Rich v. Paloma III (Case digest. G.R. No. 210538)

CASE DIGEST: [ G.R. No. 210538, March 07, 2018 ] DR. GIL J. RICH, PETITIONER, VS. GUILLERMO PALOMA III, ATTY. EVARISTA TARCE AND ESTER L. SERVACIO, RESPONDENTS. DECISION. REYES, JR., J:

DOCTRINE: A corporation which has already been dissolved, be it voluntarily or involuntarily, retains no juridical personality to conduct its business save for those directed towards corporate liquidation.

FACTS: Sometime in 1997, Dr. Gil Rich (petitioner) lent P1,000,000.00 to his brother, Estanislao Rich (Estanislao).[3] The agreement was secured by a real estate mortgage over a 1000-square-meter parcel of land with improvements.

Estanislao FAILED to pay. Petitioner FORECLOSED on the subject property via a sheriff's public auction sale. Petitioner, highest bidder.[5]

Without the petitioner's knowledge, however, and prior to the foreclosure, Estanislao entered into an agreement with Maasin Traders Lending Corporation (MTLC), at P2.6 million. Real estate mortgage over the same property.[7]

Servacio, as president of MTLC, exercised equitable redemption after the foreclosure proceedings. She tendered the amount of P2,090,000.00 as the redemption money in the extra-judicial foreclosure sale.[8] On March 15, 2006, respondent Paloma III, again as RTC sheriff, issued a Deed of Redemption in favor of MTLC.

Petitioner seeks to annul this deed. Alleged MTLC no longer has juridical personality to effect the equitable redemption as it has already been dissolved by the Securities and Exchange Commission as early as September 2003.[9] Pending case against Servacio for allegedly forging Estanislao's signature on the same real estate mortgage that Servacio used as basis for her equitable redemption.[10]

Servacio was "declared as in default."[11] The petitioner, evidence ex parte.

Servacio appealed to CA.CA said the assailed real estate mortgage between Estanislao and MTLC was duly notarized and thus enjoyed the presumption of authenticity and due execution.

ISSUES:

1. What is the process of dissolution of a corporation?
2. Does the 3-year period of extended authority include the operation of a corporation in the business for which it was created?
3. Is the real estate mortgage agreement MTLC executed valid?

HELD: WHEREFORE, the Real Estate Mortgage executed by Estanislao Rich and MTLC is NULL and VOID.

ISSUE [1]: According to the case of Yu vs. Yukayguan,[26] once a corporation is dissolved, be it voluntarily or involuntarily, liquidation, which is the process of settling the affairs of the corporation, will ensue. This consists of (1) collection of all that is due the corporation, (2) the settlement and adjustment of claims against it, and (3) the payment of its debts.

ISSUE [2]: No, such extended authority does not include continuing the business for which it was established.

Section 122 of the Corporation Code[28] empowers every corporation whose corporate existence has been legally terminated to continue as a body corporate for three (3) 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 its affairs, to dispose of and convey its property and to distribute its assets."[29]

This extended authority necessarily EXCLUDES the purpose of continuing the business for which it was established.[33] The reason for this is simple: the dissolution of the corporation carries with it the termination of the corporation's juridical personality. Any new business in which the dissolved corporation would engage in, other than those for the purpose of liquidation, "will be a void transaction because of the non-existence of the corporate party."[34]

ISSUE [3]: No, the MTLC's real estate mortage agreement is NOT valid.

Two things must be said of the foregoing in relation to the facts of this case. First, if MTLC entered into the real estate mortgage agreement with Estanislao after its dissolution, then resultantly, such real estate mortgage agreement would be void ab initio because of the non-existence of MTLC's juridical personality.

Second, if, however, MTLC entered into the real estate mortgage agreement prior to its dissolution, then MTLC's redemption of the subject property, even if already after its dissolution (as long as it would not exceed three years thereafter), would still be valid because of the liquidation/winding up powers accorded by Section 122 of the Corporation Code to MTLC.

The Court finds that: (1) MTLC has already been dissolved by the Securities and Exchange Commission as early as September 2003;[35] (2) Estanislao and MTLC entered into the real estate mortgage agreement only on January 24, 2005;[36] and (3) MTLC, through respondent Servacio, redeemed the property on December 15, 2005, for which a Deed of Redemption was issued by respondent Paloma III on March 15, 2006.[37]

Therefore, it is clear that, by the time MTLC executed the real estate mortgage agreement, its juridical personality has already ceased to exist. The agreement is void as MTLC could not have been a corporate party to the same. To be sure, a real estate mortgage is not part of the liquidation powers that could have been extended to MTLC. It could not have been for the purposes 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." It is, in fact, a new business in which MTLC no longer has any business pursuing.

Any redemption exercised by MTLC pursuant to this void real estate mortgage is likewise void, and could not be given any effect.

CASE DIGEST ENDS HERE. BELOW ARE CITATIONS IN THE ORIGINAL TEXT.

Carpio,* Acting C. J., (Chairperson), Peralta, Perlas-Bernabe, and Caguioa, JJ., concur.

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* Acting Chief Justice per Special Order No. 2539, dated February 28, 2018.

[1] Penned by then Associate, now Executive, Justice Gabriel T. Ingles, and concurred in by Associate Justices Pampio A. Abarintos and Pedro B. Corales; rollo, pp. 234-250.

[2] Id. at 262-263.

[3] Id. at 235.

[4] Id. at 52-53.

[5] Id.

[6] Id. at 42, 70-71.

[7] Id. at 42, 70-71, 235.

[8] Id. at 73, 235.

[9] Id. at 33.

[10] Id.

[11] Id. at 188.

[12] Id. at 191.

[13] Id. at 241.

[14] Id. at 239-241.

[15] Id. at 243.

[16] Id. at 245-246.

[17] Id. at 247.

[18] SECTION 4. Appearance of parties. - It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his behalf fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of documents. (n)

[19] Rollo, p. 249.

[20] Id. at 24.

[21] Id. at 27.

[22] Id. at 27.

[23] Id.

[24] 432 Phil. 775 (2002).

[25] Id. at 789-790.

[26] 607 Phil. 581, 607 (2009).

[27] Id. at 608.

[28] Batas Pambansa Blg. 68 (1980).

[29] Id.

[30] 252 Phil. 831, 840 (1989).

[31] 145 Ky 591,140 SW 1034 (1911).

[32] Id.

[33] Supra note 28.

[34] Villanueva, Cesar L., Philippine Corporate Law, pp. 697 698.

[35] Rollo, p. 34.

[36] Id. at 42, 70-71.

[37] Id. at 73-74.