G.R. No.

176959 September 8, 2010

Metrobank vs THE BOARD OF TRUSTEES OF RIVERSIDE MILLS CORPORATION PROVIDENT AND

RETIREMENT FUND, et al.

Facts:

RMC established a Provident and Retirement Plan 4 (RMCPRF) for its regular employees.
In 1979, the Board of Trustees of RMCPRF (the Board) entered into an Investment Management
Agreement with the petitioner where the latter shall act as an agent of the Board and shall hold,
manage, invest and reinvest the Fund in Trust Account No. 1797 in its behalf. The Agreement
shall be in force for one (1) year and shall be deemed automatically renewed unless sooner
terminated either by petitioner bank or by the Board.

In 1984, RMC ceased business operations but the petitioner continued to render
investment services to respondent Board. Petitioner then informed respondent Board that
petitioner’s BOD had decided to apply the remaining trust assets held by it in the name of
RMCPRF against part of the outstanding obligations of RMC.

Subsequently, respondent RMC Unpaid Employees Association, Inc. (Association),

representing the terminated employees of RMC, learned of Trust Account No. 1797. Through
counsel, they demanded payment of their share. When such demand went unheeded, the
Association, along with the individual members of RMCPRF, filed a complaint for accounting
against the Board and its officers as well as petitioner bank.

On June 2, 1998, during the trial, the Board passed a Resolution 9 in court declaring that
the Fund belongs exclusively to the employees of RMC. It authorized petitioner to release the
proceeds of Trust Account No. 1797 through the Board, as the court may direct. The trial court
declared invalid the reversion and application of the proceeds of the Fund to the outstanding
obligation of RMC to petitioner bank. Unfazed, the petitioner brought the case to Supreme
Court.

Issue: Whether or not the proceeds of the RMCPRF may be applied to satisfy RMC’s debt to
Philbank.

Held: The petition has no merit.

A trust is a "fiduciary relationship with respect to property which involves the existence
of equitable duties imposed upon the holder of the title to the property to deal with it for the
benefit of another." A trust is either express or implied. Express trusts are those which the direct
and positive acts of the parties create, by some writing or deed, or will, or by words evincing an
intention to create a trust.15

Here, the RMC Provident and Retirement Plan created an express trust to provide
retirement benefits to the regular employees of RMC. RMC retained legal title to the Fund but
held the same in trust for the employees-beneficiaries. Thus, the allocation under the Plan is
directly credited to each member’s account:
 The trust was likewise a revocable trust as RMC reserved the power to terminate the
Plan after all the liabilities of the Fund to the employees under the trust had been paid.
Paragraph 13 of the Plan provided that "[i]n no event shall any part of the assets of the Fund
revert to the Company before all liabilities of the Plan have been satisfied."

Employees’ trusts or benefit plans are intended to provide economic assistance to

employees upon the occurrence of certain contingencies, particularly, old age retirement, death,
sickness, or disability. They give security against certain hazards to which members of the Plan
may be exposed. They are independent and additional sources of protection for the working
group and established for their exclusive benefit and for no other purpose. 18 Here, while the Plan
provides for a reversion of the Fund to RMC, this cannot be done until all the liabilities of the
Plan have been paid. And when RMC ceased operations in 1984, the Fund became liable for the
payment not only of the benefits of qualified retirees at the time of RMC’s closure but also of
those who were separated from work as a consequence of the closure.

A member who is separated for cause shall not be entitled to withdraw the total amount
representing his contribution and that of the Company including the earned interest thereon,
and the employer’s contribution shall be retained in the fund. 19 (Emphasis supplied.)

To be sure, the cessation of business by RMC is an authorized cause for the termination
of its employees. Hence, not only those qualified for retirement should receive their total
benefits under the Fund, but those laid off should also be entitled to collect the balance of their
account as of the last day of the month prior to RMC’s closure. In addition, the Plan provides
that the separating member shall be paid a maximum of 40% of the amount representing the
Company’s contribution and its income standing to his credit. Until these liabilities shall have
been settled, there can be no reversion of the Fund to RMC.

It must be stressed that the RMC Provident and Retirement Plan was primarily
established for the benefit of regular and permanent employees of RMC. As such, the Board may
not unilaterally terminate the Plan without due regard to any accrued benefits and rightful
claims of members-employees. Besides, the Board is bound by the prohibition on the reversion
of the Fund to RMC before all the liabilities of the Plan have been satisfied.

As to the contention that the functions of the Board of Trustees ceased upon with RMC’s
closure, the same is likewise untenable.

Under Section 12227 of the Corporation Code, a dissolved corporation shall nevertheless
continue as a body corporate for three (3) years for the purpose of prosecuting and defending
suits by or against it and enabling it to settle and close its affairs, to dispose and convey its
property and to distribute its assets, but not for the purpose of continuing the business for
which it was established. Within those three (3) years, the corporation may appoint a trustee or
receiver who shall carry out the said purposes beyond the three (3)-year winding-up period.
Thus, a trustee of a dissolved corporation may commence a suit which can proceed to final
judgment even beyond the three (3)-year period of liquidation. 28

In the same manner, during and beyond the three (3)-year winding-up period of RMC,
the Board of Trustees of RMCPRF may do no more than settle and close the affairs of the Fund.
The Board retains its authority to act on behalf of its members, albeit, in a limited capacity. It
may commence suits on behalf of its members but not continue managing the Fund for
purposes of maximizing profits. Here, the Board’s act of issuing the Resolution authorizing
petitioner to release the Fund to its beneficiaries is still part of the liquidation process, that is,
satisfaction of the liabilities of the Plan, and does not amount to doing business. Hence, it was
properly within the Board’s power to promulgate.

SECOND DIVISION
G.R. No. 168266 March 15, 2010

CARGILL, INC., Petitioner,

vs.
INTRA STRATA ASSURANCE CORPORATION, Respondent.

DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 26 May 2005 Decision2 of the Court of Appeals in CA-G.R. CV
No. 48447.
The Facts
Petitioner Cargill, Inc. (petitioner) is a corporation organized and existing under the laws of the
State of Delaware, United States of America. Petitioner and Northern Mindanao Corporation
(NMC) executed a contract dated 16 August 1989 whereby NMC agreed to sell to petitioner
20,000 to 24,000 metric tons of molasses, to be delivered from 1 January to 30 June 1990 at the
price of $44 per metric ton. The contract provides that petitioner would open a Letter of Credit
with the Bank of Philippine Islands. Under the "red clause" of the Letter of Credit, NMC was
permitted to draw up to $500,000 representing the minimum price of the contract upon
presentation of some documents.
The contract was amended three times: first, on 11 January 1990, increasing the purchase price
of the molasses to $47.50 per metric ton; 3 second, on 18 June 1990, reducing the quantity of the
molasses to 10,500 metric tons and increasing the price to $55 per metric ton; 4 and third, on 22
August 1990, providing for the shipment of 5,250 metric tons of molasses on the last half of
December 1990 through the first half of January 1991, and the balance of 5,250 metric tons on
the last half of January 1991 through the first half of February 1991. 5 The third amendment also
required NMC to put up a performance bond equivalent to $451,500, which represents the value
of 10,500 metric tons of molasses computed at $43 per metric ton. The performance bond was
intended to guarantee NMC’s performance to deliver the molasses during the prescribed
shipment periods according to the terms of the amended contract.
In compliance with the terms of the third amendment of the contract, respondent Intra Strata
Assurance Corporation (respondent) issued on 10 October 1990 a performance bond 6 in the sum
of P11,287,500 to guarantee NMC’s delivery of the 10,500 tons of molasses, and a surety
bond7 in the sum of P9,978,125 to guarantee the repayment of downpayment as provided in the
contract.
NMC was only able to deliver 219.551 metric tons of molasses out of the agreed 10,500 metric
tons. Thus, petitioner sent demand letters to respondent claiming payment under the
performance and surety bonds. When respondent refused to pay, petitioner filed on 12 April
1991 a complaint8 for sum of money against NMC and respondent.
Petitioner, NMC, and respondent entered into a compromise agreement, 9 which the trial court
approved in its Decision10 dated 13 December 1991. The compromise agreement provides that
NMC would pay petitionerP3,000,000 upon signing of the compromise agreement and would
deliver to petitioner 6,991 metric tons of molasses from 16-31 December 1991. However, NMC
still failed to comply with its obligation under the compromise agreement. Hence, trial
proceeded against respondent.
On 23 November 1994, the trial court rendered a decision, the dispositive portion of which
reads:
WHEREFORE, judgment is rendered in favor of plaintiff [Cargill, Inc.], ordering defendant INTRA
STRATA ASSURANCE CORPORATION to solidarily pay plaintiff the total amount of SIXTEEN
MILLION NINE HUNDRED NINETY-THREE THOUSAND AND TWO HUNDRED PESOS
(P16,993,200.00), Philippine Currency, with interest at the legal rate from October 10, 1990 until
fully paid, plus attorney’s fees in the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00),
Philippine Currency and the costs of the suit.
The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack of merit.
SO ORDERED.11
On appeal, the Court of Appeals reversed the trial court’s decision and dismissed the complaint.
Hence, this petition.
The Court of Appeals’ Ruling
The Court of Appeals held that petitioner does not have the capacity to file this suit since it is a
foreign corporation doing business in the Philippines without the requisite license. The Court of
Appeals held that petitioner’s purchases of molasses were in pursuance of its basic business and
not just mere isolated and incidental transactions.
The Issues
Petitioner raises the following issues:
1. Whether petitioner is doing or transacting business in the Philippines in
contemplation of the law and established jurisprudence;
2. Whether respondent is estopped from invoking the defense that petitioner has no
legal capacity to sue in the Philippines;
3. Whether petitioner is seeking a review of the findings of fact of the Court of Appeals;
and
4. Whether the advance payment of $500,000 was released to NMC without the
submission of the supporting documents required in the contract and the "red clause"
Letter of Credit from which said amount was drawn. 12
The Ruling of the Court
We find the petition meritorious.
Doing Business in the Philippines and Capacity to Sue
The principal issue in this case is whether petitioner, an unlicensed foreign corporation, has legal
capacity to sue before Philippine courts. Under Article 123 13 of the Corporation Code, a foreign
corporation must first obtain a license and a certificate from the appropriate government agency
before it can transact business in the Philippines. Where a foreign corporation does business in
the Philippines without the proper license, it cannot maintain any action or proceeding before
Philippine courts as provided under Section 133 of the Corporation Code:
Sec. 133. Doing business without a license. – No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.
Thus, the threshold question in this case is whether petitioner was doing business in the
Philippines. The Corporation Code provides no definition for the phrase "doing business."
Nevertheless, Section 1 of Republic Act No. 5455 (RA 5455), 14 provides that:
x x x the phrase "doing business" shall include soliciting orders, purchases, service contracts,
opening offices, whether called ‘liaison’ offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar year stay in the
Philippines for a period or periods totalling one hundred eighty days or more; participating in the
management, supervision or control of any domestic business firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization. (Emphasis supplied)
This is also the exact definition provided under Article 44 of the Omnibus Investments Code of
1987.
Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of 1991,
which repealed Articles 44-56 of Book II of the Omnibus Investments Code of 1987, enumerated
not only the acts or activities which constitute "doing business" but also those activities which
are not deemed "doing business." Section 3(d) of RA 7042 states:
[T]he phrase "doing business" shall include "soliciting orders, service contracts, opening offices,
whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled
in the Philippines or who in any calendar year stay in the country for a period or periods totalling
one hundred eighty (180) days or more; participating in the management, supervision or control
of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or arrangements, and contemplate to that extent
the performance of acts or works, or the exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase ‘doing business’ shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which transacts business in its own name and for its
own account.
Since respondent is relying on Section 133 of the Corporation Code to bar petitioner from
maintaining an action in Philippine courts, respondent bears the burden of proving that
petitioner’s business activities in the Philippines were not just casual or occasional, but so
systematic and regular as to manifest continuity and permanence of activity to constitute doing
business in the Philippines. In this case, we find that respondent failed to prove that petitioner’s
activities in the Philippines constitute doing business as would prevent it from bringing an
action.
The determination of whether a foreign corporation is doing business in the Philippines must be
based on the facts of each case.15 In the case of Antam Consolidated, Inc. v. CA,16 in which a
foreign corporation filed an action for collection of sum of money against petitioners therein for
damages and loss sustained for the latter’s failure to deliver coconut crude oil, the Court
emphasized the importance of the element of continuity of commercial activities to constitute
doing business in the Philippines. The Court held:
In the case at bar, the transactions entered into by the respondent with the petitioners are not a
series of commercial dealings which signify an intent on the part of the respondent to do
business in the Philippines but constitute an isolated one which does not fall under the category
of "doing business." The records show that the only reason why the respondent entered into the
second and third transactions with the petitioners was because it wanted to recover the loss it
sustained from the failure of the petitioners to deliver the crude coconut oil under the first
transaction and in order to give the latter a chance to make good on their obligation. x x x
x x x The three seemingly different transactions were entered into by the parties only in an effort
to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to
engage in a continuity of transactions with petitioners which will categorize it as a foreign
corporation doing business in the Philippines. 17
Similarly, in this case, petitioner and NMC amended their contract three times to give a chance
to NMC to deliver to petitioner the molasses, considering that NMC already received the
minimum price of the contract. There is no showing that the transactions between petitioner
and NMC signify the intent of petitioner to establish a continuous business or extend its
operations in the Philippines.
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I, that
"doing business" does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor;
2. Having a nominee director or officer to represent its interests in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transacts
business in the representative's or distributor's own name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in the
processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not on a
continuing basis, such as installing in the Philippines machinery it has manufactured or
exported to the Philippines, servicing the same, training domestic workers to operate it,
and similar incidental services.
Most of these activities do not bring any direct receipts or profits to the foreign corporation,
consistent with the ruling of this Court in National Sugar Trading Corp. v. CA 18 that activities
within Philippine jurisdiction that do not create earnings or profits to the foreign corporation do
not constitute doing business in the Philippines. 19 In that case, the Court held that it would be
inequitable for the National Sugar Trading Corporation, a state-owned corporation, to evade
payment of a legitimate indebtedness owing to the foreign corporation on the plea that the
latter should have obtained a license first before perfecting a contract with the Philippine
government. The Court emphasized that the foreign corporation did not sell sugar and derive
income from the Philippines, but merely purchased sugar from the Philippine government and
allegedly paid for it in full.
In this case, the contract between petitioner and NMC involved the purchase of molasses by
petitioner from NMC. It was NMC, the domestic corporation, which derived income from the
transaction and not petitioner. To constitute "doing business," the activity undertaken in the
Philippines should involve profit-making.20 Besides, under Section 3(d) of RA 7042, "soliciting
purchases" has been deleted from the enumeration of acts or activities which constitute "doing
business."
Other factors which support the finding that petitioner is not doing business in the Philippines
are: (1) petitioner does not have an office in the Philippines; (2) petitioner imports products
from the Philippines through its non-exclusive local broker, whose authority to act on behalf of
petitioner is limited to soliciting purchases of products from suppliers engaged in the sugar trade
in the Philippines; and (3) the local broker is an independent contractor and not an agent of
petitioner.21
As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc.: 22
An exporter in one country may export its products to many foreign importing countries without
performing in the importing countries specific commercial acts that would constitute doing
business in the importing countries. The mere act of exporting from one’s own country, without
doing any specific commercial act within the territory of the importing country, cannot be
deemed as doing business in the importing country. The importing country does not require
jurisdiction over the foreign exporter who has not yet performed any specific commercial act
within the territory of the importing country. Without jurisdiction over the foreign exporter, the
importing country cannot compel the foreign exporter to secure a license to do business in the
importing country.
Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be
considered by the importing countries to be doing business in those countries. This will require
Philippine exporters to secure a business license in every foreign country where they usually
export their products, even if they do not perform any specific commercial act within the
territory of such importing countries. Such a legal concept will have deleterious effect not only
on Philippine exports, but also on global trade.1avvphi1
To be doing or "transacting business in the Philippines" for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the Philippine territory on a continuing
basis in its own name and for its own account. Actual transaction of business within the
Philippine territory is an essential requisite for the Philippines to to acquire jurisdiction over a
foreign corporation and thus require the foreign corporation to secure a Philippine business
license. If a foreign corporation does not transact such kind of business in the Philippines, even if
it exports its products to the Philippines, the Philippines has no jurisdiction to require such
foreign corporation to secure a Philippine business license. 23 (Emphasis supplied)
In the present case, petitioner is a foreign company merely importing molasses from a Philipine
exporter. A foreign company that merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is not doing business in the
Philippines.
Review of Findings of Fact
The Supreme Court may review the findings of fact of the Court of Appeals which are in conflict
with the findings of the trial court. 24 We find that the Court of Appeals’ finding that petitioner
was doing business is not supported by evidence.
Furthermore, a review of the records shows that the trial court was correct in holding that the
advance payment of $500,000 was released to NMC in accordance with the conditions provided
under the "red clause" Letter of Credit from which said amount was drawn. The Head of the
International Operations Department of the Bank of Philippine Islands testified that the bank
would not have paid the beneficiary if the required documents were not complete. It is a
requisite in a documentary credit transaction that the documents should conform to the terms
and conditions of the letter of credit; otherwise, the bank will not pay. The Head of the
International Operations Department of the Bank of Philippine Islands also testified that they
received reimbursement from the issuing bank for the $500,000 withdrawn by NMC. 25 Thus,
respondent had no legitimate reason to refuse payment under the performance and surety
bonds when NMC failed to perform its part under its contract with petitioner.
WHEREFORE , we GRANT the petition. We REVERSE the Decision dated 26 May 2005 of the Court
of Appeals in CA-G.R. CV No. 48447. We REINSTATE the Decision dated 23 November 1994 of the
trial court.
SO ORDERED.

Steelcase, Inc. v. Design International Selections, Inc. (DISI), G.R. No. 171995, 18 April 2012
18
APR
[MENDOZA, J.]

FACTS

Steelcase, Inc. (Steelcase) granted Design International Selections, Inc. (DISI) the right to market,
sell, distribute, install, and service its products to end-user customers within the
Philippines.Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of
1991 (FIA) expressly states that the phrase doing business excludes the appointment by a foreign
corporation of a local distributor domiciled in the Philippines which transacts business in its own
name and for its own account. On the other hand, DISI argues that it was appointed by Steelcase
as the latter’s exclusive distributor of Steelcase products. The dealership agreement between
Steelcase and DISI had been described by the owner himself as basically a buy and sell
arrangement.

ISSUE

Whether Steelcase had been doing business in the Philippines.

RULING

NO.

[T]he appointment of a distributor in the Philippines is not sufficient to constitute doing business
unless it is under the full control of the foreign corporation. On the other hand, if the distributor
is an independent entity which buys and distributes products, other than those of the foreign
corporation, for its own name and its own account, the latter cannot be considered to be doing
business in the Philippines. Here, DISI was an independent contractor which sold Steelcase
products in its own name and for its own account. As a result, Steelcase cannot be considered to
be doing business in the Philippines by its act of appointing a distributor as it falls under one of
the exceptions under R.A. No. 7042.

Gelano vs CA Case Digest

Gelano vs. Court of Appeals
[GR L-39050, 24 February 1981]

Facts: Insular Sawmill, Inc. (ISI) is a corporation organized on 17 September 1945 with a
corporate life of 50 years, or up to 17 September 1995, with the primary purpose of carrying on
a general lumber and sawmill business. To carry on this business, ISI leased the paraphernal
property of Carlos Gelano's wife Guillermina Mendoza-Gelano at the corner of Canonigo and
Otis, Paco, Manila for P1,200.00 a month. It was while ISI was leasing the aforesaid property that
its officers and directors had come to know Carlos Gelano who received from the corporation
cash advances on account of rentals to be paid by the corporation on the land. Between 19
November 1947 to 26 December 1950 Carlos Gelano obtained from ISI cash advances of
P25,950.00. The said sum was taken and received by Carlos Gelano on the agreement that ISI
could deduct the same from the monthly rentals of the leased premises until said cash advances
are fully paid. Out of the aforementioned cash advances in the total sum of P25,950.00, Carlos
Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance of P20,000.00 which
he refused to pay despite repeated demands by ISI. Guillermina M. Gelano refused to pay on the
ground that said amount was for the personal account of her husband asked for by, and given to
him, without her knowledge and consent and did not benefit the family.

On various occasions from 4 May 1948 to 11 September 1949 the Spouses Gelano also made
credit purchases of lumber materials from ISI with a total price of P1,120.46 in connection with
the repair and improvement of the spouses' residence. On 9 November 1949 partial payment
was made by the spouses in the amount of P91.00 and in view of the cash discount in favor of
the spousesin the amount of P83.00, the amount due ISI on account of credit purchases of
lumber materials is P946.46 which the spouses failed to pay. On 14 July 1952, in order to
accommodate and help the spouses renew previous loans obtained by them from the China
Banking Corporation, ISI, through Joseph Tan Yoc Su, executed a joint and several promissory
note with Carlos Gelano in favor of said bank in the amount of P8,000.00 payable in 60 days. For
failure of Carlos Gelano to pay the promissory note upon maturity, the bank collected from the
ISI the amount of P9,106.00 including interests, by debiting it from the corporation's current
account with the bank. Carlos Gelano was able to pay ISI the amount of P5,000.00 but the
balance of P4,106.00 remained unsettled. Guillermina M. Gelano refused to pay on the ground
that she had no knowledge about the accommodation made by ISI in favor of her husband.

On 29 May 1959, ISI, thru Atty. German Lee, filed a complaint for collection against the spouses
before the Court of First Instance of Manila. Trial was held and when the case was at the stage of
submitting memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde
took over and prepared memorandum. In the meantime, ISI amended its Articles of
Incorporation to shorten its term of existence up to 31 December 1960 only. The amended
Articles of Incorporation was filed with, and approved by the Securities and Exchange
Commission, but the trial court was not notified of the amendment shortening the corporate
existence and no substitution of party was ever made. On 20 November 1964 and almost 4 years
after the dissolution of the corporation, the trial court rendered a decision in favor of ISI
ordering Carlos Gelano to pay ISI the sum of P19,650.00 with interest thereon at the legal rate
from the date of the filing of the complaint on 29 May 1959 until said sum is fully paid; and
P4,106.00, with interest thereon at the legal rate from the date of the filing of the complaint
until said sum is fully paid; and the sum of P2,000.00 attorney's fees. The Court also ordered the
spouses to solidarily pay ISI the sum of P946.46, with interest thereon at the agreed rate of 12%
per annum from 6 October 1946, until said sum is fully paid; P550.00, with interest thereon at
the legal rate from the date of the filing of the complaint until the said sum is fully paid; and
costs of the suit.

The court dismissed the counterclaims of the spouses. Both parties appealed to the Court of
Appeals, with ISI ppealing because it insisted that both Carlos Gelano and Guillermina Gelano
should be held liable for the substantial portion of the claim. On 23 August 1973, the Court of
Appeals rendered a decision modifying the judgment of the trial court by holding the spouses
jointly and severally liable on ISI's claim and increasing the award of P4,106.00 to P8,160.00.
After the spouses received a copy of the decision on 24 August 1973, they came to know that
the ISI was dissolved way back on 31 December 1960.

Hence, the spouses filed a motion to dismiss the case and or reconsideration of the decision of
the Court of Appeals on grounds that the case was prosecuted even after dissolution of ISI as a
corporation and that a defunct corporation cannot maintain any suit for or against it without first
complying with the requirements of the winding up of the affairs of the corporation and the
assignment of its property rights within the required period. Incidentally, after the receipt of the
spouses' motion to dismiss and/or reconsideration or on 28 October 1973, ISI thru its former
directors filed a Petition for Receivership before the Court of First Instance of Manil (Special
Proceedings 92303), which petition is still pending before said court. On 5 November 1973, ISI
filed a comment on the motion to dismiss and/or reconsideration and after the parties have filed
reply and rejoinder, the Court of Appeals on 5 July 1974 issued a resolution denying the
aforesaid motion. The spouses filed the petition for review.

Issue: Whether a corporation, whose corporate life had ceased by the expiration of its terms of
existence, could still continue prosecuting and defending suits after its dissolution and beyond
the period of 3 years provided for under Act 1459, otherwise known as the Corporation Law, to
wind up its affairs, without having undertaken any step to transfer its assets to a trustee or
assignee.

Held: When ISI was dissolved on 31 December 1960, under Section 77 of the Corporation Law, it
still has the right until 31 December 1963 to prosecute in its name the present case. After the
expiration of said period, the corporation ceased to exist for all purposes and it can no longer
sue or be sued. However, a corporation that has a pending action and which cannot be
terminated within the 3-year period after its dissolution is authorized under Section 78 to convey
all its property to trustees to enable it to prosecute and defend suits by or against the
corporation beyond the 3-year period. Although ISI did not appoint any trustee, yet the counsel
who prosecuted and defended the interest of the corporation in the present case and who in
fact appeared in behalf of the corporation may be considered a trustee of the corporation at
least with respect to the matter in litigation only. Said counsel had been handling the case when
the same was pending before the trial court until it was appealed before the Court of Appeals
and finally to the Supreme Court. Therefore, there was a substantial compliance with Section 78
of the Corporation Law and as such, ISI could still continue prosecuting the present case even
beyond the period of 3 years from the time of its dissolution. Further, the case was instituted on
29 May 1959, during the time when the corporation was still very much alive. Any litigation filed
by or against it instituted within the period, but which could not be terminated, must necessarily
prolong that period until the final termination of said litigation as otherwise corporations in
liquidation would lose what should justly belong to them or would be exempt from the payment
of just obligations through a mere technicality, something that courts should prevent.