DIGEST: Chung Ka Bio v. IAC

CHUNG KA BIO v. IAC

G.R. No. 71837 July 26, 1988

FACTS:

The Philippine Blooming Mills Company, Inc. (PBM) was incorporated for a term of 25 years which expired on January 19,1977. On May 14, 1977, the board of directors executed a deed of assignment of all of the accounts receivables, properties, obligations and liabilities of the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process of reincorporation. On June 14, 1977, the new PMB was issued a certificate of incorporation by the Securities and Exchange Commission. On May 5, 1981, Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed with the SEC a petition for liquidation of both the old PBM and the new PBM. They alleged that the OLD PBM had become legally non-existent for failure to extend its corporate life and that the NEW PBM had likewise been ipso facto dissolved for non-use of the charter and continuous failure to operate within 2 years from incorporation.

The SEC dismissed the case for lack of a cause of action. On appeal to the SEC en banc, it remanded the case to a new panel of hearing officers for further proceedings, including the proper accounting of the assets and liabilities of the old PBM. This order was appealed to the Intermediate Appellate Court which affirmed the orders of the SEC. 

ISSUE:

Whether the NEW PBM was able to formally organize under the Corporation Code.

RULING:

Yes. According to the SC, it is undeniable that the new PBM has in fact been operating all these years. Its failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution.

The 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.

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. The adoption and filing of by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even before the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted "within one month after receipt of official notice of the issuance of its certificate of incorporation."