G.R. No.L-71837, 26 July 1988


Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed with the SEC a petition for liquidation (but not for dissolution) of both the old PBM and the new PBM. The allegation was that the former had become legally non-existent for failure to extend its corporate life and that the latter had likewise been ipso facto dissolved for non-use of the charter and continuous failure to operate within 2 years from incorporation.

The petitioners insist that they have never given their consent to the creation of the new corporation nor have they indicated their agreement to transfer their respective stocks in the old PBM to the new PBM. The creation of the new corporation with the transfer thereto of the assets of the old corporation was not within the powers of the board of directors of the latter as it was authorized only to wind up the affairs of such company and not in any case to continue its business. Moreover, no stockholders’ meeting had been convened to discuss the deed of assignment and the 2/3 vote required by the Corporation Law to authorize such conveyance had not been obtained.


Whether or not there is valid creation of a new PBM.


YES.It is undeniable that the new PBM has in fact been operating all these years. The petitioners’ argument that Alfredo Ching was merely continuing the business of the old PBM is self-defeating for they themselves argue that the old PBM had already been dissolved. As for the contention that the election of Wellington Chung and J.R. Blanco as directors was subject to the outcome of the petition for liquidation, this is clearly self-serving and completely without proof. Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution.

Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that “every corporation formed under this Act, must within one month after the filing of the articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws.” Whether this provision should be given mandatory or only directory effect remained a controversial question until it became academic with the adoption of PD 902-A. Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or revocation of the certificate of registration of corporations.

Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(i) of PD 902-A, the SEC is empowered to “suspend or revoked, after proper notice and hearing, the franchise or certificate of registration of a corporation” on the ground inter alia of “failure to file by-laws within the required period.”

It is clear from this provision that there must first of all be a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm.

*Case Digest by JAY MARK P. BALBOSA JD – IV, Andres Bonifacio College, SY 2019 – 2020