Reyes and Pastor vs. Bancom Development Corp.

The revocation of a corporation's certificate of registration does not result in the abatement of pending suits, as the corporation's directors are deemed trustees by legal implication for the purpose of winding up corporate affairs under Section 122 of the Corporation Code, and Section 145 thereof explicitly preserves all rights and remedies in favor of or against the corporation notwithstanding its dissolution.

Angel E. Reyes, Sr., Florencio Reyes, Jr., Rosario R. Du, Olivia Arevalo, and petitioners Ramon E. Reyes and Clara R. Pastor (collectively the "Reyes Group") executed a Continuing Guaranty in favor of Bancom Development Corporation to guarantee obligations of Marbella Realty, Inc. under an Underwriting Agreement. Marbella issued several sets of Promissory Notes to Bancom starting May 24, 1979, which were subsequently renewed and increased in amount due to Marbella's inability to pay at maturity. The obligations arose from a condominium development project known as Marbella II, where Fereit Realty Development Corporation (a sister company of Bancom) served as construction developer, and the Reyes Group were landowners. When the project encountered financial difficulties, the Reyes Group allegedly assumed part of Fereit's loans, and Marbella was compelled to obtain additional financing from Bancom to fulfill Fereit's obligation to release receivables assigned to State Financing.

• The Reyes Group executed a Continuing Guaranty in March 1979 in favor of Bancom to guarantee the full and due payment of obligations incurred by Marbella under an Underwriting Agreement.
• Marbella issued Promissory Notes on May 24, 1979 for P2,828,140.32, which were subsequently renewed and increased on August 22, 1979 (P2,901,466.48), November 27, 1979 (P3,002,333.84), and February 28, 1980 (P3,002,333.84).
• Marbella defaulted on payment despite repeated demands, prompting Bancom to file a complaint on July 7, 1981 for P4,300,247.35 representing principal, interest, and penalties.
• Petitioners defended by alleging they were forced to execute the Promissory Notes and Continuing Guaranty against their will due to financial distress caused by Fereit Realty's failure to comply with obligations under the Marbella II project.
• They claimed the additional financing was merely to fulfill Fereit's obligation to release receivables assigned to State Financing, and that Fereit undertook to reimburse Marbella under an Amendment of Memorandum of Agreement.
• The Securities and Exchange Commission revoked Bancom's Certificate of Registration on May 26, 2003 for non-compliance with reportorial requirements.
• Bancom's counsel withdrew appearance in 2004 due to inability to contact the client and rumors of a merger.
• The final Promissory Notes dated February 28, 1980 reflected a total amount of P3,002,333.84, while the amount claimed by Bancom as of the date of demand (May 19, 1981) was P4,300,247.35 including interest and penalties.

• The suit should be deemed abated pursuant to Section 122 of the Corporation Code because Bancom's Certificate of Registration was revoked by the SEC on May 26, 2003, and no trustee or receiver was appointed to continue the suit.
• The Promissory Notes were not meant to be binding because the funds released were not loans but merely "additional financing" to rectify Fereit's failure to release receivables assigned to State Financing.
• The Continuing Guaranty should be interpreted in relation to earlier contracts (Memorandum of Agreement and Amendment) showing that petitioners could not be held liable for the debt since Fereit undertook to reimburse Marbella.
• Bancom took advantage of their financial distress by demanding execution of the notes and guaranty despite the fact that additional financing became necessary only because of Fereit's (Bancom's sister company) failure to comply with its obligations.

• Procedural:
  • Whether the revocation of Bancom's Certificate of Registration by the SEC justifies the abatement of the proceedings pursuant to Section 122 of the Corporation Code.
• Substantive Issues:
  • Whether the Court of Appeals correctly ruled that petitioners are liable to Bancom for the payment of the loan amounts indicated on the Promissory Notes issued by Marbella.
  • Whether the Court of Appeals correctly ruled that petitioners are liable for attorney's fees.

• Procedural:
  • The Court denied the petition on the procedural issue, ruling that the revocation of Bancom's Certificate of Registration does not justify the abatement of proceedings. Under Section 122 of the Corporation Code, a defunct corporation may continue as a body corporate for three years for the purpose of prosecuting and defending suits. Jurisprudence has established that an appointed receiver, assignee, or trustee may institute suits or continue pending actions even after the winding-up period. In the absence of a formal trustee, the corporation's directors are considered trustees by legal implication for the purpose of winding up its affairs. Furthermore, Section 145 of the Corporation Code explicitly provides that no right or remedy in favor of or against any corporation shall be removed or impaired by the subsequent dissolution of said corporation.
• Substantive:
  • The Court affirmed the finding of liability but modified the interest rates. The Continuing Guaranty executed by petitioners is clear and unequivocal, making them solidarily liable with Marbella for the payment of amounts indicated on the Promissory Notes. The genuineness and due execution of the notes were undisputed. The defense that the notes were merely "additional financing" and not binding loans was rejected because the Promissory Notes and Continuing Guaranty contained plain and unqualified obligations. The Court modified the interest rates to 12% per annum from May 19, 1981 until June 30, 2013, and 6% per annum from July 1, 2013 until the decision becomes final and executory, in line with prevailing jurisprudence. The award of P500,000 in attorney's fees was affirmed based on the stipulation in the Promissory Notes.

• Directors as Trustees by Legal Implication — Under Section 122 of the Corporation Code, the directors of a dissolved corporation are deemed trustees by legal implication for the purpose of winding up corporate affairs, allowing suits to continue even without a formally appointed receiver or assignee.
• Preservation of Rights Upon Dissolution — Section 145 of the Corporation Code explicitly provides that no right or remedy in favor of or against a corporation shall be removed or impaired by its subsequent dissolution, and the corresponding liability of debtors of a dissolved corporation remains subsisting to prevent unjust enrichment.
• Clear and Unequivocal Terms of Contracts — Contracts whose terms are clear and unequivocal, and not contrary to law, morals, good customs, public order, and public policy, have the force of law between the parties and should be complied with in good faith, leaving no room for interpretation.
• Continuing Guaranty — A continuing guaranty binds the guarantor to pay the guaranteed obligations, including any and all instruments issued upon renewal, extension, amendment, or novation thereof, making the guarantor solidarily liable with the principal debtor upon default.

• "If the corporation carries out the liquidation of its assets through its own officers and continues and defends the actions brought by or against it, its existence shall terminate at the end of three years from the time of dissolution; but if a receiver or assignee is appointed, as has been done in the present case, with or without a transfer of its properties within three years, the legal interest passes to the assignee, the beneficial interest remaining in the members, stockholders, creditors and other interested persons; and said assignee may bring an action, prosecute that which has already been commenced for the benefit of the corporation, or defend the latter against any other action already instituted or which may be instituted even outside of the period of three years fixed for the officers of the corporation." — Quoting Sumera v. Valencia on the exception to the three-year rule for receivers and assignees.
• "No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof." — Quoting Section 145 of the Corporation Code.
• "The clear terms of these agreements cannot be negated and deemed non-binding simply on the basis of the self-serving testimony of Angel Reyes, one of the guarantors of the loan."

• Sumera v. Valencia (67 Phil. 721, 1939) — Established the exception to the three-year winding up period under Section 122, holding that a receiver or assignee may continue suits even after the expiration of three years.
• Gelano v. Court of Appeals (190 Phil. 814, 1981) — Held that in the absence of a receiver or assignee, suits may be instituted or continued by a trustee specifically designated for a particular matter, such as a lawyer representing the corporation.
• Clemente v. Court of Appeals (312 Phil. 823, 1995) — Ruled that the board of directors of a corporation may be considered trustees by legal implication for the purpose of winding up its affairs.
• Reburiano v. Court of Appeals (361 Phil. 294, 1999) — Clarified that a receiver or assignee need not even be appointed for the purpose of bringing suits or continuing those that are pending.
• Knecht v. United Cigarette Corp. (433 Phil. 380, 2002) — Cited for the principle that the dissolution of a creditor-corporation does not extinguish any right or remedy in its favor, and the corresponding liability of debtors remains subsisting.

• Section 122 of the Corporation Code — Provides for the three-year winding up period for dissolved corporations and the authority to convey property to trustees.
• Section 145 of the Corporation Code — Provides that no right or remedy in favor of or against a corporation shall be removed or impaired by its subsequent dissolution.
• Rule 45 of the Rules of Court — Governs the procedure for filing a Petition for Review on Certiorari with the Supreme Court.