Corporate Law Case Write-up VOL [March 7, 2018]
Rich v Paloma III Rich v Paloma III
I. Facts of the case corporation carries with it the termination of the corporation’s juridical
personality. Any new business in which the dissolved corporation would
The creditor lent his brother, the debtor, PHP1,000,000 which was engage in, other than those for the purpose of liquidation, “will be a
secured by a real estate mortgage. When the debtor failed to pay his void transaction because of the non-existence of the corporate party.”
obligation, the creditor foreclosed on the property, and the creditor won as
the highest bidder. However, unbeknownst to the creditor, prior to the Two things must be said of the foregoing in relation to the case. First,
foreclosure, the debtor also entered into a separate loan agreement with if MTLC entered into the REM agreement with the debtor after its
Maasin Traders Lending Corporation (MTLC), which was also secured with dissolution, then such REM agreement would be void ab initio because of
a real estate mortgage over the same property. the non-existence of MTLC’s juridical personality. Second, if MTLC
On the strength of this second agreement, the president of MTLC entered into the REM agreement prior to its dissolution (as long as it would
redeemed the foreclosed property. The sheriff issued a Deed of Redemption not exceed three years thereafter), would still be valid because of the
in favor of MTLC. liquidation/winding up powers accorded by Section 122 of the Corporation
The deed is sought to be annulled by the creditor, who claims that at Code to MTLC.
the time that MTLC redeemed the property, it no longer had juridical A perusal of the records indicate that the MTLC had already been
personality as it has already been dissolved by the SEC. dissolved before the debtor and MTLC entered into the REM agreement. It
is clear that, by the time MTLC executed the REM agreement, its juridical
II. Issue/s personality had already ceased to exist. The agreement is void as MTLC
could not have been a corporate party to the same. The agreement is, in fact,
Whether the corporation can redeem the foreclosed property despite a new business in which MTLC no longer has any business pursuing.
no longer having any juridical personality? No
III. Held IV. Critic
Legal effect of liquidation The doctrine in the case should stand as the Section 122 of the
Corporation Code is substantially the same as Section 139 of the Revised
According to the case of Yu v Yukayguan, once a corporation is Corporation Code, except for passage providing for the special application
dissolved, be it voluntary or involuntarily, liquidation, which is the process of the New Central Bank Act for the liquidation of banks.
of settling the affairs of the corporation, will ensue. This consists of (1) As discussed in the commentary, which was also quoted by the SC,
collection of all that is due the corporation, (2) the settlement and the general rule is that there is no juridical personality after dissolution. If
adjustment of claims against it, and (3) the payment of its debts. there is, it is only juridical personality to serve but one purpose – for all
These pronouncements draw their basis from Section 122 of the transaction pertaining to liquidation. Any matter entered into that is not
Corporation Code, which empowers every corporation whose corporate for the purpose of liquidation will be a void transaction because of the
existence has been legally terminated to continue as a body corporate for non-existence of the corporate party.
three years after the time when it would have been dissolved. This
continued existence would only be for the purposes of “prosecuting and
defending suits by or against it and enabling it to settle and close it affairs,
to dispose of and convey its property and to distribute its assets.”
As expressly mentioned by the Corporation Code, this extended
authority necessarily excludes the purpose of continuing the business for
which it was established. The reason for this is simple: the dissolution of the
G.R. NO: 210538 PONENTE: Reyes, Jr., J.
ARTICLE; TOPIC OF CASE: Dissolution of Corporations DIGEST MAKER: Josiah M Lim
