Alabang Development Co. v. Alabang Hills Village Association

Doctrine: SEC. 122. Corporate liquidation.– Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) 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. x x x

Facts: The Complaint alleged that ADC is the developer of Alabang Hills Village and still owns certain parcels of land therein that are yet to be sold, as well as those considered open spaces that have not yet been donated to [the] local government of Muntinlupa City or the Homeowner's Association. Sometime in September [2006], ADC learned that AHVAI started the construction of a multi-purpose hall and a swimming pool on one of the parcels of land still owned by ADC without the latter's consent and approval, and that despite demand, AHVAI failed to desist from constructing the said improvements. ADC thus prayed that an injunction be issued enjoining defendants from constructing the multi-purpose hall and the swimming pool at the Alabang Hills Village.

AHVAI denied ADC's asseverations and claimed that the latter has no legal capacity to sue since its existence as a registered corporate entity was revoked by the SEC on May 26, 2003; that ADC has no cause of action because by law it is no longer the absolute owner but is merely holding the property in question in trust for the benefit of AHVAI as beneficial owner thereof; and that the subject lot is part of the open space required by law to be provided in the subdivision. As counterclaim, it prayed that an order be issued divesting ADC of the title of the property and declaring AHVAI as owner thereof; and that ADC be made liable for moral and exemplary damages as well as attorney's fees.

RTC Muntinlupa City rendered judgment dismissing herein petitioner's complaint on the grounds (1) that the latter has no personality to file the same; (2) that the subject property "is a reserved area for the beneficial use of the homeowners, as mandated by law;" and (3) that the Housing and Land Use Regulatory Board (HLURB), not the RTC, has exclusive jurisdiction over the dispute between petitioner and respondents.

Aggrieved, herein petitioner filed a Notice of Appeal of the RTC decision. Herein respondent AHVAI, on the other hand, moved that it be allowed to prosecute its compulsory counterclaim praying, for this purpose, that the RTC decision be amended accordingly. RTC approved petitioner's notice of appeal but dismissed respondent AHVAI’s counterclaim on the ground that it is dependent on petitioner's complaint. Respondent AHVAI then filed an appeal with the CA.

CA dismissed both appeals of petitioner and respondent, and affirmed the decision of the RTC.

Issue: Whether the CA gravely erred in finding lack of capacity of the petitioner in filing the case.

Ruling: No. Section 122 of the Corporation Code provides as follows:

SEC. 122. Corporate liquidation.– Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) 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.

At any time during said three (3) years, said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest.

Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located.

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.

In the instant case, there is no dispute that petitioner's corporate registration was revoked on May 26, 2003. Based on the above-quoted provision of law, it had three years, or until May 26, 2006, to prosecute or defend any suit by or against it. The subject complaint, however, was filed only on October 19, 2006, more than three years after such revocation. It is likewise not disputed that the subject complaint was filed by petitioner corporation and not by its directors or trustees. In fact, it is even averred, albeit wrongly, in the first paragraph of the Complaint that "[p]laintiff is a duly organized and existing corporation under the laws of the Philippines, with capacity to sue and be sued. x x x”

In the present case, petitioner filed its complaint not only after its corporate existence was terminated but also beyond the three-year period allowed by Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a corporation. To allow petitioner to initiate the subject complaint and pursue it until final judgment, on the ground that such complaint was filed for the sole purpose of liquidating its assets, would be to circumvent the provisions of Section 122 of the Corporation Code.