGS NO. 92303 IN THE COURT OF
FIRST INSTANCE OF MANILA BY FORMER
DIRECTORS OF "PRIVATE RESPONDENT" ON
OCTOBER 23,1973, OR, THIRTEEN YEARS AFTER
ITS DISSOLUTION, A LEGAL, PERSONALITY WILL
BE
APPOINTED
TO
REPRESENT
THE
CORPORATION.
VI
THE
"RESPONDENT
COURT"
ERRED
IN
PRACTICALLY RULING THAT THE THREE-YEAR
PERIOD PROVIDED FOR BY THE CORPORATION
LAW WITHIN WHICH ASSIGNEES, TRUSTEES FOR
RECEIVERS MAY BE APPOINTED MAY BE
EXTENDED.
VII
THE "RESPONDENT COURT" ERRED IN NOT
HOLDING THAT THE FAILURE OF "PRIVATE
RESPONDENT" OR ITS AUTHORIZED COUNSEL TO
NOTIFY THE TRIAL COURT OF ITS DISSOLUTION
OR OF ITS "CIVIL DEATH" MAY BE CONSIDERED
AS AN ABANDONMENT OF ITS CAUSE OF ACTION
AMOUNTING TO A FAILURE TO PROSECUTE AND
RESULTING IN THE ABATEMENT OF THE SUIT.

VIII
THE
"RESPONDENT
COURT"
ERRED
IN
RECOGNIZING THE PERSONALITY OF COUNSEL
APPEARING FOR PRIVATE RESPONDENT' DESPITE
HIS ADMISSION THAT HE DOES NOT KNOW THE
"PRIVATE RESPONDENT" NOR HAS HE MET ANY
OF ITS DIRECTORS AND OFFICERS.
IX
THE "RESPONDENT COURT" ERRED IN AFFIRMING
THE DECISION OF THE TRIAL COURT HOLDING IN
FAVOR OF "PRIVATE RESPONDENT".
X
THE
"RESPONDENT
COURT"
ERRED
IN
MODIFYING THE TRIAL COURT'S DECISION AND
HOLDING EVEN THE CONJUGAL PARTNERSHIP OF
PETITIONERS JOINTLY AND SEVERALLY LIABLE
FOR THE OBLIGATION ADJUDGED AGAINST
PETITIONER-HUSBAND, CARLOS GELANO.
The main issue raised by petitioner is 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.
The complaint in this case was filed on May 29, 1959 when
private respondent Insular Sawmill, Inc. was still existing. While
the case was being tried, the stockholders amended its Articles
of Incorporation by shortening the term of its existence from
December 31, 1995 to December 31, 1960, which was
approved by the Securities and Exchange Commission.

In American corporate law, upon which our Corporation Law

was patterned, it is well settled that, unless the statutes
otherwise provide, all pending suits and actions by and against
a corporation are abated by a dissolution of the
corporation. 5 Section 77 of the Corporation 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 purpose 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.6 Commenting on said sections, Justice Fisher said:
It is to be noted that the time during which the
corporation, through its own officers, may
conduct the liquidation of its assets and sue and
be sued as a corporation is limited to three years
from the time the period of dissolution
commences; but that there is no time limited
within which the trustees must complete a
liquidation placed in their hands. It is provided
only (Corp. Law, Sec. 78) that the conveyance to
the trustees must be made within the three-year
period. It may be found impossible to complete
the work of liquidation within the three-year
period or to reduce disputed claims to judgment.
The authorities are to the effect that suits by or
against a corporation abate when it ceased to be
an entity capable of suing or being sued (7 R.C.L.
Corps., Par. 750); but trustees to whom the
corporate assets have been conveyed pursuant
to the authority of Section 78 may sue and be
sued as such in all matters connected with the
liquidation. By the terms of the statute the effect
of the conveyance is to make the trustees the

legal owners of the property conveyed, subject

to the beneficial interest therein of creditors and
stockholders. 7
When Insular Sawmill, Inc. was dissolved on December 31,
1960, under Section 77 of the Corporation Law, it stin 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. 8
However, a corporation that has a pending action and which
cannot be terminated within the three-year period after its
dissolution is authorized under Section 78 to convey all its
property to trustees to enable it to prosecute and defend suits
by or against the corporation beyond the Three-year period
although private respondent (did not appoint any trustee, yet
the counsel who prosecuted and defended the interest of the
corporation in the instant case and who in fact appeared in
behalf of the corporation may be considered a trustee of the
corporation at least with respect to the matter in litigation only.
Said counsel had been handling the case when the same was
pending before the trial court until it was appealed before the
Court of Appeals and finally to this Court. We therefore hold
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 above quoted 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 sued 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.
The observation of the Court of Appeals on the issue now
before Us that:
Under Section 77 of the Corporation Law, when
the corporate existence is terminated in any
legal manner, the corporation shall nevertheless
continue as a body corporate for three (3) years
after the time when it would have been
dissolved, for the purpose of prosecuting and
defending suits by or against it. According to
authorities, the corporation "becomes incapable
of making contracts or receiving a grant. It does
not, however, cease to be a body corporate for
all purposes." In the case ofPasay Credit and
Finance Corp. vs. Isidro Lazaro and others, 46
OG (11) 5528, this Court held that "a corporation
may continue a pending 'litigation even after the
lapse of the 3-year period granted by Section 77
of Act 1459 to corporation subsequent to their
dissolution to continue its corporate existence
for the purpose of winding up their affairs and
settling all the claims by and against same." We
note that the plaintiff Insular Sawmill, Inc.
ceased as a corporation on December 30, 1960
but the case at bar was instituted on May 29,
1959, during the time when the corporation was

still very much alive. Accordingly, it is our view

that "any litigation filed by or against it instituted
within the period, but which could not be
terminated, must necessarily prolong that period
until the final termination of said litigation as
otherwise corporations in liquidation would lose
what should justly belong to them or would be
exempt from the payment of just obligations
through a mere technicality, something that
courts should prevent" (Philippine Commercial
Laws by Martin, 1962 Ed., Vol. 2, p. 1716).
merits the approval of this Court.
The last two assigned errors refer to the disposition of the main
case. Petitioners contend that the obligations contracted by
petitioner Carlos Gelano from November 19, 1947 until August
18, 1950 (before the effectivity of the New Civil Code) and from
December 26, 1950 until July 14, 1952 (during the effectivity of
the New Civil Code) were his personal obligations, hence,
petitioners should not be held jointly and severally liable. As
regards the said issues, suffice it to say that with the findings
of the Court of Appeals that the obligation contracted by
petitioner-husband Carlos Gelano redounded to the benefit of
the family, the inevitable conclusion is that the conjugal
property is liable for his debt pursuant to paragraph 1, Article
1408, Civil Code of 1889 9 which provision incidentally can still
be found in paragraph 1, Article 161 of the New Civil
Code. 10 Only the conjugal partnership is liable, not joint and
several as erroneously described by the Court of Appeals, the
conjugal partnership being only a single entity.

Teehankee, J., concur in the result.

Mr. Justice de Castro was designated to sit with the First
Division under Special Order No. 225.

[G.R. No. 105364*. June 28, 2001]

PHILIPPINE VETERANS BANK EMPLOYEES UNIONN.U.B.E.
and
PERFECTO
V.
FERNANDEZ, petitioners,
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, respondents
DECISION
KAPUNAN, J.:
May a liquidation court continue with liquidation
proceedings of the Philippine Veterans Bank (PVB) when
Congress had mandated its rehabilitation and reopening?
This is the sole issue raised in the instant Petition for
Prohibition with Petition for Preliminary Injunction and
application for Ex Parte Temporary Restraining Order.
The antecedent facts of the case are as follows:

WHEREFORE, with the modification that only the conjugal

partnership is liable, the appealed decision is hereby affirmed
in all other respects. Without pronouncement as to costs.
SO ORDERED.
Makasiar, Fernandez, and Guerrero, JJ., concur.

Sometime in 1985, the Central Bank of the Philippines

(Central Bank, for brevity) filed with Branch 39 of the Regional
Trial Court of Manila a Petition for Assistance in the Liquidation
of the Philippine Veterans Bank, the same docketed as Case
No. SP-32311. Thereafter, the Philipppine Veterans Bank
Employees Union-N.U.B.E., herein petitioner, represented by

petitioner Perfecto V. Fernandez, filed claims for accrued and

unpaid employee wages and benefits with said court in SP32311.[1]
After lengthy proceedings, partial payment of the sums
due to the employees were made. However, due to the
piecemeal hearings on the benefits, many remain unpaid.[2]
On March 8, 1991, petitioners moved to disqualify the
respondent judge from hearing the above case on grounds of
bias and hostility towards petitioners.[3]
On January 2, 1992, the Congress enacted Republic Act No.
7169 providing for the rehabilitation of the Philippine Veterans
Bank.[4]
Thereafter, petitioners filed with the labor tribunals their
residual claims for benefits and for reinstatement upon
reopening of the bank.[5]
Sometime in May 1992, the Central Bank issued a
certificate of authority allowing the PVB to reopen.[6]
Despite the legislative mandate for rehabilitation and
reopening of PVB, respondent judge continued with the
liquidation proceedings of the bank. Moreover, petitioners
learned that respondents were set to order the payment and
release of employee benefits upon motion of another lawyer,
while petitioners claims have been frozen to their prejudice.
Hence, the instant petition.
Petitioners argue that with the passage of R.A. 7169, the
liquidation court became functus officio, and no longer had the
authority to continue with liquidation proceedings.
In a Resolution, dated June 8, 1992, the Supreme Court
resolved to issue a Temporary Restraining Order enjoining the
trial court from further proceeding with the case.

On June 22, 1992, VOP 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. They alleged that they had filed a motion before Branch
39 of the RTC of Manila, in SP-No. 32311, praying that said
court order PVB to pay their backwages and salary
differentials by authority of R.A. No 6727, Wage Orders No.
NCR-01 and NCR-01-Ad and Wage Orders No. NCR-02 and NCR02-A; and, that said court, in an Order dated June 5, 1992,
approved therein movants case and directed the bank
liquidator or PVB itself to pay the backwages and differentials
in accordance with the computation incorporated in the
order. Said intervenors likewise manifested that there was an
error in the computation of the monetary benefits due them.
On August 18, 1992, petitioners, pursuant to the
Resolution of this Court, dated July 6, 1992, filed their
Comment opposing the Motion for Leave to File Intervention
and for exclusion from the operation of the T.R.O. on the
grounds that the movants have no legal interest in the subject
matter of the pending action; that allowing intervention would
only cause delay in the proceedings; and that the motion to
exclude the movants from the T.R.O. is without legal basis and
would render moot the relief sought in the petition.
On September 3, 1992, the PVB filed a Petition-InIntervention praying for the issuance of the writs of certiorari
and prohibition under Rule 65 of the Rules of Court in
connection with the issuance by respondent judge of several
orders involving acts of liquidation of PVB even after the
effectivity of R.A. No. 7169. PVB further alleges that
respondent judge clearly acted in excess of or without
jurisdiction when he issued the questioned orders.
We find for the petitioners.
Republic Act No. 7169 entitled An Act To Rehabilitate The
Philippine Veterans Bank Created Under Republic Act No. 3518,

Providing The Mechanisms Therefor, And For Other Purposes,

which was signed into law by President Corazon C. Aquino on
January 2, 1992 and which was published in the Official Gazette
on February 24, 1992, provides in part for the reopening of the
Philippine Veterans Bank together with all its branches within
the period of three (3) years from the date of the reopening of
the head office.[7] The law likewise provides for the creation of a
rehabilitation
committee
in
order
to
facilitate
the
implementation of the provisions of the same.[8]

court functus officio. Consequently, respondent judge has been

stripped of the authority to issue orders involving acts of
liquidation.

Pursuant to said R.A. No. 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 March 13, 1992 with the respondent judge praying
that the liquidation proceedings be immediately terminated in
view of the passage of R.A. No. 7169.

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. [10]

On April 10, 1992, the Monetary Board issued Monetary

Board Resolution No. 348 which approved the Rehabilitation
Plan submitted by the Rehabilitaion Committee.
Thereafter, the Monetary Board issued a Certificate of
Authority allowing PVB to reopen.
On June 3, 1992, the liquidator filed A Motion for the
Termination of the Liquidation Proceedings of the Philippine
Veterans Bank with the respondent judge.
As stated above, the Court, in a Resolution dated June 8,
1992, issued a temporary restraining order in the instant case
restraining respondent judge from further proceeding with the
liquidation of PVB.
On August 3, 1992, the Philippine Veterans Bank opened
its doors to the public and started regular banking operations.
Clearly, the enactment of Republic Act No. 7169, as well as
the subsequent developments has rendered the liquidation

Liquidation, in corporation law, connotes a winding up or

settling with creditors and debtors.[9] 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.

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.
Anent the claim of respondents Central Bank and
Liquidator of PVB that R.A. No. 7169 became effective only on
March 10, 1992 or fifteen (15) days after its publication in the
Official Gazette; and, the contention of intervenors VOP
Security, et. al. that the effectivity of said law is conditioned on
the approval of a rehabilitation plan by the Monetary Board,
among others, the Court is of the view that both contentions
are bereft of merit.
While as a rule, laws take effect after fifteen (15) days
following the completion of their publication in the Official
Gazette or in a newspaper of general circulation in the
Philippines, the legislature has the authority to provide for
exceptions, as indicated in the clause unless otherwise
provided.
In the case at bar, Section 10 of R.A. No. 7169 provides:

Sec. 10. Effectivity. - This Act shall take effect upon its
approval.
Hence, it is clear that the legislature intended to make the
law effective immediately upon its approval. It is undisputed
that R.A. No. 7169 was signed into law by President Corazon C.
Aquino on January 2, 1992. Therefore, said law became
effective on said date.
Assuming for the sake of argument that publication is
necessary for the effectivity of R.A. No. 7169, then it became
legally effective on February 24, 1992, the date when the same
was published in the Official Gazette, and not on March 10,
1992, as erroneously claimed by respondents Central Bank and
Liquidator.
WHEREFORE, in view of the foregoing, the instant petition
is hereby GIVEN DUE COURSE and GRANTED. Respondent
Judge is hereby PERMANENTLY ENJOINED from further
proceeding with Civil Case No. SP- 32311.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and YnaresSantiago, JJ., concur.

EN BANC
G.R. No. L-15778

April 23, 1962

TAN
TIONG
BIO,
ET
AL., petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Sycip,
Salazar
and
Associates
for
Office of the Solicitor General for respondent.

petitioners.

BAUTISTA ANGELO, J.:

On October 19, 1946, the Central Syndicate, a corporation
organized under the laws of the Philippines, thru its General
Manager, David Sycip, sent a letter to the Collector of Internal
Revenue advising the latter that it purchased from Dee Hong
Lue the entire stock of surplus properties which the said Dee
Hong Lue had bought from the Foreign Liquidation Commission
and that as it assumed Dee Hong Lue's obligation to pay the 31/2% sales tax on said surplus goods, it was remitting the sum
of P43,750.00 in his behalf as deposit to answer for the
payment of said sales tax with the understanding that it would
later be adjusted after the determination of the exact
consideration of the sale.
On January 31, 1948, the syndicate again wrote the Collector
requesting the refund of P1,103.28 representing alleged excess
payment of sales tax due to the adjustment and reduction of
the purchase price in the amount of P31,522.18. Said letter
was referred to an agent for verification and report. On
September 18, 1951, after a thorough investigation of the facts
and circumstances surrounding the transaction, the agent
reported (1) that Dee Hong Lue purchased the surplus goods as
trustee for the Central Syndicate which was in the process of
organization at the time of the bidding; (2) that it was the
representatives of the Central Syndicate that removed the
surplus goods from their base at Leyte on February 21, 1947;
(3) that the syndicate must have realized a gross profit of
18.8% from its sales thereof; and (4) that if the sales tax were
to be assessed on its gross sales it would still be liable for the
amount of P33,797.88 as deficiency sales tax and surcharge in
addition to the amount of P43,750.00 which the corporation
had deposited in the name of Dee Hong Lue as estimated sales
tax due from the latter.
Based on the above findings of the agent in charge of the
investigation, the Collector decided that the Central Syndicate
was the importer and original seller of the surplus goods in
question and, therefore, the one liable to pay the sales tax.

Accordingly, on January 4, 1952, the Collector assessed against

the syndicate the amount of P33,797.88 and P300.00 as
deficiency sales tax, inclusive of the 25% surcharge and
compromise penalty, respectively, and on the same date, in a
separate letter, he denied the request of the syndicate for the
refund of the sum of P1,103.28.
On September 8, 1954, the Central Syndicate elevated the
case to the Court of Tax Appeals questioning the ruling of the
Collector which denies its claim for refund as well as the
assessment made against it of the sum of P33,797.88, plus the
sum of P300.00 as compromise penalty, as stated above. The
Collector filed his answer thereto wherein he reiterated his
ruling and prayed that the Central Syndicate be ordered to pay
the deficiency sales tax and surcharge as demanded in his
letters dated January 4, 1952 and August 5, 1954. On October
28, 1954, the syndicate filed a motion requesting that the issue
of prescription it has raised against the collection of the tax be
first determined as a preliminary question, but action thereon
was deferred by the Court of Tax Appeals until after the trial of
the case on the merits.
On November 5, 1954, the Collector filed a motion requiring
the syndicate to file a bond to guarantee the payment of the
tax assessed against it which motion was denied by the Court
of Tax Appeals on the ground that cannot be legally done it
appearing that the syndicate is already a non-existing entity
due to the expiration of its corporate existence. In view of this
development, the Collector filed a motion to dismiss the appeal
on the ground of lack of personality on the part of the
syndicate, which met an opposition on the part of the latter,
but on January 25, 1955, the Court of Tax Appeals issued a
resolution dismissing the appeal primarily on the ground that
the Central Syndicate has no personality to maintain the action
then pending before it. From this order the syndicate appealed
to the Supreme Court wherein it intimated that the appeal
should not be dismissed because it could be substituted by its
successors-in-interest, to wit: Tan Tiong Bio, Yu Khe Thai,
Alfonso Sycip, Dee Hong Lue, Lim Shui Ty, Sy Seng Tong, Sy En,
Co Giap and David Sycip. And taking cue from this suggestion,

this Court ruled against the dismissal and held: "The resolution
appealed from is set aside and the respondent court is 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." In permitting the
substitution, this Court labored 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."
After trial, the Court of Tax Appeals rendered decision the
dispositive part of which reads as follows:
WHEREFORE, in view of the foregoing considerations,
the decision of the Collector of Internal Revenue
appealed from is hereby affirmed, except with regard to
the imposition of the compromise penalty of P300.00
the collection of which is unauthorized and illegal in the
absence of a compromise agreement between the
parties. (Collector of Internal Revenue vs. University of
Sto. Tomas, G. R. No. L-11274, November 28, 1958;
Collector of Internal Revenue vs. Bautista & Tan, G.R.
No. L-12250, May 27, 1959.) .
The petitioners Tan Tiong Bio, Yu Khe Thai, Lim Shui Ty,
Alfonso Sycip, Sy En alias Sy Seng Sui, Dee Hong Lue,
and Sy Seng Tong, who appear in the Articles of
Incorporation of the Central Syndicate Annex A (pp. 6066, CTA rec.) as incorporators and directors of the
corporation, the second named being in addition its
President and the seventh its Treasurer, are hereby
ordered to pay jointly and severally, to the Collector of
Internal Revenue, the sum of P33,797.88 as deficiency
sales tax and surcharge on the surplus goods purchased
by them from the Foreign Liquidation Commission on
July 5, 1946, from which they realized an estimated
gross sales of P1,447,551.65, with costs. ..
Petitioners interposed the present appeal.

The important issues to be determined in this appeal are: (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 which
is now sought to be collected has already prescribed; and (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-ininterest who are the present petitioners.
1. Petitioners contend that the Central Syndicate cannot be
held liable for the deficiency sales tax in question because it is
not the importer of the surplus goods purchased from the
Foreign Liquidation Commission for the reason that said surplus
goods were purchased by Dee Hong Lue as shown by the
contract executed between him and the Foreign Liquidation
Commission and the fact that the Central Syndicate only
purchased the same from Dee Hong Lue and not from the
Foreign Liquidation Commission as shown by Exhibit 13.
This contention cannot be sustained. As correctly observed by
the Court of Tax Appeals, 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 such that the deed of sale Exhibit 13
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." The aforesaid conclusion of the
lower court was arrived at after a thorough analysis of the
evidence on record, pertinent portion of which we quote
hereunder with approval:
Exhibit "38-A" for the respondent (p. 178, BIR rec.)
shows that as early as July 23, 1946, or before the
organization and incorporation of Central Syndicate, Mr.

David Sycip, who was subsequently appointed General

Manager of the corporation, together with Messrs. Sy En
alias Sy Seng Sui (one of the incorporators of Central
Syndicate), Serge Gordeof and Chin Siu Bun (an
employee of the same corporation), for and in the name
of Central Syndicate then in the process of organization,
went to Leyte to take over the surplus properties sold by
the FLC to Dee Hong Lue, which the latter held in trust
for the corporation. Exhibit 38-A, which is a certificate
issued by no less than David Sycip himself who was
subsequently appointed General Manager of the
corporation admits in express terms the following "...
the surplus property sold by the Foreign Liquidation
Commission to Dee Hong Lue (and held in trust by the
latter for the Syndicate ...." (Emphasis ours.) We give
full weight and credence to the adverse admissions
made by David Sycip against the petitioners as
appearing in his certificate Exhibit 38-A (p. 178, BIR
rec.) considering that at the time he made them, he was
a person jointly interested with the petitioners in the
transaction over which there was yet no controversy
over any sales tax liability. (Secs. 11 and 33, Rule 123,
Rules of Court; Clem vs. Forbeso, Tex. Cir App. 10 S.W.
2d 223; Street vs. Masterson, Tex. Cir. App. 277 S.W.
407.) .
Exhibit '39' for the respondent (pp. 184-187, BIR rec.)
which is a letter of Mr. Yu Khe Thai President, Director
and biggest stockholder of Central Syndicate (Exhibit A,
pp. 60-65, CTA rec.) dated September 17, 1946 and
addressed to the Commanding General AFWESPAC,
Manila, contains the following categorical admissions
which corroborate the admissions made by David Sycip;
that the so-called Leyte 'Mystery Pile' surplus properties
were owned by Central Syndicate by virtue of a
purchase from the FLC, effected in the name of Dee
Hong Lue on July 5, 1946, inasmuch as Central
Syndicate was then still in the process of organization;
that Dee Hong Lue held the said surplus properties in
trust until the mere formal turnover to the corporation

on August 20, 1946, when the corporation had already

been organized and incorporated under the laws of the
Philippines; and that on July 23, 1946 viz., twenty-two
(22) days before the incorporation of Central Syndicate
on August 15, 1946 'our General Manager, Mr. David
Sycip accompanied by one of our directors, Mr. Sy En,
arrived in Leyte to take over the properties.'
Before passing on to the rest of the evidence supporting
the finding of respondent, we would like to call attention
to this significant detail. It is stated in the letter, Exhibit
39 (pp. 184-187, BIR rec.) of Mr. Yu Khe Thai that 'on
July 23, 1946, our General Manager, Mr. David Sycip,
accompanied by one of our directors, Mr. Sy En, arrived
in Leyte to take over the properties,' We ask: Why was
there such a hurry on the part of the promoters of
Central Syndicate in taking over the surplus properties
when the formal agreement, Exhibit 13 (p. 66, BIR rec.),
purporting to be a contract of sale of the 'Mystery Pile'
between Dee Hong Lue as vendor, and the Central
Syndicate, as vendee, for the amount of P1,250,000.00,
was effected twenty-eight (28) days later viz., on August
20, 1946? Is this not another clear and unmistakable
indication that from the very start, as is the theory of
the respondent, the real purchasers of the 'Mystery Pile'
from the FLC and as such the 'importers' of the goods,
were the Central Syndicate and/or the group of big
financiers composing it before said corporation was
incorporated on August 15, 1946; and, that Dee Hong
Lue acted merely as agent of these persons when he
purchased the pile from the FLC? As a general rule, one
does not exercise all the acts of ownership over a
property especially if it involves a big amount until after
the documents evidencing such ownership are fully
accomplished.

Moreover, it appears that on October 3, 1946, Dee Hong

Lue was investigated by Major Primitivo San Agustin, Jr.,
G-2 of the Philippine Army, because of the discovery of
some gun parts found in his shipment of surplus
material from Palo, Leyte.
In his sworn statement, Exhibit 16 (pp. 133-139, BIR
rec.) before said officer, Dee Hong Lue admitted the
following: That he paid the FLC the amount of
P1,250,000.00 "with the checks of Yu Khe Thai, maybe
also Alfonso Sycip and my checks with many others";
that "at the beginning I was trying to buy the pile for
myself without telling other people and other friends of
mine." "Watkins came to me and he bid for me for
P600,000 or P700,000, but later on when the price went
up to P1,250,000, I talked to my friends who said I could
get money." "So, I bought it with their checks and mine"
(Exhibit 16-B, p. 138, BIR rec.) and, that after buying the
"Mystery Pile", he (Dee Hong Lue) never inspected the
same personally. (p. 141, BIR rec.)
In his affidavit, Exhibit 15 (p. 144, BIR rec.) Dee Hong
Lue admitted that of the amount of P1,250,000.00
which he paid in two installments sometime in July,
1946, to the FLC, P1,181,250.00 (should be
P1,181,000.00) of the amount came from the following:
Yu Khe Thai who advanced to him P250,000.00; Sy Seng
Tong P375,000.00; Alfonso Z. Sycip - P375,000.00;
Tan Tiong Bio - P125,000.00; Robert Dee Se Wee
P25,000.00; and, Jose S. Lim P31,000.00 that his
understanding with these persons was that should they
eventually join him in Central Syndicate, such advances
would be adjusted to constitute their investments; and,
that soon after the "Mystery Pile" was purchased from
the FLC, all the above-named persons with the
exception of Robert Dee Se Wee and Jose S. Lim, formed
the Central Syndicate and a re-allocation of shares was
made corresponding to the amounts advanced by them.

Added to these, we have before us other documentary

evidence for the respondent consisting of Exhibits 18,
19, 20, 21, 23, 24, 25, 26, 27, 28 and 29 (pp. 85, 88, 9296, 99-103, 117-128, 119-120, 121-128, BIR rec.) all
tending to prove the same thing - that the Central
Syndicate and/or the group of big financiers composing
it and not Dee Hong Lue was the real purchaser
(importer) of the "Mystery Pile" from the FLC; that in the
contract of sale between Dee Hong Lue and the FLC the
former acted principally as agent (Article 1930, New
Civil Code) of the petitioners Yu Khe Thai, Sy Seng Tong,
Alfonso Z. Sycip and Tan Tiong Bio who advanced the
purchased price of P1,125,000.00 out of the
P1,250,000.00 paid to the FLC, Dee Hong Lue being the
purchaser in his own right only with respect to the
amount of P69,000.00; and, that the deed, Exhibit 13
(p. 77, BIR rec.) purporting to show that Dee Hong Lue
sold the "Mystery Pile" to the Central Syndicate for
consideration of P1,250.000.00 is but a ruse to evade
payment of a greater amount of percentage
tax. 1wph1.t
To our mind, the deed of sale, Exhibit 13 (p. 66, BIR rec.)
as well as the circumstances surrounding the
incorporation of the Central Syndicate, are shrouded
with as much mystery as the so-called "Mystery Pile"
subject of the transaction. But, as oil is to water, the
truth and underlying motives behind these transactions
have to surface in the end. Petitioners would want us to
believe that Dee Hong Lue bought in his own right and
for himself the surplus goods in question for
P1,250,000.00 from the FLC and then, by virtue of a
valid contract of sale, Exhibit 13 (p. 66, BIR rec.)
transferred and conveyed the same to the Central
Syndicate at cost. If this be so, what need was there for
Dee Hong Lue to agree in the immediate organization
and incorporation of the Central Syndicate with six
other capitalists when he could very well have disposed
of the surplus goods to the public in his individual
capacity and keep all the profits to himself without

sharing 9/10th of it to the other six incorporators and

stockholders of the newly incorporated Syndicate.
It appears that Dee Hong Lue "sold" the pile to the
Central Syndicate for exactly the same price barely
forty-six (46) days after acquiring it from FLC and
exactly five (5) days after the Syndicate was registered
with the Securities and Exchange Commission on
August 19, 1946. This is indeed most unusual for a
businessman like Dee Hong Lue who, it is to be
presumed, was out to make a killing when he acquired
the surplus goods from the FLC for the staggering
amount of P1,750,000.00 in cash.
Again, why did Dee Hong Lue waste all his time and
effort not to say his good connections with the FLC by
acquiring the goods from that agency only to sell it for
the same amount to the Central Syndicate? This would
have been understandable if Dee Hong Lue were the
biggest and controlling stockholder of the Syndicate. He
could perhaps reason out to himself, "the profits which I
am sacrificing now in this sale to the Syndicate, I will
get it anyway in the form of dividends from it after it
shall have disposed of all the "Mystery Pile" to the
public.' But then, how could this be possible when Dee
Hong Lue was the smallest subscriber to the capital
stock of the Syndicate? It appears from the Articles of
Incorporation that of the authorized capital stock of the
corporation in the amount of P500,000.00, Dee Hong
Lue subscribes to only P20,000.00 or 1/25th of the
capital stock authorized and of this amount only
P5,000.00 was paid by him at the time of incorporation.
So here is an experienced businessman like Dee Hong
Lue who, following the theory of petitioners' counsel,
bought the "'Mystery Pile" for himself for P1,250,000.00
in cash, and after a few days sold the same at cost to a
corporation wherein he owned only 1/25th of the
authorized capital stock and wherein he was not even
an officer, thus doling out to the other six incorporators
and stockholders net profits in the sum conservatively

estimated by the respondent to be P206,116.45 out of a

total of P229,073.83 which normally could all go to him.
We take judicial notice of the fact that as a result of our
immense losses in property throughout the archipelago
the during the Japanese occupation, either through
destruction or systematic commandering by the enemy
and our forces, surplus properties commanded a very
good price in the open market after the liberation and
that quite a number of surplus dealers made immense
fortunes out of it. We believe the respondent was quite
charitable if not more than fair to the Central Syndicate
in computing the profits realized by it in the resale of
the "Mystery Pile" to the public at only 18.8% of the
acquisition price.
Now, from the side of the Central Syndicate. This
corporation, as its articles of incorporation, Exhibit A
(pp. 60-66, CTA rec.) will show, was incorporated on
August 15, 1946 with an authorized capital stock of
P500,000.00 of which P200,000.00 worth was
subscribed by seven (7) persons and P50,000.00 paidup in cash at the time of incorporation. Five (5) days
after its incorporation, as the Deed of Sale, Exhibit 13
(p. 66, BIR rec.) purports to show, the said corporation
bought from Dee Hong Lue the "Mystery Pile" for
P1,250,000.00 in cash. This is indeed quite phenomenal
and fantastic not to say the utmost degree of finance
considering that the corporation had a subscribed
capital stock of only P200,000.00 of which only
P50,000.00 was paid-up at the time of incorporation and
with not the least proof showing that it never borrowed
money in its own name from outside source to raise the
enormous amount allegedly paid to Dee Hong Lue nor
evidence to show that it had by then in so short a time
is five (5) days accumulated a substantial reserve to
meet Dee Hong Lue's selling price.
Furthermore, at first blush it would seem quite difficult
to understand why the seven (7) incorporators and
stockholders of the Central Syndicate formed a

corporation with a subscribed capital stock of only

P200,000.00, and with cash on hand of only P50,000.00
knowing fully well that there was a transaction awaiting
the newly registered corporation involving an outlay of
P1,250,000.00 in cash. We believe this was done after
mature deliberation and for some ulterior motive. As we
see it, the only logical answer is that the incorporator
wanted to limit whatever civil liability that might arise in
favor of third persons, as the present tax liability has
now arisen, up to the amount of their subscriptions,
although the surplus deal they transacted and which we
believe was the only purpose in the incorporation of the
Central Syndicate, was very much over and above their
authorized capital. Moreover, by limiting its capital, the
corporation was also able to save on incidental
expenses, such as attorney's fee and the filing fee paid
to the Securities and Exchange Commission, which were
based on the amount of the authorized capital stock.
Another mystery worth unravelling is what happened to
the P1,181,240.00 (should be P1,181,000.00) which Dee
Hong Lue in his affidavit, Exhibit 15 (p. 144, BIR rec.)
claims to have received from Messrs. Uy Khe Thai, Sy
Seng Tong, Alfonso Z. Sycip, Tan Tiong Bio (all
incorporators of the Syndicate) and two others as
'advances' with which to pay the FLC. There is no
evidence on record to show that Dee Hong Lue ever
returned this amount to those six (6) persons after he
supposedly received P1,250,000.00 from the newly
incorporated Syndicate by virtue of the Deed of Sale,
Exhibit 13. This is the explanation that Dee Hong Lue
gave in this regard as appearing in his affidavit, Exhibit
15: "That soon after the above-mentioned property was
purchased, the above parties, with the exception of
Robert Dee Se Wee and Jose S. Lim decided to join the
proposed Central Syndicate and a re-allocation of shares
was made for the reason that some of the above parties
in turn had to get advances from third parties." If this
were true, why was it that Messrs. Yu Khe Thai, Sy Seng
Tong, Alfonso Z. Sycip and Tan Tiong Bio who advanced

P250,000.00; P375,000.00 and P125,000.00 to Dee

Hong Lue were made to appear in the Articles of
incorporation of the Central Syndicate as having
subscribed
to
shares
worth
only
P40,000.00;
P30,000.00; P30,000.00 and P20,000.00 and of having
paid only P10,000.00, P7,500.00, P7,500.00, and
P5,000.00 on their subscriptions, respectively? Would it
not be more in keeping with corporate practice,
following the explanation of Dee Hong Lue, to just credit
those four (4) persons in the corporation with shares
worth the amount advanced by them to Dee Hong Lue?
On the basis of the above figures, the re-allocation of
shares in favor of the four (4) incorporators who
advanced enormous sums for the Syndicate seems at
first glance to be totally disproportionate and unfair to
them. However, in the final analysis it is not so as we
will now show. Immediately after the incorporation of
the Syndicate, as the evidence shows, Dee Hong Lue
was made to execute a deed of transfer under the guise
of a contract of sale, conveying full and complete
ownership of the "Mystery Pile" to the newly organized
corporation. So we have, on the face of the Articles of
Incorporation and Exhibit 13, a corporation with assets
worth only P50,000.00 cash owning properties worth
over a million pesos. Obviously, the incorporators of the
Syndicate, particularly those four who advanced
enormous sums to Dee Hong Lue, are not ordinary
businessmen who could easily be taken for a ride. With
the precipitated execution of the "Deed of Sale" by Dee
Hong Lue in favor of the Syndicate, transferring and
conveying ownership over the entire pile to the latter,
the recoupment of their advances from the newly
acquired assets of the corporation was sufficiently
secured, and at the same time, by making the
document appear to be a deed of sale instead of a deed
of transfer as it should be under Article 1891 of the New
Civil Code, they have reduced (at least attempted to)
their sales tax liability with the argument that Dee Hong
Lue was the original "purchaser" or "importer" of the

goods and therefore the taxable sale was that one

made by him to the Syndicate and not the sales made
by the latter to the public. After going over the Articles
of Incorporation of the Central Syndicate and the other
circumstances of this case, we draw the conclusion that
it was organized just for this particular transaction that
its life span was expressly limited to two (2) years from
and after the date of incorporation just to give it time to
dispose of the "Mystery Pile" to the public and then
liquidate all its assets among the seven incorporatorsstockholders as in fact it was done on August 15, 1948;
that from the very start, the seven (7) incorporators had
intended it to be a closed corporation without the least
intention of ever selling to other persons the remaining
authorized
capital
stock
of
P300,000.00
still
unsubscribed; and, that upon its liquidation, the seven
(7) incorporators composing it got much more than their
investments
including
those
who
advanced
P1,181,000.00 to the FLC for the corporation.
Petitioners would dispute the finding that Dee Hong Lue merely
acted as a trustee of the Central Syndicate when he purchased
the surplus goods in question from the Foreign Liquidation
Commission on July 5, 1946 considering that on that date the
syndicate has not yet been incorporated on the theory that no
legal relation may exist between parties one of whom has yet
no legal existence. Technically this may be true, but the fact
remains that it cannot be denied that Dee Hong Lue purchased
the goods on behalf of those who advanced the money for the
purchase thereof who later became the incorporators and only
stockholders of the syndicate with the understanding that the
amounts they had respectively advanced would be their
investment and would represent their interest in the
corporation. And this is further evidenced by the fact that this
purchase made by Dee Hong Lue was later approved and
adopted as the act of the Central Syndicate itself as can be
gleaned from the certificate executed by David Sycip, general
manager of said syndicate, on September 16, 1946, wherein he
emphasized that the persons named therein (from whom Dee
Hong Lue obtained the money) merely acted on behalf of the

syndicate and in fact were the ones who went to Leyte to take
over the aforesaid surplus goods. In any event, even if Dee
Hong Lue may be deemed as the purchaser of the surplus
goods in his own right, nevertheless, the corporation still may
be regarded as the importer of the same goods for the reason
that Dee Hong Lue transferred to it all his rights and interests
in the contract with the Foreign Liquidation Commission, and it
was said corporation that took delivery thereof from the place
where they were stored in Leyte as may be seen from the letter
of Dee Hong Lue to the Foreign Liquidation Commission dated
September 2, 1946 and the letter of the Central Syndicate to
the said Commission bearing the same date. Under these facts,
it is clear that the Central Syndicate is the importer of the
surplus goods as correctly observed by Judge Umali in his
concurring opinion, from which we quote: .
It is now well settled that a person who bought surplus
goods from the Foreign Liquidation Commission and
who removed the goods bought from the U.S. military
bases in the Philippines is considered an importer of
such goods and is subject to the sales tax or
compensating tax, as the case may be. (Go Cheng Tee
v. Meer, 47 O.G. 269; Saura Import and Export v. Meer,
G.R. No. L-2927, Jan. 26, 1951; P.M.P. Navigation v. Meer,
G.R. No. L-4621, March 24, 1953; Soriano y Cia v. Coll.
of Int. Rev., 51 O.G. 4548.) In this case it appearing that
the Central Syndicate was the owner of the 'Mystery
Pile' before its removal from Base K and that it was the
one which actually took delivery thereof and removed
the same from the U.S. military base, it is the importer
within the meaning of Section 186 of the Revenue Code,
as it stood before the enactment of Republic Act No.
594, and its sales of the surplus goods are the original
sales taxable under said section and not the sale to it
by Dee Hong Lue.
2. Since the Central Syndicate, as we have already pointed out,
was the importer of the surplus goods in question, it was its
duty under Section 183 of the Internal Revenue Code to file a
return of its gross sales within 20 days after the end of each

quarter in order that the office of the internal revenue may

assess the sales tax that may be due thereon, 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. This is in fact what the syndicate intended to
impress upon the Collector when it wrote to him its letter of
October 19, 1946 informing him that it purchased from Dee
Hong Lue the entire stock of the surplus goods which the latter
had bought from the Foreign Liquidation Commission and was
therefore depositing in his name the sum of P43,750.00 to
answer for his sales tax liability, but this letter certainly cannot
be considered as a return that may set in operation the
application of the prescriptive period provided for in Section
331 of the Tax Code, for, evidently, 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. Besides, how can such letter be
considered as a return of the sales of the Central Syndicate
when it was only on February 21, 1947 when it removed the
surplus goods in question from their base at Leyte? How can
such return inure to the benefit of the syndicate when the
same surplus goods which were removed on said date could
not have been sold by the corporation earlier than the
aforesaid date? It is obvious that the letter of October 19, 1946
cannot possibly be considered as a return filed by the
syndicate and so cannot serve as basis for the computation of
the prescriptive period of five years prescribed by law.
Nor can the fact that the Collector did not include in the
assessment a surcharge of 50% serve as an argument that a
return had already been filed, for such failure can only mean
that an oversight had been committed in the non-inclusion of
said surcharge. The syndicate having failed to file its quarterly
returns as required by Section 183 of the Tax Code, 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

has therefore up to September
or collect the deficiency tax
assessment made on January
prescribed period.

only on September 12, 1951 he

18, 1961 within which to assess
in question. Consequently the
4, 1952 was made within the

3. Petitioners argue (1) that the Court of Tax Appeals acted in

excess of its jurisdiction in holding them liable as officers or
directors of the defunct Central Syndicate for the tax liability of
the latter; (2) that petitioners cannot be held liable for said tax
liability there being no statutory provision in this jurisdiction
authorizing the government to proceed against the
stockholders of a defunct corporation as transferees of the
corporate assets upon liquidation; (3) that assuming that the
stockholders can be held so liable, they are only liable to the
extent of the benefits derived by them from the corporation
and there is no evidence showing that petitioners had been the
beneficiaries of the defunct syndicate; (4) that considering that
the Collector instituted the present action on September 23,
1954 when he filed his answer to the appeal of petitioners, said
action was already barred by prescription pursuant to Sections
77 and 78 of the Corporation Law which allows corporations to
continue as a body corporate only for three years from its
dissolution; and (5) that assuming that petitioners are liable to
pay the tax, their liability is not solidary, but only limited to the
benefits derived by them from the corporation.
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
for which reason the latter Court declared that "the respondent
Court of Tax Appeals should have allowed the substitution of its
former officers and directors is parties-appellants, since they
are proper parties in interest insofar as they may be (and in
fact are) held personally liable for the unpaid deficiency
assessments made by the Collector of Internal Revenue against
the defunct Syndicate." 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.
In the second place, 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 (Bacon v. Robertson, 18 How. 480, 15 L. Ed.,
406; Curron v. State, 16 How. 304, 14 L. Ed., 705). A creditor of
a dissolve corporation may follow its assets, as in the nature of
a trust fund, into the hands of its stockholders (MacWilliams v.
Excelsier Coal Co. [1924] 298 Fed. 384). An indebtedness of a
corporation to the federal government for income and excess
profit taxes is not extinguished by the dissolution of the
corporation (Quinn v. McLeudon, 152 Ark. 271, 238 S.W., 32).
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" (Wonder Bakeries Co. v. U.S. [1934] Ct. Cl. 6 F.
Supp. 288). Bearing in mind that our corporation law is of
American origin, the foregoing authorities have persuasive
effect in considering similar cases in this jurisdiction. This must
have been taken into account when in G.R. No. L-8800 this
Court said that petitioners could be held personally liable for
the taxes in question as successors-in-interest of the defunct
corporation.
Considering that the Central Syndicate realized from the sale of
the surplus goods a net profit of P229,073.83, and that the sale
of said goods was the only transaction undertaken by said

syndicate, there being no evidence to the contrary, the

conclusion is that said net profit remained intact and was
distributed among the stockholders when the corporation
liquidated and distributed its assets on August 15, 1948,
immediately after the sale of the said surplus goods.
Petitioners are therefore the beneficiaries of the defunct
corporation and as such should be held liable to pay the taxes
in question. However, there being no express provision
requiring the stockholders of the corporation to be solidarily
liable for its debts which liability must be express and cannot
be presumed, petitioners should be held to be liable for the tax
in question only in proportion to their shares in the distribution
of the assets of the defunct corporation. The decision of the
trial court should be modified accordingly.
WHEREFORE, with the above modification, we hereby affirm
the decision appealed from, with costs against petitioners.
Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes. J.B.L.,
Paredes
and
Dizon,
JJ.,
concur.
Barrera, J., took no part.
Manila
THIRD DIVISION
G.R. No. 81123 February 28, 1989
CRISOSTOMO REBOLLIDO, FERNANDO VALENCIA and
EDWIN
REBOLLIDO, petitioners
vs.
HONORABLE COURT OF APPEALS and PEPSICO,
INC., respondents.
Erlinda S. Carolino for petitioners.
Acaban, Corvera, Del Castillo for private respondents.

GUTIERREZ, JR., J.:

The issues raised in this petition for review on certiorari in an
action for damages arising from a vehicular accident are lack of
jurisdiction over the defendant and absence of due process.
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 Nanette 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:

l) P 12,126.10,for the hospitalization and medical

expenses of plaintiff Fernando Valencia;
2) P 326.35 as expenses for the medical
treatment of plaintiff Edwin Rebollido;
3) P 9,922.00, for the repair of and cost of
replacement parts of the Mazda Minibus
belonging to plaintiff Crisostomo Rebollido;
4) P 16,200.00, for the expenses incurred by
plaintiff Crisostomo Rebollido in hiring another
vehicle to transport school pupils;
5) P 102,261.90, as unrealized monthly net
income due plaintiff from June 1984 to March 30,
1985;
6) P 10,800.00, representing the unpaid salaries
of plaintiff Fernando Valencia for the period from
March to December 1984;
'7) P 20,000.00, as moral damages due plaintiff
Fernando Valencia;
8) P 20,000.00, 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 cause
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.

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. u. Court of Appeals (G.R. No. 68357,
September 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 of 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).

On November 27, 1987, a motion for reconsideration was

denied.
Hence, this petition.
The issues raised are two-fold: (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; and
(2) whether or not there was valid service of summons through
Nanette Sison, allegedly the secretary of the legal department
of Pepsi Cola. If there was valid service of summons upon Pepsi
Cola, the issue arises as to whether or not such service validly
vested jurisdiction on the lower court over the person of the
respondent corporation.
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

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 interestdefendantis 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 or 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 Maao 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 be made a party to a suit. Under paragraph 1,
Section 122 of the Corporation Code, a dissolved corporation:
xxx xxx xxx
...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:
xxx xxx xxx

... 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 an 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
demand. 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.

On the second and main issue of whether or not the service of

summons through Ms. Nanette C. Sison, upon Pepsi Cola
operates to vest jurisdiction upon private respondent, it is
important to know the circumstances surrounding the service.
At the time of the issuance and receipt of the summons, Pepsi
Cola was already dissolved. The Court is of the opinion that
service is allowed in such a situation. In the American case
of Crawford
v.
Refiners
Cooperative
Association,
Incorporation (71 NM 1, 375 p 2d 212 [1962]), it was held that
a "defendant corporation is subject to suit and service of
process even though dissolved."
Nowhere in the Corporation Code is there any special provision
on how process shall be served upon a dissolved defendant
corporation. The absence of any such provision, however,
should not leave petitioners without any remedy, unable to
pursue recovery for wrongs committed by the corporation
before its dissolution. Since our law recognizes the liability of a
dissolved corporation to an aggrieved creditor, it is but logical
for the law to allow service of process upon a dissolved
corporation. Otherwise, substantive rights would be lost by the
mere lack of explicit technical rules.
The Rules of Court on service of summons upon a private
domestic corporation is also applicable to a corporation which
is no longer a going concern.

[W]hen an action that might have been

instituted against a foreign or domestic
corporation while it was a going concern is
instituted after its dissolution, process in the
action may be served upon the same person
upon whom the process could be served before
the dissolution. (P. 1036)
Therefore, service upon a dissolved corporation may be made
through any of the persons enumerated in Section 13, Rule 14.
To be sure, this Court has ruled that service on a mere
employee or clerk of a corporation is not sufficient. (Delta
Motor Sales Corp. v. Mangosing, 70 SCRA 598 [1976]; ATM
Trucking, Inc. v. Buencamino, 124 SCRA 434 [1983]; Filoil
Marketing Corp. v. Marine Development Corp. of the Phil., 117
SCRA 86 [1982]). The persons who should receive the
summons should be those named in the statute; otherwise,
those who have charge or control of the operations of the
company or who may be relied upon to deliver the papers
served upon them. (Villa Rey Transit, Inc. v. Far East Motor
Corp., 81 SCRA 298 [1978]; and Summit Trading and
Development Corp. v. Avendano, 135 SCRA 397 [1985]).
A liberal interpretation of Section 13, Rule 14 has been adopted
in the case of G & G Trading Corporation v. Court of
Appeals (158 SCRA 466 [1988]):

Section 13, Rule 14 mandates:

Service upon private domestic corporation or
partnership. - If the defendant is a corporation
organized under the laws of the Philippines or a
partnership duly registered, service may be
made on the president, manager, secretary ,
cashier, agent or any of its directors.
The case of Castle's Administrator v. Acrogen Coal Co. (supra),
is illustrative of the manner by which service can nevertheless
be made despite the death of the entity:

Although it maybe true that the service of

summons was made on a person not authorized
to receive the same ..., nevertheless since it
appears that the summons and complaint were
in fact received by the corporation through its
said clerk, the Court finds that there
was substantial compliance, with the rule on
service of summons. Indeed the purpose of said
rule as above stated to assure service of
summons on the corporation had thereby been
attained. The need for :seedy justice must

prevail over a technicality.' (at p. 469; Emphasis

supplied).
The rationale for the rule on service of summons upon a
defendant corporation as explained in Delta Motors Sales v.
Mangosing (supra), is as follows:
The purpose is to render it reasonably certain
that the corporation will receive prompt and
proper notice in an action against it or to insure
that the summons be served on a representative
so integrated with the corporation that such
person will know what to do with the legal
papers served on him. In other words, 'to bring
home to the corporation notice of the filing of
the action'. (35A C.J.S. 288 citing Jenkins v. Lykes
Bros. S.S. Co., 48 F. Supp. 848; MacCarthy v.
Langston, D.C. Fla., 23 F.R.D. 249). (at p. 603)
The fact that the summons was received through Miss Sison is
not disputed by the parties. For which corporation was she
actions. After the dissolution and during the pendency of the
case below, private respondent PEPSICO held office at the
same address of Pepsi Cola where Miss Sison was working. The
petitioners argue that summons was served through the
secretary of the legal department who acted as agent of Pepsi
Cola. On the other hand, it is contended by private respondent
PEPSICO that Miss Sison works for its legal department and not
of Pepsi Cola. So the., private respondent avers, there was no
valid service upon Pepsi Cola since buss Sison acted in
PEPSICO's behalf. (p. 64, Rollo) Even assuming this contention
to be true, the private respondent had the obligation to act
upon the summons received and to defend Pepsi Cola pursuant
to the undertaking it executed on June 11, 1983.
Whomsoever Miss Sison was acting for in receiving the
summons there is no question that the notice of the action was
promptly delivered either to Pepsi Cola or PEPSICO with whom
she is admittedly connected. We rule, as in G & G Trading

Corporation v. Court of Appeals (supra), that there was

substantial compliance with Section 13, Rule 14 because the
purpose of notice was satisfied. Contrary to the decision of the
Court of Appeals, we therefore, hold that there was proper
service of summons to bind Pepsi Cola and that the decision of
the lower court against Pepsi Cola rendered on June 24, 1985 is
valid and enforceable against the private respondent.
According to the undertaking executed in favor of Pepsi Cola,
private respondent assumed:
xxx xxx xxx
... [A]ll the debts, liabilities and obligations
(collectively, the 'Liabilities') of PBC whether firm
or contingent, contractual or otherwise, express
or implied, wherever located, and of whatever
nature and description (including, but without
limiting the generality of the foregoing, liabilities
for damages and taxes), hereby agrees and
undertakes (i) to pay or cause to be paid or
otherwise discharge or cause to be discharged
all of the Liabilities of PBC which Liabilities may
be enforced against the Corporation to the same
extent as if the said Liabilities had been incurred
or contracted originally by the Corporation ...and
(iv) not to prejudice in any way the rights of
creditors of PBC (p. 46, Rollo; Italics supplied)
It is clear that private respondent is aware that the liabilities of
Pepsi Cola are enforceable against it upon the dissolution of
Pepsi Cola. As correctly stated by the Court of Appeals, by
virtue of the assumption of the debts, liabilities and obligations
of Pepsi Cola, "any judgment rendered against Pepsi Cola after
its dissolution is a 'liability' of PEPSICO, Inc., within the
contemplation of the undertaking." Hence it was incumbent
upon respondent PEPSICO, Inc., to have defended the civil suit
against the corporation whose liabilities it had assumed. Failure
to do so after it received the notice by way of summons

amounts to gross negligence and bad faith. The private

respondent cannot now invoke a technical defect involving
improper service upon Pepsi Cola and alleged absence of
service of summons upon it. There is the substantive right of
the petitioners to be considered over and above the attempt of
the private respondent to avoid the jurisdiction of the lower
court.
Even assuming that jurisdiction over the private respondent
can be acquired only by way of service of summons in literal
compliance with Section 14, Rule 14, the petitioners cannot be
faulted for having brought the case naming Pepsi Cola as one
of the defendants so that the summons was addressed only to
the defendants named therein and not to the private
respondent. At the time of the commencement of the suit
below, the petitioners had no knowledge of the legal
dissolution and the undertaking assumed by PEPSICO. The
publication of the notice of dissolution and the assumption of
liabilities, done in June 1983 or eight months before the
vehicular accident, cannot serve as a notice to the petitioners
who were not yet creditors having a claim upon a quasi-delict.

In view of the above, the valid service of summons upon Pepsi

Cola operated as a sufficient service of summons upon the
private respondent. The lower court can enforce judgment
against the private respondent.
Therefore, we rule that the private respondent is bound to
satisfy the judgment by default which has become final and
executory. The lower court did not abuse its discretion in
denying the motion of the private respondent to vacate
judgment.
WHEREFORE, the petition is hereby GRANTED. The decision of
the Court of Appeals is REVERSED and SET ASIDE. The
judgment of the lower court and its order denying the motion
to vacate judgment are REINSTATED.
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur.