In the Matter of the Extension of the Term of Cebu Bonded Warehousing Corporation

December 9, 2010 SEC EN BANC CASE NO. 09-10-215 IN THE MATTER OF THE EXTENSION OF THE TERM OF CEBU BONDED WAREHOUSING CORPORATION CEBU BONDED WAREHOUSING CORPORATION , petitioner-appellant , vs . BENITO A. CATARAN, in his capacity as Director of the Company Registration and Monitoring Department , appellee . DECISION Before the Commission En Banc is an Appeal 1 from the Letter-Decision dated 18 August 2010 issued by the Company Registration and Monitoring Department ("CRMD") Director Benito A. Cataran, denying, for the second time, the request of Petitioner-Appellant Cebu Bonded Warehousing Corporation ("Appellant") for approval of its application for extension of its corporate term. 2 The Facts of the Case Appellant was a stock corporation registered 3 with the Commission on 24 December 1959 for a term of fifty (50) years or until 23 December 2009. Appellant alleges that "on 10 December 2009, prior to the expiration of its corporate term, its directors, by majority vote, and its stockholders representing at least two-thirds of its outstanding capital stock, at separate meetings, approved the amendment of its Articles of Incorporation to extend the term of existence of the corporation for another fifty (50) years." 4 Appellant then applied for an extension of its corporate term on 08 June 2010. 5 Appellant claims that it was relying on SEC Resolution No. 35, Series of 2000 which provides: EICDSA "RESOLVED, That henceforth, a company, whose corporate term has expired prior to the date of filing with the Commission, may be allowed to file its amended articles of incorporation, extending the term of the corporation provided justifications for the late filing will undoubtedly show that the stockholders and directors had approved such extension prior to the expiration and have not taken any step to show intention to liquidate. Said extension can only be availed of within 3 years conformably with the liquidation period for corporations and upon payment of the penalty and fine in the amount of P100.00 per day of delay computed daily from the date of expiration." 6 Appellant further alleges that it only became aware that SEC Resolution No. 35, Series of 2000 was already superseded by SEC Resolution No. 394, Series of 2008 sometime mid-June 2010. The resolution provides: "RESOLVED, To adopt the policy that corporations with expired terms of existence be not allowed to file any amended articles of incorporation extending their corporate life." Appellant submitted a Letter of Withdrawal of Application dated 01 July 2010 7 and tried to withdraw its application for extension of its corporate term but learned by then that its earlier application was already at the desk of CRMD Director Cataran. 8 On 06 July 2010, Appellant received the letter-reply of CRMD Director Cataran dated 21 June 2010 denying its application for extension, citing SEC Resolution No. 394, series of 2008. In the letter, Director Cataran stated: "Per records, the corporation was registered on December 24, 1959 to exist for a period of fifty years (50) as stated in Article IV of the its articles of Incorporation or up to December 24, 2009. 9 In this regard, we regret to inform you that we cannot accept the application for extension of term of existence of subject in view of Resolution of the Commission, dated 13 November 2008, which superseded Resolution No. 35, series of 2000 . . ." DHAcET In a letter dated 21 July 2010 to Director Cataran, Appellant sought reconsideration of the denial by the CRMD of its application for extension of term. Director Cataran denied the request for reconsideration filed by Appellant in a letter dated 18 August 2010 since the denial was based on the Commission En Banc 's resolution 10 "which was already in effect during the time when the Appellant presented its application for extension of term." 11 Hence the instant Appeal. Issue The issue to be resolved is whether or not Appellant's application for extension of term can be granted. Discussion We cannot uphold Appellant's position. The Corporation Code of the Philippines 12 clearly provides: "Sec. 11. Corporate term. A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Securities and Exchange Commission." Citing Section 37 of the Corporation Code, Appellant asserts that "it is the approval by the stakeholders of the extension or shortening of the corporate term which serves as the operative act in determining whether or not the adoption of a resolution to extend or shorten the corporate term is valid." 13 However, Appellant's position is belied by Section 16 of the Corporation Code which provides the procedure for amendment of a corporation's Articles of Incorporation: cHaCAS "Sec. 16. Amendment of Articles of Incorporation. Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation." (emphasis supplied) Thus, it is clear from the above quoted provision that the approval by the stockholders of the extension or shortening of the corporate term is not the operative act for such an amendment to take effect, rather, the approval by the Commission as the law provides. This is because "the power to extend corporate life is not an inherent power of a corporation, since the corporate term is not only a matter that constitutes an integral clause of the articles of incorporation, but also the State in granting juridical personality to a corporation is presumed to have granted only for the period of time provided in the corporation's charter." 14 It is clear that "a corporation which has a limited term of existence cannot endure beyond the prescribed time unless prolonged by the authority that created it through an amendment of the statutes creating the corporation or to its articles of incorporation, although it may be continued for the purpose of adjusting and closing its business." 15 cDCIHT The Supreme Court has likewise stated in the case of Alhambra Cigar and Cigarette Manufacturing Company, Inc. vs. Securities and Exchange Commission 16 that: "Since the privilege of extension is purely statutory, all of the statutory conditions precedent must be complied with in order that the extension may be effectuated. And, generally these conditions must be complied with, and the steps necessary to effect the extension must be taken, during the life of the corporation, and before the expiration of the term of existence as originally fixed by its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. So where the extension is by amendment of the articles of incorporation, the amendment must be adopted before that time. " 17 (emphasis supplied) Appellant acknowledges that the current resolution in force, SEC Resolution No. 394, series of 2008 is "aimed to strictly implement the Corporation Code of the Philippines" but invokes the application of SEC Resolution No. 35, series of 2000 because it is "more germane to the intent and purpose of the law." 18 Appellant claims that the policy enunciated by SEC Resolution No. 394, series of 2008 "is so restrictive that it already touches upon and undermines the true will of the stockholders" 19 and that it "unduly and unreasonably restricts the power of the corporation to bring forth the will of its stockholders to continue doing business." 20 Appellant likewise invokes the similarity of the factual circumstances in the present case and the SEC Opinion dated 13 February 1980 21 where the Commission granted the request of Ramcar Incorporated to allow it to extend its corporate term despite the lapse of the same because the stockholders of the corporation voted for an extension of corporate life before the expiry date of its original term of existence. 22 However, the said ruling by the Commission is not applicable to the instant case in view of the current policy of the Commission which, "would certainly open the gates for all defunct corporations whose charters have expired even long before Republic Act 3531 23 came into being to resuscitate their corporate existence." 24 HaSEcA Contrary to Appellant's claims, the assailed resolution, in fact, is a policy that is in consonance with the requirements under the law. SEC Resolution No. 394, Series of 2008 does not unduly restrict the provisions of the Corporation Code, the policy only reiterates what is clearly provided under the law. Appellant's case echoes that of Alhambra's and the corporation "would inevitably lead to incalculable adverse economic consequences to the employees and their families." 25 Such a scenario could have been averted had Appellant been more vigilant in undertaking the necessary steps to extend its corporate life. In Benguet Consolidated Mining Co. v. Pineda , 26 the Court had occasion to discuss the importance of a corporation's term of existence: "The State and its officers also have an obvious interest in the term of life of associations, since the conferment of juridical capacity upon them during such period is a privilege that is derived from statute. . . . And the State is naturally interested that this privilege be enjoyed only under the conditions and not beyond the period that it sees fit to grant; and particularly, that it be not abused in fraud and to the detriment of other parties; and for this reason, it has been ruled that 'the limitation (of corporate existence) to a definite period is an exercise of control in the interest of the public. '" (emphasis supplied) 27 Thus, it is a clear that the State has a particular interest in ensuring that the interests of the public are protected. The Appellant's term of existence expired by operation of law and is now legally dead for all intents and purposes. The corporation has "overstepped the limits of its limited existence. No life there is to prolong." 28 WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of merit. Let the Company Registration and Monitoring Department be furnished with a copy of this Decision for its appropriate action. SO ORDERED. Mandaluyong City, December 9, 2010. SCHTac (SGD.) FE B. BARIN Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) RAUL J. PALABRICA Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner Footnotes 1. Memorandum on Appeal dated 13 September 2010. 2. Received by Petitioner-Appellant on 26 August 2010. 3. SEC Registration No. 16256. 4. Paragraph 19, Memorandum on Appeal. 5. The letter-application and documents in support of the application are annexed as Annex "B" to the Memorandum on Appeal. 6. Quoted in full in Paragraph 2, Memorandum on Appeal. 7. Annex C of the Memorandum on Appeal. 8. Paragraph 5, Memorandum on Appeal. 9. The date should have been December 23, 2009. 10. SEC Res. No. 394, Series of 2008. 11. Reply-Memorandum dated 28 September 2010. 12. Batas Pambansa Blg. 68 (1980). 13. Paragraph 11, Memorandum on Appeal. 14. Cesar L. Villanueva, Philippine Corporate Law, Rex Printing Company: Quezon City (2001), p. 237. 15. AmJur Sec. 2914, p. 690, citing Turnpike Co. v. Illinois , 96 US 63, 231, Ed 651, Virginia Canon Tol-Road Co. vs. People, 22 Colo 429, 45 p. 398. 16. G.R. No. L-23606, July 29, 1968. 17. 8 Fletcher, Cyclopedia Corporations, Perm, ed., 1931, pp. 559-560, citing cases. Emphasis supplied. 18. Paragraph 9, Memorandum on Appeal. 19. Paragraph 13, Memorandum on Appeal. 20. Paragraph 15, Memorandum on Appeal. 21. Annex "F," Memorandum on Appeal. 22. Paragraph 17, Memorandum on Appeal. 23. Now the Corporation Code of the Philippines. 24. Alhambra vs. SEC , G.R. No. L-23606, July 29, 1968. 25. Paragraph 20, Memorandum on Appeal. 26. 98 Phil. 711 (156), cited in Villanueva, Philippine Corporate Law, p. 203 (2001). 27. Ibid., citing Smith v. Eastwood Wire Manufacturing Co., 43 Atl. 568. 28. Alhambra vs. SEC , G.R. No. L-23606, July 29, 1968.