Buslaw2 Cases

GR No L-23606
Alhambra Cigar & Cigarette Mfg. Company Inc. v SEC

Sanchez, J.:

Facts:
On January 15, 1962, petitioner ​Alhambra Cigar and Cigarette Manufacturing Company, Inc.
was duly incorporated under Philippine laws. However, its corporate articles was to exist for only
fifty (50) years from incorporation which was then expired on January 15, 1962. On that date, it
ceased transacting business, entered into a state of liquidation.​On June 20, 1963 — 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. On July 15, 1963, 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 but was later denied by
Securities and Exchange commission

Issue: Whether or not, corporate life of a corporation be extended after it’s charter has already
expired

Ruling:
No, the court ruled that when 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”. Hence, There is nothing left but to conduct,
as it were, the settlement of the estate of a deceased juridical person. In addition, it has been
stated under Sec. 77 of the corporation code that such privilege in amending to prolong the
corporate life must be made prior to the expiration stipulated in the Articles of incorporation. In
this case, Alhambra attempted to amend its corporate existence during the time it’s corporate
life had already expired.
GR. No. 11897
Ramirez v Orientalist

Street, J.:

Facts:
The Orientalist Company is a corporation duly organized under the laws of the Philippine
Islands, was engaged in the business of maintaining and conducting a theatre in the city of
Manila for the exhibition of cinematographic films. In this case, Plaintiff J. F. Ramirez was, at the
same time, a resident of the city of Paris, France, and was engaged in the business of
marketing films for a manufacturer or manufacturers, there engaged in the production or
distribution of cinematographic material. As a result, he was represented by his son, Jose
Ramirez. The directors of the Orientalist Company became apprised of the fact that the plaintiff
in Paris had control of the agencies for two different marks of films, namely, the “Eclair Films”
and the “​Milano F​ ilms;” and negotiations were begun with said officials of the Orientalist
Company by Jose Ramirez, as agent of the plaintiff. The defendant Ramon J. Fernandez, one
of the directors of the Orientalist Company, was chiefly active in this matter. Ramon J.
Fernandez had an informal conference with all the members of the company’s board of directors
except one, and with the approval of those with whom he had communicated, addressed a letter
to Jose Ramirez, in Manila, accepting the offer contained in the memorandum the exclusive
agency of the ​Eclair f​ ilms and Milano films. In due time the films began to arrive in Manila, it
appears that the Orientalist Company was without funds to meet these obligations. Action was
instituted by the plaintiff to Orientalist Company, and Ramon J. Fernandez for sum of money.

Issue: Whether or not, Orientalist Company is liable for the acts of Fernandez as the treasurer of
the company

Ruling:
Yes, the court ruled that since Fernandez is part of the board of directors of the company and
who was most active in the effort to secure the films for the corporation, such negotiations
conducted by him with the knowledge and consent of other members of the board; and the
contract was made with their prior approval. The court is of the opinion that the contracts in
question were thus inferentially approved by the company’s board of directors and that the
company is bound unless the subsequent failure of the stockholders to approve said contracts
had the effect of abrogating the liability thus created.
GR. No. L-21644
Pua Casim & Co v W. Neumark & Co

Ostrand, J.:

Facts:
The action is brought to recover the sum of P15,000 with interest and costs. It is alleged that on
January 20, 1922, the defendant corporation represented by its president and principal
stockholder, W. Neumark, borrowed from the plaintiff the sum of P15,000 which was delivered
to the said defendant by means of a check drawn in favor of the defendant against the plaintiff's
account in the China Banking Corporation, which check was deposited with the Bank of the
Philippine Islands and the amount of it credited to the defendant on its current account. The
defendant's answer is a general denial together with a special defense to the effect that W.
Neumark had never been authorized by the defendant corporation to borrow money for its
account from the plaintiff to the amount of P15,000 and that said defendant has never received
nor made use of the sum alleged to have been so borrowed. The court rendered a judgment in
favor of the plaintiff for the sum of P15,000 with legal interest from October 30, 1922, and with
the costs. From this judgment the defendant appeals to this court.

Issue: Whether or not, the court erred in holding the defendant responsible for the payment of
the money borrowed by Neumark

Ruling:
No, the court ruled that where a general business manager of a corporation is clothed with
apparent authority to borrow and the amount borrowed does not exceed the ordinary
requirements of the business, it has often been held that the authority is implied and that the
corporation is bound.​ Thus, in this case there are ample indications in the record that the
corporation was in need of funds to carry on its business and it does not appear that the amount
borrowed was disproportionate to the volume of the business. As president, general manager and
principal stockholder Neumark appeared, in a sense, to be almost the whole corporation and was
clothed with apparent authority to do everything necessary for the conduct of its business. In these
circumstances he must be held to have been impliedly authorized to borrow the money her in
question.
GR. No. L-22450
Yu Chuck v Kong Li Po

Ostrand, J.:

Facts:
Some time during the year 1919 one C. C. Chen or T. C. Chen was appointed general business
manager of the newspaper. During the month of December of that year he entered into an
agreement with the plaintiffs by which the latter bound themselves to do the necessary printing
for the newspaper for the sum of P580 per month as alleged in the complaint. Before the
expiration of the said contract, a new manager, Tan Tian Hong, who had been appointed in the
meantime, C. C. Chen having left for China and the services of the plaintiffs were discharged
without any special reason. Plaintiffs then filed a complaint against Kong Li Po. In its defense,
the Kong Li Po invoked that Chen had no authority to enter into a contract of employment.

Issue: Whether or not, Chen had the power to bind the corporation by a contract of employment

Ruling:
No, the court stated that it is a well-settled rule that such power to bind a corporation by contract
lies with its board of directors or trustees, but this power may either expressly or impliedly be
delegated to other officers or agents of the corporation. In this case, Chen, as general manager
of the Kong Li Po, had implied authority to bind the defendant corporation by a reasonable and
usual contract of employment with the plaintiffs,​but the conditions are otherwise so onerous to the
defendant that the possibility of the corporation being thrown into insolvency thereby is expressly
contemplated in the same contract. Thus, since the contract entered into by the plaintiffs were
unusually wrong and conditions are otherwise onerous to Kong Li Po such contract is not within the
authority of Chen and therefore invalid.
GR. No. L-18287
Francisco v GSIS

REYES, J.B.L., J.:

Facts:

On 10 October 1956, the plaintiff, Trinidad J. Francisco, in consideration of a loan in the amount of
P400,000.00, out of which the sum of P336,100.00 was released to her, mortgaged in favor of the
defendant, Government Service Insurance System a parcel of land containing an area of 18,232
square meters, with twenty-one (21) bungalows, known as Vic-Mari Compound, located at Baesa,
Quezon City, payable within ten (10) years in monthly installments of P3,902.41, and with interest of
7% per annum compounded monthly. On January 6, 1959, the mortgage was foreclosed. GSIS
acquired possession of the land. On February 29,1959, the plaintiff's father, Atty. Vicente J.
Francisco, sent a letter to GSIS proposing a redemption of property which the latter approved said
redemption. On January 1960, Trinidad , thinking that she had already redeemed such property
received a letter from GSIS asking for a proposal for the payment of her indebtedness, since
according to the System the one-year period for redemption had expired. GSIS continued to demand
such foreclosure and claimed that the said telegram assenting to the proposal letter of Francisco’s
father should be disregarded as it failed to express the contents of board resolution due to error of
correct wording by its employees. In addition, the board resolution approving such letter demanded a
condition to Francisco’s father to pay the expenses in the foreclosure mortgage. Trinidad thus
initiated the suit. Trial court ruled in favor of Trinidad and rendered a decision that the plaintiff need
not pay extra charges being demanded.

Issue: Whether or not, the offer made by Vicente Francisco was accepted by the corporation

Ruling:
Yes, the court ruled that a person who knows that the officer or agent of the corporation
habitually transacts certain kinds of business for such corporation under circumstances which
necessarily show knowledge on the part of those charged with the conduct of the corporate
business assumes, as he has the right to assume that such agent or officer is acting within the
scope of his authority. Thus, ​i​f a private corporation intentionally or negligently clothes its
officers or agents with apparent power to perform acts for it, the corporation will be estopped to
deny that such apparent authority is real, as to innocent third persons dealing in good faith with
such officers or agents. In this case, the telegram was within Andal’s authority, assuming that it
was sent by Board of Secretary in his name but without his consent, third persons are not duty
bound to disbelieve the acts of the corporation's officers.
GR. No. L-14985
Buenaseda v Bowen & Co. Inc and Geoffrey Bowen

Gutierrez David, J.:

Facts:
On August 11, 1951, the Board of Directors of Bowen & CO., Inc., a duly organized domestic
corporation, adopted a resolution appointing one of its directors, Francisco U. Buenaseda, as
Managing Director, he was then authorized "to negotiate for and on behalf of the corporation
with Government for the securing of the ECA order for paints in the sum of $398,000.00", with
full powers to arrange the financing of the order and if necessary to the entire assets of the
Corporation. After negotiations, an award of P200,000 worth of ECA procurement materials
consisting of marine and industrial paints was allocated to the corporation. For the importation of
these materials, it was necessary to open a letter of credit in the amount of P100,000.00 with
the Philippine National Bank. As the corporation did not have at the time the necessary funds to
put up the required cash marginal deposit of P60,000.00, its president, Geoffrey Bowen,
obliging the corporation and himself in his personal capacity, offered to pay Francisco U.
Buenaseda 37-½% of the profits to be realized from the sale of the ECA procurement materials.
Buenaseda accepted the offer and another corporation, E.J.C. Montilla & Co. agreed to put up
the cash marginal deposit of P60,000.00..From September 1951 to July 1955, part of the said
materials were sold, which the corporation garnered a net profit of P22,303.98. Of this amount,
Buenaseda claimed 37-1/2% or P8,363.99 on the strength of the promise of Geoffrey Bowen.
The said corporation refused to pay, Buenaseda then filed an action against the corporation to
recover the said amount of P8,363.99. The lower court rendered a decision absolving the
defendants from the complaint on the theory that the earnings or profits derived from the sale of
the imported materials were property of the corporation and that the "commitment" made to
plaintiff by defendant Bowen was not approved by the Board of Directors of the defendant
corporation.

Issue: Whether or not, the corporation should pay the amount claimed by Buenaseda

Ruling:
Yes, the court ruled that such contention is meritorious. It is not here pretended that the Board
of Directors of the defendant corporation had no knowledge of the agreement between Geoffrey
Bowen and plaintiff to the effect that the latter was to receive 37-½% of the profits to be realized
from the importation and sale of ECA procurement materials. The Board did not repudiate the
agreement entered into by Geoffrey Bowen with plaintiff Buenaseda, rather, took advantage of
the benefits afforded by said agreement. Such acts are equivalent to an implied ratification of
the agreement by the Board of Directors and binds the corporation even without formal
resolution passed and recorded. Hence, said decision is reversed ordering the corporation
Bowen & Co., to pay the sum of P8,363.99 to petitioner Francisco U. Buenaseda with legal
interest from June 17, 1955, and 37-½% of such other profits as may be realized from the sale
of the remaining ECA procurement materials.
GR. No. L-27972
CENTRAL COOPERATIVE EXCHANGE (CCE) VS. TIBE, JR.

REYES, J.B.L., J.:

Facts:

In 1960, respondent Concordio Tibe, Sr. drew and collected from petitioner CCE cash advances
amounting to P5,668.00. In addition, respondent had also drawn several sums, amounting to
P14,436.95, representing commutable per diems for attending meetings of the Board of
Directors in Manila, per diems and transportation expenses for FACOMA visitations,
representation expenses and commutable discretionary funds. All these sums were disbursed
with the approval of general manager, treasurer and auditor of CCE. Section 8 of the By-Laws
of petitioner federation provides: “The compensation, if any, and the per diems for attendance at
meetings of the members of the Board of Directors shall be determined by the members at any
annual meeting or special meeting of the Exchange called for the purpose.” The board passed
five resolutions which made it possible for Tibe to draw and collect money sought to be
reversed. Such resolutions are under contention to be invalid. The trial court rendered a
decision dismissing the complaint filed by petitioner and affirmed the lower court’s decision

Issue: Whether or not the board of directors of the CCE had the power and authority to adopt
various resolutions which appropriated the funds of the corporation for the above-enumerated
expenses for the members of the said board.

Ruling:

No, the court ruled that questioned resolutions are contrary to the By-Laws of the federation
and, therefore, are not within the power of the board of directors to enact. The By-Laws, in the
aforequoted Section 8, explicitly reserved unto the stockholders the power to determine the
compensation of members of the board of directors, and the stockholders did restrict such
compensation to "actual transportation expenses plus the per diems of P30.00 and actual
expenses while waiting. The law is well-settled that directors of corporations presumptively
serve without compensation and in the absence of an express agreement or a resolution in
relation thereto, no claim can be asserted therefore. Thus, there can be no recovery of
compensation, unless expressly provided for, when a director serves as president or vice
president, secretary, treasurer or cashier, a member of an executive committee, chairman of a
building committee, or similar offices.
GR. No. L-5174
CANDIDO PASCUAL VS. EUGENIO DEL SAZ OROZCO

Trent, J.:

Facts:

This is an appeal by the plaintiff from a judgment sustaining a demurrer to the first and second
causes of action set forth in the amended complaint. It is alleged in the amended complaint that
the only compensation provided for managing officers of the bank was a certain percent of the
net profits resulting from bank’s operation set forth in article 30 of reformed charter. The first
action was that during the years 1903, 1904, 1905, and 1907 the defendants and appellees,
without the knowledge, consent, or acquiescence of the stockholders, deducted their respective
compensation from the gross income instead of from the net profits of the bank, thereby
defrauding the bank and its stockholders of approximately P20,000 per annum. On the other
hand, the second action sets forth that defendants' and appellees' immediate predecessors in
office in this bank during the years 1899, 1900, 1901, and 1902, committed the same illegality
as to their compensation as is charged against the defendants themselves. In the four years
immediately following the year 1902, the defendants and appellees were the only officials or
representatives of the bank who could and should investigate and take action in regard to the
sums of money thus fraudulently appropriated by their predecessors. The lower court sustained
the demurrer as to the first and second cause of action on grounds that plaintiff must aver in his
complaint that he was the owner of the stock corporation at the time of the occurrences
complained thereof.

Issue: Whether or not, the petitioner has a cause of action to file a derivative suit

Ruling:

Yes, the court ruled that as to the first cause of action, in suits of this character the corporation
itself and not the plaintiff stockholder is a real party interest; the rights of the individual
stockholder is merged into that of corporation. Thus, the plaintiff by reason of the fact that he is
a stockholder in the corporation has a right to maintain a suit on behalf of the bank but only to
the extent for what purpose he acquired the shares which he now owns. On the other hand, as
to the second case, it affirmatively appeared that when such action was instituted the plaintiff
was not a stockholder. Hence, when such question was instituted on whether or not the plaintiff
has right to file an action when he was not a stockholder, the authorities does not agree.
GR No. 85339
SAN MIGUEL CORPORATION vs. ERNEST KAHN

Narvasa, J.:

Facts:
On December 15, 1983, fourteen corporations initially acquired shares of outstanding capital
stock of SMC and constituted a Voting Trust thereon in favor of Andres Soriano, Jr. When the
latter died Eduardo Cojuanco was elected as the substitute trustee. However, after the EDSA
revolution, Cojuanco fled out of the country, and subsequently an agreement was entered into
between the fourteen corporations and Andres Soriano III (as an agent of several persons) for
the purchase of the shares held by the former. The buyer of the said shares was Neptunia
Corporation, a foreign corporation and wholly-owned subsidiary of another subsidiary wholly
owned by SMC. Neptunia paid the downpayment from the proceeds of certain loans. PCGG
then sequestered the shares subject of the sale so SMC suspended all the other installments of
the price to the sellers. The 14 corporations then sued for rescission and damages. ​Meanwhile,
PCGG directed SMC to issue qualifying shares to seven (7) individuals including Eduardo de los
Angeles from the sequestered shares for them to hold in trust. Then, the SMC’s board of
directors passed a resolution assuming the loans incurred by Neptunia for the down payment.
De los Angeles assailed the resolution alleging that it was not passed by the board aside from
its deleterious effects on the corporation’s interest. When his efforts to obtain relief within the
corporation proved futile, he filed this action with the SEC. Respondent directors alleged that de
los Angeles has no legal standing having been merely “imposed” by the PCGG and that the
twenty (20) shares owned by him personally cannot fairly and adequately represent the interest
of the minority.

Issue: Whether or not, De los Angeles have legal standing to file a derivative suit

Ruling:
Yes, the court ruled that the bona fide ownership by a stockholder in his own right suffices to
invest him with the standing to bring a derivative suit for the benefit of the corporation. Under the
law, the following are the requisites of a derivative suit are: (1) the party bringing the suit should
be a stockholder as of the time of the act or transactions complained of, the number of shares
not being material; (2) exhaustion of intra-corporate remedies (has made a demand on the
board of directors for the appropriate relief but the latter has failed or refused to heed his plea);
and (3) the cause of action actually devolves on the corporation and not to the particular
stockholder bringing the suit. Thus, the number of his shares is immaterial since he is not suing
in his own behalf, rather, on behalf and for the benefit of the corporation.
GR. No. L-15092
Montelibano vs. Bacolod-Murcia Milling Co., Inc.

Reyes, J.B.L., J.:

Facts:

Montelibano et al. are sugar planters adhered to the Bacolod-Murcia Milling Co., Inc’s sugar
central mill under identical milling contracts originally executed in 1919. In 1936, it was
proposed to execute amended milling contracts, increasing the planters’ share of the
manufactured sugar, besides other concessions. To this effect, a printed Amended Milling
Contract form was drawn up. The Board of Directors of Bacolod-Murcia Milling Co., Inc. adopted
a resolution granting further concessions to the planters over and above those contained in the
printed Amended Milling Contract on August 10, 1936.The printed Amended Milling Contract
was signed by the Appellants on September 10, 1936, but a copy of the resolution was not
attached to the printed contract until April 17, 1937. In 1953, the appellants initiated an action,
contending that three Negros sugar centrals had already granted increased participation to their
planters, and that under paragraph 9 of the resolution of August 20, 1936, the appellee had
become obligated to grant similar concessions to the appellants herein. The Bacolod-Murcia
Milling Co., inc., resisted the claim, urging that the resolution in question was null and void ​ab
initio​, being in effect a donation that was ​ultra vires​ and beyond the powers of the corporate
directors to adopt.

Issue: Whether or not, the act of Board of Directors was an ultra vires act

Ruling:
No, the court ruled that as the resolution in question was passed in good faith by the board of
directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of
the central, the court has no authority to review them. Furthermore, it is a well-known rule of law
that questions of policy or of management are left solely to the honest decision of officers and
directors of a corporation, and the court is without authority to substitute its judgment of the
board of directors; the board is the business manager of the corporation, and so long as it acts
in good faith its orders are not reviewable by the courts. Thus, the appellee Bacolod-Murcia
Milling Company is, under the terms of its Resolution of August 20, 1936, duty bound to grant
similar increases to herein plaintiffs-appellants.
GR No. L-5377
PRIVANO, ET AL. VS. DE LA RAMA STEAMSHIP CO.

Bautista Angelo, J.:

Facts:
Enrico Pirovano, president of the defendant company, managed the company until it became a
multi-million corporation by the time Pirovano was executed by the Japanese during the occupation.
The BOD passed a resolution stating out of the proceeds, the sum of P400,000 be set aside for
equal division among the 4 minor children, convertible into shares of stock of the De la Rama
Steamship Company, at par and, for that purpose, that the present registered stockholders of the
corporation be requested to waive their preemptive right to 4,000 shares of unissued stock of the
company in order to enable each of the 4 minor heirs to obtain 1,000 shares at par. And if the
Pirovano children would given shares of stock, the voting strength of the 5 daughters of Don
Esteban would be adversely affected - Mrs. Pirovano would have a voting power twice that of her
sisters. Lourdes de la Rama then wrote to secretary of the corporation, Atty. Marcial Lichauco,
asking him to cancel the waiver she supposedly gave of her pre-emptive rights. The company
amended the resolution turning it into a loan with 5% interest payable when the obligation can be
met. The company revoked its donation of the life premium proceeds since it is not in compliance
with the SEC. The minor children of the late Enrico represented by their mother and judicial guardian
demanded the payment of the credit due them as of December 31, 1951, amounting to P564,980.89.
The lower court rendered a decision stating that the contract or donation is not ultra vires act

Issue: Whether or not, such donation is an ultra vires act

Ruling:
No, the court ruled that such donation was valid and binding. It is evident that such donation has
reached a stage of perfection which is valid upon the corporation and as such cannot be revoked
unless there exists a legal ground. Such donation was duly approved by the BOD through a
resolution.​ Thus, the court is of opinion that such resolution approved by the stockholders of the
defendant corporation on March 8, 1951 did not and cannot have the effect of nullifying the
donation in question.
GR. No. L-23241
HENRY FLEISCHER VS. BOTICA NOLASCO CO., INC.

Johnson, J.:

Facts:
On November 15, 1923, the plaintiff filed an amended complaint against the Botica Nolasco,
Inc., alleging that he became the owner of five shares of stock of said corporation, by purchase
from their original owner, one Manuel Gonzalez; that the said shares were fully paid; and that
the defendant refused to register said shares in his name in the books of the corporation in spite
of repeated demands to that effect made by him upon said corporation, which refusal caused
him damages amounting to P500. The defendant again filed a demurrer on the ground that the
amended complaint did not state facts sufficient to constitute a cause of action, and that said
amended complaint was ambiguous, unintelligible, uncertain, which demurrer was overruled by
the court. The defendant answered the amended complaint denying generally and specifically
each and every one of the material allegations thereof, and, as a special defense, alleged that
the defendant, pursuant to article 12 of its by-laws, had preferential right to buy from the plaintiff
said shares at the par value of P100 a share, plus P90 as dividends corresponding to the year
1922, and that the said offer was refused by the plaintiff. The defendant prayed for a judgment
absolving it from all liability under the complaint and directing the plaintiff to deliver to the
defendant the five shares of stock in question, and to pay damages in the sum of P500, and the
costs.

Issue: ​Whether or not. Article 12 of the by-laws of the Botica Nolasco, Inc., constitutes a by-law
governing the transfer of shares of stock of said corporation

Ruling:
No, the court ruled that under the law by-laws of a corporation are valid if they are reasonable
and calculated to carry into effect the objects of the corporation, and are not contradictory to the
general policy of the laws of the land. In a statute authorizing by- laws for the transfer of stock, a
corporation can do no more than prescribe a general mode of transfer on the corporate books
and cannot justify an unreasonable restriction upon the right of sale. Thus, the only restraint
imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459,
quoted as follows: "No transfer, however, shall be valid, except as between the parties, until the
transfer is entered and noted upon the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of the certificate, and the number
of shares transferred." Such restriction is necessary in order that the officers of the corporation
may know who are the stockholders, which is essential in conducting elections of officers, in
calling a meeting of stockholders, and for other purposes.
GR No. 63201
PNB v Court of First Instance of Rizal

Medialdea, J.:

Facts:
On March 1, 1954, private respondents entered into a contract of lease with Philippine Blooming
Mills, Co., Inc., whereby the letter shall lease the aforementioned parcels of land as factory site.
The contract of lease provides that the term of the lease is for twenty years beginning from the
date of the contract and “is extendable for another term of twenty years at the option of the
LESSEE should its term of existence be extended in accordance with law.”.The contract also
states that the lessee agrees to “use the property as factory site and for that purpose to
construct whatever buildings or improvements may be necessary or convenient and/or . . for
any purpose it may deem fit; and before the termination of the lease to remove all such
buildings and improvements. In accordance with the contract, PBM introduced on the land,
buildings, machineries and other useful improvements. On October 11, 1963, PBM executed in
favor of Philippine National Bank (PNB), petitioner herein, a deed of assignment, conveying and
transferring all its rights and interests under the contract of lease which it executed with private
respondents. The assignment was for and in consideration of the loans granted by PNB to PBM.
The deed of assignment was registered and annotated at the back of the private respondents’
certificates of title as Entry No. 85215/TNo. 32843. On November 6, 1963 and December 23,
1963 respectively, PBM executed in favor of PNB a real estate mortgage for a loan of
P100,000.00 and an addendum to real estate mortgage for another loan of P1,590,000.00,
covering all the improvements constructed by PBM on the leased premises. These mortgages
were registered and annotated at the back of respondents’ certificates as Entry No. 85214/T-No.
43338 and Entry No. 870971/T-No. 32843, respectively. On October 7, 1981, private
respondents filed a motion in the same proceedings which was given a different case number to
wit, LRC Case No. R-2744, because of the payment of filing fees for the motion. The motion
sought to cancel the annotations on respondents’ certificates of title pertaining to the
assignment by PBM to PNB of the former’s leasehold rights, inclusion of improvements and the
real estate mortgages made by PBM in favor of PNB, on the ground that the contract of lease
entered into between PBM and respondents-movants had already expired by the failure of PBM
and/or its assignee to exercise the option to renew the second 20-year lease commencing on
March 1, 1974 and also by the failure of PBM to extend its corporate existence in accordance
with law. The motion also states that since PBM failed to remove its improvements on the
leased premises before the expiration of the contract of lease, such improvements shall accrue
to respondents as owners of the land.

Issue: Whether or not, the corporate life of PBM was extended by the continuance of the lease
and subsequent registration of the title to the improvements under its name

Ruling
No, the court ruled that such contract of lease expressly provides that the term of the lease shall
be twenty years from the execution of the contract but can be extended for another period of
twenty years at the option of the lessee should the corporate term be extended in accordance
with law. In this case, the initial term of the contract of lease which commenced on March 1,
1954 ended on March 1, 1974. PBM as lessee continued to occupy the leased premises beyond
that date with the acquiescence and consent of the respondents as lessor. In addition, it has
been stated under Section 11 of Corporation Code provides that “a corporation shall exist for a
period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or
unless said period is extended. Upon the expiration of the period fixed in the articles of
incorporation in the absence of compliance with the legal requisites for the extension of the
period, the corporation ceases to exist and is dissolved ipso facto”.Thus, considering the
foregoing in relation to the contract of lease between the parties herein, when PBM’s corporate
life ended on January 19, 1977 and its 3-year period for winding up and liquidation expired on
January 19, 1980, the option of extending the lease was likewise terminated on January 19,
1977 because PBM failed to renew or extend its corporate life in accordance with law. From
then on, the respondents can exercise their right to terminate the lease pursuant to the
stipulations in the contract.