RENE KNECHT AND KNECHT INC. vs.

UNITED CIGARETTE
INC.GR NO. 139370 JULY 4, 2002

1. Facts

Rose Packing mortgaged one of three parcels of land with the PCIB. These parcels of
land were then sold to UCC through the corporation’s President Rene Knecht for 800K.
Rose warranted that these lands are free from any encumbrances except for the REM
over that portion with PCIB. UCC agreed among others that it will assume Rose
Packing’s obligation with PCIB subject to the bank’s approval. UCC paid an earnest
money of 80K to Rose Packing to secure their deal.

However, when PCIB demanded additional collateral as condition precedent for the
approval of sale from UCC as the parties discovered that Rose Packing’s obligation
exceeded 250K, the latter did not comply.

Hence, Rose Packing offered the subject properties for sale without UCC’s knowledge
and without returning the earnest money.

UCC filed a complaint for specific performance and recovery of damages.

2. Procedural Posture (Case History)

CFI ruled that Rose Packing acted in bad faith for failure to disclose its actual amount of
obligation with PCIB to UCC.

CA affirmed CFI’s decision with modification to the awards. The judgment became final
and executory on March 23, 1977. 

3. Framing the Issues - legal issue only relating to Commercial Law

Whether the execution of judgment can be enforced upon a dissolved corporation.

4. Arguments Advanced by the Parties

Petitioner claimed that its corporation was dissolved in 1986 and UCC was dissolved on
April 10, 1973. The three-year liquidation period has expired such that upon its
dissolution, UCC cannot move for the judgment execution.

Respondent Corporation through Alberto Wong filed motions to execute the decision of
the lower court. (WALA GINDISCUSS SA CASE ANG CONTENTION NI UCC)

5. Holding/Rule

The judgment still lies against a dissolved corporation.

The SC cited the case of Reburiano v. Court of Appeals that the trustee of a
dissolved corporation may commence a suit which can proceed to final judgment even
beyond the three-year period of liquidation. . . ., 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 — to proceed to final judgment and execution
thereof.

6. Reasoning

UCC dissolution or expiration of its 3-year period is not a bar to enforce the judgment
rendered against Rose Packing. Its Trustee-Liquidator Wong, by fiction, extends the
legal personality of UCC to vindicate its right for the benefit of its stockholders and
creditors. Otherwise, Petitioner Corporation will be unjustly enriched at the expense of
UCC.

7. Dissent, if any

NONE

8. Notes: like Obiter

NONE

CHINA BANKING CORP. VS. COURT OF APPEALS, 270 SCRA 503 (1997)

1. Facts

Calapatia, Jr. is a stockholder of Valley Golf & Country Club, Inc. pledged his Stock
Certificatie to China Banking Corporation. The pledge was noted in VGCC corporate
books. In 1983, Calapatia obtained a 20K loan from CBC secured by the said pledge
agreement. When he defaulted in payment, CBC sought to foreclose the pledge stock
and requested the Corporation to transfer the stocks under its name. The latter refused
because Calapatia has unsettled accounts. Later, the Club sold Calapatia’s stocks in the
1986 auction sale.

China Bank sought to nullify the 1986 auction sale before the RTC and later with SEC.

2. Procedural Posture (Case History)

RTC dismissed the case for lack of jurisdiction. The case is an intra-corporate dispute.
SEC Hearing Officer ruled in favor of the Club stating that the latter had valid reason
not to transfer the share in its books until the liquidation of the delinquency.

SEC en banc reversed the decision of the hearing officer as Petitioner Bank has prior
right over the pledged share.

CA nullified the orders of the SEC and its hearing officers for lack of jurisdiction. The
controvery in the case is not intra-corporate.

3. Framing the Issues - legal issue only relating to Commercial Law

Whether Petitioner is the lawful owner of the membership certificate. (or Who has
better right over the share/ Does Petitioner have right to nullify the sale)

4. Arguments Advanced by the Parties

Petitioner Bank claimed that it has a prior right over the pledged share because of
Calapatia’s failure to pay the principal debt upon maturity; it can proceed with the
foreclosure of the pledged share. It is averred that it was the new owner of the subject
shares by virtue of being the highest bidder in the September 1985 auction.

Respondent Club argued that due to Calapatia's failure to settle his delinquent
accounts, it had the right to sell the share in question in accordance with the express
provision found in its by-laws. It claimed that China Bank is duty-bound to know its by-
laws under Art. 2099 of the Civil Code and when petitioner foreclosed the pledge made
by Calapatia and when Petitioner Bank purchased the share foreclosed on September
17, 1985. 

5. Holding/Rule

The Petitioner Bank is not bound by the Club’s by-laws.

The last paragraph of Section 63 states that no shares of stock against which
the corporation holds any unpaid claim shall be transferable in the books of
the corporation.

(Tapos diria, choose your ruling nalang noh. Choose one or two or all)

By-laws signifies the rules and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and concerns and its stockholders
or members and directors and officers with relation thereto and among themselves in
their relation to it. 
The purpose of a by-law is to regulate the conduct and define the duties of the
members towards the corporation and among themselves. They are self-imposed and,
although adopted pursuant to statutory authority, have no status as public law. 

The generally accepted rule is that third persons are not bound by by-laws, except
when they have knowledge of the provisions either actually or constructively. 

6. Reasoning

The unpaid claim under the Corporation Code contemplates unpaid claims arising from
unpaid subscription; not any indebtedness that a subscriber or stockholder owes to the
corporation in other transactions. Calapatia’s subscription is fully paid. What he owes
were his monthly dues. The case does not fall within Section 63 of Corporation Code.

The Petitioner Bank was not notified (informed) of the overdue accounts of Calapatia
until the pledged shares at sold at the auction. The Club even failed to give the Bank
notice of the1986 auction. As the third party it must have acquired knowledge of the
pertinent by-laws at the time the transaction or at the time the pledge agreement was
executed. Hence, China Bank has the right to resort to its collateral for the payment of
debts and not bound by the By-laws.

7. Dissent, if any

NONE

8. Notes: like Obiter

NONE (wag natin pahirapan self natin)