ALHAMBRA CIGAR ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner, vs. SECURITIES & EXCHANGE COMMISSION

Posted: February 14, 2016 in case digests, corporation law, law, lawschool
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G.R. No. L-23606           July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,
vs.
SECURITIES & EXCHANGE COMMISSION, respondent.

Gamboa and Gamboa for petitioner.
Office of the Solicitor General for respondent.

SANCHEZ, J.:

FACTS: Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply as Alhambra) was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of liquidation.

Thereafter, a new corporation. — Alhambra Industries, Inc. — was formed to carry on the business of Alhambra.

On May 1, 1962, Alhambra’s stockholders, by resolution named Angel S. Gamboa trustee to take charge of its liquidation.

 Within Alhambra’s three-year statutory period for liquidation – Republic Act 3531 was enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic private corporations to extend their corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years.

At a special meeting, Alhambra’s board of directors resolved to amend paragraph “Fourth” of its articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from its incorporation.

Alhambra’s stockholders, representing more than two-thirds of its subscribed capital stock, voted to approve the foregoing resolution. The “Fourth” paragraph of Alhambra’s articles of incorporation was thus altered to read:

FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date of incorporation, and for an additional period of fifty (50) years thereafter.

Alhambra’s articles of incorporation as so amended certified correct by its president and secretary and a majority of its board of directors, were filed with respondent Securities and Exchange Commission (SEC).

SEC, however, returned said amended articles of incorporation to Alhambra’s counsel with the ruling that Republic Act 3531 “which took effect only on June 20, 1963, cannot be availed of by the said corporation, for the reason that its term of existence had already expired when the said law took effect in short, said law has no retroactive effect.”

Alhambra’s counsel sought reconsideration of SEC’s ruling. SEC  issued an order denying the reconsideration sought.Alhambra now invokes the jurisdiction of this Court to overturn the conclusion

But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

… Provided, however, That the life of said corporation shall not be extended by said amendment beyond the time fixed in the original articles: …

This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their corporate existence.

 

ISSUE: May a corporation extend its life by amendment of its articles of incorporation effected during the three-year statutory period for liquidation when its original term of existence had already expired?

HELD: A corporation cannot extend its life by amendment of its articles of incorporation effected during the three-year statutory period for liquidation when its original term of existence had already expired.

As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when Alhambra made its attempt to extend its corporate existence, its original term of fifty years had already expired (January 15, 1962); it was in the midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law.

Plain from the language of the provision is its meaning: continuance of a “dissolved” corporation as a body corporate for three years has for its purpose the final closure of its affairs, and no other; the corporation is specifically enjoined from “continuing the business for which it was established”. The liquidation of the corporation’s affairs set forth in Section 77 became necessary precisely because its life had ended. For this reason alone, the corporate existence and juridical personality of that corporation to do business may no longer be extended.

The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation became legally dead for all purposes. Statutory authorizations had to be provided for its continuance after dissolution “for limited and specified purposes incident to complete liquidation of its affairs”.3 Thus, the moment a corporation’s right to exist as an “artificial person” ceases, its corporate powers are terminated “just as the powers of a natural person to take part in mundane affairs cease to exist upon his death”.4 There is nothing left but to conduct, as it were, the settlement of the estate of a deceased juridical person.

Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act of extension may be made. But even with a superficial knowledge of corporate principles, it does not take much effort to reach a correct conclusion. For, implicit in Section 77 heretofore quoted is that the privilege given to prolongcorporate life under the amendment must be exercised before the expiry of the term fixed in the articles of incorporation.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to prolong corporate life was inserted by Republic Act 3531 into a section of the law that deals with the power of a corporation to amend its articles of incorporation. (For, the manner of prolongation is through an amendment of the articles.) And it should be clearly evident that under Section 77 no corporation in a state of liquidation can act in any way, much less amend its articles, “for the purpose of continuing the business for which it was established”.

All these dilute Alhambra’s position that it could revivify its corporate life simply because when it attempted to do so, Alhambra was still in the process of liquidation. It is surely impermissible for us to stretch the law — that merely empowers a corporation to act in liquidation — to inject therein the power to extend its corporate existence.

ECHOS FROM THE CASE LANG(WORTH READING): The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of Kentucky.6There, pronouncement was made as follows:

… But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles of incorporation, it may be thereafter continued to act for the purpose of closing up its business, but for no other purpose. The corporate life of the Home Building Association expired on May 3, 1905. After that date, by the mandate of the statute, it could continue to act for the purpose of closing up its business, but for no other purpose. The proposed amendment was not made until January 16, 1908, or nearly three years after the corporation expired by the terms of the articles of incorporation. When the corporate life of the corporation was ended, there was nothing to extend. Here it was proposed nearly three years after the corporate life of the association had expired to revivify the dead body, and to make that relate back some two years and eight months. In other words, the association for two years and eight months had only existed for the purpose of winding up its business, and, after this length of time, it was proposed to revivify it and make it a live corporation for the two years and eight months daring which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that the time may be extended by the court, but under this provision it has uniformly been held that when the time was expired, there is nothing to extend, and that the appeal must be dismissed… So, when the articles of a corporation have expired, it is too late to adopt an amendment extending the life of a corporation; for, the corporation having expired, this is in effect to create a new corporation …”7

To be observed is that the foregoing statute — unlike Republic Act 3531 — expressly authorizes domestic insurance corporations to extend their corporate existence “on or before the expiration of the term” fixed in their articles of incorporation. Republic Act 1932 was approved on June 22, 1957, long before the passage of Republic Act 3531 in 1963. Congress, Alhambra points out, must have been aware of Republic Act 1932 when it passed Republic Act 3531. Since the phrase “on or before”, etc., was omitted in Republic Act 3531, which contains no similar limitation, it follows, according to Alhambra, that it is not necessary to extend corporate existence on or before the expiration of its original term.

That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes no relevance. We have already said, in the face of a familiar precept, that a defunct corporation is bereft of any legal faculty not otherwise expressly sanctioned by law.

By: Alee Garcia

 

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