Chung Ka Bio v. Intermediate Appellate Court
REITERATIONFacts
1. The Antecedents: The Philippine Blooming Mills Company, Inc. (old PBM), incorporated in 1952, had its 25-year term expire on January 19, 1977. Subsequently, its board of directors executed a deed of assignment of all receivables, properties, obligations, and liabilities to Chung Siong Pek, in his capacity as treasurer for the new PBM, which was then undergoing reincorporation and was issued a certificate of incorporation by the Securities and Exchange Commission (SEC) on June 14, 1977. 2. Procedural History: Stockholders of the old PBM filed a petition for liquidation of both corporations with the SEC, alleging the old PBM's legal non-existence due to failure to extend its term and the new PBM's dissolution for non-use of its charter. This petition was dismissed for lack of cause of action but reinstated on appeal to the SEC en banc, remanding it for further proceedings. This order was appealed to the Intermediate Appellate Court (IAC) by the new PBM and its directors. In a related development, a director of the old PBM also filed a separate petition for certiorari with the IAC questioning the same SEC order. Additionally, a petition for suspension of payment was filed by the new PBM and Alfredo Ching with the SEC, which was opposed by the petitioners. This opposition was rejected, and the case was elevated to the SEC en banc on certiorari. The Supreme Court referred the petitioners' case to the IAC, where all three cases were consolidated. The IAC issued a decision affirming the SEC orders, except for the requirement of accounting for the old PBM's assets. 3. The Petition: The petitioners are before the Supreme Court on certiorari, challenging the IAC's decision. They contend that the board of directors of a dissolved corporation lacks the inherent power to convey all its assets to a new corporation without explicit stockholder consent, that the new corporation is accountable for these assets to non-consenting stockholders, that the new corporation failed to comply with the two-year operational requirement, that a quo warranto proceeding is unnecessary for a corporation already deemed dissolved, and that the SEC lacks jurisdiction over a petition for suspension of payments filed by an individual. The Supreme Court, however, found that the deed of assignment was authorized by stockholders and that the petitioners' claim was barred by laches due to their four-year delay in questioning the transaction, during which the new PBM operated openly and visibly.
Issue(s)
Whether the board of directors of a dissolved corporation has the power to convey all its assets to a new corporation without the express consent of the stockholders, and whether the new corporation is accountable for the assets conveyed to it to the stockholders who did not consent to the conveyance. Whether the new corporation substantially complied with the two-year requirement of Section 22 of the Corporation Code on non-user due to the alleged failure to adopt by-laws, and whether a quo warranto proceeding is necessary to dissolve a corporation already deemed dissolved under Section 22 of the Corporation Code. Whether the Securities and Exchange Commission has jurisdiction over a petition for suspension of payments filed by an individual.
Ruling
The Supreme Court affirmed the decision of the Intermediate Appellate Court, with modifications. The Court ruled that the doctrine of laches bars the petitioners from questioning the deed of assignment. It also held that the SEC has no jurisdiction over a petition for suspension of payments filed by an individual.
Ratio Decidendi
On the power of the board to convey assets and accountability to stockholders: The Court found that while a dissolved corporation's board is generally limited to winding up affairs, stockholders can convey their shareholdings to a new corporation if they consent. Section 28-1/2 of the Corporation Law expressly allowed the disposition of substantially all of a corporation's property and assets upon authorization by shareholders holding at least two-thirds of the voting power. The petitioners failed to prove that they did not give their consent or that they demanded payment for their shares within the 40-day reglementary period after the authorization, as provided by law. The presumption of regularity in the issuance of the new corporation's certificate of incorporation and the fact that the deed of assignment was executed in 1977 and questioned only in 1981, during which time the new PBM was openly operating, militate against the petitioners' claim. The Court invoked the doctrine of laches, stating that the petitioners' unreasonable and unexplained delay in asserting their right, coupled with the prejudice to the new PBM and third parties, barred their claim. Therefore, the second contention, that the new corporation is accountable, also falls with the first. On substantial compliance with the two-year non-user rule and the necessity of quo warranto: The Court rejected the contention that the new PBM had not substantially complied with the two-year non-user rule. The fact that the new PBM was in operation all these years demonstrated compliance. The argument that the business was merely a continuation of the old PBM's business was self-defeating. Furthermore, the failure to file by-laws does not automatically dissolve a corporation; it is merely a ground for suspension or revocation of its certificate of registration under PD 902-A, requiring a hearing. The SEC's rules also allow for administrative fines. The Court noted that the new PBM eventually adopted and filed its by-laws on September 6, 1981, rendering the issue moot. Consequently, the contention that a quo warranto proceeding was unnecessary for a deemed dissolved corporation was also rendered moot, as the new PBM was not ipso facto dissolved. On SEC jurisdiction over suspension of payments filed by an individual: The Court held that the SEC has no jurisdiction over a petition for suspension of payments filed by an individual. Section 5(d) of PD 902-A, as amended, clearly limits such petitions to "corporations, partnerships or associations." Administrative agencies like the SEC have limited jurisdiction and can only exercise powers specifically granted by their enabling statutes. The fact that Alfredo Ching was a co-signer on promissory notes or security agreements does not confer jurisdiction, as jurisdiction over the subject matter must exist as a matter of law and cannot be conferred by agreement or acquiescence. Therefore, Alfredo Ching, as a mere individual, could not properly file a petition for suspension of payments.
Main Doctrine
The doctrine of laches bars stockholders from questioning a deed of assignment of corporate assets made by the board of directors to a new corporation, especially when the questioning occurs after a significant delay, the new corporation has been operating openly, and one of the petitioners was involved in the transaction. Furthermore, the Securities and Exchange Commission (SEC) lacks jurisdiction over a petition for suspension of payments filed by an individual, as such petitions are limited to corporations, partnerships, or associations under PD 902-A.