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G.R.No.L4420

TodayisTuesday,December09,2014

RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.L4420May19,1952
CESARREYES,ETALS.,plaintiffsappellants,
vs.
MAXBLOUSE,ETALS.,defendantsappellees.
Reyes,AlbertandAgcaoiliforappellants.
Gibbs,Gibbs,ChuidianandQuashaforappellees.
BAUTISTAANGELO,J.:
ThisisanactioninstitutedbytheplaintiffsasminoritystockholdersoftheLagunaTayabasBusCo.torestrainits
Board of Directors composed of the defendants from carrying out a resolution approved by approximately 92
percentofthestockholdersinameetingheldonJuly30,1947,authorizingsaidBoardofDirectorstotakethe
necessary steps to consolidate the properties and franchises of the Laguna Tayabas Bus Co. with those of the
BatangasTransportationCo.Thegroundsonwhichplaintiffspredicatetheiractionare:
1.ThattheproposedconsolidationormergerofthetwocompanieswouldbeprejudicialtotheL.T.B.Co.
andtotheappellantsinparticularwhodonotownsharesofstockofB.T.Co.inthat:
a. During the last ten years prior to the last war, the dividends declared by L.T.B. Co. were increasing,
whereasthedividendsdeclaredbyB.T.Co.weredecreasinginamount.
b.In1941,thesharesofL.T.B.Co.costP250eachinthemarket,whereasthesharesofB.T.Co.costonly
P150each.
c.Acomparativestudyofthenetgainsofeachcompanyforthefirstsixmonthsof1947showedthatthe
profits of the L.T.B. Co. exceeded B.T. Co. by approximately P67,000. As a consequence, the shares of
L.T.B.Co.werecostingP360ashare,whilethesharesoftheB.T.Co.werequotedatonlyP200.
2.Thattheproposedconsolidationormergerwasillegalbecausetheunanimousvoteofthestockholders
wasnotsecuredandthatthesamewascontrarytothespiritofourlaws.(Rec.onAppeal,pp.1920)
After the filing of the complaint, the court granted the writ of preliminary injunction prayed for therein upon a
nominalbondofP5,000,whichlaterwasincreasedtoP10,000.
Defendantstwicemovedtodissolvethewritofpreliminaryinjunction,butbothmotionsweredeniedbythelower
court.
Thedefendantsalsoaskedforthedismissalofthecomplaintonthegroundthatthefacts,thereinallegeddonot
constitutesufficientcostofaction.Inconnectionwiththedeterminationofthisincident,defendantssubmittedan
affidavitofMaxBlouse,PresidentoftheLagunaTayabasBusCo.,outliningthestepstobetakenbytheBoardof
Directors in carrying out the merger or consolidation authorized in the disputed resolution. the court however,
deferreditsresolutiononthemotionuntilaftertrialonthemerits.Afterduetrial,atwhichbothpartiespresented
theirrespectiveevidence,thelowercourtrendereditsdecision,thedispositiveportionofwhichreads:
Foralltheforegoingconsiderations,thecourtisoftheopinionandsoholdsthatthecontoversialproposed
actstobeperformedbythedefendants,directorsoftheLagunaTayabasBusCo.,arewithintheauthority
granted under Section 28 of the Corporation Law. The complaint, therefore, is dismissed and the
preliminaryinjunctionisherebyliftedwithoutpronouncementastocosts.(RecordonAppeal,p.182)
Onthemotionoftheplaintiffs,thecourtaquorevivedthewritofpreliminaryinjunctionwhichwasdissolvedinits
decisionabovementionedandmaintainedthestatusquoofthecasependingappealuponanewindemnitybond
ofP30,000,whichwassubsequentlyincreasedtoP50,000.
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ThecaseisnowbeforethisCourtonappealinterposedbytheplaintiffswhoimputesixerrorstothelowercourt.
Theprincipalissueinvolvedinthisappealiswhethertherealpurposeofthedisputedresolutionisthemergeror
consolidation of the properties and franchises of the Laguna Tayabas Bus Co. with those of the Batangas
Transportation Co. within the meaning of the law, and in the affirmative case, whether said merger or
consolidationcanbecarriedoutunderthelawnowexistingandinforceinthePhilippines.Ononehandcounsel
forplaintiffscontendsthatitsrealpurposeistoeffectamergerorconsolidation,andassuchthereisnolawinthe
Philippinesunderwhichitmayproperlybecarriedoutontheotherhand,counselforthedefendantsmaintains
the negative view, holding that it is merely an exchange of properties sanctioned by our corporation law, as
amended, and that even if it be considered as a consolidation, the same can still be carried out under
CommonwealthActNo.146,section20,otherwiseknownasthePublicServiceLaw.
Thedisputedresolution,whichwasapprovedonJuly20,1947,ataspecialmeetingheldbythestockholdersof
theLagunaTayabasBusCo.readsasfollows:
ResolvedthattheBoardofDirectorsoftheLagunaTayabasBusCompany,beasitherebyis,authorized
totakethenecessarystepstoconsolidatethepropertiesandfranchisesofthecorporationwiththoseofthe
BatangasTransportationCompanyunderasinglecorporationbytheorganizationofanewcorporationand
todisposetosuchnewcorporationallthepropertiesandfranchisesofthecorporationinreturnforstockof
the new corporation, or by the exchange of stock, and/or through such other means as may be deemed
mostadvisablebytheBoardofDirectors.
Itshouldbenotedthatundertheaboveresolution,theBoardofDirectorsischargedwiththeauthoritytotakethe
necessary steps to consolidate the properties and franchises of the Laguna Tayabas Bus Co. with those of the
BatangasTransportationCo.underanewcorporationinreturnforstockofthenewcorporation,orbyexchange
ofstock,and/orthroughsuchothermeansasmaybedeemedmostadvisablebytheBoardofDirectors.Theway
and manner the consolidation shall be effected is, therefore, left to the discretion of the Board of Directors. In
pursuance of this broad authority, the Board of Directors acted and the steps it has taken having in view the
interestofbothcorporationsareoutlinedintheaffidavitattachedtothememorandumsubmittedtothecourtby
Max Blouse, president of the two corporations above mentioned. The substance of this affidavit is that both
corporations have passed similar resolutions authorizing the Board of Directors to take such steps as may be
necessarytoeffecttheconsolidationthattheBoardofDirectorsoftheLagunaTayabasBusCo.hasdecidedto
transfer its assets, franchises and other properties to the new corporation, from which shall be excluded the
claims that it has against the United States Army and the cash it has received from it for the use and
commanderingofitsbussesandotherstockandequipmentduringthewarthattheLagunaTayabasBusCo.,
willnottransferanyliabilitiestothenewcorporationandthatsaidcompanywillnotbedissolvedbutwillcontinue
existing,althoughnotoperating,untilthestockholdersdecidetodissolvethesame.
It is apparent that the purpose of the resolution is not to dissolve the Laguna Tayabas Bus Co. but merely to
transferitsassetstoanewcorporationinexchangeforitscorporationstock.Thisintentisclearlydeduciblefrom
theprovisionthattheLagunaTayabasBusCo.willnotbedissolvedbutwillcontinueexistinguntilitsstockholders
decidetodissolvethesame.Thiscomessquarelywithinthepurviewofsection28ofthecorporationmaysell,
exchange,leaseorotherwisedisposeofallitspropertyandassets,includingitsgoodwill,uponsuchtermsand
conditions as its Board of Directors may deem expedient when authorized by the affirmative vote of the
shareholdersholdingatleast2/3ofthevotingpower.Thewords"orotherwisedisposedof"isverybroadandin
asensecoversamergerorconsolidation.Theactionofthecorporationwastakenhavinginviewthisprovisionof
ourcorporationlawandinouropinionthecorporationhasactedcorrectly.
Butappellantscontendthatthedisputedresolutioncallsforarealmergerorconsolidationinthesenseandinthe
manner said terms are intended and understood under the law and authorities of the United States, citing in
supportoftheircontentionalonglineofAmericanauthorities,andthatviewtheresolutioninthatlight,thesame
cannotcomewithinthepurviewofsection28__ofourcorporationlaw,asclaimedbyappellees.Butevenifwe
view the resolution in the light of the American authorities, we are of the opinion that the transaction called for
therein cannot be considered, strickly speaking, as a merger or consolidation of the two corporations because,
undersaidauthorities,amergerimpliesnecessarilytheterminationorcessationofthemergedcorporationsand
notmerelyamergeroftheirpropertiesandassets.Thissituationdoesnothereobtain.Thetwocorporationswill
notlosetheircorporateexistenceorpersonality,oratleasttheLagunaTayabasBusCo.,butwillcontinuetoexist
even after the consolidation. In other words, what is intended by the resolution is merely a consolidation of
propertiesandassets,tobemanagedandoperatedbyanewcorporation,andnotamergerofthecorporations
themselves.
Grantingarguendothatthedisputedresolutionhasreallytheintentionandthepurposeofcarryingoutthemerger
or consolidation both of the assets and properties of the two corporations as well as of the two corporations
themselvesinthetruesenseoftheword,orinthelightoftheAmericanauthorities,stillwebelievethatthiscan
becarriedoutinthisjurisdictioninthelightofourPublicServiceLaw.Thus,section20(g)ofCommonwealthAct
No. 146, as amended, prohibits any public service operators, unless with the approval of the Public Service
Commission, "to sell, alienate, mortgage, encumber or lease its property, franchises, certificates, privileges, or
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rights,oranypartthereof,ormergeorconsolidateitsproperty,franchises,privilegesorrightsoranypartthereof,
withthoseofanyotherpublicservice".Thislawspeaksofmergerorconsolidationofpublicserviceengagedin
landtransportation.ItdoesnotimposeanyqualificationexceptthatitshallbedonewiththeapprovalofthePublic
ServiceCommission.Thereisnodoubtthattheintendedmergerorconsolidationcomeswithinthepurviewofthis
legalprovision.
The claim that the merger or consolidation of two land transportation companies cannot be carried out in this
jurisdictionbecauseitisprohibitedbyActNo.2772,isuntenableinthelightoftheveryprovisionsofsaidAct.A
carefulanalysisofsaidactwillshowthatitonlyregulatesthemergerorconsolidationofrailroadcompanies,orof
arailroadcompanywithanyothercarrierbylandorwater.SaidActdoesnotapplytothemergerorconsolidation
of two corporations exclusively engaged in land transportation. To extend the meaning and scope of said Act
2772 to the merger or consolidation of land carries would be to render nugatory the provisions of the Public
ServiceLaw,whicheffectcannotbeimpliedbecausethelatterlaw(1936)isofmorerecentenactmentthanthe
former (1918). As to how the merger or consolidation shall be carried out, our corporation law contains ample
provisionstothiseffect(sections17,18and25).Thislawdoesnotrequirethattherebeanexpresslegislative
authority,oraunanimousconsentofallstockholders,toeffectamergerorconsolidationoftwocorporations.
Plaintiffs object to the use made by the lower court of the affidavit submitted by Max Blouse, president of the
mergingcorporations,inconnectionwiththeincidentrelativetothemotiontodismissfiledbythedefendantsto
whichaffidavitnoobjectionhasbeeninterposedbytheplaintiffsandforthatreasonthataffidavitbecamepartor
therecord.AssaidAffidavitwassubmittedwiththemotiontodismissandotherexhibitspresentedbybothparties
fortheconsiderationofthecourt,wefindnoreasonwhythelowercourtshoulderrinconsideringitinitsdecision
andwhyitcannotnowbeconsideredinthisappeal.Thisactionofthecourtwasmerelyinlinewiththemoveof
thepartieswhentheysubmittedforconsiderationthemotiontodismissfiledbythedefendants.
Theremainingquestiontobedeterminedreferstotheclaimthattheproposedconsolidationormergerofthetwo
corporationswouldbeprejudicialtotheLagunaTayabasBusCo.andtotheappellantsinparticularwhodonot
ownsharesofstockoftheBatangasTransportationCo.Thisisaquestionoffactwhichmuchdependsuponthe
evidencesubmittedbytheparties.Afterweighingtheevidence,thelowercourtreachedtheconclusionthatthe
merger would not be prejudicial or disadvantageous to the appellants or to the stockholders of the Laguna
TayabasBusCo.Onthispointthecourtsaid:"ThetestimonyofMaxBlouse,whohadfoundedboththeLaguna
TayabasBusCo.andtheBatangasTransportationCo.,shouldbegivenconsiderationweightandcredencenot
onlybecauseofthepositionwhichheenjoysinbothcompanies,butalsobecauseofhislongexperienceinthe
transportation business in this country. His opinion, therefore, insofar as he states that the earnings of both
companiesshouldbeaboutequal,innormalcircumstances,isentitledtomoreweightandcreditthanthatofthe
plaintiffs".
Totheforegoingwemayaddthefollowing:theLagunaTayabasBusCo.andtheBatangasTransportationCo.
are prewar corporations organized in 1928 and 1918, respectively. They ceased operating during the war. In
April,1945,theyresumedoperations,andpursuanttotheauthoritygrantedbytherespectiveBoardofDirectors,
the two companies were jointly operated under a single management. In view of the success of this joint
operation,itwasstronglyrecommendedthatitbecontinuedandmadepermanent.Forthispurposeameetingof
the stockholders was called, and the disputed resolution was approved. And this resolution was approved
because the stockholders found that with the consolidation, the two companies would enjoy the services of the
sametechnicalmen,wouldinvestmuchlessinthepurchaseofspareparts,wouldeffectsavingsinrunningone
machine shop, instead of two, would employ less personel, and in general, both companies would effect a
substantialeconomyinmen,materialsandoperationexpenses.Themergerortheconsolidationhasbeenvoted
uponbytwothirdsvoteofthestockholders.Theiractionisdecisive.Theyhaveactedhavinginviewonlythebest
interestsofbothcompanies.Itisnotfairtoallowasmallminoritytoundoorsetatnaughtwhattheyhavedone.
Theremedyoftheappellantsistoregistertheirobjectioninwritinganddemandpaymentoftheirsharesfromthe
corporationasprovidedforinsection28ofthecorporationlaw.
Wherefore,thedecisionisherebyaffirmed,withcostagainstappellants.
Paras,C.J.,Feria,Pablo,Bengzon,Tuason,MontemayorandLabrador,JJ.,concur.
TheLawphilProjectArellanoLawFoundation

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