Case Digest (G.R. No. 171526)
Facts:
The case involves petitioners Chung Ka Bio, Wellington Chung, Chung Siong Pek, Victoriano Chung, and Manuel Chung Tong Oh against the Intermediate Appellate Court and several respondents including the Securities and Exchange Commission (SEC) en banc, and Alfredo Ching, among others. The controversy centers around the Philippine Blooming Mills Company, Inc. (PBM), which was incorporated on January 19, 1952, initially set to run for 25 years until its expiration on January 19, 1977. Following the expiration, the board of directors executed a deed of assignment conveying all accounts receivable and assets from the old PBM to Chung Siong Pek, who represented the new PBM, which received its certificate of incorporation on June 14, 1977. On May 5, 1981, the petitioners—shareholders of the old PBM—filed a petition for liquidation of both the old and the new PBM, asserting that the old corporation had become nonexistent and that the new corporation had been dissolved due to inactivity.Case Digest (G.R. No. 171526)
Facts:
- Incorporation and Dissolution of the Old PBM
- The Philippine Blooming Mills Company, Inc. ("old PBM") was incorporated on January 19, 1952, with a corporate life limited to 25 years, expiring on January 19, 1977.
- Upon expiration, the old PBM was deemed legally non-existent unless its corporate life was extended, and its purpose was limited to winding up its affairs rather than continuing the business.
- Asset Transfer and Reincorporation
- On May 14, 1977, the board of directors of the old PBM executed a deed of assignment transferring all accounts receivables, properties, obligations, and liabilities in favor of Chung Siong Pek, acting as the treasurer of the new corporation.
- On June 14, 1977, based on the above transaction, the Securities and Exchange Commission issued a certificate of incorporation to the new PBM, suggesting a process of reincorporation aimed at continuing the business.
- Litigatory Proceedings and Contentions Raised
- On May 5, 1981, petitioners—Chung Ka Bio and other stockholders of the old PBM—filed a petition with the SEC for liquidation (but not dissolution) of both the old and the new PBM, alleging that:
- The old PBM had become legally non-existent due to its expired corporate life.
- The new PBM was dissolved ipso facto for non-use of the charter and continuous failure to operate within two years from incorporation.
- The case, initially dismissed for lack of a cause of action (docketed as AC No. 055), was reinstated on appeal to the SEC en banc and remanded to a new panel of hearing officers for further proceedings, including proper accounting of the assets and liabilities of the old PBM.
- Concurrent actions included:
- A separate petition for certiorari (AC GR No. 01099) by Alfredo Ching, a board member who executed the deed of assignment, questioning the SEC’s authority and arguing that the proceedings amounted to a quo warranto, a matter reserved exclusively for the state through the Solicitor General.
- A petition for suspension of payment filed on April 1, 1982, by the new PBM and Alfredo Ching, which was opposed by Chung Ka Bio on the basis that the SEC lacked jurisdiction to entertain an individual’s petition on that matter. This case was later elevated (docketed as SEC EB No. 018) and remanded for further proceedings.
- The three cases were consolidated at the Intermediate Appellate Court under docket numbers AC GR SP No. 00843, GR SP No. 01007, and AC GR SP No. 01099, with the consolidated decision issued on February 28, 1985.
- Underlying Contentions of the Petitioners
- The board of directors of the dissolved corporation did not have inherent power, without the express consent of the stockholders, to transfer all assets to a new corporation.
- The new PBM is accountable to the stockholders of the old PBM because consent to the creation of the new corporation and the transfer of assets was never given.
- The new PBM failed to comply substantially with the two-year requirement on non-operation under Section 22 of the new Corporation Code, evidenced by the non-adoption of by-laws.
- A quo warranto proceeding was unnecessary since the corporation was already deemed dissolved under the applicable law.
- The SEC lacks jurisdiction over a petition for suspension of payments filed solely by an individual.
- Relevant Legal and Regulatory Framework
- The applicable provisions of the Corporation Law (then in force) and the new Corporation Code were examined, including:
- Section 77, which provided for a three-year period to settle affairs after a corporation’s charter expires, and
- Section 28-12, which outlines the conditions and requirements for the board of directors to dispose of substantially all of the corporation’s assets, subject to a two-thirds vote of the stockholders.
- Subsequent provisions in Sections 19, 20, and 46 of the Corporation Code and PD 902-A were also relevant, clarifying that the adoption and filing of by-laws are conditions subsequent rather than prerequisites for corporate existence.
- Operational Facts and the Principle of Laches
- Despite the questionable nature of the asset transfer, the new PBM was issued a certificate of incorporation and was apparently in full operation, openly conducting the same business as the old PBM.
- Petitioners, who were closely related and associated with the private respondents, delayed their challenge for nearly four years—an inordinate period that led the court to consider the doctrine of laches.
- The delay was seen as prejudicial, causing the new PBM to incur obligations and conduct transactions in good faith that could not be undone without causing injury to third parties.
Issues:
- Whether the board of directors of the dissolved old PBM had the authority to execute a deed of assignment transferring all its assets to a new corporation without the express consent of the stockholders.
- Whether the absence of a stockholders’ meeting and failure to secure the requisite two-thirds vote (as required by the Corporation Law) invalidated the deed of assignment, rendering the creation of the new PBM unlawful.
- Whether the new PBM’s non-compliance with the two-year operational requirement (including the adoption and filing of by-laws) constitutes grounds for its dissolution or an ipso facto effect on its corporate existence.
- Whether it is necessary to institute a quo warranto proceeding when the old PBM is already deemed dissolved under the relevant provisions of the Corporation Code.
- Whether the Securities and Exchange Commission possesses jurisdiction over a petition for suspension of payments filed by a mere individual as opposed to corporations, partnerships, or associations.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)