The Supreme Court has clarified that the dissolution of a corporation does not automatically terminate ongoing intra-corporate disputes. Even after a corporation’s dissolution, stockholders retain their rights and remedies against other corporate actors. This ruling ensures that corporate dissolution cannot be used to evade liabilities or extinguish existing causes of action arising from intra-corporate relations. The decision underscores the importance of protecting stockholder rights, even in the context of a dissolved entity, and clarifies the jurisdiction of Regional Trial Courts to resolve such disputes.

From Boardroom Battles to Liquidation: Can Intra-Corporate Disputes Survive Dissolution?

This case revolves around FQB+7, Inc., a corporation established in 1985. A dispute arose when Vitaliano N. Aguirre II, a stockholder, discovered a General Information Sheet (GIS) filed by Nathaniel and Priscila Bocobo, heirs of a deceased director, which altered the corporation’s board composition. Vitaliano, representing the “real” Board of Directors, filed a complaint for intra-corporate dispute, seeking to nullify the GIS and enjoin the Bocobos from representing the corporation. However, during the proceedings, it was revealed that the Securities and Exchange Commission (SEC) had revoked FQB+7’s Certificate of Registration, effectively dissolving the corporation. The Court of Appeals (CA) then dismissed Vitaliano’s complaint, reasoning that the dissolution of the corporation terminated the intra-corporate dispute and stripped the trial court of jurisdiction. The central legal question before the Supreme Court was whether the dissolution of a corporation extinguished ongoing intra-corporate disputes and deprived the Regional Trial Court (RTC) of jurisdiction.

The Supreme Court reversed the Court of Appeals’ decision, holding that the RTC retained jurisdiction over the intra-corporate dispute despite the corporation’s dissolution. The Court emphasized that Section 145 of the Corporation Code explicitly protects the rights and remedies of corporate actors, ensuring that dissolution does not impair or remove such rights. This provision states:

Sec. 145. Amendment or repeal. – 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.

Building on this principle, the Court clarified that the dissolution of a corporation does not automatically convert corporate actors into strangers or terminate existing causes of action arising from their corporate ties. The Court analyzed the nature of the dispute, emphasizing that it arose from intra-corporate relations and pertained to the rights and obligations of the parties under the Corporation Code. Vitaliano’s complaint sought a determination of his rights as a stockholder, the validity of the GIS filed by the Bocobos, and the legitimacy of the board of directors. These issues, the Court reasoned, were intrinsically connected with the regulation of the corporation and the enforcement of the parties’ rights under the Corporation Code, thereby qualifying as an intra-corporate dispute.

The Court contrasted this situation with actions aimed at continuing the dissolved corporation’s business, which are prohibited by Section 122 of the Corporation Code, which states:

Sec. 122. Corporate liquidation. – Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.

The Court emphasized that the corporation’s board of directors is not rendered functus officio by its dissolution. Even in dissolution, there must be a board to act on behalf of the dissolved corporation for the limited purpose of winding up its affairs. The Court recognized the board’s authority to conduct the corporation’s liquidation within three years of its dissolution and even beyond that period, acting as trustee for persons in interest. Therefore, determining the rightful board of the dissolved corporation remained a matter of practical relief for the parties involved. To further clarify, the Court referenced Reyes v. Regional Trial Court of Makati, Br. 142 stating:

To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties, and [b] the nature of the question that is the subject of their controversy.

The ruling also addressed the issue of Vitaliano’s shareholdings in the dissolved corporation. The Court affirmed that a party’s stockholdings, whether in an existing or dissolved corporation, constitute a property right that can be vindicated against another party who has deprived him of it. The corporation’s dissolution does not extinguish this property right. This reinforces the protection afforded to stockholders, ensuring that their rights are not diminished simply because the corporation has ceased to exist.

In its analysis, the Court also addressed the CA’s ruling that the trial court’s issuance of a preliminary injunction was attended by grave abuse of discretion. The CA had determined that Vitaliano had not demonstrated a clear and existing right that warranted the protection of a preliminary injunction. While the Supreme Court did not disturb this particular finding, it emphasized that the CA erred in dismissing the case entirely for lack of jurisdiction. The Court reinstated the case before the RTC, directing it to proceed with the resolution of the intra-corporate dispute, including the determination of the rightful board and the validity of Vitaliano’s shareholdings.

FAQs

What was the key issue in this case?	The central issue was whether the dissolution of a corporation extinguishes ongoing intra-corporate disputes and deprives the Regional Trial Court (RTC) of jurisdiction.
What did the Supreme Court rule?	The Supreme Court ruled that the RTC retains jurisdiction over intra-corporate disputes even after the corporation’s dissolution. Stockholders’ rights and remedies are preserved under Section 145 of the Corporation Code.
Does corporate dissolution allow parties to evade liabilities?	No, the Court clarified that dissolution does not convert corporate actors into strangers or terminate existing causes of action. It cannot be used to evade liabilities.
What is the significance of Section 145 of the Corporation Code?	Section 145 protects the rights and remedies of corporate actors, ensuring that dissolution does not impair or remove such rights. It is a key provision in preserving legal recourse.
What is the ‘nature of the controversy’ test?	The nature of the controversy test dictates that a dispute must not only be rooted in an intra-corporate relationship but must also pertain to the enforcement of rights and obligations under the Corporation Code.
Can a dissolved corporation continue its business?	No, Section 122 of the Corporation Code prohibits a dissolved corporation from continuing its business. However, it allows for winding up affairs.
What happens to the board of directors upon dissolution?	The board of directors is not rendered functus officio. It continues to act for the dissolved corporation for the purpose of winding up its affairs.
Are stockholders’ rights extinguished upon dissolution?	No, a party’s stockholdings constitute a property right that can be vindicated even after dissolution. This right is protected by Section 145 of the Corporation Code.

In conclusion, the Supreme Court’s decision provides critical guidance on the interplay between corporate dissolution and intra-corporate disputes. It affirms the principle that stockholders’ rights and remedies survive dissolution and that courts retain jurisdiction to resolve such disputes. This ruling promotes fairness and accountability in corporate governance, ensuring that parties cannot escape their obligations simply by dissolving a corporation.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Vitaliano N. Aguirre II and Fidel N. Aguirre vs. FQB+7, Inc., Nathaniel D. Bocobo, Priscila Bocobo and Antonio De Villa, G.R. No. 170770, January 09, 2013