Dee vs. Union Bank of the Philippines

A receiver may be appointed under Rule 59, Section 1(d) of the Rules of Court for the purpose of winding up and liquidating a dissolved corporation, even without a prior separate petition for liquidation, and a third party lacking actual, substantial, material, direct, and immediate legal interest cannot intervene in such receivership proceedings.

Mabasa and Company, Inc. (MCI) was a domestic corporation incorporated on June 22, 1948, with a corporate life originally set for 50 years, later extended for another 25 years, and then shortened by amendment to end on October 25, 2011. Petitioner Jaime T. Dee and the other named petitioners were shareholders of MCI, while respondent Union Bank of the Philippines had prior litigation with MCI, including the judgments in G.R. Nos. 165382 and 175425 that Dee later sought to revive as receiver. The dispute concerns the legal capacity of a dissolved corporation and the proper mechanism for its liquidation under the Corporation Code and the Rules of Court.

Mabasa and Company, Inc. (MCI) was incorporated on June 22, 1948, with a corporate life of 50 years, which was extended for another 25 years to end on June 21, 2013. MCI's Articles of Incorporation were later amended to shorten its corporate existence to end on October 25, 2011. Petitioner Jaime T. Dee, for himself and as attorney-in-fact of other MCI shareholders, alleged that he was the registered owner of 21,441 shares of MCI and that, together with the other MCI shareholders, they held 53.64% of MCI's total subscribed and outstanding shares.

On December 10, 2014, Dee filed a Petition for Appointment of Receiver before the Regional Trial Court of Quezon City, praying to be appointed as receiver of MCI because he held a majority of its shareholdings. The petition was initially raffled to Branch 90, but the presiding judge inhibited, and the petition was reraffled. During the hearing, Dee filed his Judicial Affidavit, testified in open court to affirm it, and was directed to file a Formal Offer of Evidence, which he complied with on April 23, 2015. On April 29, 2015, the RTC gave the parties 10 days from receipt of the Order to file any responsive pleading and/or comment to the Formal Offer of Evidence. No comment, opposition, or manifestation was filed by the other stockholders of MCI. On June 15, 2015, the RTC appointed Dee as MCI's receiver for the purpose of winding up its affairs, upon compliance with the required bond, applying Section 1(d), Rule 59 of the Rules of Court. Dee posted the receiver's bond, filed his Compliance, and submitted his first Compliance/Status Report on February 10, 2016.

On August 8, 2015, in his capacity as MCI's receiver, Dee filed a Petition for Revival of Judgments of the Supreme Court's Decisions in G.R. No. 165382, Union Bank of the Philippines vs. Securities and Exchange Commission, et al., dated August 17, 2006, with Entry of Judgment dated December 19, 2006, and G.R. No. 175425, Union Bank of the Philippines vs. Mabasa and Company, Inc., dated February 26, 2007, with Entry of Judgment dated April 26, 2007.

Union Bank filed an Omnibus Motion to be allowed to intervene in the case, to discharge Dee as receiver, and to dismiss the Petition, principally on the ground that MCI's corporate existence had already ceased. Union Bank alleged that it had a legal interest in the receivership proceedings and opposed Dee's appointment because MCI no longer had any juridical personality to file the Petition. It averred that its issues could not be resolved and its rights could not be adequately protected in a separate proceeding. It also appeared to Union Bank that the main reason the appointment of a receiver was sought was to enable the filing of an independent collection suit against it, not to liquidate MCI's assets, thereby making it appear that MCI had capacity to sue despite the lapse of the three-year winding-up period under Batas Pambansa Blg. 68.

On July 29, 2016, the RTC denied both Union Bank's Omnibus Motion and Dee's Motion to Expunge Union Bank's Omnibus Motion. The RTC held that Union Bank failed to show a clear legal interest in the appointment of a receiver for MCI and that Union Bank's rights or interests could be adequately protected in Civil Case No. R-QZN-15-07016-CV, involving the revival of judgments pending between the same parties. The RTC added that allowing Union Bank's intervention in the receivership case would unduly delay its resolution and prejudice the rights of MCI's shareholders. On December 21, 2016, the RTC denied Union Bank's Motion for Reconsideration. Union Bank then filed a Petition for Certiorari under Rule 65 of the Rules of Court with the Court of Appeals, with an application for a temporary restraining order and/or writ of preliminary injunction, to nullify the RTC's July 29, 2016 and December 21, 2016 Orders.

• Due Process and Jurisdiction: Dee argued that the CA exceeded its jurisdiction when it revoked his appointment as receiver, an issue not decided by the RTC in ruling on Union Bank's Omnibus Motion, and thereby violated the due process rights of Dee and MCI stockholders by deciding without allowing them an opportunity to be heard.
• Impropriety of Intervention: Dee maintained that Union Bank's intervention was improper because Union Bank is not a real party-in-interest, possesses no legal interest, and is neither a creditor nor stockholder of MCI; its rights could be protected in Civil Case No. R-QZN-15-07016-CV involving the revival of judgments.
• Multiplicity of Suits: Dee claimed that forcing him to file a separate action for liquidation sanctions multiplicity of suits, and that the CA erred in holding receivership merely ancillary when it can be a principal action.
• Liberal Application and Amendment: Dee urged liberal application of the Rules to allow receivership as a precursor to liquidation, and argued that the Petition for Appointment of Receiver may be amended and converted into a Petition for Liquidation following Remington vs. Court of Appeals.

• Lack of Juridical Personality: Union Bank argued that MCI's corporate existence had ceased, so MCI no longer had juridical personality to file the Petition; the receivership was sought to make it appear MCI had capacity to sue despite lapse of the three-year winding-up period under Batas Pambansa Blg. 68.
• Intervention and Protection of Rights: Union Bank asserted it should have been allowed to intervene because there was no other venue to protect its rights and interests, particularly against the judgments Dee sought to revive; its issues could not be resolved and its rights could not be adequately protected in a separate proceeding.
• Improper Purpose of Receivership: Union Bank claimed the purpose of Rule 59 is to preserve assets, not to enforce a monetary claim of an already dissolved corporation, and that the receivership was intended to enable an independent collection suit against it rather than to liquidate MCI's assets.
• Circumvention of Corporation Code: Union Bank asserted that Dee circumvented the Corporation Code's three-year cap on a dissolved corporation to liquidate its assets.

• Propriety of CA Certiorari: Whether the CA erred in granting Union Bank's Petition for Certiorari and reversing the RTC orders.
• Receivership for Corporate Liquidation: Whether a receiver may be appointed under Rule 59, Section 1(d) of the Rules of Court for the liquidation of a dissolved corporation without a prior separate petition for liquidation.
• Intervention: Whether Union Bank has the requisite legal interest to intervene in the receivership proceedings.
• Due Process and Jurisdiction: Whether the CA exceeded its jurisdiction or violated due process in revoking Dee's appointment as receiver when the RTC had not decided that issue.

• Propriety of CA Certiorari: Yes. The CA erred in granting Union Bank's Petition; its ruling that Rule 59 does not allow a receiver-in-liquidation and that a separate liquidation petition was required is contrary to law and jurisprudence.
• Receivership for Corporate Liquidation: Yes. A receiver may be appointed for corporate liquidation under Rule 59, Section 1(d); receivership is a recognized method of corporate liquidation, and no prior separate petition for liquidation is required.
• Intervention: No. Union Bank lacked actual, substantial, material, direct, and immediate legal interest; its concerns could be adequately protected in the revival of judgments cases.
• Due Process and Jurisdiction: Yes. The CA decided an issue not passed upon by the RTC when it revoked Dee's appointment as receiver, violating due process; the appointment is reinstated.

• Propriety of CA Certiorari: The CA's grant of certiorari was erroneous because its premises—that Rule 59 cannot support a receiver-in-liquidation and that a separate liquidation petition must precede receivership—are incorrect. The Supreme Court reviewed the corporate dissolution and liquidation framework and concluded that a receiver may be appointed to wind up a dissolved corporation's affairs, especially where the three-year period has lapsed without a trustee or receiver. The RTC's appointment of Dee was therefore proper, and the CA's reversal was set aside.

• Receivership for Corporate Liquidation: Under Section 122 of Batas Pambansa Blg. 68 and Section 139 of Republic Act No. 11232, a corporation whose existence is terminated continues as a body corporate for three years after dissolution for prosecuting and defending suits, settling and closing affairs, disposing and conveying property, and distributing assets, but not for continuing business. Dissolution does not extinguish rights and liabilities. Jurisprudence holds that a trustee may continue to prosecute a case commenced by the corporation within three years from dissolution until final judgment, even beyond the three-year period; a defunct corporation cannot initiate a suit after the lapse. The trustee may be a court-appointed receiver, whom the court may appoint within the three-year winding-up period. If no trustee or receiver is designated, the board may continue as trustees by legal implication; absent a board, shareholders and creditors with pecuniary interest may act. Receivership is a remedy to place property in litigation under court control for preservation, administration, or disposition, and is a harsh remedy granted with utmost circumspection. Rule 59, Section 1(d) allows appointment of a receiver whenever it appears that receivership is the most convenient and feasible means of preserving, administering, or disposing of property in litigation. It does not preclude appointment of a receiver for corporate liquidation. Since MCI's corporate life ended on October 25, 2011, and the receivership petition was filed on December 10, 2014—beyond the three-year winding-up period—MCI could no longer initiate actions in its own name. Dee's appointment as receiver on June 15, 2015 was necessary to preserve creditors' and stakeholders' interests. Dee was qualified because he was MCI's majority shareholder with a direct pecuniary interest in its remaining assets. The CA's insistence on a separate liquidation petition was flawed because receivership itself serves as a recognized method of corporate liquidation.

• Intervention: Rule 19, Section 1 allows a person with legal interest in the matter in litigation, or in the success of either party, or an interest against both, or who is adversely affected by a distribution or disposition of property in the custody of the court or an officer thereof, to intervene with leave of court. The court must consider whether intervention will unduly delay or prejudice the adjudication of the original parties' rights and whether the intervenor's rights may be fully protected in a separate proceeding. The interest must be actual, substantial, material, direct, and immediate, not merely contingent or expectant. Union Bank's claimed interest was premised on MCI's alleged use of Dee's receivership appointment as a basis to file a separate action against it. That concern pertains to a potential consequence of the receivership, not an immediate legal effect of the receivership judgment itself. Union Bank's claims could be adequately pursued and protected in the cases for revival of judgments. Allowing intervention would unduly delay the main case without serving Rule 19's purpose. The RTC correctly denied the Omnibus Motion.

• Due Process and Jurisdiction: The CA revoked Dee's appointment as receiver even though the RTC had not decided that issue when it ruled on Union Bank's Omnibus Motion; the RTC had only denied intervention for lack of legal interest. By deciding an issue not passed upon by the RTC without allowing Dee and MCI's stockholders an opportunity to be heard, the CA exceeded its jurisdiction and violated due process. The Supreme Court therefore reinstated Dee's appointment.

• Corporate dissolution and the three-year winding-up period — Under Section 122 of Batas Pambansa Blg. 68 and Section 139 of Republic Act No. 11232, a corporation whose existence is terminated continues as a body corporate for three years after dissolution for the purpose of prosecuting and defending suits, settling and closing its affairs, disposing of and conveying its property, and distributing its assets, but not for continuing the business for which it was established. Dissolution does not automatically extinguish or diminish the corporation's rights and liabilities. A trustee may continue to prosecute a case commenced by the corporation within the three-year period until final judgment, even if rendered beyond that period; a defunct corporation cannot initiate a suit after the three-year period. If no trustee or receiver is designated, the board of directors or trustees may continue as trustees by legal implication; in the absence of a board, shareholders and creditors with pecuniary interest may act on behalf of the corporation.

• Receivership as a corporate liquidation mechanism — Receivership is a remedy by which property subject of litigation is placed in the possession and control of a receiver appointed by the court, who shall conserve it pending final determination of the title or right of possession. It is a harsh remedy granted with utmost circumspection and only in extreme situations. Rule 59, Section 1(d) allows appointment of a receiver whenever it appears that receivership is the most convenient and feasible means of preserving, administering, or disposing of property in litigation. The Court held that Rule 59 does not preclude the appointment of a receiver for corporate liquidation purposes, even in the absence of a main case, and that a separate petition for liquidation is not a prerequisite.

• Intervention and legal interest — Under Rule 19, Section 1, a person may intervene when he has a legal interest in the matter in litigation, or in the success of either party, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or an officer thereof. The court must consider whether intervention will unduly delay or prejudice the adjudication of the original parties' rights and whether the intervenor's rights may be fully protected in a separate proceeding. The interest must be actual, substantial, material, direct, and immediate, not merely contingent or expectant. Union Bank's interest was only a potential consequence of the receivership and could be protected in the revival of judgments cases, so intervention was properly denied.

• Non-extinguishment of rights and liabilities upon dissolution — The dissolution of a corporation does not extinguish any right or remedy in its favor or against it, nor any liability incurred by it, its stockholders, members, directors, trustees, or officers. The liabilities of debtors of a dissolved corporation remain subsisting; to rule otherwise would sanction unjust enrichment. This principle supported the appointment of a receiver to preserve and liquidate MCI's remaining assets and claims.

• "The CA's assertion that Rule 59 of the Rules of Court does not provide for the appointment of a receiver-in-liquidation is misplaced. While Rule 59 primarily governs provisional remedies in pending litigation, it does not preclude the appointment of a receiver for corporate liquidation purposes." — This passage states the Court's core holding that receivership may be used for corporate liquidation despite Rule 59's provisional-remedy character.

• "Thus, as clearly illustrated by the cited authorities, the trustee may continue to prosecute a case commenced by the corporation within three years from its dissolution until the rendition of the final judgment, even if such judgment is rendered beyond the three years. An already defunct corporation can no longer initiate a suit after the lapse of the said three-year period." — This passage summarizes the dissolution and liquidation jurisprudence distinguishing continuation of existing actions from initiation of new suits.

• "Union Bank has no legal interest in the Petition for Receivership as contemplated under Rule 19 of the Rules of Court. The interest that would warrant intervention must be actual, substantial, material, direct, and immediate, rather than merely contingent or expectant." — This passage states the controlling standard for intervention and its application to Union Bank.

• "All said, Dee's appointment as a receiver was a necessary and proper step following MCI's corporate dissolution. Since MCI's corporate life had already ended on October 25, 2011, and a Petition for Receivership was only filed on December 10, 2014—well beyond the three-year winding-up period provided under Section 122 of the Corporation Code—MCI could no longer initiate actions in its own name." — This passage explains why receivership was necessary after MCI's three-year winding-up period had lapsed.

• Alabang Development Corporation vs. Alabang Hills Village Association, 734 Phil. 664 (2014) — Held that a trustee of a corporation may continue to prosecute a case commenced by the corporation within three years from its dissolution until rendition of final judgment, even if the judgment is rendered beyond the three-year period; a defunct corporation cannot initiate a suit after the lapse of the three-year period. The Court relied on this to distinguish continuation of existing actions from initiation of new suits.
• Reburiano vs. Court of Appeals, 361 Phil. 294 (1999) — Held that the dissolution of a corporation does not bar execution of a final judgment in its favor; a trustee manages the affairs of the corporation in liquidation, and supervening dissolution does not bar enforcement of the right. The Court cited this to support the subsistence of MCI's rights despite dissolution.
• Clemente vs. Court of Appeals, 312 Phil. 823 (1995) — Held that a corporation continues as a body corporate for three years after dissolution; it may appoint a trustee or receiver who may act beyond that period; if the three-year extended life expires without a trustee or receiver, the board of directors may continue as trustees by legal implication, and absent a board, shareholders and creditors may act. The Court relied on this for the appointment of a receiver and the role of shareholders in liquidation.
• Reyes vs. Bancom Dev. Corp., 823 Phil. 518 (2018) — Held that the non-appointment of a receiver or assignee does not extinguish any right or remedy in favor of the corporation; the dissolution of a creditor-corporation does not extinguish its rights, and the liabilities of its debtors remain subsisting, lest the debtors be unjustly enriched. The Court cited this to reinforce that MCI's claims and liabilities survived dissolution.
• Gelano vs. Court of Appeals, 190 Phil. 814 (1981) — Held that the counsel of a dissolved corporation is deemed a trustee for purposes of continuing pending actions. The Court cited this as part of the jurisprudence recognizing continued representation and liquidation of dissolved corporations.
• Pacific Basin Securities Co. vs. Oriental Petroleum and Minerals Corp., 558 Phil. 425 (2007) — Defined receivership as a remedy by which property subject of litigation is placed in the possession and control of a receiver appointed by the court, who shall conserve it pending final determination of the title or right of possession. The Court used this definition in assessing the propriety of Dee's appointment.
• Velasco & Co. vs. Gochuico & Co., 28 Phil. 39 (1914) — Held that the power to appoint a receiver is delicate and should be exercised with extreme caution and only under circumstances requiring summary relief or imminent danger of loss. The Court cited this to describe receivership as a harsh remedy granted with utmost circumspection.
• Mactan-Cebu International Airport Authority vs. Heirs of Estanislao Miñoza, 656 Phil. 537 (2011) — Held that intervention is allowed when the intervenor possesses a legal interest in the matter in litigation, or in the success of either party, or an interest against both, or is adversely affected by a distribution or disposition of property in the custody of the court; the interest must be actual, substantial, material, direct, and immediate. The Court applied this to deny Union Bank's intervention.
• PNB vs. CFI of Rizal, 284-A Phil. 770 (1992) — Cited for the rule that when a corporation's term expires, it ceases to exist as a body corporate for the purpose of continuing the business for which it was organized. The Court used this as part of the dissolution framework.
• Republic vs. Tancinco, 442 Phil. 632 (2002) — Cited for the rule that dissolution of a juridical entity does not automatically result in the extinction or diminution of its rights and liabilities. The Court relied on this in discussing the three-year continuation and survival of claims.

• Section 1(d), Rule 59, Rules of Court — Allows the appointment of a receiver whenever in other cases it appears that the appointment of a receiver is the most convenient and feasible means of preserving, administering, or disposing of the property in litigation. The Court held that this provision supports the appointment of a receiver for corporate liquidation purposes and does not preclude a receiver-in-liquidation.
• Section 1, Rule 19, Rules of Court — Provides who may intervene: a person with legal interest in the matter in litigation, or in the success of either party, or an interest against both, or who is adversely affected by a distribution or disposition of property in the custody of the court or an officer thereof. The Court applied this to deny Union Bank's intervention for lack of actual, substantial, material, direct, and immediate legal interest.
• Section 122, Batas Pambansa Blg. 68 — Corporate liquidation provision stating that a corporation whose existence is terminated continues as a body corporate for three years after dissolution for prosecuting and defending suits, settling and closing affairs, disposing and conveying property, and distributing assets, but not for continuing business. The Court quoted and applied this in assessing MCI's capacity and the propriety of receivership.
• Section 139, Republic Act No. 11232 — Revised Corporation Code provision on corporate liquidation, containing the same three-year continuation rule for dissolved corporations. The Court quoted and applied this alongside Section 122 of Batas Pambansa Blg. 68.
• Section 16, Batas Pambansa Blg. 68 — Provides that shortening of the corporate term is a mode of voluntary dissolution, effected by amendment of the articles of incorporation approved by a majority vote of the board of directors or trustees and an affirmative vote of 2/3 of the outstanding capital stock or members, effective upon SEC approval or six months from filing if the SEC fails to act for a cause not attributable to the corporation. The Court cited this in explaining MCI's dissolution.
• Section 145, Corporation Code — Provides that no right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by them, shall be removed or impaired by the subsequent dissolution of the corporation or by any subsequent amendment or repeal of the Code. The Court cited this in Reyes vs. Bancom Dev. Corp. to support the non-extinguishment of rights and liabilities.
• Section 184, Revised Corporation Code — Provides that the liabilities of a dissolved corporation's debtors remain in force. The Court cited this to hold that debtors cannot escape their financial obligations merely because the corporation that originally held the claim has ceased to exist.
• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari filed by Dee before the Supreme Court. The Court granted the petition under this Rule.
• Rule 65, Rules of Court — Governs the Petition for Certiorari filed by Union Bank before the Court of Appeals. The CA granted the petition, but the Supreme Court reversed the CA's ruling.

Caguioa (Chairperson), Lazaro-Javier, and Dimaampao concurred. Inting was on official business.