TEODORO B. VESAGAS, and WILFRED D. ASIS vs.

COURT OF APPEALS and DELFINO RANIEL and HELENDA RANIEL

[G.R. No. 142924      December 5, 2001]
Spouses Delfino and Helenda Raniel: are members in good standing of the Luz Villaga Tennis Club, Inc. They were
allegedly stripped of their membership by Vesagas and Asis, claiming to be the duly elected President and VP, without
due process. Thus, they filed a Complaint with the SEC on March 26, 1997 against the petitioners. The spouses 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 TRO
Order and Writ of Preliminary Injunction.
Teodoro Vesagas and Wilfred Asis: Filed a motion to dismiss the case on the ground that the SEC lacks jurisdiction over
the subject matter of the case. The motion was denied; MR and Petition for Certiorari was denied as well. Upon appeal,
CA dismissed the petition.
Vesaga contends that since its inception in the 1970's, the club in practice has not been a corporation. It was only the
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 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 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.
ISSUE: W/N the club has already ceased to be a corporate body, which would in effect result to the SEC not having
jurisdiction over the present case.
HELD: NOPE. SEC found that the club was duly registered and a certificate of incorporation was issued in its favor.
Clearly, the Commission has jurisdiction over the said association. 
Further, petitioners 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.
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
under Sec. 118.
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 non-corporate entity and just a social association of respectable and
respecting individual members who have associated themselves, since the 1970's, for the purpose of playing the sports
of tennis x x x." 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.
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 Vice-President,
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 club's by-laws are, furthermore, within the Commission's 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. IN VIEW WHEREOF, finding no cogent reason
to disturb the assailed Decision, the petition is DENIED.
CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO vs. COURT OF APPEALS and INSULAR SAWMILL, INC.
[G.R. No. L-39050 February 24, 1981]
Insular Sawmill, Inc. is a corporation organized on September 17, 1945 with a corporate life of 50 years, or up to
September 17, 1995. To carry on this business, it leased the paraphernal property of Guillermina Gelano in Paco, Manila
for P1,200/month. While Insular was leasing the property, its officers and directors had come to know Carlos Gelano
Carlos Gelano: obtained from Insular cash advances of P25,950, on the agreement that Insular could deduct the same
from the monthly rentals of the leased premises. Carlos Gelano was able to pay only P5,950, leaving an unpaid balance
of P20,000. Guillermina 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.
The spouses also made credit purchases of lumber materials from Insular; it also executed a joint and several promissory
note with Carlos Gelano in favor of CBC in the amount of P8,000, to accommodate the spouses. For failure of Carlos
Gelano to pay the promissory note upon maturity, the bank collected from Insular P9,106, including interests, by
debiting it from the corporation's current account with the bank. Carlos Gelano was able to pay Insular P5,000, but the
balance of P4,106 remained unsettled. Guillermina Gelano also refused to pay.
On May 29, 1959, Insular filed a complaint for collection against the spouses before CFI-Manila. In the meantime, Insular
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 SEC, but the trial court was not notified of the amendment
shortening the corporate existence and no substitution of party was ever made.
RTC: Almost four years after the dissolution, the trial court rendered a decision in favor of Insular.
CA: Both parties appealed to the Court of Appeals, Insular also appealing because it insisted that both Carlos and
Guillermina Gelano should be held liable for the substantial portion of the claim. Court of Appeals rendered a decision
modifying the judgment of the trial court by holding the spouses jointly and severally liable on Insular’s claim and
increasing the award of P4,106.00.
After petitioners received a copy of the decision, 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 Insular 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. After
receipt of petitioners' motion to dismiss, Insular thru its former directors filed a Petition for Receivership before the CFI-
Manila, which petition is still pending before said court.
ISSUE: W/N 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.
HELD: NO. In American corporate law, upon which our Corporation Law was patterned, 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 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. 
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 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; 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. 
When Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77 of the Corporation Law, it still has the
right until December 31, 1963 to prosecute in its name the present case. After the expiration of said period, the
corporation ceased to exist for all purposes and it can no longer sue or be sued. 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 Insular did not appoint any trustee, 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, Insular Sawmill, Inc.
could still continue prosecuting the present case even beyond the period of three years from the time of its dissolution.
The trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason
can be conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee
who, by fiction, merely continues the legal personality of the dissolved corporation should not be accorded similar
treatment allowed — to proceed to final judgment and execution thereof.
The word "trustee" as used 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 spouses 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.
In the case of Pasay Credit and Finance Corp. vs. Isidro Lazaro and others, 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 corporations
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."
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.

Petitioners contend that the obligations contracted by 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 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 which provision incidentally can still be found in paragraph 1, Article 161
of the New Civil Code. 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.
PHILIPPINE VETERANS BANK EMPLOYEES UNION-N.U.B.E. and PERFECTO V. FERNANDEZ vs. HON. BENJAMIN VEGA,
RTC- Manila, CENTRAL BANK OF THE PHILIPPINES and LIQUIDATOR OF THE PHILIPPINE VETERANS BANK
[G.R. No. 105364*            June 28, 2001]
Central Bank of the Philippines: In 1985, CB filed with RTC-Manila a Petition for Assistance in the Liquidation of the
Philippine Veterans Bank.
Philippine Veterans Bank Employees Union-N.U.B.E.: filed claims for accrued and unpaid employee wages and benefits
with said court. Partial payment of the sums due were made, but many remain unpaid. Petitioners later moved to
disqualify JUDGE BENJAMIN VEGA from hearing the case on grounds of bias and hostility towards petitioners.
RA 7169: enacted by Congress on January 2, 1992, providing for the rehabilitation of the Philippine Veterans Bank.
Thereafter, petitioners filed with the labor tribunals their residual claims for benefits and for reinstatement upon
reopening of the bank. In May 1992, the Central Bank issued a certificate of authority allowing the PVB to reopen.
Judge Vega: despite the legislative mandate for rehabilitation and reopening of PVB, continued with the liquidation
proceedings of the bank. Moreover, Philippine Veterans Bank Employees Union-N.U.B.E. learned that the Court was set
to order the payment and release of employee benefits upon motion of another lawyer, while petitioners’ claims have
been frozen to their prejudice. The Employees’ Union argued 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. SC: resolved to issue a
TRO enjoining the trial court from further proceeding with the case.
VOP Security & Detective Agency : filed a Motion for Intervention with prayer that they be excluded from the operation
of the TRO issued by the Court. They alleged that they had filed a motion before RTC-Manila, in SP-No. 32311, praying
that said court order PVB to pay their backwages and salary differentials 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.
ISSUE: W/N a liquidation court may continue with liquidation proceedings of the Philippine Veterans Bank when
Congress has mandated its rehabilitation and reopening?
HELD: NO. Republic Act No. 7169 provides in part for the reopening of the Philippine Veterans Bank together with all its
branches within the period of three years from the date of the reopening of the head office. The law likewise provides
for the creation of a rehabilitation committee in order to facilitate the implementation of the provisions of the same.
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.The Monetary Board issued a Resolution which approved the
Rehabilitation Plan submitted by the Rehabilitation Committee. Thereafter, the Monetary Board issued a Certificate of
Authority allowing PVB to reopen.
Clearly, the enactment of Republic Act No. 7169, as well as the subsequent developments has rendered the liquidation
court functus officio. Consequently, respondent judge has been stripped of the authority to issue orders involving acts of
liquidation. Liquidation: connotes a winding up or settling with creditors and debtors. 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. Rehabilitation: 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.
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 Central Bank and Liquidator of PVB that R.A. No. 7169 became effective only on March 10, 1992 or 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. In the case at bar, Section 10 of R.A. No. 7169 provides
that the Act shall take effect upon its approval.
TAN TIONG BIO, ET AL. vs. COMMISSIONER OF INTERNAL REVENUE
[G.R. No. L-15778             April 23, 1962]
Central Syndicate: sent a letter to the Collector of Internal Revenue, stating that it purchased from Dee Hong Lue the
entire stock of surplus properties which Dee Hong Lue had bought from the Foreign Liquidation Commission. As it
assumed the obligation to pay sales tax on said goods, it was remitting the sum of P43,750 to answer for such.
On January 31, 1948, it 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. Upon
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 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.
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. 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.
CTA: denied on November 5, 1954, the Collector’s motion requiring the syndicate to file a bond to guarantee the
payment of the tax assessed against it, 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. The Collector then 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.
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, et. al.
SC: 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."
CTA: rendered decision, affirming the decision of the Collector of Internal Revenue, 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. Tan Tiong Bio, et. al. who appear in the Articles of Incorporation of the
Central Syndicate Annex A as incorporators and directors of the corporation, 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. ..
ISSUE: W/N the sales tax in question can be enforced against the Central Syndicate’s successors-in-interest, the
Central Syndicate having already been dissolved because of the expiration of its corporate existence.
TAN TIONG BIO, ET AL.: 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.
SC: This contention cannot be sustained. 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 which purports to show that Dee Hong Lue sold said goods to the syndicate for
a consideration of P1,250,000 (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 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 still in the process of organization. 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.
TAN TIONG BIO, ET AL.: 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.
SC: 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 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.
A creditor of a dissolve corporation may follow its assets, as in the nature of a trust fund, into the hands of its
stockholders. An indebtedness of a corporation to the federal government for income and excess profit taxes is not
extinguished by the dissolution of the corporation. 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".
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.
CRISOSTOMO REBOLLIDO, FERNANDO VALENCIA and EDWIN REBOLLIDO vs. COURT OF APPEALS and PEPSICO, INC.
[G.R. No. 81123 February 28, 1989]
CRISOSTOMO REBOLLIDO, et. al.: On August 7, 1984, they filed a Civil Case for damages against Pepsi Cola Bottling
Company of the Philippines, Inc. and Alberto Alva before RTC- Makati.
The case arose out of a vehicular accident on March 1, 1984, involving a Mazda Minibus used as a schoolbus, owned and
driven by Crisostomo Rebollido and Fernando Valencia, respectively and a truck trailer owned at that time by Pepsi Cola
and driven by Alberto Alva.
On September 21, 1984, the sheriff of the lower court served the summons addressed to Pepsi Cola Bottling Company of
the Philippines. 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. Pepsi Cola failed to file an answer and
was later declared in default.
RTC: heard the case ex-parte and adjudged Pepsi Cola Bottling and Alva jointly and severally liable for damages.
When the default judgment became final and executory, CRISOSTOMO REBOLLIDO, et. al. filed a motion for execution,
a copy of which was received no longer by the defendant Pepsi Cola but by private respondent PEPSICO, Inc. At that
time, PEPSICO was already occupying the place of business of Pepsi Cola in Makati, Metro Manila.
PEPSICO:, 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 SEC materialized on March 2,1984, one day after the accident occurred.
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, Pepsi Cola cause the publication of a
notice of dissolution and the assumption of liabilities by PEPSICO in a newspaper of general circulation.
PEPSICO, Inc.: Realizing that the judgment of the lower court would eventually be executed against it, it opposed the
motion for execution and moved to vacate the judgment on the ground of lack of jurisdiction. PEPSICO 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.
RTC: denied the motion of PEPSICO holding that despite the dissolution and the assumption of liabilities by PEPSICO,
there was proper service of summons upon Pepsi Cola. The lower court said that under Section 122 of the Corporation
Code, the defendant continued its corporate existence for three years from the date of dissolution. PEPSICO filed a
special civil action for certiorari and prohibition to annul and set aside the judgment of the lower court.
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
PEPSICO within the contemplation of the undertaking, but service of summons should be made upon PEPSICO 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.
ISSUE: (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;
Petitioners 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 registered
owner of the truck involved.
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. 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:...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 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.
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 as 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.  
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, i.e. on March 1, 1984 which
is the date of the accident and when Pepsi Cola allegedly committed the wrong.
ISSUE: (2) whether or not the service of summons through Nanette 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.
SC: YES. 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, 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.
Section 13, Rule 14: 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.
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. 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.
A liberal interpretation of Section 13, Rule 14 has been adopted in the case of G & G Trading Corporation v. Court of
Appeals: Although it may be 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 speedy justice must prevail over a technicality.'
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'.
The fact that the summons was received through Sison is not disputed by the parties. After the dissolution and during
the pendency of the case below, PEPSICO held office at the same address of Pepsi Cola where 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 PEPSICO that Sison works for its legal department and not of Pepsi Cola, so it
avers, there was no valid service upon Pepsi Cola since Sison acted in PEPSICO's behalf. 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 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), 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:
... All 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.