1. By the corporation itself through the BOD
a. This is the usual method or procedure of liquidating a corporation (China Banking Corp vs. Michelin) and although there is no law authorizing it, neither is there anything that prohibits the BOD from undertaking the same
b. If this method is resorted to, the board will only have a period of 3 years to finish its task of liquidation
c. Claims for or against the corporate entity not filed within the period will become unenforceable as there exist no corporate entity against which they can be enforced.
d. Actions pending for or against the corporation when the 3 year period expires are abated, since after the period, the corporation ceases for all intents and purposes and is no longer capable of suing or being sued (National Abaca & Other Fibers Co. vs. Pore)
2. By a trustee appointed by the corporation
a. The corporation may opt to convey all corporate assets to a trustees who will take charge of liquidation
b. If this method is used, the three year period limitation imposed by section 122 will not apply provided the designation of the trustee is made within that period.
c. Thus, during the period of liquidation, but before the completion thereof, a dissolved corporation is still liable for all its debts and liabilities in an action filed against it through its trustee even if the case is filed beyond the 3 year period of liquidation.
3. By appointment of a receiver
a. A receiver may be appointed by the proper forum on petition or motu proprio upon the dissolution of the corporation (Sec. 119)
b. The appointment of a receiver is, however, permissive rather than mandatory and the law tends to recognize that in cases of voluntary dissolution there is no occasion for the appointment of a receiver except under special circumstances and upon proper showing (China Banking vs. Michelin)
c. If a receiver is appointed, the 3 year period fixed by law within which to complete the task of liquidation will not likewise apply because the dissolved corporation is substituted by the receiver who may sue or be sued even after that period (Sumera vs. Valencia).
d. Thus, it has been held that when a corporation is dissolved and the liquidation of assets is placed in the hands of a receiver or assignee, the 3 year period is not applicable and the assignee may institute all actions leading to the liquidation of the corporation even after the expiration of 3 years.
e. Note however, that a receiver may be appointed by the court even while the corporation is a going concern and does not always imply dissolution of a corporation.
NATIONAL ABACA AND OTHER FIBERS CORPORATION, plaintiff-appellant,
vs. APOLONIA PORE, defendant-appellee (G.R. No. L-16779; August 16, 1961)
FACTS: On Nov. 3, 1953, plaintiff filed a complaint before the Municipal Court of Tacloban, Leyte, against defendant for the recovery of advances the latter failed to account for, amounting to P1,213.34. The court rendered a decision holding that defendant is liable for P272.49.
Said court denying reconsideration, plaintiff appealed before the CFI to which a motion to dismiss was filed by defendant on the ground that EO No. 372 abolished plaintiff and thus it no longer had capacity to sue.
Plaintiff objected there to on the ground that the said EO granted plaintiff to continue in existence for 3 years from Nov. 30, 1950, the effectivity date of the EO, for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators to gradually settle the its affairs and that the case was filed on Nov. 14, 1953, or before the expiration of the 3 year period.
ISSUE: WON the action commenced within the 3 year period may be continued after the expiration of the said period?
HELD: No. The rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs.
It is generally held, that where a statute continues the existence of a corporation for a certain period after its dissolution for the purpose of prosecuting and defending suits, etc., the corporation becomes defunct upon the expiration of such period, at least in the absence of a provision to the contrary, so that no action can afterwards be brought by or against it, and must be dismissed. Actions pending by or against the corporation when the period allowed by the statute expires, ordinarily abate.
. . . This time limit does not apply unless the circumstances are such as to bring the corporation within the provision of the statute. However, the wording of the statutes, in some jurisdictions authorize suits after the expiration of the time limit, where the statute provides that for the purpose of any suit brought by or against the corporation shall continue beyond such period for a further named period after final judgment. (Fletcher's Cyclopedia on Corporations, Vol. 16, pp.
892-893.).
Our Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) years. In fact, section 77 of said law provides that the corporation shall "be continued as a body corporate for three (3) years after the time when it would have been . . . dissolved, for the 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. Hence, commenting on said sections, Judge Fisher, in his work entitled Philippines Law on Stock Corporations (1929 ed.), has the following to say:
123
Cesar Nickolai F. Soriano Jr.Arellano University School of Law 2011-0303
THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Bilang 68, as amended) based on the book of Atty Ruben C. Ladia 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 limit within 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. (pp. 389-390; see also Sumera v. Valencia [67 Phil. 721, 726-727).
Obviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may then be pending. The first question must, therefore, be answered in the negative.
Wherefore, actions commenced within the 3 year period of liquidation may be continued by the trustee despite the expiration of the said period.
TIBURCIO SUMERA, as receiver of the corporation "Devota de Nuestra Señora de la Correa", plaintiff-appellant,
vs. EUGENIO VALENCIA, defendant-appellee (G.R. No. 45485; May 3, 1939)
FACTS: Devota de Nuestra Senora de la Correa filed for a voluntary dissolution which was approved by the CFI of Bulacan on Feb. 14, 1928 appointing Damaso Nicolas as assignee to take charge of liquidation. Nicolas was substituted by herein appellant Sumera who filed a motion with the court asking defendant Valencia to deliver to him the P400.00 funds of the corporation which was denied, reserving, however to said assignee the right to bring the proper action. Accordingly, on June 5, 1936, Sumera filed the present complaint for recovery of money.
The defendant interposed the defense that the right against him had already prescribed which was found by the lower court to be tenable, the case not being filed within the 3 year period prescribed under Sec. 77 of Act No. 1459.
ISSUE: WON the 3 year period prescribed by the Corporation Law is applicable if the liquidation is placed on the hands of a receiver or assignee?
HELD: No. Passing now to discuss the question raised by plaintiff and appellant in his sole assignment of alleged error, section 77 of Act No. 1459 provides that "Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established." And section 77 of the same Act provides, "At any time during said three years said corporation is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested. From and after any such conveyance by the corporation of its property in trust for the benefit of its members, stockholders, creditors, and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the members, stockholders, creditors, or other persons in interest.
Fletcher, in volume 8, page 9226, of his Encyclopedia of Private Corporations, says:
6537. Effect of expiration of statutory extension of life. — In general. — The qualified existence after dissolution, as provided for by statute, terminates at the expiration of the time fixed, or, no time is fixed, at the expiration of a reasonable time. Where the extreme limit to which the statute has extended the life of a corporation after its dissolution has expired, it has no offices which can bind it by agreement, but only has statutory trustees. After the expiration of such time, it is generally held not only that the corporation cannot sue or be sued but that actions pending at such time are abated. But a statute authorizing the continuance of a corporation for three years to wind up its affairs, does not preclude an action to wind up brought after the three years.
In the light of the legal provisions and authorities cited, interpretative of said laws, if the corporation carries out the liquidation of its assets through its own officers and continues and defends the actions brought by or against it, its existence shall terminate at the end of three years from the time of dissolution; but if a receiver or assignee is appointed, as has been done in the present case, with or without a transfer of its properties within three years, the legal interest passes to the assignee, the beneficial interest remaining in the members, stockholders, creditors and other interested persons;
and said assignee may bring an action, prosecute that which has already been commenced for the benefit of the corporation, or defend the latter against any other action already instituted or which may be instituted even outside of the period of three years fixed for the offices of the corporation.
For the foregoing considerations, we are of the opinion and so hold that when a corporation is dissolved and the liquidation of its assets is placed in the hands of a receiver or assignee, the period of three years prescribed by section 77 of Act No. 1459 known as the Corporation Law is not applicable, and the assignee may institute all actions leading to the liquidation of the assets of the corporation even after the expiration of three years.
Wherefore, the order appealed from is reversed and it is ordered that the case be remanded to the court of origin to the end that it may decide the same on the merits, with costs against the appellee.
THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs. HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR MOLL, defendants-appellees
(G.R. No. L-18805; August 14, 1967)
FACTS: A suit was filed by the Board of Liquidators for the recovery of a sum of money from National Coconut Corporation’s (NACOCO) general manager and board chairman Maximo Kalaw and other defendants as directors.
The defendants pose that since the three year period has elapsed since its abolition by virtue of EO 372, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion.
ISSUE: WON the Board of Liquidators has personality to proceed as party-plaintiff in this case?
HELD: Yes. The executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO.
124
Cesar Nickolai F. Soriano Jr.Arellano University School of Law 2011-0303
THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Bilang 68, as amended) based on the book of Atty Ruben C. Ladia By Section 2 of the executive order, while the boards of directors of the
various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however, the President had chosen to see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the executive order buttresses our conclusions.
Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation.
She failed to account for that money. We there said that "the rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) years." However, these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may then be pending.
CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners,
vs. THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents
(G.R. No. L-39050; February 24, 1981)
FACTS: Private respondent Insular Sawmill, Inc. lease the paraphernal property of petitioner-wife Guillermina Mendoza de Gelano. It was while private respondent was leasing the property that its officers and directors had come to know petitioner-husband Carlos Gelano who received from the corporation cash advances on account of rent to be paid by the corporation to the land.
Despite repeated demands by the private respondent refused to pay the cash advances. Petitioner-wife refused to pay on the ground that the cash advances was for the personal account of her husband asked for by, and given to him, without the knowledge and consent and did not benefit the family.
On May 29, 1959, the corporation, through its lawyer, filed a complaint for collection against petitioners.
Meanwhile, the corporation amended its AOI to shorten its term of existence up to Dec. 31, 1960 only which was approved by the SEC but the trial court was not notified of such amendment.
On Nov. 20, 1964, almost 4 years after the dissolution, the trial court rendered a decision in favor of private respondent.
ISSUE: WON 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 3 years to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or assignee?
HELD: Yes. 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. 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
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