G.R. No. 187456 - Alabang Development Corp. vs. Alabang Hills Village Association

Case Summary (G.R. No. 187456)

Petitioner’s Allegations and Claims

ADC alleged it remained the legal owner of certain parcels and open spaces in Alabang Hills Village that had not been donated to the local government or the homeowners’ association. ADC learned in September 2006 that AHVAI had commenced construction of the improvements on a parcel ADC claimed to own, and that AHVAI refused to desist despite demand. ADC filed a Complaint for Injunction and Damages in the RTC on October 19, 2006, seeking an injunction enjoining AHVAI and Tinio from constructing the multipurpose hall and swimming pool.

Respondents’ Defenses and Counterclaim

AHVAI denied ADC’s allegations and asserted that ADC lacked legal capacity to sue because the Securities and Exchange Commission (SEC) revoked ADC’s corporate registration on May 26, 2003. AHVAI also contended that, by operation of law, ADC no longer retained absolute ownership but held the property in trust for the benefit of AHVAI as beneficial owner, and that the parcel constituted required open space for the subdivision. AHVAI filed a compulsory counterclaim seeking divestment of ADC’s title and declaration that AHVAI was the owner, and prayed for moral and exemplary damages and attorney’s fees. Rafael Tinio filed a separate answer with a compulsory counterclaim asserting substantially the same defenses.

Procedural History and Key Dates

SEC revocation of ADC’s corporate registration: May 26, 2003.
ADC filed complaint in RTC: October 19, 2006.
RTC judgment dismissing ADC’s complaint: January 4, 2007 (grounds: lack of corporate personality to sue; subject property as reserved area for homeowners; HLURB had exclusive jurisdiction).
RTC order approving ADC’s notice of appeal and dismissing AHVAI’s counterclaim as dependent on dismissed complaint: February 20, 2007.
CA decision affirming RTC and dismissing both appeals: March 27, 2009.
Petition for review to the Supreme Court and Supreme Court decision affirming CA: June 2, 2014.
Applicable constitutional framework: 1987 Philippine Constitution (decision after 1990).

Controlling Statute and Legal Standard

Section 122 of the Corporation Code governs corporate liquidation and continuity for purposes of prosecuting or defending suits: when a corporation’s charter expires or existence is terminated, the corporation continues as a body corporate for three (3) years after dissolution for the purpose of prosecuting and defending suits and settling affairs, including conveying property to trustees in trust for beneficiaries. The statute distinguishes the limited three-year period during which the corporation’s officers may conduct liquidation and sue or be sued, and the authority to convey assets to trustees within that period, after which trustees (if appointed) may continue actions connected with liquidation. Jurisprudence further clarifies that “lack of capacity to sue” denotes a party’s general disability to sue (e.g., lack of juridical personality) and that suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued, subject to the rights of trustees or interested parties to pursue claims under the Corporation Code and related precedents.

Issue Presented to the Supreme Court

Whether ADC had legal capacity to initiate and prosecute the Complaint for Injunction and Damages filed on October 19, 2006, given that its corporate registration had been revoked on May 26, 2003, and whether the CA erred in affirming the RTC’s dismissal on that ground and in denying AHVAI’s counterclaim.

Lower Courts’ Reasoning

The RTC dismissed ADC’s complaint for lack of personality to sue, treated the subject lot as reserved open space benefiting homeowners, and held HLURB had exclusive jurisdiction over the dispute. The CA affirmed the RTC. The CA applied the doctrine distinguishing “lack of capacity to sue” and “lack of personality to sue,” relying on Columbia Pictures, Inc. v. Court of Appeals (and other jurisprudence) to reiterate that a plaintiff lacks capacity to sue when it no longer possesses juridical personality due to dissolution and the lapse of the three-year liquidation period under Section 122. The CA concluded ADC’s corporate registration had been revoked on May 26, 2003, and since ADC filed its complaint more than three years later (October 19, 2006), it lacked legal capacity to sue. Because no claim existed against AHVAI (petitioner was inexistent), AHVAI’s counterclaim was improper and subject to dismissal.

Supreme Court’s Analysis — Capacity to Sue

The Supreme Court agreed with the CA that ADC lacked capacity to sue. It adopted the Columbia Pictures formulation distinguishing lack of capacity and lack of personality and reiterated that lack of capacity to sue means a plaintiff is not in the exercise of civil rights or lacks necessary qualification, including lack of juridical personality. The Court applied Section 122 of the Corporation Code: when corporate existence is terminated, the corporation continues for three years to prosecute or defend suits and to wind up affairs; after that three-year period the corporation no longer has capacity to sue through its officers unless property has been conveyed to trustees who then may sue in matters connected with liquidation. The Court found undisputed facts that ADC’s registration was revoked on May 26, 2003, leaving until May 26, 2006 as the three-year period to sue. ADC filed its complaint on October 19, 2006, beyond the three-year period. The complaint was filed by the corporation itself and not by trustees or interested persons acting as such (nor was there a pending suit commenced before dissolution). The Court distinguished ADC’s position from precedents ci

Case Syllabus (G.R. No. 187456)

Case Citation and Court

Reported at 734 Phil. 664; 111 OG No. 4, 544 (January 26, 2015).
Supreme Court, G.R. No. 187456, decision dated June 02, 2014 (opinion penned by PERALTA, J.; concurring: Velasco (Chairperson), Brion, Villarama, Jr., and Leonen, JJ.).
Notice of Judgment indicates the Decision copy was received by the Office on June 2, 2014 at 2:00 p.m.; the judgment text includes a line dated July 2, 2014.
The underlying decision of the Court of Appeals is dated March 27, 2009 in CA-G.R. CV No. 88864; the Regional Trial Court of Muntinlupa City, Branch 276, rendered judgment on January 4, 2007 in Civil Case No. 06-138.

Parties

Petitioner: Alabang Development Corporation (referred in the source as "ADC" and also as "Alabang Corporation, Development Petitioner" in the caption).
Respondents: Alabang Hills Village Association, Inc. ("AHVAI") and Rafael Tinio (President of AHVAI).
AHVAI filed an Answer with a compulsory counterclaim; Rafael Tinio filed a separate Answer with a compulsory counterclaim reiterating AHVAI’s defenses.

Factual Background

Petitioner ADC is described as the developer of Alabang Hills Village and alleged to still own certain parcels within the village, including parcels considered open spaces not yet donated to the local government or the homeowners association.
In or about September 2006, ADC learned that AHVAI commenced construction of a multi-purpose hall and a swimming pool on one of the parcels allegedly still owned by ADC, purportedly without ADC’s consent or approval.
ADC alleges that despite demand, AHVAI failed to desist from constructing the said improvements.
ADC filed a Complaint for Injunction and Damages with the RTC of Muntinlupa City on October 19, 2006 praying for an injunction to enjoin respondents from constructing the multi-purpose hall and the swimming pool.

Defenses and Counterclaims by Respondents

AHVAI denied ADC’s averments and asserted:
- ADC had no legal capacity to sue because its corporate existence had been revoked by the Securities and Exchange Commission (SEC) on May 26, 2003.
- ADC had no cause of action because, by law, ADC was no longer absolute owner but merely holding the property in trust for the benefit of AHVAI as beneficial owner.
- The subject lot is part of "open space" required by law to be provided in the subdivision.
AHVAI’s counterclaim prayed that:
- An order be issued divesting ADC of the title of the property and declaring AHVAI as owner thereof.
- ADC be made liable for moral and exemplary damages as well as attorney’s fees.
Rafael Tinio’s separate Answer with Compulsory Counterclaim practically reiterated AHVAI’s defenses and prayers.

RTC Decision (January 4, 2007) and Subsequent RTC Order (February 20, 2007)

RTC, Branch 276, dismissed ADC’s Complaint on three grounds:
- ADC had no personality to file the complaint (lack of capacity to sue).
- The subject property is a reserved area for the beneficial use of the homeowners, as mandated by law.
- The Housing and Land Use Regulatory Board (HLURB), not the RTC, has exclusive jurisdiction over the dispute between the parties.
ADC filed a Notice of Appeal from the RTC decision.
AHVAI moved to prosecute its compulsory counterclaim and asked that the RTC decision be amended accordingly.
In an Order dated February 20, 2007, the RTC approved ADC’s notice of appeal but dismissed AHVAI’s counterclaim on the ground that it was dependent on ADC’s complaint.

Court of Appeals Decision (March 27, 2009)

The Court of Appeals dismissed both ADC’s appeal and AHVAI’s appeal and affirmed the RTC decision.
The CA held that:
- ADC’s complaint was correctly dismissed because ADC was already defunct and no longer possessed capacity to sue.
- AHVAI’s counterclaim was improper and must be dismissed where there was no claim against AHVAI because ADC was already inexistent and had no capacity to sue; the counterclaim was dependent on the complaint and thus improper when the complaint was dismissed at the instance of the respondent.
The CA relied on Columbia Pictures, Inc. v. Court of Appeals (329 Phil. 875 (1996)) for the jurisprudential definitions of "lack of capacity to sue" and "lack of personality to sue."

Issues Raised in the Petition to the Supreme Court

The petition for review on certiorari challenged the CA decision on these main grounds as presented in the source:
- The CA gravely erred in relying on Columbia Pictures, Inc. v. Court of Appeals in resolving ADC’s alleged lack of capacity.
- The CA gravely erred in finding lack of capacity of the petitioner in filing the case, contrary to earlier rulings of the Supreme Court.
- The CA gravely erred when it failed to resolve the issue that petitioner is mandated to cede properties to respondent AHVAI.

Governing Statute Quoted and Central Legal Question

Section 122 of the Corporation Code (quoted in full in the Decision) governs "Corporate liquidation" and provides:
- A corporation whose charter expires, is annulled, forfeited, or whose existence is terminated, shall nevertheless be continued as a body corporate for three (3) years after dissolution for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, dispose of and convey its property and distribute assets, but not for continuing the business for which it was established.
- During the three-year period the corporation may convey property to trustees for the benefit of stockholders, members, creditors and others in interest; upon such conveyance the legal interest vests in the trustees and the beneficial interest in the parties in interest.
- The statute contemplates a three-year period for the corporation to sue or be sued through its own officers and for conveyance to trustees t