Rich V. Paloma Iii: Corporation and Securities Law Case Digest Atty. Co-Pua

CORPORATION AND SECURITIES LAW CASE DIGEST ATTY.
CO-PUA
I. SHORT TITLE: RICH V. PALOMA III
II. FULL TITLE: Dr. Gil J. Rich versus Guillermo Paloma III, Atty. Evarista Tarce and
Ester L. Servacio – G.R. No. 210538, March 07, 2018, J. Reyes, Jr.
III: TOPIC: Dissolution and Liquidation
IV. STATEMENT OF FACTS:

Sometime in 1997, Dr. Gil Rich (petitioner) lent P1,000,000.00 to his brother, Estanislao Rich
(Estanislao). The agreement was secured by a real estate mortgage over a 1000 sqm. parcel of
land with improvements. When Estanislao failed to pay, petitioner foreclosed on the subject
property via a public auction sale conducted by respondent sheriff Guillermo Paloma III.
Petitioner was declared the highest bidder, and subsequently, was issued a Certificate of Sale as
purchaser/mortgagee.
Without the petitioner's knowledge, however, and prior to the foreclosure, Estanislao entered into
an agreement with Maasin Traders Lending Corporation (MTLC), where loans and advances
amounting to P2.6 million were secured by a real estate mortgage over the same property. On the
strength of this document, respondent Ester L. Servacio (Servacio), as president of MTLC,
exercised equitable redemption after the foreclosure proceedings. She tendered P2,090,000.00 as
the redemption money in the extrajudicial foreclosure sale. Thereafter, respondent Paloma III
issued a Deed of Redemption in favor of MTLC.
V. STATEMENT OF THE CASE:

Petitioner filed before the Regional Trial Court a complaint for annulment of deed against
respondent Servacio. He alleged that MTLC no longer has juridical personality to effect the
equitable redemption as it has already been dissolved by the Securities and Exchange
Commission.
The Regional Trial Court ruled in favor of petitioner and declared the real estate mortgage
between Estanislao and MTLC as null and void. On appeal, the Court of Appeals reversed the
ruling of the trial court and held that the assailed real estate mortgage was duly notarized and
thus enjoyed the presumption of authenticity and due execution.
VI. ISSUE:
Whether or not a corporation not invested with corporate personality at the
time of redemption redeem a property.
VII. RULING:
No. According to the case of Yu vs. Yukayguan, once a corporation is dissolved, be it voluntarily
or involuntarily, liquidation, which is the process of settling the affairs of the corporation, will
ensue. This consists of (1) collection of all that is due the corporation, (2) the settlement and
adjustment of claims against it, and (3) the payment of its debts. These pronouncements draw
their basis from Section 122 of the Corporation Code, which empowers every corporation whose
corporate existence has been legally terminated to continue as a body corporate for three (3)
years after the time when it would have been dissolved. This continued existence would only be
CORPORATION AND SECURITIES LAW CASE DIGEST ATTY. CO-PUA
for the purposes 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."
Two things must be said in relation to the facts of this case. First, if MTLC entered into the real
estate mortgage agreement with Estanislao after its dissolution, then resultantly, such real estate
mortgage agreement would be void ab initio because of the non-existence of MTLC's juridical
personality. Second, if, however, MTLC entered into the real estate mortgage agreement prior to
its dissolution, then MTLC's redemption of the subject property, even if already after its
dissolution (as long as it would not exceed three years thereafter), would still be valid because of
the liquidation/winding up powers accorded by Section 122 of the Corporation Code to MTLC.
By the time MTLC executed the real estate mortgage agreement, its juridical personality has
already ceased to exist. The agreement is void as MTLC could not have been a corporate party to
the same. To be sure, a real estate mortgage is not part of the liquidation powers that could have
been extended to MTLC. It could not have been for the purposes 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." It is, in fact, a new business in which MTLC no longer has
any business pursuing.
Consequently, and contrary to the CA Decision, any redemption exercised by MTLC pursuant to
this void real estate mortgage is likewise void, and could not be given any effect.
VIII. DISPOSITIVE PORTION:

WHEREFORE, premises considered, the Decision and Resolution of the Court of Appeals are
hereby REVERSED and SET ASIDE, and a new one is entered DECLARING the Real Estate
Mortgage executed by Estanislao Rich and MTLC as NULL and VOID, and ORDERING the
City Assessor of Maasin, Southern Leyte to cancel the Deed of Redemption in favor of MTLC
appearing on the Tax Declaration covering the property.
PREPARED BY: Andrea Rose G. Garcia

Rich V. Paloma Iii: Corporation and Securities Law Case Digest Atty. Co-Pua

Uploaded by

Copyright:

Available Formats

Rich V. Paloma Iii: Corporation and Securities Law Case Digest Atty. Co-Pua

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Rich V. Paloma Iii: Corporation and Securities Law Case Digest Atty. Co-Pua

Uploaded by

Copyright:

Available Formats

CORPORATION AND SECURITIES LAW CASE DIGEST ATTY.

I. SHORT TITLE: RICH V. PALOMA III

III: TOPIC: Dissolution and Liquidation

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

VIII. DISPOSITIVE PORTION:

PREPARED BY: Andrea Rose G. Garcia

You might also like