Chung Ka Bio vs. Intermediate Appellate Court

Failure to use a corporate charter within two years from incorporation or failure to adopt and file by-laws does not automatically dissolve a corporation or terminate its juridical personality; such failures are merely grounds for suspension or revocation of the certificate of registration after proper notice and hearing, and substantial compliance with these conditions subsequent suffices to maintain corporate existence.

The case involves the Philippine Blooming Mills Company, Inc. (PBM), originally incorporated in 1952 with a 25-year corporate term that expired on January 19, 1977. Upon dissolution, the board of directors executed a deed of assignment transferring all corporate assets to a newly formed corporation intended to continue the same business. Four years later, stockholders of the dissolved corporation challenged the validity of the transfer and the existence of the new corporation, alleging lack of stockholder consent and automatic dissolution due to non-use of charter and failure to file by-laws.

• Philippine Blooming Mills Company, Inc. (old PBM) was incorporated on January 19, 1952, for a term of 25 years, which expired on January 19, 1977.
• On May 14, 1977, the members of the board of directors of the old PBM executed a deed of assignment transferring all accounts receivables, properties, obligations, and liabilities to Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process of reincorporation.
• On June 14, 1977, the Securities and Exchange Commission issued a certificate of incorporation to the new PBM.
• The new PBM operated the same business as the old PBM, employed approximately 2,000 of the same personnel, and maintained the same office location in Metro Manila.
• Chung Siong Pek, one of the petitioners, was a director of the old PBM who executed the deed of assignment and also served as treasurer of the new PBM who received the deeded assets.
• On May 5, 1981, Chung Ka Bio and other petitioners, stockholders of the old PBM, filed a petition for liquidation alleging that the old PBM had become legally non-existent for failure to extend its corporate life and that the new PBM had been ipso facto dissolved for non-use of its charter and continuous failure to operate within two years from incorporation.
• The petitioners and private respondents are relatives and close business associates.
• The new PBM adopted and filed its by-laws on September 6, 1981.
• Alfredo Ching, a director of the old PBM, filed a petition for suspension of payments jointly with the new PBM on April 1, 1982.

• The board of directors of an already dissolved corporation lacks the inherent power, without express stockholder consent, to convey all corporate assets to a new corporation; the board is limited to winding up affairs, not continuing the business.
• No stockholders' meeting was convened to discuss the deed of assignment, and the two-thirds vote required under Section 28-1/2 of the Corporation Law was not obtained.
• The new corporation is accountable for the transferred assets to the stockholders of the dissolved corporation who did not consent to the conveyance.
• The new corporation has not substantially complied with the two-year requirement of Section 22 of the Corporation Code regarding non-use of charter because its stockholders never adopted a set of by-laws, rendering it ipso facto dissolved.
• A quo warranto proceeding is unnecessary to dissolve a corporation already "deemed dissolved" under Section 22 of the Corporation Code.
• The Securities and Exchange Commission has no jurisdiction over a petition for suspension of payments filed by an individual only, as jurisdiction is limited to corporations, partnerships, or associations under Section 5(d) of PD 902-A.

• The proper authorization for the transfer was duly obtained at a stockholders' meeting held on March 19, 1977, as evidenced by a unanimous resolution reproduced verbatim in the deed of assignment; the presumption of regularity applies to the SEC's issuance of the certificate of incorporation.
• Petitioners failed to file a written objection or demand payment for their shares within the forty-day period provided under Section 28-1/2 of the Corporation Law, indicating their acquiescence or unanimous consent.
• The new PBM has been actually and continuously operating since 1977, employing thousands of workers and conducting business openly, negating any claim of non-use of charter.
• Failure to file by-laws does not automatically dissolve a corporation but is merely a ground for suspension or revocation of the certificate of registration after proper notice and hearing under PD 902-A.
• The Securities and Exchange Commission may assume jurisdiction over the suspension of payments petition involving an individual to avoid multiplicity of suits and ensure orderly settlement of corporate debts.

• Procedural:
  • Whether the Securities and Exchange Commission has jurisdiction over a petition for suspension of payments filed by an individual.
• Substantive Issues:
  • Whether the board of directors of a dissolved corporation may validly transfer all corporate assets to a newly incorporated entity without express stockholder consent.
  • Whether a corporation is automatically dissolved for non-use of its charter within two years from incorporation or for failure to adopt and file by-laws.

• Procedural:
  • The Securities and Exchange Commission has no jurisdiction over petitions for suspension of payments filed by individuals. Section 5(d) of PD 902-A expressly limits such jurisdiction to "corporations, partnerships or associations." Administrative agencies are tribunals of limited jurisdiction and can exercise only those powers specifically granted by their enabling statutes. Jurisdiction over the subject matter cannot be conferred by agreement of the parties, acquiescence, or waiver. Consequently, Alfredo Ching, as a mere individual, cannot be a co-petitioner in the suspension of payments case, and the IAC decision is modified accordingly.
• Substantive:
  • The transfer of assets from the old PBM to the new PBM was valid. While the board of a dissolved corporation is normally limited to liquidation activities, it may negotiate and transfer assets to a new corporation intended to continue the business provided the stockholders have given their consent. The presumption of regularity applies to the SEC's issuance of the certificate of incorporation. Furthermore, the doctrine of laches bars the petitioners' challenge because they delayed for nearly four years (from May 1977 to May 1981) before questioning the transfer, despite full knowledge of the transaction and their close relationship with the respondents, causing prejudice to the new PBM which had entered into transactions with third parties in good faith.
  • Non-use of a corporate charter and failure to file by-laws do not result in automatic or ipso facto dissolution. Under Section 6(i) of PD 902-A, failure to file by-laws is merely a ground for suspension or revocation of the certificate of registration after proper notice and hearing, not a condition precedent for corporate existence. Organization and commencement of business are conditions subsequent, not prerequisites for corporate personality, which commences upon issuance of the certificate of incorporation. Substantial compliance suffices, and the new PBM was in fact operating continuously. The subsequent filing of by-laws on September 6, 1981, rendered this issue moot.

• Effects of Non-Use of Corporate Charter — Non-use of a corporate charter for two years from incorporation or failure to file by-laws does not automatically dissolve a corporation or terminate its juridical personality. Such failures are merely grounds for suspension or revocation of the certificate of registration after proper notice and hearing under PD 902-A. Substantial compliance with these conditions subsequent suffices to maintain corporate existence, distinguishing defects in organization from the creation of the corporation itself.
• Laches — The failure or neglect, for an unreasonable and unexplained length of time, to do that which could or should have been done earlier, warranting a presumption that the party entitled to assert a right has abandoned or declined to assert it. The essential elements are: (1) conduct giving rise to the situation; (2) delay in asserting the right after knowledge and opportunity to sue; (3) lack of notice that the complainant would assert the right; and (4) injury or prejudice to the defendant if relief is granted.
• Presumption of Regularity of Official Acts — Official acts, such as the issuance of a certificate of incorporation by the SEC, are presumed to have been performed regularly and in accordance with law.
• Limited Jurisdiction of Administrative Agencies — Administrative agencies like the SEC are tribunals of limited jurisdiction and can exercise only those powers specifically granted to them by their enabling statutes; jurisdiction cannot be enlarged or diminished by agreement, waiver, or acquiescence of the parties.

• "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 should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites for acquisition of corporate personality."
• "Laches, in a general sense, means the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier."
• "Administrative agencies like the SEC are tribunals of limited jurisdiction and, as such, can exercise only those powers which are specifically granted to them by their enabling statutes."
• "Jurisdiction over the subject matter must exist as a matter of law and cannot be fixed by agreement of the parties, acquired through, or waived, enlarged or diminished by, any act or omission; neither can it be conferred by acquiescence of the tribunal."

• Tijam v. Sibonghanoy — Cited for the definition of laches and its elements, emphasizing that it is not mere lapse of time but the inequity of permitting a claim after long delay.
• Z.E. Lotho, Inc. v. Ice & Cold Storage Industries, Inc. — Cited for the enumeration of the essential elements of laches.
• Union Glass & Container Corp. v. SEC — Cited for the principle that administrative agencies are tribunals of limited jurisdiction and can only exercise powers specifically granted by enabling statutes.

• Section 22, Corporation Code (formerly Section 19, Corporation Law) — Provided that corporate powers cease if business is not commenced within two years from incorporation; interpreted as not causing automatic dissolution but merely a ground for suspension or revocation.
• Section 46, Corporation Code — Requires adoption of by-laws within one month after receipt of certificate of incorporation; interpreted as a condition subsequent, not a prerequisite for corporate existence.
• Section 6(i), PD 902-A — Grants SEC power to suspend or revoke certificates of registration for failure to file by-laws within the required period, after proper notice and hearing.
• Section 5(d), PD 902-A — Limits SEC jurisdiction over suspension of payments to corporations, partnerships, or associations, excluding individuals.
• Section 122, Corporation Code (formerly Section 77, Corporation Law) — Provides for the continuation of a dissolved corporation for three years for purposes of liquidation, not for continuing business.
• Section 40, Corporation Code (formerly Section 28-1/2, Corporation Law) — Requires affirmative vote of stockholders holding two-thirds of voting power to authorize sale or transfer of substantially all corporate assets.

• Narvasa, Gancayco and Medialdea, JJ. — Concurred in the decision without separate written opinion.

• Griño-Aquino, J. — Took no part in the decision.