G.R. No. 63201, 27 May 1992

FACTS:

Private respondents entered into a contract of lease with Philippine Blooming Mills, Co., Inc., (PBM) whereby the latter shall lease the aforementioned parcels of land as factory site. PBM was duly organized and incorporated on January 19, 1952 with a corporate term of twenty-five (25) years.

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 and 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 for any purpose it may deem fit; and before the termination of the lease to remove all such buildings and improvements”

PBM executed in favor of Philippine National Bank (PNB for brevity) 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.

Respondent court issued an order directing the cancellation of the inscriptions on respondents’ certificates of title which was opposed by petitioner on the ground that is not the respondent court but the Securities and Exchange Commission which has jurisdiction over the private respondents’ motion, which raised as issue the corporate existence of PBM.

ISSUE:

Whether or not respondent court has jurisdiction.

RULING:

YES. Anent the issue of whether the cancellation of the entries on respondent’s certificates of title is valid and proper, We find that the respondent court did not act in excess of its jurisdiction, in ordering the same.

The 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.

Clearly, the option of the lessee to extend the lease for another period of twenty years can be exercised only if the lessee as corporation renews or extends its corporate term of existence in accordance with the Corporation Code which is the applicable law. Contracts are to be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment.

Thus, in the instant 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. Records show however, that PBM as a corporation had a corporate life of only twenty-five (25) years which ended on January 19, 1977. It should be noted however that PBM allowed its corporate term to expire without complying with the requirements provided by law for the extension of its corporate term of existence.

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 (16 Fletcher 671 cited by Aguedo F. Agbayani, Commercial Laws of the Philippines, Vol. 3, 1988 Edition p. 617).

When the period of corporate life expires, the corporation ceases to be a body corporate for the purpose of continuing the business for which it was organized. But it shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its assets (Sec. 122, Corporation Code).

There is no need for the institution of a proceeding for quo warranto to determine the time or date of the dissolution of a corporation because the period of corporate existence is provided in the articles of incorporation. When such period expires and without any extension having been made pursuant to law, the corporation is dissolve automatically insofar as the continuation of its business is concerned.

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