G.R. No. L-39050 February 24, 1981
Carlos Gelano and Guillermina Mendoza de Gelano, petitioners, vs. The Honorable Court of Appeals and Insular Sawmill, Inc., respondents.

FACTS

Insular Sawmill, Inc., a corporation with a term until September 17, 1995, leased a property owned by petitioner Guillermina Gelano. During the lease, petitioner Carlos Gelano obtained cash advances totaling P25,950.00 from the corporation, agreeing they would be deducted from future rentals. He paid only P5,950.00, leaving a P20,000.00 balance. The spouses also purchased lumber worth P1,120.46 for home repairs, leaving a balance of P946.46. Furthermore, to help Carlos renew a bank loan, the corporation co-signed a promissory note for P8,000.00. Upon Carlos’s default, the bank debited P9,106.00 from the corporation, of which Carlos repaid only P5,000.00.
The corporation filed a collection suit in 1959. During the pendency of the case, the corporation amended its articles to shorten its term, dissolving on December 31, 1960. The trial court was not notified of this dissolution. In 1964, the trial court rendered a decision largely against Carlos Gelano. The Court of Appeals modified this in 1973, holding the conjugal partnership jointly and severally liable. Upon learning of the corporation’s 1960 dissolution, the petitioners moved to dismiss, arguing a defunct corporation could not maintain the suit.

ISSUE

Whether the dissolution of Insular Sawmill, Inc. during the pendency of the litigation deprived it of the capacity to continue the suit and obtain a final judgment.

RULING

The Supreme Court ruled that the dissolution did not terminate the corporation’s capacity to prosecute the suit to its final conclusion. The Court affirmed the legal principle that a corporation retains its juridical personality for a reasonable period after dissolution to wind up its affairs, which includes prosecuting and defending pending suits to settle and liquidate its corporate affairs. The collection case was instituted in 1959 while the corporation was still extant. To hold that dissolution automatically abates such pending litigation would unjustly allow corporations to lose rightful claims or evade just obligations through a mere technicality. The winding-up period is necessarily prolonged until the final termination of litigation commenced within the corporate term. Therefore, the Court of Appeals validly decided the appeal. However, the Supreme Court clarified that the liability of the conjugal partnership is not “joint and several” with the husband, as the partnership is a single entity liable for the husband’s debts that benefited the family, pursuant to Article 161 of the Civil Code. The decision was affirmed with this modification.