Corporate Dissolution Directors As Trustees and Guarantor Liability After Corporate Revocation

The Supreme Court's 2018 ruling in Reyes v. Bancom Development Corp. (G.R. No. 190286) clarifies two important points of Philippine corporate law. First, the revocation of a corporation's certificate of registration does not automatically kill pending lawsuits involving that corporation. Second, individuals who signed continuing guaranties remain personally liable for corporate debts even if the creditor corporation has been dissolved. The case offers practical guidance for directors, guarantors, and creditors navigating the aftermath of corporate dissolution.

The Facts of the Case

The dispute arose from loans obtained by Marbella Realty, Inc. from Bancom Development Corporation. Several individuals, including petitioners Ramon E. Reyes and Clara R. Pastor, signed a Continuing Guaranty in favor of Bancom, agreeing to guarantee Marbella's obligations under an Underwriting Agreement. Marbella issued multiple sets of promissory notes to Bancom, with the final set totaling P3,002,333.84.

When Marbella defaulted, Bancom filed a collection suit in 1981 against Marbella and the guarantors. The Regional Trial Court ruled in Bancom's favor, ordering the defendants to pay P4,300,247.35 plus interest, penalties, and attorney's fees. The Court of Appeals affirmed this ruling.

The Issue Before the Supreme Court

Two main issues were presented. First, whether the suit should be considered abated because the Securities and Exchange Commission (SEC) revoked Bancom's certificate of registration in 2003. Second, whether the petitioners were correctly held liable as guarantors.

Corporate Dissolution Does Not Abate Pending Suits

The petitioners argued that since Bancom's registration was revoked and no receiver or trustee was appointed, the case should be dismissed. The Supreme Court disagreed.

Under Section 122 of the Corporation Code, a dissolved corporation continues as a body corporate for three years for the purpose of prosecuting and defending suits and settling its affairs. After that period, the corporation generally loses the right to sue or be sued in its name.

However, the Court cited established jurisprudence creating an exception. A receiver, assignee, or trustee may continue suits on behalf of the corporation even after the three-year period. Critically, the Court explained that directors of a dissolved corporation are considered trustees by legal implication for winding up its affairs. This principle, first established in Sumera v. Valencia (1939) and reiterated in Clemente v. Court of Appeals (1995), means that no formal appointment is necessary for directors to act on the corporation's behalf.

The Court also invoked Section 145 of the Corporation Code, which states that no right or remedy in favor of a corporation shall be removed or impaired by its subsequent dissolution. The dissolution of a creditor corporation does not extinguish its rights against debtors. To rule otherwise would sanction unjust enrichment of debtors at the expense of the corporation.

Guarantors Remain Liable Despite Corporate Dissolution

On the merits, the Court held that the petitioners were solidarily liable with Marbella. The Continuing Guaranty was clear and unequivocal: the guarantors agreed to pay if Marbella failed to meet its obligations. The petitioners did not challenge the genuineness of the promissory notes or the guaranty; their only defense was that the loans were actually additional financing related to a separate project.

The Court rejected this argument. The promissory notes and the Amendment to the Memorandum of Agreement clearly stated that Marbella's obligation to repay was unconditional, regardless of whether the condominium project earned a profit. The fact that Fereit, a sister company of Bancom, had agreed to reimburse Marbella did not affect Marbella's direct obligation to Bancom. Fereit was a separate entity, and Marbella could pursue its own claims against Fereit separately.

The Court affirmed the award of P4,300,247.35 plus interest, penalties, and P500,000 in attorney's fees, with modifications to the interest rates to conform to prevailing legal rates.

Practical Takeaways

• Corporate revocation does not mean the end of lawsuits. Pending cases continue, and directors act as trustees by legal implication to wind up corporate affairs.
• Guarantors cannot escape liability simply because the creditor corporation was dissolved. Section 145 of the Corporation Code preserves all rights and remedies of a dissolved corporation.
• Clear contractual language prevails. Courts will enforce unconditional obligations in promissory notes and continuing guaranties, even when parties claim the agreements were connected to other transactions.
• Separate corporate entities remain separate. A debtor cannot use another entity's obligations as a defense unless the contracts expressly condition payment on that entity's performance.
• Directors of dissolved corporations should be prepared to act. Even without formal appointment, they may need to continue or defend suits on behalf of the corporation.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.