REYES v. BLOUSE 91 Phil.

305
BAUTISTA ANGELO, J.:
This is an action instituted by the plaintiffs as minority stockholders of the Lacuna Tayabas Bus Co. to restrain its Board of Directors composed
of the defendants from carrying out a resolution approred by approximately 92 1/2 per cent of the stockholders in a meeting held on July 30,
1947, authorizing said Board of Directors to take the necessary steps to consolidate the properties and franchises of the Laguna Tayabas Bus
Co. with those of the Batangas Transportation Co. The grounds on which plaintiffs predicate their action are:

"1. That the proposed consolidation or merger of the two companies would be prejudicial to the L. T. B. Co. and to the appellants in particular
who do not own shares of stock of B. T. Co. in that:
'a. During the last ten years prior to the last war, the dividends declared by L. T. B. Co. were increasing, whereas the dividends declared by B. T.
Co. were decreasing in amount.
'b. In 1941, the shares of L. T. B. Co. cost P250 each in the market, whereas the shares of B. T. Co. cost only P150 each.
'c. A comparative study of the net gains of each company for the first six months of 1947 showed that the profits of the L. T. B. Co. exceeded B.
T. Co. by approximately P67,000.00. As a consequence, the shares of L. T. B. Co. were costing P360 a share, while the shares of B. T. Co. were
quoted at only P200.'

2. That the proposed consolidation or merger was illegal because the unanimous vote of the stockholders was not secured and that the same
was contrary to the spirit of our laws. (Rec. on Appeal, pp. 19-20)".
After the filing of the complaint, the court granted the writ of preliminary injunction prayed for therein upon a nominal bond of P5,000, which
later was increased to P10,000.

Defendants twice moved to dissolve the writ of preliminary injunction, but both motions were denied by the lower court.

The defendants also asked for the dismissal of the complaint on the ground that the facts therein alleged do not constitute sufficient cause of
action. In connection with the determination of this incident, defendants submitted an affidavit of Max Blouse, President of the Laguna Tayabas
Bus Co., outlining the steps to be taken by the Board of Directors in carrying out the merger or consolidation authorized in the disputed
resolution. The court, however, deferred its resolution on the motion until after trial on the merits. After due trial, at which both parties
presented their respective evidence, the lower court rendered its decision, the dispositive portion of which reads:

"For all the foregoing considerations, the court is of the opinion and so holds that the controversial proposed acts to be performed by the
defendants, directors of the Laguna Tayabas Bus Co., are within the authority granted under Section 28 1/2 of the Corporation Law. The
complaint, therefore, is dismissed and the preliminary injunction is hereby lifted without pronouncement as to costs. (Record on Appeal, p.
182)".
On motion of the plaintiffs, the court a quo revived the writ of preliminary injunction which was dissolved in its decision above mentioned and
maintained the status quo of the case pending appeal upon a new indemnity bond of P30,000, which was subsequently increased to P50,000.

The case is now before this Court on appeal interposed by the plaintiffs who impute six errors to the lower court.

The principal issue involved in this appeal is whether the real purpose of the disputed resolution is the merger or 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 consolidation can be carried out under the law now existing and in force in the Philippines. On one
hand, counsel for the plaintiffs contends that its real purpose is to effect a merger or consolidation, and as such there is no law in the
Philippines under which it may properly be carried out; on the other hand, counsel for defendants maintains 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 Commonwealth Act No. 146, section 20, otherwise known as the Public Service Law.

The disputed resolution, which was approved on July 20, 1947, at a special meeting held by the stockholders of the Laguna Tayabas Bus Co.
reads as follows:

"Resolved that the Board of Directors of the Laguna Tayabas Bus Company, be as it hereby is, authorized to take the necessary steps to
consolidate the properties and franchises of the corporation with those of the Batangas Transportation Company under a single corporation by
the organization of a new corporation and to dispose to such new corporation all the properties and franchises of the corporation in return for
stock of the new corporation, or by the exchange of stock, and/or through such other means as may be deemed most advisable by the Board of
Directors."
It should be noted that under the above resolution, the Board of Directors is charged with the authority to take the necessary steps to
consolidate the properties and franchises of the Laguna Tayabas Bus Co. with those of the Batangas Transportation Co. under a new
corporation in return for stock of the new corporation, or by exchange of stock, and/or through such other means as may be deemed most
advisable by the Board of Directors. The way 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 interest of both
corporations are outlined in the affidavit attached to the memorandum submitted to the court by 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 necessary to effect the consolidation; that the Board of Directors of the Laguna Tayabas Bus Co. has
decided to 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 commandeering of its busses and other stock and
equipment during the war; that the Laguna Tayabas Bus Co. will not transfer any of its liabilities to the new corporation; and that said company
will not be dissolved but will continue existing, although not operating, until the stockholders decide to dissolve the same.

It is apparent that the purpose of the resolution is not to dissolve the Laguna Tayabas Bus Co. but merely to transfer its assets to a new
corporation in exchange for its corporation stock. This intent is clearly deducible from the provision that the Laguna Tayabas Bus Co. will not be
dissolved but will continue existing until its stockholders decide to dissolve the same. This comes squarely within the purview of section 28 1/2
of the corporation law which provides, among others, that a corporation may sell, exchange, lease or otherwise dispose of all its property and
assets, including its good will, upon such terms and conditions as its Board of Directors may deem expedient when authorized by the
affirmative vote of the shareholders holding at least 2/3 of the voting power. The words "or otherwise disposed of" is very broad and in a sense
covers a merger or consolidation. The action of the corporation was taken having in view this provision of our corporation law and in our
opinion the corporation has acted correctly.

But appellants contend that the disputed resolution calls for a real merger or consolidation in the sense and in the manner said terms are
intended and understood under the law and authorities of the United States, citing in support of their contention a long line of American
authorities, and that viewing the resolution in that light, the same cannot come within the purview of section 28 1/2 of our corporation law, as
claimed by appellees. But even if we view the resolution in the light of the American authorities, we are of the opinion that the transaction
called for therein cannot be considered, strictly speaking, as a merger or consolidation of the two corporations because, under said authorities,
a merger implies necessarily the termination or cessation of the merged corporations and not merely a merger of their properties and assets.
This situation does not here obtain. The two corporations will not lose their corporate existence or personality, or at least the Laguna Tayabas
Bus Co., but will continue to exist even after the consolidation. In other words, what is intended by the resolution is merely a consolidation of
properties and assets, to be managed and operated by a new corporation, and not a merger of the corporations themselves.

Granting arguendo that the diluted resolution has really the intention and the purpose of carrying out the merger or consolidation both of the
assets and properties of the two corporations as well as of the two corporations themselves in the true sense of the word, or in the light of the

1
American authorities, still we believe that this can be carried out in this jurisdiction in the light of our Public Service Law. Thus, section 20 (g) of
Commonwealth Act No. 146, as amended, prohibits any public service operator, unless with the approval of the Public Service Commission, "to
sell, alienate, mortgage, encumber or lease its property, franchises, certificates, privileges, or rights, or any part thereof, or merge or
consolidate its property, franchises, privileges or right or any part thereof, with those of any other public service". This law speaks of merger or
consolidation of public services engaged in land transportation. It does not impose any qualification except that it shall be done with the
approval of the Public Service Commission. There is no doubt that the intended merger or consolidation comes within the purview of this legal
provision.

The claim that the merger or consolidation of two land transporation companies cannot be carried out in this jurisdiction because it is
prohibited by Act No. 2772, is untenable in the light of the very provisions of said Act. A careful analysis of said act will show that it only
regulates the merger or consolidation of railroad companies, or of a railroad company with any other carrier by land or water. Said act does not
apply to the merger or consolidation 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 carriers would be to render nugatory the provisions of the Public Service Law, which effect
cannot be implied because the latter law (1936) is of more recent enactment than the former (1918). As to how the merger or consolidation
shall be carried out, our corporation law contains ample provisions to this effect (sections 17 1/2, 18, and 25 1/2). This law does not require
that there be an express legislative authority, or a unanimous consent of all stockholders, to effect a merger or consolidation of two
corporations.

Plaintiffs object to the use made by the lower court of the affidavit submitted by Max Blouse, president of the merging corporations, in
connection with the incident relative to the motion to dismiss filed by the defendants to which affidavit no objection has been interposed by
the plaintiffs and for that reason that affidavit became part of the record. As said affidavit was submitted with the motion to dismiss and other
exhibits presented by both parties for the consideration of the court, we find no reason why the lower court should err in considering it in its
decision and why it cannot now be considered in this appeal. This action of the court was merely in line with the move of the parties when they
submitted for consideration the motion to dismiss filed by the defendants.

The remaining question to be determined refers to the claim that the proposed consolidation or merger of the two corporations would be
prejudicial to the Laguna Tayabas Bus Co. and to the appellants in particular who do not own shares of stock of the Batangas Transporation Co.
This is a question of fact which much depends upon the evidence submitted by the parties. After weighing the evidence, the lower court
reached the conclusion that the merger would not be prejudicial or disadvantageous to the appellants or to the stockholders of the Laguna
Tayabas Bus Co. On this point the court said: "The testimony of Max Blouse, who had founded both the Laguna Tayabas Bus Co. and the
Batangas Transportation Co., should be given considerable weight and credence not only because of the position which he enjoys in both
companies, but also because of his long experience in the transportation business in this country. His opinion, therefore, insofar as he states
that the earnings of both companies should be about equal, in normal circumstances, is entitled to more weight and credit than that of the
plaintiffs".

To the foregoing we may add the following: the Laguna Tayabas Bus Co. and the Batangas Transportation Co. are prewar corporations
organized in 1928 and 1918, respectively. They ceased operating during the war. In April, 1945, they resumed operations, and pursuant to the
authority granted by the respective Board of Directors, the two companies were jointly operated under a single management. In view of the
success of this joint operation, it was strongly recommended that it be continued and made permanent. For this purpose a meeting of 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 same technical men, would invest much less in the purchase of spare
parts, would effect savings in running one machine shop, instead of two, would employ less personnel, and in general, both companies would
effect a substantial economy in men, materials and operation expenses. The merger or consolidation has been voted upon by two-thirds vote
of the stockholders. Their action is decisive. They have acted having in view only the best interests of both companies. It is not fair to allow a
small minority to undo or set at naught what they have done. The remedy of the appellants is to register their objection in writing and demand
payment of their shares from the corporation as provided for in section 28 1/2 of the corporation law.

Wherefore, the decision appealed from is hereby affirmed, with costs against the appellants.

ASSOCIATED BANK, petitioner, vs. COURT OF APPEALS and LORENZO SARMIENTO JR., respondents. [G.R. No. 123793. June 29, 1998]
PANGANIBAN, J.:
In a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed company subsequent to the
date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission?
The Case
This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision[1] of the Court of Appeals[2] in CA-GR CV
No. 26465 promulgated on January 30, 1996, which answered the above question in the negative. The challenged Decision reversed and set aside
the October 17, 1986 Decision[3] in Civil Case No. 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48, which disposed of the
controversy in favor of herein petitioner as follows:[4]
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated Bank. The defendant Lorenzo Sarmiento, Jr. is
ordered to pay plaintiff:
1. The amount of P4,689,413.63 with interest thereon at 14% per annum until fully paid;
2. The amount of P200,000.00 as and for attorneys fees; and
3. The costs of suit.
On the other hand, the Court of Appeals resolved the case in this wise:[5]
WHEREFORE, premises considered, the decision appealed from, dated October 17, 1986 is REVERSED and SET ASIDE and another
judgment rendered DISMISSING plaintiff-appellees complaint, docketed as Civil Case No. 85-32243. There is no pronouncement as
to costs.
The Facts
The undisputed factual antecedents, as narrated by the trial court and adopted by public respondent, are as follows:[6]
x x x [O]n or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just
one banking corporation known as Associated Citizens Bank, the surviving bank. On or about March 10, 1981, the Associated
Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On September 7,
1977, the defendant executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the
sum of P2,500,000.00 payable on or before March 6, 1978. As per said promissory note, the defendant agreed to pay interest at
14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorneys fees, in case of litigation
equivalent to 10% of the amount due. The defendant, to date, still owes plaintiff bank the amount of P2,250,000.00 exclusive of
interest and other charges. Despite repeated demands the defendant failed to pay the amount due.
xxx xxx xxx
x x x [T]he defendant denied all the pertinent allegations in the complaint and alleged as affirmative and[/]or special defenses that
the complaint states no valid cause of action; that the plaintiff is not the proper party in interest because the promissory note was
executed in favor of Citizens Bank and Trust Company; that the promissory note does not accurately reflect the true intention and
agreement of the parties; that terms and conditions of the promissory note are onerous and must be construed against the
creditor-payee bank; that several partial payments made in the promissory note are not properly applied; that the present action is
premature; that as compulsory counterclaim the defendant prays for attorneys fees, moral damages and expenses of litigation.
On May 22, 1986, the defendant was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice.
A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22, 1986 was filed by defendants counsel which was
denied by the Court in [an] order dated September 16, 1986 and the plaintiff was allowed to present its evidence before the Court
ex-parte on October 16, 1986.

2
 At the hearing before the Court ex-parte, Esteban C. Ocampo testified that x x x he is an accountant of the Loans and Discount
Department of the plaintiff bank; that as such, he supervises the accounting section of the bank, he counterchecks all the
transactions that transpired during the day and is responsible for all the accounts and records and other things that may[ ]be
assigned to the Loans and Discount Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has an
outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr. executed a promissory note No. TL-2649-77 dated
September 7, 1977 in the amount of P2,500,000.00 (Exhibit A); that Associated Banking Corporation and the Citizens Bank and
Trust Company merged to form one banking corporation known as the Associated Citizens Bank and is now known as Associated
Bank by virtue of its Amended Articles of Incorporation; that there were partial payments made but not full; that the defendant has
not paid his obligation as evidenced by the latest statement of account (Exh. B); that as per statement of account the outstanding
obligation of the defendant is P5,689,413.63 less P1,000,000.00 or P4,689,413.63 (Exh. B, B-1); that a demand letter dated June 6,
1985 was sent by the bank thru its counsel (Exh. C) which was received by the defendant on November 12, 1985 (Exh. C, C-1, C-2, C-
3); that the defendant paid only P1,000,000.00 which is reflected in the Exhibit C.
Based on the evidence presented by petitioner, the trial court ordered Respondent Sarmiento to pay the bank his remaining balance plus
interests and attorneys fees. In his appeal, Sarmiento assigned to the trial court several errors, namely:[7]
I The [trial court] erred in denying appellants motion to dismiss appellee banks complaint on the ground of lack of cause of
action and for being barred by prescription and laches.
II The same lower court erred in admitting plaintiff-appellee banks amended complaint while defendant-appellants motion
to dismiss appellee banks original complaint and using/availing [itself of] the new additional allegations as bases in denial of
said appellants motion and in the interpretation and application of the agreement of merger and Section 80 of BP Blg. 68,
Corporation Code of the Philippines.
III The [trial court] erred and gravely abuse[d] its discretion in rendering the two as if in default orders dated May 22, 1986
and September 16, 1986 and in not reconsidering the same upon technical grounds which in effect subvert the best
primordial interest of substantial justice and equity.
IV The court a quo erred in issuing the orders dated May 22, 1986 and September 16, 1986 declaring appellant as if in
default due to non-appearance of appellants attending counsel who had resigned from the law firm and while the parties
[were] negotiating for settlement of the case and after a one million peso payment had in fact been paid to appellee bank
for appellants account at the start of such negotiation on February 18, 1986 as act of earnest desire to settle the obligation
in good faith by the interested parties.
V The lower court erred in according credence to appellee banks Exhibit B statement of account which had been merely
requested by its counsel during the trial and bearing date of September 30, 1986.
VI The lower court erred in accepting and giving credence to appellee banks 27-year-old witness Esteban C. Ocampo as of
the date he testified on October 16, 1986, and therefore, he was merely an eighteen-year-old minor when appellant
supposedly incurred the foisted obligation under the subject PN No. TL-2649-77 dated September 7, 1977, Exhibit A of
appellee bank.
VII The [trial court] erred in adopting appellee banks Exhibit B dated September 30, 1986 in its decision given in open court
on October 17, 1986 which exacted eighteen percent (18%) per annum on the foisted principal amount of P2.5 million when
the subject PN, Exhibit A, stipulated only fourteen percent (14%) per annum and which was actually prayed for in appellee
banks original and amended complaints.
VIII The appealed decision of the lower court erred in not considering at all appellants affirmative defenses that (1) the
subject PN No. TL-2649-77 for P2.5 million dated September 7, 1977, is merely an accommodation pour autrui bereft of any
actual consideration to appellant himself and (2) the subject PN is a contract of adhesion, hence, [it] needs [to] be strictly
construed against appellee bank -- assuming for granted that it has the right to enforce and seek collection thereof.
IX The lower court should have at least allowed appellant the opportunity to present countervailing evidence considering the
huge amounts claimed by appellee bank (principal sum of P2.5 million which including accrued interests, penalties and cost
of litigation totaled P4,689,413.63) and appellants affirmative defenses -- pursuant to substantial justice and equity.
The appellate court, however, found no need to tackle all the assigned errors and limited itself to the question of whether [herein petitioner
had] established or proven a cause of action against [herein private respondent]. Accordingly, Respondent Court held that the Associated Bank
had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of
Citizens Bank and Trust Company (CBTC). The court ruled that the earlier merger between the two banks could not have vested Associated Bank
with any interest arising from the promissory note executed in favor of CBTC after such merger.
Thus, as earlier stated, Respondent Court set aside the decision of the trial court and dismissed the complaint. Petitioner now comes to us
for a reversal of this ruling.[8]
Issues
In its petition, petitioner cites the following reasons:[9]
I The Court of Appeals erred in reversing the decision of the trial court and in declaring that petitioner has no cause of action
against respondent over the promissory note.
II The Court of Appeals also erred in declaring that, since the promissory note was executed in favor of Citizens Bank and Trust
Company two years after the merger between Associated Banking Corporation and Citizens Bank and Trust Company, respondent is
not liable to petitioner because there is no privity of contract between respondent and Associated Bank.
III The Court of Appeals erred when it ruled that petitioner, despite the merger between petitioner and Citizens Bank and Trust
Company, is not a real party in interest insofar as the promissory note executed in favor of the merger.
In a nutshell, the main issue is whether Associated Bank, the surviving corporation, may enforce the promissory note made by private
respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed.
The Courts Ruling
The petition is impressed with merit.
The Main Issue:
Associated Bank Assumed
All Rights of CBTC
Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined
business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation.[10] Although there is
a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation
automatically acquires all their rights, privileges and powers, as well as their liabilities.[11]
The merger, however, does not become effective upon the mere agreement of the constituent corporations. The procedure to be followed
is prescribed under the Corporation Code.[12] Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of
the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders
of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a
certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and
when its rights, privileges, properties as well as liabilities pass on to the surviving corporation.
Consistent with the aforementioned Section 79, the September 16, 1975 Agreement of Merger,[13] which Associated Banking Corporation
(ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity shall, for all intents and purposes, be the date when
the necessary papers to carry out this [m]erger shall have been approved by the Securities and Exchange Commission.[14] As to the transfer of the
properties of CBTC to ABC, the agreement provides:
10. Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC],
whether real, personal or mixed, and including [CBTCs] goodwill and tradename, and all debts due to [CBTC] on
whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be
vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law
or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment
of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly;

3
 and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and
nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and
bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary
capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were
of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any
way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of
[CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC],
whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC]
which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts,
liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject,
however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] has or might have and which
shall pertain to [ABC].[15]
The records do not show when the SEC approved the merger. Private respondents theory is that it took effect on the date of the execution
of the agreement itself, which was September 16, 1975. Private respondent contends that, since he issued the promissory note to CBTC on
September 7, 1977 -- two years after the merger agreement had been executed -- CBTC could not have conveyed or transferred to petitioner its
interest in the said note, which was not yet in existence at the time of the merger. Therefore, petitioner, the surviving bank, has no right to
enforce the promissory note on private respondent; such right properly pertains only to CBTC.
Assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any
interest in the promissory note. A closer perusal of the merger agreement leads to a different conclusion. The provision quoted earlier has this
other clause:
Upon the effective date of the [m]erger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or
nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as if such
references were direct references to [ABC]. x x x[16] (Underscoring supplied)
Thus, the fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner. The
agreement itself clearly provides that allcontracts -- irrespective of the date of execution -- entered into in the name of CBTC shall be understood
as pertaining to the surviving bank, herein petitioner. Since, in contrast to the earlier aforequoted provision, the latter clause no longer specifically
refers only to contracts existing at the time of the merger, no distinction should be made. The clause must have been deliberately included in the
agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation
aimed at evading fulfillment of a due obligation.
Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very
provisions of the merger agreement, as a reference to petitioner bank, as if such reference [was a] direct reference to the latter for all intents
and purposes.
No other construction can be given to the unequivocal stipulation. Being clear, plain and free of ambiguity, the provision must be given its
literal meaning[17] and applied without a convoluted interpretation. Verba legis non est recedendum.[18]
In light of the foregoing, the Court holds that petitioner has a valid cause of action against private respondent. Clearly, the failure of private
respondent to honor his obligation under the promissory note constitutes a violation of petitioners right to collect the proceeds of the loan it
extended to the former.
Secondary Issues:
Prescription, Laches, Contract Pour Autrui, Lack of Consideration
No Prescription or Laches
Private respondents claim that the action has prescribed, pursuant to Article 1149 of the Civil Code, is legally untenable. Petitioners suit
for collection of a sum of money was based on a written contract and prescribes after ten years from the time its right of action
arose.[19] Sarmientos obligation under the promissory note became due and demandable on March 6, 1978. Petitioners complaint was instituted
on August 22, 1985, before the lapse of the ten-year prescriptive period. Definitely, petitioner still had every right to commence suit against the
payor/obligor, the private respondent herein.
Neither is petitioners action barred by laches. The principle of laches is a creation of equity, which is applied not to penalize neglect or
failure to assert a right within a reasonable time, but rather to avoid recognizing a right when to do so would result in a clearly inequitable
situation[20] or in an injustice.[21] To require private respondent to pay the remaining balance of his loan is certainly not inequitable or unjust. What
would be manifestly unjust and inequitable is his contention that CBTC is the proper party to proceed against him despite the fact, which he
himself asserts, that CBTCs corporate personality has been dissolved by virtue of its merger with petitioner. To hold that no payee/obligee exists
and to let private respondent enjoy the fruits of his loan without liability is surely most unfair and unconscionable, amounting to unjust
enrichment at the expense of petitioner. Besides, this Court has held that the doctrine of laches is inapplicable where the claim was filed within
the prescriptive period set forth under the law.[22]

No Contract Pour Autrui

Private respondent, while not denying that he executed the promissory note in the amount of P2,500,000 in favor of CBTC, offers the
alternative defense that said note was a contract pour autrui.
A stipulation pour autrui is one in favor of a third person who may demand its fulfillment, provided he communicated his acceptance to
the obligor before its revocation. An incidental benefit or interest, which another person gains, is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.[23]
Florentino vs. Encarnacion Sr.[24] enumerates the requisites for such contract: (1) the stipulation in favor of a third person must be a part
of the contract, and not the contract itself; (2) the favorable stipulation should not be conditioned or compensated by any kind of obligation; and
(3) neither of the contracting parties bears the legal representation or authorization of the third party. The fairest test in determining whether
the third persons interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as
disclosed by their contract.[25]
We carefully and thoroughly perused the promissory note, but found no stipulation at all that would even resemble a provision in
consideration of a third person. The instrument itself does not disclose the purpose of the loan contract. It merely lays down the terms of payment
and the penalties incurred for failure to pay upon maturity. It is patently devoid of any indication that a benefit or interest was thereby created
in favor of a person other than the contracting parties. In fact, in no part of the instrument is there any mention of a third party at all. Except for
his barefaced statement, no evidence was proffered by private respondent to support his argument. Accordingly, his contention cannot be
sustained. At any rate, if indeed the loan actually benefited a third person who undertook to repay the bank, private respondent could have
availed himself of the legal remedy of a third-party complaint.[26] That he made no effort to implead such third person proves the hollowness of
his arguments.

Consideration
Private respondent also claims that he received no consideration for the promissory note and, in support thereof, cites petitioners failure
to submit any proof of his loan application and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa
loquitur. The instrument, bearing the signature of private respondent, speaks for itself.Respondent Sarmiento has not questioned the
genuineness and due execution thereof. No further proof is necessary to show that he undertook to pay P2,500,000, plus interest, to petitioner
bank on or before March 6, 1978. This he failed to do, as testified to by petitioners accountant. The latter presented before the trial court private
respondents statement of account[27] as of September 30, 1986, showing an outstanding balance of P4,689,413.63 after deducting P1,000,000.00
paid seven months earlier. Furthermore, such partial payment is equivalent to an express acknowledgment of his obligation. Private respondent
can no longer backtrack and deny his liability to petitioner bank. A person cannot accept and reject the same instrument.[28]
WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the Decision of RTC-Manila, Branch 48, in Civil Case No.
26465 is hereby REINSTATED. SO ORDERED.

G.R. No. 178618 October 11, 2010

4
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner, vs. EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy Sheriff of
Regional Trial Court, Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro City,Respondent.
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Mindanao Savings and Loan Association, Inc. (MSLAI),
represented by its liquidator, Philippine Deposit Insurance Corporation (PDIC), against respondents Edward R. Willkom (Willkom); Gilda Go
(Go); Remedios Uy (Uy); Malayo Bantuas (sheriff Bantuas), in his capacity as sheriff of the Regional Trial Court (RTC), Branch 3 of Iligan City; and
the Register of Deeds of Cagayan de Oro City. MSLAI seeks the reversal and setting aside of the Court of Appeals1 (CA) Decision2 dated March
21, 2007 and Resolution3 dated June 1, 2007 in CA-G.R. CV No. 58337.
The controversy stemmed from the following facts:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) are entities duly registered
with the Securities and Exchange Commission (SEC) under Registry Nos. 34869 and 32388, respectively, primarily engaged in the business of
granting loans and receiving deposits from the general public, and treated as banks.4
Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving corporation.5 The articles of merger were not registered
with the SEC due to incomplete documentation.6 On August 12, 1985, DSLAI changed its corporate name to MSLAI by way of an amendment to
Article 1 of its Articles of Incorporation, but the amendment was approved by the SEC only on April 3, 1987.7
Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed and approved Board Resolution No. 86-002, assigning its assets in favor of
DSLAI which in turn assumed the formers liabilities.8
The business of MSLAI, however, failed. Hence, the Monetary Board of the Central Bank of the Philippines ordered its closure and placed it
under receivership per Monetary Board Resolution No. 922 dated August 31, 1990. The Monetary Board found that MSLAIs financial condition
was one of insolvency, and for it to continue in business would involve probable loss to its depositors and creditors. On May 24, 1991, the
Monetary Board ordered the liquidation of MSLAI, with PDIC as its liquidator.9
It appears that prior to the closure of MSLAI, Uy filed with the RTC, Branch 3 of Iligan City, an action for collection of sum of money against
FISLAI, docketed as Civil Case No. 111-697. On October 19, 1989, the RTC issued a summary decision in favor of Uy, directing defendants therein
(which included FISLAI) to pay the former the sum of 136,801.70, plus interest until full payment, 25% as attorneys fees, and the costs of suit.
The decision was modified by the CA by further ordering the third-party defendant therein to reimburse the payments that would be made by
the defendants. The decision became final and executory on February 21, 1992. A writ of execution was thereafter issued.10
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de Oro City, and the notice of sale was
subsequently published. During the public auction on May 17, 1993, Willkom was the highest bidder. A certificate of sale was issued and
eventually registered with the Register of Deeds of Cagayan de Oro City. Upon the expiration of the redemption period, sheriff Bantuas issued
the sheriffs definite deed of sale. New certificates of title covering the subject properties were issued in favor of Willkom. On September 20,
1994, Willkom sold one of the subject parcels of land to Go.11
On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC, Branch 41 of Cagayan de Oro City, a complaint for Annulment of Sheriffs
Sale, Cancellation of Title and Reconveyance of Properties against respondents.12 MSLAI alleged that the sale on execution of the subject
properties was conducted without notice to it and PDIC; that PDIC only came to know about the sale for the first time in February 1995 while
discharging its mandate of liquidating MSLAIs assets; that the execution of the RTC decision in Civil Case No. 111-697 was illegal and contrary
to law and jurisprudence, not only because PDIC was not notified of the execution sale, but also because the assets of an institution placed
under receivership or liquidation such as MSLAI should be deemed in custodia legis and should be exempt from any order of garnishment, levy,
attachment, or execution.13
In answer, respondents averred that MSLAI had no cause of action against them or the right to recover the subject properties because MSLAI is
a separate and distinct entity from FISLAI. They further contended that the "unofficial merger" between FISLAI and DSLAI (now MSLAI) did not
take effect considering that the merging companies did not comply with the formalities and procedure for merger or consolidation as
prescribed by the Corporation Code of the Philippines. Finally, they claimed that FISLAI is still a SEC registered corporation and could not have
been absorbed by petitioner.14
On March 13, 1997, the RTC issued a resolution dismissing the case for lack of jurisdiction. The RTC declared that it could not annul the decision
in Civil Case No. 111-697, having been rendered by a court of coordinate jurisdiction.15
On appeal, MSLAI failed to obtain a favorable decision when the CA affirmed the RTC resolution. The dispositive portion of the assailed CA
Decision reads:
WHEREFORE, premises considered, the instant appeal is DENIED. The decision assailed is AFFIRMED.
We REFER Sheriff Malayo B. Bantuas violation of the Supreme Court Administrative Circular No. 12 to the Office of the Court Administrator for
appropriate action. The Division Clerk of Court is hereby DIRECTED to furnish the Office of the Court Administrator a copy of this decision.
SO ORDERED.16
The appellate court sustained the dismissal of petitioners complaint not because it had no jurisdiction over the case, as held by the RTC, but on
a different ground. Citing Associated Bank v. CA,17 the CA ruled that there was no merger between FISLAI and MSLAI (formerly DSLAI) for their
failure to follow the procedure laid down by the Corporation Code for a valid merger or consolidation. The CA then concluded that the two
corporations retained their separate personalities; consequently, the claim against FISLAI is warranted, and the subsequent sale of the levied
properties at public auction is valid. The CA went on to say that even if there had been a de facto merger between FISLAI and MSLAI (formerly
DSLAI), Willkom, having relied on the clean certificates of title, was an innocent purchaser for value, whose right is superior to that of MSLAI.
Furthermore, the alleged assignment of assets and liabilities executed by FISLAI in favor of MSLAI was not binding on third parties because it
was not registered. Finally, the CA said that the validity of the auction sale could not be invalidated by the fact that the sheriff had no authority
to conduct the execution sale.18
Petitioners motion for reconsideration was denied in a Resolution dated June 1, 2007. Hence, the instant petition anchored on the following
grounds:
THE HONORABLE COURT OF APPEALS, CAGAYAN DE ORO COMMITTED GRAVE AND REVERSIBLE ERROR WHEN:
(1)
IT PASSED UPON THE EXISTENCE AND STATUS OF DSLAI (now MSLAI) AS THE SURVIVING ENTITY IN THE MERGER BETWEEN DSLAI
AND FISLAI AS A DEFENSE IN AN ACTION OTHER THAN IN A QUO WARRANTO PROCEEDING UPON THE INSTITUTION OF THE
SOLICITOR GENERAL AS MANDATED UNDER SECTION 20 OF BATAS PAMBANSA BLG. 68.
(2)
IT REFUSED TO RECOGNIZE THE MERGER BETWEEN F[I]SLAI AND DSLAI WITH DSLAI AS THE SURVIVING CORPORATION.
(3)
IT HELD THAT THE PROPERTIES SUBJECT OF THE CASE ARE NOT IN CUSTODIA LEGIS AND THEREFORE, EXEMPT FROM GARNISHMENT,
LEVY, ATTACHMENT OR EXECUTION.19
To resolve this petition, we must address two basic questions: (1) Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective;
and (2) Was there novation of the obligation by substituting the person of the debtor?
We answer both questions in the negative.
Ordinarily, in the merger of two or more existing corporations, one of the corporations survives and continues the combined business, while
the rest are dissolved and all their rights, properties, and liabilities are acquired by the surviving corporation.20 Although there is a dissolution of
the absorbed or merged corporations, there is no winding up of their affairs or liquidation of their assets because the surviving corporation
automatically acquires all their rights, privileges, and powers, as well as their liabilities.21
The merger, however, does not become effective upon the mere agreement of the constituent corporations.22 Since a merger or consolidation
involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of
law authorizing them.23
The steps necessary to accomplish a merger or consolidation, as provided for in Sections 76,24 77,25 78,26 and 7927 of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any amendment, if necessary,
to the articles of incorporation of the surviving corporation, or in case of consolidation, all the statements required in the articles of
incorporation of a corporation.

5
 (2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be called and at least two (2)
weeks notice must be sent to all stockholders or members, personally or by registered mail. A summary of the plan must be
attached to the notice. Vote of two-thirds of the members or of stockholders representing two-thirds of the outstanding capital
stock will be needed. Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the corporate officers of each
constituent corporation. These take the place of the articles of incorporation of the consolidated corporation, or amend the articles
of incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before.
(6) Issuance of certificate of merger or consolidation.28
Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its prior determination that the
merger is not inconsistent with the Corporation Code or existing laws.29 Where a party to the merger is a special corporation governed by its
own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be
obtained.30
In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete
documentation. Consequently, the SEC did not issue the required certificate of merger. Even if it is true that the Monetary Board of the Central
Bank of the Philippines recognized such merger, the fact remains that no certificate was issued by the SEC. Such merger is still incomplete
without the certification.
The issuance of the certificate of merger is crucial because not only does it bear out SECs approval but it also marks the moment when the
consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its
rights and properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation.31
The same rule applies to consolidation which becomes effective not upon mere agreement of the members but only upon issuance of the
certificate of consolidation by the SEC.32 When the SEC, upon processing and examining the articles of consolidation, is satisfied that the
consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of
consolidation which makes the reorganization official.33 The new consolidated corporation comes into existence and the constituent
corporations are dissolved and cease to exist.34
There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as respondents, the two corporations shall not be
considered as one but two separate corporations. A corporation is an artificial being created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. 35 It has a personality separate
and distinct from the persons composing it, as well as from any other legal entity to which it may be related.36 Being separate entities, the
property of one cannot be considered the property of the other.
Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI remain as its assets and cannot be considered as belonging to
DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein FISLAI assigned its assets and properties to DSLAI, and the latter assumed
all the liabilities of the former. As provided in Article 1625 of the Civil Code, "an assignment of credit, right or action shall produce no effect as
against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment
involves real property." The certificates of title of the subject properties were clean and contained no annotation of the fact of assignment.
Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI on the properties registered under its name. Accordingly,
MSLAI, as the successor-in-interest of DSLAI, has no legal standing to annul the execution sale over the properties of FISLAI. With more reason
can it not cause the cancellation of the title to the subject properties of Willkom and Go.
Petitioner cannot also anchor its right to annul the execution sale on the principle of novation.1avvphi1 While it is true that DSLAI (now MSLAI)
assumed all the liabilities of FISLAI, such assumption did not result in novation as would release the latter from liability, thereby exempting its
properties from execution. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in place of the debtor, or
by subrogating a third person in the rights of the creditor.37
It is a rule that novation by substitution of debtor must always be made with the consent of the creditor.38 Article 1293 of the Civil Code is
explicit, thus:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles
1236 and 1237.
In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the liabilities
of FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy the
judgment claim of Uy against FISLAI. The subsequent sale of the properties by Uy to Willkom, and of one of the properties by Willkom to Go,
cannot, therefore, be questioned by MSLAI.
The consent of the creditor to a novation by change of debtor is as indispensable as the creditors consent in conventional subrogation in order
that a novation shall legally take place.39 Since novation implies a waiver of the right which the creditor had before the novation, such waiver
must be express.40
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated March 21, 2007 and Resolution dated June 1,
2007 in CA-G.R. CV No. 58337 are AFFIRMED. SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI
UNIBANK, Respondent. G.R. No. 164301 October 19, 2011
LEONARDO-DE CASTRO, J.:
In the present incident, petitioner Bank of the Philippine Islands (BPI) moves for reconsideration1 of our Decision dated August 10, 2010,
holding that former employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI pursuant to the two banks merger in 2000
were covered by the Union Shop Clause in the then existing collective bargaining agreement (CBA)2 of BPI with respondent BPI Employees
Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union).
To recall, the Union Shop Clause involved in this long standing controversy provided, thus:
ARTICLE II
xxxx
Section 2. Union Shop - New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be
regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their
continued employment. It is understood that membership in good standing in the Union is a condition of their continued employment with the
Bank.3 (Emphases supplied.)
The bone of contention between the parties was whether or not the "absorbed" FEBTC employees fell within the definition of "new employees"
under the Union Shop Clause, such that they may be required to join respondent union and if they fail to do so, the Union may request BPI to
terminate their employment, as the Union in fact did in the present case. Needless to state, BPI refused to accede to the Unions request.
Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position was rejected by the Court of Appeals which ruled that the
Voluntary Arbitrators interpretation of the Union Shop Clause was at war with the spirit and rationale why the Labor Code allows the existence
of such provision. On review with this Court, we upheld the appellate courts ruling and disposed of the case as follows:
WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003 of the Court of Appeals is AFFIRMED, subject to the
thirty (30) day notice requirement imposed herein. Former FEBTC employees who opt not to become union members but who qualify for
retirement shall receive their retirement benefits in accordance with law, the applicable retirement plan, or the CBA, as the case may be.4
Notwithstanding our affirmation of the applicability of the Union Shop Clause to former FEBTC employees, for reasons already extensively
discussed in the August 10, 2010 Decision, even now BPI continues to protest the inclusion of said employees in the Union Shop Clause.
In seeking the reversal of our August 10, 2010 Decision, petitioner insists that the parties to the CBA clearly intended to limit the application of
the Union Shop Clause only to new employees who were hired as non-regular employees but later attained regular status at some point after
hiring. FEBTC employees cannot be considered new employees as BPI merely stepped into the shoes of FEBTC as an employer purely as a
consequence of the merger.5

6
Petitioner likewise relies heavily on the dissenting opinions of our respected colleagues, Associate Justices Antonio T. Carpio and Arturo D.
Brion. From both dissenting opinions, petitioner derives its contention that "the situation of absorbed employees can be likened to old
employees of BPI, insofar as their full tenure with FEBTC was recognized by BPI and their salaries were maintained and safeguarded from
diminution" but such absorbed employees "cannot and should not be treated in exactly the same way as old BPI employees for there are
substantial differences between them."6 Although petitioner admits that there are similarities between absorbed and new employees, they
insist there are marked differences between them as well. Thus, adopting Justice Brions stance, petitioner contends that the absorbed FEBTC
employees should be considered "a sui generis group of employees whose classification will not be duplicated until BPI has another merger
where it would be the surviving corporation."7 Apparently borrowing from Justice Carpio, petitioner propounds that the Union Shop Clause
should be strictly construed since it purportedly curtails the right of the absorbed employees to abstain from joining labor organizations.8
Pursuant to our directive, the Union filed its Comment9 on the Motion for Reconsideration. In opposition to petitioners arguments, the Union,
in turn, adverts to our discussion in the August 10, 2010 Decision regarding the voluntary nature of the merger between BPI and FEBTC, the lack
of an express stipulation in the Articles of Merger regarding the transfer of employment contracts to the surviving corporation, and the
consensual nature of employment contracts as valid bases for the conclusion that former FEBTC employees should be deemed new
employees.10 The Union argues that the creation of employment relations between former FEBTC employees and BPI (i.e., BPIs selection and
engagement of former FEBTC employees, its payment of their wages, power of dismissal and of control over the employees conduct) occurred
after the merger, or to be more precise, after the Securities and Exchange Commissions (SEC) approval of the merger.11 The Union likewise
points out that BPI failed to offer any counterargument to the Courts reasoning that:
The rationale for upholding the validity of union shop clauses in a CBA, even if they impinge upon the individual employee's right or freedom of
association, is not to protect the union for the union's sake. Laws and jurisprudence promote unionism and afford certain protections to the
certified bargaining agent in a unionized company because a strong and effective union presumably benefits all employees in the bargaining
unit since such a union would be in a better position to demand improved benefits and conditions of work from the employer. x x x.
x x x Nonetheless, settled jurisprudence has already swung the balance in favor of unionism, in recognition that ultimately the individual
employee will be benefited by that policy. In the hierarchy of constitutional values, this Court has repeatedly held that the right to abstain from
joining a labor organization is subordinate to the policy of encouraging unionism as an instrument of social justice. 12
While most of the arguments offered by BPI have already been thoroughly addressed in the August 10, 2010 Decision, we find that a
qualification of our ruling is in order only with respect to the interpretation of the provisions of the Articles of Merger and its implications on
the former FEBTC employees security of tenure.
Taking a second look on this point, we have come to agree with Justice Brions view that it is more in keeping with the dictates of social justice
and the State policy of according full protection to labor to deem employment contracts as automatically assumed by the surviving corporation
in a merger, even in the absence of an express stipulation in the articles of merger or the merger plan. In his dissenting opinion, Justice Brion
reasoned that:
To my mind, due consideration of Section 80 of the Corporation Code, the constitutionally declared policies on work, labor and employment,
and the specific FEBTC-BPI situation i.e., a merger with complete "body and soul" transfer of all that FEBTC embodied and possessed and
where both participating banks were willing (albeit by deed, not by their written agreement) to provide for the affected human resources by
recognizing continuity of employment should point this Court to a declaration that in a complete merger situation where there is total
takeover by one corporation over another and there is silence in the merger agreement on what the fate of the human resource complement
shall be, the latter should not be left in legal limbo and should be properly provided for, by compelling the surviving entity to absorb these
employees. This is what Section 80 of the Corporation Code commands, as the surviving corporation has the legal obligation to assume all the
obligations and liabilities of the merged constituent corporation.
Not to be forgotten is that the affected employees managed, operated and worked on the transferred assets and properties as their means of
livelihood; they constituted a basic component of their corporation during its existence. In a merger and consolidation situation, they cannot be
treated without consideration of the applicable constitutional declarations and directives, or, worse, be simply disregarded. If they are so
treated, it is up to this Court to read and interpret the law so that they are treated in accordance with the legal requirements of mergers and
consolidation, read in light of the social justice, economic and social provisions of our Constitution. Hence, there is a need for the surviving
corporation to take responsibility for the affected employees and to absorb them into its workforce where no appropriate provision for the
merged corporation's human resources component is made in the Merger Plan.13
By upholding the automatic assumption of the non-surviving corporations existing employment contracts by the surviving corporation in a
merger, the Court strengthens judicial protection of the right to security of tenure of employees affected by a merger and avoids confusion
regarding the status of their various benefits which were among the chief objections of our dissenting colleagues. However, nothing in this
Resolution shall impair the right of an employer to terminate the employment of the absorbed employees for a lawful or authorized cause or
the right of such an employee to resign, retire or otherwise sever his employment, whether before or after the merger, subject to existing
contractual obligations. In this manner, Justice Brions theory of automatic assumption may be reconciled with the majoritys concerns with the
successor employers prerogative to choose its employees and the prohibition against involuntary servitude.1avvphi1
Notwithstanding this concession, we find no reason to reverse our previous pronouncement that the absorbed FEBTC employees are covered
by the Union Shop Clause.
Even in our August 10, 2010 Decision, we already observed that the legal fiction in the law on mergers (that the surviving corporation continues
the corporate existence of the non-surviving corporation) is mainly a tool to adjudicate the rights and obligations between and among the
merged corporations and the persons that deal with them.14 Such a legal fiction cannot be unduly extended to an interpretation of a Union
Shop Clause so as to defeat its purpose under labor law. Hence, we stated in the Decision that:
In any event, it is of no moment that the former FEBTC employees retained the regular status that they possessed while working for their
former employer upon their absorption by petitioner. This fact would not remove them from the scope of the phrase "new employees" as
contemplated in the Union Shop Clause of the CBA, contrary to petitioner's insistence that the term "new employees" only refers to those who
are initially hired as non-regular employees for possible regular employment.
The Union Shop Clause in the CBA simply states that "new employees" who during the effectivity of the CBA "may be regularly employed" by
the Bank must join the union within thirty (30) days from their regularization. There is nothing in the said clause that limits its application to
only new employees who possess non-regular status, meaning probationary status, at the start of their employment. Petitioner likewise failed
to point to any provision in the CBA expressly excluding from the Union Shop Clause new employees who are "absorbed" as regular employees
from the beginning of their employment. What is indubitable from the Union Shop Clause is that upon the effectivity of the CBA, petitioner's
new regular employees (regardless of the manner by which they became employees of BPI) are required to join the Union as a condition of
their continued employment.15
Although by virtue of the merger BPI steps into the shoes of FEBTC as a successor employer as if the former had been the employer of the
latters employees from the beginning it must be emphasized that, in reality, the legal consequences of the merger only occur at a specific date,
i.e., upon its effectivity which is the date of approval of the merger by the SEC. Thus, we observed in the Decision that BPI and FEBTC stipulated
in the Articles of Merger that they will both continue their respective business operations until the SEC issues the certificate of merger and in
the event no such certificate is issued, they shall hold each other blameless for the non-consummation of the merger.16We likewise previously
noted that BPI made its assignments of the former FEBTC employees effective on April 10, 2000, or after the SEC approved the merger.17 In
other words, the obligation of BPI to pay the salaries and benefits of the former FEBTC employees and its right of discipline and control over
them only arose with the effectivity of the merger. Concomitantly, the obligation of former FEBTC employees to render service to BPI and their
right to receive benefits from the latter also arose upon the effectivity of the merger. What is material is that all of these legal consequences of
the merger took place during the life of an existing and valid CBA between BPI and the Union wherein they have mutually consented to include
a Union Shop Clause.
From the plain, ordinary meaning of the terms of the Union Shop Clause, it covers employees who (a) enter the employ of BPI during the term
of the CBA; (b) are part of the bargaining unit (defined in the CBA as comprised of BPIs rank and file employees); and (c) become regular
employees without distinguishing as to the manner they acquire their regular status. Consequently, the number of such employees may
adversely affect the majority status of the Union and even its existence itself, as already amply explained in the Decision.
Indeed, there are differences between (a) new employees who are hired as probationary or temporary but later regularized, and (b) new
employees who, by virtue of a merger, are absorbed from another company as regular and permanent from the beginning of their employment

7
with the surviving corporation. It bears reiterating here that these differences are too insubstantial to warrant the exclusion of the absorbed
employees from the application of the Union Shop Clause. In the Decision, we noted that:
Verily, we agree with the Court of Appeals that there are no substantial differences between a newly hired non-regular employee who was
regularized weeks or months after his hiring and a new employee who was absorbed from another bank as a regular employee pursuant to a
merger, for purposes of applying the Union Shop Clause. Both employees were hired/employed only after the CBA was signed. At the time they
are being required to join the Union, they are both already regular rank and file employees of BPI. They belong to the same bargaining unit
being represented by the Union. They both enjoy benefits that the Union was able to secure for them under the CBA. When they both entered
the employ of BPI, the CBA and the Union Shop Clause therein were already in effect and neither of them had the opportunity to express their
preference for unionism or not. We see no cogent reason why the Union Shop Clause should not be applied equally to these two types of new
employees, for they are undeniably similarly situated.18
Again, it is worthwhile to highlight that a contrary interpretation of the Union Shop Clause would dilute its efficacy and put the certified union
that is supposedly being protected thereby at the mercy of management. For if the former FEBTC employees had no say in the merger of its
former employer with another bank, as petitioner BPI repeatedly decries on their behalf, the Union likewise could not prevent BPI from
proceeding with the merger which undisputedly affected the number of employees in the bargaining unit that the Union represents and may
negatively impact on the Unions majority status. In this instance, we should be guided by the principle that courts must place a practical and
realistic construction upon a CBA, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve.19
We now come to the question: Does our affirmance of our ruling that former FEBTC employees absorbed by BPI are covered by the Union Shop
Clause violate their right to security of tenure which we expressly upheld in this Resolution? We answer in the negative.
In Rance v. National Labor Relations Commission,20 we held that:
It is the policy of the state to assure the right of workers to "security of tenure" (Article XIII, Sec. 3 of the New Constitution, Section 9, Article II
of the 1973 Constitution). The guarantee is an act of social justice. When a person has no property, his job may possibly be his only possession
or means of livelihood. Therefore, he should be protected against any arbitrary deprivation of his job. Article 280 of the Labor Code has
construed security of tenure as meaning that "the employer shall not terminate the services of an employee except for a just cause or when
authorized by" the Code. x x x (Emphasis supplied.)
We have also previously held that the fundamental guarantee of security of tenure and due process dictates that no worker shall be dismissed
except for a just and authorized cause provided by law and after due process is observed.21 Even as we now recognize the right to continuous,
unbroken employment of workers who are absorbed into a new company pursuant to a merger, it is but logical that their employment may be
terminated for any causes provided for under the law or in jurisprudence without violating their right to security of tenure. As Justice Carpio
discussed in his dissenting opinion, it is well-settled that termination of employment by virtue of a union security clause embodied in a CBA is
recognized in our jurisdiction.22 In Del Monte Philippines, Inc. v. Saldivar,23 we explained the rationale for this policy in this wise:
Article 279 of the Labor Code ordains that "in cases of regular employment, the employer shall not terminate the services of an employee
except for a just cause or when authorized by [Title I, Book Six of the Labor Code]." Admittedly, the enforcement of a closed-shop or union
security provision in the CBA as a ground for termination finds no extension within any of the provisions under Title I, Book Six of the Labor
Code. Yet jurisprudence has consistently recognized, thus: "It is State policy to promote unionism to enable workers to negotiate with
management on an even playing field and with more persuasiveness than if they were to individually and separately bargain with the employer.
For this reason, the law has allowed stipulations for 'union shop' and 'closed shop' as means of encouraging workers to join and support the
union of their choice in the protection of their rights and interests vis-a-vis the employer."24 (Emphasis supplied.)
Although it is accepted that non-compliance with a union security clause is a valid ground for an employees dismissal, jurisprudence dictates
that such a dismissal must still be done in accordance with due process. This much we decreed in General Milling Corporation v. Casio,25 to wit:
The Court reiterated in Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos that:
While respondent company may validly dismiss the employees expelled by the union for disloyalty under the union security clause of the
collective bargaining agreement upon the recommendation by the union, this dismissal should not be done hastily and summarily thereby
eroding the employees' right to due process, self-organization and security of tenure. The enforcement of union security clauses is authorized
by law provided such enforcement is not characterized by arbitrariness, and always with due process. Even on the assumption that the
federation had valid grounds to expel the union officers, due process requires that these union officers be accorded a separate hearing by
respondent company.
The twin requirements of notice and hearing constitute the essential elements of procedural due process. The law requires the employer to
furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written
notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be
heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent notice informing the employee of the employer's
decision to dismiss him. This procedure is mandatory and its absence taints the dismissal with illegality.
Irrefragably, GMC cannot dispense with the requirements of notice and hearing before dismissing Casio, et al. even when said dismissal is
pursuant to the closed shop provision in the CBA. The rights of an employee to be informed of the charges against him and to reasonable
opportunity to present his side in a controversy with either the company or his own union are not wiped away by a union security clause or a
union shop clause in a collective bargaining agreement. x x x26 (Emphases supplied.)
In light of the foregoing, we find it appropriate to state that, apart from the fresh thirty (30)-day period from notice of finality of the Decision
given to the affected FEBTC employees to join the Union before the latter can request petitioner to terminate the formers employment,
petitioner must still accord said employees the twin requirements of notice and hearing on the possibility that they may have other
justifications for not joining the Union. Similar to our August 10, 2010 Decision, we reiterate that our ruling presupposes there has been no
material change in the situation of the parties in the interim.
WHEREFORE, the Motion for Reconsideration is DENIED. The Decision dated August 10, 2010 is AFFIRMED, subject to the qualifications that:
(a) Petitioner is deemed to have assumed the employment contracts of the Far East Bank and Trust Company (FEBTC) employees
upon effectivity of the merger without break in the continuity of their employment, even without express stipulation in the Articles
of Merger; and
(b) Aside from the thirty (30) days, counted from notice of finality of the August 10, 2010 Decision, given to former FEBTC employees
to join the respondent, said employees shall be accorded full procedural due process before their employment may be terminated.
SO ORDERED.

G.R. No. 192398 September 29, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari filed by petitioner Commissioner of Internal Revenue, who seeks to nullify and set aside the
September 10, 2009 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 77117. The CA had affirmed the Decision2 of the Court of Tax
Appeals ordering petitioner to refund, or in the alternative, issue a tax credit certificate in favor of Pilipinas Shell Petroleum Corporation
(respondent) in the amount of 1!22,101,407.64 representing the latter's erroneously paid documentary stamp tax for the taxable year 2000.
Petitioner likewise assails the CA Resolution3 denying petitioner's motion for reconsideration. The antecedent facts:
Petitioner is the duly appointed Commissioner of Internal Revenue who holds office at the Bureau of Internal Revenue (BIR) National Office
located at Agham Road, Diliman, Quezon City.
Respondent Pilipinas Shell Petroleum Corporation (PSPC) is a corporation organized and existing under the laws of the Philippines and was
incorporated to construct, operate and maintain petroleum refineries, works, plant machinery, equipment dock and harbor facilities and
auxiliary works and other facilities of all kinds and used in or in connection with the manufacture of products of all kinds which are wholly or
partly derived from crude oil.
On April 27, 1999, respondent entered into a Plan of Merger with its affiliate, Shell Philippine Petroleum Corporation (SPPC), a corporation
organized and existing under the laws ofthe Philippines. In the Plan of Merger, it was provided that the entire assets and liabilities of SPPC will
be transferred to, and absorbed by, respondent as the surviving entity. The Securities and Exchange Commission approved the merger on July
1, 1999.

8
On August 10, 1999, respondent paidto the BIR documentary stamp taxes amounting to 524,316.00 on the original issuance of shares of stock
of respondent issued in exchange for the surrendered SPPC shares pursuant to Section 175 of the National InternalRevenue Code of1997 (NIRC
or Tax Code).
Confirming the tax-free nature of the merger between respondent and SPPC, the BIR, in a ruling4 dated October 4, 1999, ruled that pursuant to
Section 40 (C)(2) and (6)(b) of the NIRC, no gain or loss shall be recognized, if, in pursuance to a planof merger or consolidation, a shareholder
exchanges stock in a corporation which is a party to the merger or consolidation solely for the stock ofanother corporation which is also a party
to the merger or consolidation. The BIR ruled, among others, that no gain or loss shall be recognized by the stockholders of SPPC on the
exchange of their shares of stock of SPPC solely for shares of stock of respondent pursuant to the Plan of Merger.
The BIR, however, stated in said Ruling that
3. The issuance by PSPC of its own shares of stock to the shareholders of SPPC in exchange for the surrendered certificates of stock of SPPC shall
be subject to the documentary stamp tax (DST) at the rate of Two Pesos (2.00) on each Two HundredPesos (200.00), or fractional part
thereof, based on the total par value of the PSPC shares of stock issued pursuant to Section 175 of the Tax Code of 1997.
xxxx
6. The exchange of land and improvements by SPPC to PSPC for the latters shares of stock shall be subject to documentary stamp tax imposed
under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or its fair market value determined
in accordance withSection 6(E) of the said Code, whichever is higher. x x x5
On May 10, 2000, respondent paid to the BIR the amount of 22,101,407.64 representing documentary stamp tax on the transfer of real
property from SPPC to respondent.
Believing that it erroneously paid documentary stamp tax on its absorption of real property owned by SPPC, respondent filed with petitioner on
September 18, 2000, a formal claim for refund or tax credit of the documentary stamp tax in the amount of 22,101,407.64.
There being no action by petitioner, respondent filed on May 8, 2002, a petition6 for review with the Court of Tax Appeals (CTA) in order to
suspend the running of the two-year prescriptive period.
Petitioner filed an Answer7 on June 11, 2002 praying that the petition for review be dismissed for lack of merit. Petitioner asserted that in
taxdeferred exchanges, documentary stamp tax is imposed. Petitioner cited BIR Ruling No. 2-20018 dated February 2, 2001 which states:
In view of all the foregoing, it is the opinion of this Office, as we hereby hold, that the tax-deferred exchange of properties of a corporation,
which is a party to a merger or consolidation, solely for shares of stock in a corporation, which is also a party to the merger or consolidation, is
subject to the documentary stamp tax under Section 176 if the properties to be transferred are shares of stock or even certificates of
obligations, and also to the documentary stamp tax under Sec[tion] 196, if the properties to be transferred are real properties. Finally, it may be
worth mentioning that the original issuance of shares of stock ofthe surviving corporation in favor of the stockholders of the absorbed
corporation as a result of the merger, is subject to the documentary stamp tax under Sec[tion] 175 of the Tax Code of 1997. (BIR Ruling No. S-
40-220-2000, December 21, 2000).9
In its Decision10 promulgated on April 30,2003, the CTA granted respondents prayer for tax refund or credit.
The CTA held that
Based on the foregoing, it is evident that the transfer of real property from the absorbed corporation to the surviving or consolidated
corporation pursuant to a merger or consolidation occurs by operation of lawinasmuch as the real property is deemed transferred without
further act or deed. In the case at bar, the petitioners theory is that DST on the transfer of real property does not apply to a "statutorymerger"
where real property of the absorbed corporation is deemed automatically vested in the surviving corporation by operation of law, i.e., without
any further act of deed.
xxxx
To reiterate, since the transfer of real property of SPPC to petitioner was not effected by or dependent on any voluntary act or deed of the
parties to the merger, DST, therefore, should not attach to the same.
xxxx
A perusal of the above-cited provision would reveal that the DST is imposed only on all conveyances, deeds, instruments, or writings where
realty sold shall be conveyed to purchaser or purchasers. Clearly, in case of merger, as in the case at bar, only by straining the imagination can
the transferee be said to have "bought" or "purchased" real property from the transferor. The absorption by petitioner of real property of SPPC
as an inherent legal consequence of the merger is not a sale or other conveyance of real property for a consideration in money or moneys
worth.
As correctly pointed out by the petitioner, SPPCs real property was not conveyed to or vested inpetitioner by means of any deed, instrument or
writing, considering that real properties were automatically vested in petitioner without"further act or deed".There was a complete absence of
any formal instrument or writing upon which DST may be imposed. Nor can the realty be said tohave been "sold" or vested in a "purchaser or
purchasers" within the ordinary meanings of those terms.
xxxx
Moreover, under Revenue Memorandum Circular No. 44-86 dated December 4, 1986, which outlines the procedure in the determination and
collection of stamp tax on instruments of sale or conveyance of real property, it is clear that the DST applies only if the instrument is a sale or
other conveyance of real property for a consideration in money or moneys worth.
Finally, the absorption by petitioner of real property of SPPC by operation of law pursuant to the merger is part and parcel of a single and
continuing transaction. Accordingly, the same should not be subject to DST as if it constituted a separate and distinct transaction.
As earlier stated, DST is in the nature of an excise tax because it is really imposed on the privilege to enter into a transaction. Its imposition,
therefore, should be only once. And in a statutory merger, there is only one transaction, i.e., the issuance by the surviving corporation of its
own shares of stock to the stockholdersof the absorbed corporation in exchange for the shares surrendered by the shareholders of the
absorbed corporation. All other transactions which are an integral and inherent part of the merger, such as the absorption of real property,
should no longer be subject to another round of DST. In other words,all the integral parts of the merger (e.g., surrender of shares inexchange
for shares, transfer of assets, assumption of liabilities, etc.) should be treated as a single and continuing transaction subject only to one DST.
The transfer of real property is not a transaction separate and distinct from the merger but an integral part or a mere continuation of the initial
transaction which was previously consummated. Applying the same in petitioners case, the absorption by petitioner of real property of SPPC is
not a transaction separate and distinct from the merger, wherein petitioner issued its own shares to SPPC shareholders in exchange for the
latters shares in SPPC, the absorbed entity, but a mere continuation of the initial transaction which was previously consummated, and for
which the required DST was already paid.11
On June 4, 2003, petitioner filed a petition for review with the CA. In the herein assailed Decision dated September 10, 2009, the CA dismissed
the petition and affirmed the Decision of the CTA. The appellate court held that the transfer of the properties of SPPC to respondent was not in
exchange for the latters shares of stock but is a legal consequence of the merger. The CA ruled that the actual transfer of SPPCs real properties
to respondent was not effected by or dependent upon any voluntary deed, conveyance or assignment but occurred by operation of law. The CA
held that since the basis of the BIR in imposing the documentary stamp tax is not applicable to a transfer of realproperty by operation of law,
PSPC erroneously paid the documentary stamp tax and is therefore, entitled to a tax refund or tax credit.
Petitioner filed a motion for reconsideration which was denied by the CA in its Resolution dated April 13, 2010.
Hence, petitioner filed the present petition on the sole ground that
THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRANSFER OF REAL PROPERTIES OF SPPC TO RESPONDENT IN EXCHANGE FOR THE
LATTERS SHARES OF STOCK IS NOT SUBJECT TO THE DST IMPOSED UNDER SECTION 196 OF THE TAX CODE.12
Petitioner points out that the mergerbetween SPPC and respondent resulted in the following: (1) the issuanceby respondent of its own shares
of stock to the shareholders of SPPC in exchange for the surrendered certificates of stock of SPPC and was imposed a documentary stamp tax
under Section 175 of the Tax Code in the amount of 524,316.00; and (2) the transfer of SPPCs real properties to respondent in exchange for
the latters shares of stock which was imposed a documentary stamp tax under Section 196 of the Tax Code in the amount of 22,101,407.64.
Respondent claims that the documentary stamp tax imposed on the second transaction had been erroneously paid and seeks to claim a refund
or tax credit in the amount of 22,101,407.64. Both the CTA and the CA held that respondent is entitled to refund or tax credit.
Petitioner insists that the transfer of SPPCs real properties to respondent in exchange for the latters shares of stock is subject to documentary
stamp tax. Petitioner contends that Section 196 of the Tax Code covers all transfers of real property for a valuable consideration and does not
only refer to sale of realtysince it speaks of real property being "granted, assigned, transferred or otherwise conveyed."

9
Petitioner also claims that the subject transfer was not entirely by operation of law since the merger agreement between respondent and SPPC
involves the voluntary act of the parties. Petitioner avers that it is wrong to say that no documentary stamp tax isimposable allegedly because
the transfer to respondent of SPPCs realproperties was not effected by means of any deed, instrument or writing. Petitioner contends that
Section 196 of the Tax Code does not require that a particular document be executed for the transfer of real property in order to be subject to
documentary stamp tax. Petitioner adds that it is enough that a conveyance of real property has been effected since documentary stamp tax is
imposed not on the document alone but on the transaction. Petitioner avers that the merger between SPPC and respondent, while constituting
a single transaction, gave riseto several tax incidents which, for tax purposes, should be treated individually and apart from the merger as a
whole.
Lastly, petitioner argues that the enactment of Republic Act No. 924313 (RA 9243) which specifically exempts the transfers of real property in
merger or consolidation from documentary stamp tax only supports further the conclusion that prior to RA9243, such transfers are subject to
documentary stamp tax. Otherwise, there would have been no reason to specifically exempt such transfers from documentary stamp taxes.
Respondent in its Comment14 primarily submits that the decision sought to be reviewed is already final and executory and the petition is filed
out of time.
Respondent asserts that it is a rule of statutory construction that a statutes clauses and phrases should not be taken as detached and isolated
expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its parts. Respondent claims that
petitioners interpretation that a mere grant, assignment, transferor conveyance of real property is subject to documentary stamp tax under
Section 196 is erroneous since petitioner disregarded the qualifyingword "sold" which describes the kind of transfer that is contemplated as
subject to documentary stamp tax. Respondent also points out that the fact that Section 196 refers to the words "sold", "purchaser" and
"consideration"undoubtedly leads to the conclusion that only sales of real property are contemplated. That contrary to petitioners claim,
documentary stamp tax is not levied on the privilege to convey real properties regardless of the manner of conveyance. Respondent
emphasizes that the transaction between respondent and SPPC was not one whereby SPPC transferred its real properties to respondent in
exchange for the latters shares of stock. SPPC and respondent did not enter into some Deed of Assignment or a Deed of Exchange whereby
SPPC assigned or conveyed its real properties to respondent either for cash or in exchange for some property like shares of stock. Rather, the
transaction that SPPC and respondent entered into was a merger and the transfer of the real properties of SPPC to respondent was merely a
legal consequence of the merger of SPPC with respondent. Respondent, therefore,posits that since the absorption by respondent of SPPCs real
properties as a consequence of the merger is without consideration in money or moneys worth, the same is not subject to documentary stamp
tax. Furthermore, respondent maintains that in a statutory merger or consolidation, real property ofthe absorbed corporation is transferred to
and automatically vested in the surviving corporation purely and strictly by operation of law and not by voluntary act of the parties to the
merger.
The issues presented for our resolution are as follows: (1) whether the transfer of SPPCs real properties to respondent is subject to
documentary stamp tax under Section 196 of the Tax Code; and (2) whether respondent is entitled to the refund/tax credit inthe amount of
22,101,407.64 representing documentary stamp tax paid for the taxable year 2000 in connection with the transfer of real properties from
SPPC to respondent.
Prefatorily, we first address respondents contention that the petition for review on certiorari was filed late.
Records show that on September 10, 2009, the CA issued the assailed decision. Petitioner filed a motion for reconsideration but the motion was
denied by the CA in a Resolution dated April 13, 2010. Petitioner received notice of the Resolution on April 29, 2010 and thus had 15 days from
that date or until May 14, 2010 to file its petition for review on certiorari. On June 3, 2010, the Office of the Solicitor General (OSG),
representing petitioner, filed a manifestation and motion (ad cautelam) requesting for an extension of time within which to file a petition for
review on certiorari. The OSG averred that petitioner forwarded the case to the OSG for representation; however, the records ofthe case, due
to inadvertence and without fault of the handling lawyer, were forwarded to him only on May 26, 2010. Hence, it was impossible for him to file
the petition or a motion for extension on May 14, 2010. Thereafter, the OSG filed a motion for extension dated June 10, 2010 requesting for a
second extension of time to file its petition. Petitioner filed the present petition for review on certiorari on July 9, 2010.
In a Resolution15 dated July 26, 2010, this Court granted pro hac vice petitioners first and second motions for extension totalling 45 days from
May 26, 2010. Hence, petitioner had until July 10, 2010 to file its petition for review on certiorari. Since the present petition was filed on July 9,
2010, it was filed within the 45-day extension period granted to petitioner.
We now proceed to the primordial issue of whether the transfer of SPPCs real properties to respondent issubject to documentary stamp tax
under Section 196 of the Tax Code. The pertinent provision states, to wit:
SEC. 196. Stamp Tax on Deeds of Sale and Conveyance of Real Property. On all conveyances, deeds, instruments, or writings, other than
grants, patents, or original certificates of adjudication issued by the Government, whereby any land, tenement or other realty sold shall be
granted, assigned, transferred orotherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such
purchaser or purchasers, there shall be collected a documentary stamp tax,at the rates herein below prescribed based on the consideration
contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher:
Provided, That when one of the contracting parties is the Government, the tax herein imposed shall be based on the actual consideration.
(Emphasis and underscoring ours.)
As can be gleaned from the aforequoted provision, documentary stamp tax is imposed on all conveyances, deeds, instruments or writings
whereby land or realty sold shall be conveyed to the purchaser or purchasers.
It is a rule in statutory construction that every part of the statute must be interpreted with reference to the context, i.e.,that every part of the
statute must be considered together with the other parts, and kept subservient to the general intent of the whole enactment.16 The law must
not be read in truncated parts, its provisions must beread in relation to the whole law.17 The particular words, clauses and phrases should not
be studied as detached and isolated expression, but the whole and every part of the statute must be considered in fixing the meaning of any of
its parts and in order to produce a harmonious whole.18
Here, we do not find merit in petitioners contention that Section 196 covers all transfers and conveyancesof real property for a valuable
consideration. A perusal of the subject provision would clearly show it pertains only to sale transactions where real property is conveyed to a
purchaser for a consideration. The phrase "granted, assigned, transferred or otherwise conveyed" is qualified by the word "sold" which means
that documentary stamp tax under Section 196 is imposed on the transfer of realty by way of sale and does not apply to all conveyances of real
property. Indeed, as correctly noted by the respondent, the fact that Section 196 refers to words "sold", "purchaser" and "consideration"
undoubtedly leads to the conclusion that only sales of real property are contemplated therein.
Thus, petitioner obviously erred when it relied on the phrase "granted, assigned, transferred or otherwise conveyed" in claiming that all
conveyances of real property regardless of the manner of transfer are subject to documentary stamp tax under Section 196. It is not proper to
construe the meaning of a statute on the basis of one part. As we have previously explained,
A statute is passed as a whole and not in parts or sections, and is animated by one general purpose and intent. Consequently, each part or
section should be construed in connection with every other part or section so as to produce a harmonious whole. It is not proper to confine its
intention to the one section construed. It is always an unsafe way of construing a statute or contract to divide it by a process of etymological
dissection, into separate words, and then apply to each, thus separated from the context, some particular meaning to be attached to any word
or phrase usually to be ascertained from the context.19
We quote with approval the following statements of the appellate court in the assailed decision, Section 196 should be read as a whole and not
phrase by phrase. The phrase granted, assigned, transferred or otherwise conveyedclearly refers to the phrase whereby any land, tenement or
other realty is sold. This clearly shows that the legislature intended Section 196 to refer to a transfer of realty byvirtue of sale. This is further
bolstered by the fact that the property is granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other
person or persons designated by such purchaser or purchasers. In addition, the basis of the stamp tax is the consideration agreed upon by the
parties or the propertys fair market value. Taking all of these into consideration, it is beyond doubt that Section 196 pertains to a transfer of
realty by way of sale.20
It should be emphasized that in the instant case, the transfer of SPPCs real property to respondent was pursuant to their approved plan of
merger. In a merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved, and
all its rights, properties, and liabilities are acquired by the surviving corporation.21 Although there is a dissolution of the absorbed or merged
corporations, there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all
their rights,privileges, and powers, as well as their liabilities.22 Here, SPPC ceasedto have any legal personality and respondent PSPC stepped
into everything that was SPPCs, pursuant to the law and the terms of their Plan of Merger.

10
Pertinently, a merger of two corporations produces the following effects, among others:
Sec. 80. Effects of merger or consolidation. x x x
xxxx
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of
each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account, including subscriptions to
shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporations, shall be taken
and deemed to be transferred to and vested in such surviving or consolidated corporation without further act or deed;23 (Emphasis supplied.)
In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter could not be considered as "purchaser" of
realty since the real properties subject of the merger were merely absorbed by the surviving corporation by operation of law and these
properties are deemed automatically transferred to and vestedin the surviving corporation without further act or deed. Therefore, the transfer
of real properties to the surviving corporation in pursuance of a merger is not subject to documentary stamp tax. As stated at the outset,
documentary stamp tax is imposed only on all conveyances, deeds, instruments or writing where realty sold shall be conveyed to a purchaser or
purchasers. The transfer of SPPCs real property to respondent was neither a sale nor was it a conveyance of real property for a consideration
contracted to be paidas contemplated under Section 196 of the Tax Code. Hence, Section 196 ofthe Tax Code is inapplicable and respondent is
not liable for documentary stamp tax.
In fact, as properly cited in the CTA Decision, Section 185 of Revenue Regulations No. 26, otherwise known as the documentary stamp tax
regulations, provides:
Section 185. Conveyances withoutconsideration. Conveyances of realty, not in connection with a sale, to trustees or other persons without
consideration are not taxable.
Furthermore, it should be noted that a documentary stamp tax is in the nature of an excise tax because it is imposed upon the privilege,
opportunity or facility offered at exchanges for the transaction of the business.24 Documentary stamp tax is a tax on documents, instruments,
loan agreements, and papers evidencing the acceptance, assignment, or transfer of an obligation, right or property incident
thereto.25 Documentary stamp tax is thus imposed on the exercise of these privileges through the execution of specific instruments,
independently of the legal status of the transactions giving rise thereto.26 Based on the foregoing, the transfer of real properties from SPPC to
respondent is not subject to documentary stamp tax considering that the same was not conveyed to or vested in respondent by means of any
specific deed, instrumentor writing. There was no deed of assignment and transfer separatelyexecuted by the parties for the conveyance of the
real properties. The conveyance of real properties not being embodied in a separate instrumentbut is incorporated in the merger plan, thus,
respondent is not liable to pay documentarystamp tax.
Notably, RA 9243, entitled "An Act Rationalizing the Provisions of the Documentary Stamp Tax of the National Internal Revenue Code of 1997"
was enacted and took effect on April 27, 2004 which exempts the transfer of real property of a corporation, which is a party to the merger or
consolidation, to another corporation, which is also a party to the merger or consolidation, from the payment of documentary stamp tax.
Section 9 of the law which amends Section 199 of the NIRC states,
SECTION 9. Section 199 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:
Section 199. Documents and Papers Not Subject to Stamp Tax. The provisions of Section 173 to the contrary notwithstanding, the following
instruments, documents and papers shall be exempt from the documentary stamp tax:
xxxx
(m) Transfer of property pursuant to Section 40 (C)(2)27 of the National Internal Revenue Code of 1997, as amended. (Emphasis supplied.)
The enactment of the said law nowremoves any doubt and had made clear that the transfer of real properties as a consequence of merger or
consolidation is not subject to documentary stamp tax.1wphi1
Thus, we find no error on the part of the CA in affirming the Decision of the CTA which ruled that respondent is entitled to a refund or issuance
of a tax credit certificate in the amount of 22,101,407.64 representing respondents erroneously paid documentary stamp tax on the transfer
of real property from SPPC torespondent.
We reiterate the well-established doctrine that as a matter of practice and principle, this Court will not set aside the conclusion reached by an
agency, like the CTA, especially if affirmed by the CA. By the very nature of its function, it has dedicated itself to the study and consideration of
tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority
on its part which is not present here.28 WHEREFORE, we DENY the petition for lack of merit. The Decision dated September 10, 2009 and
Resolution dated April 13, 2010 of the Court of Appeals in CA-G.R. SP No. 77117 are hereby AFFIRMED.
No pronouncement as to costs. SO ORDERED.

G.R. No. 173463 October 13, 2010

GLOBAL BUSINESS HOLDINGS, INC. (formerly Global Business Bank, Inc.), Petitioner, vs. SURECOMP SOFTWARE, B.V., Respondent.
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision1dated May 5, 2006 and the
Resolution2 dated July 10, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 75524.
The facts of the case are as follows:
On March 29, 1999, respondent Surecomp Software, B.V. (Surecomp), a foreign corporation duly organized and existing under the laws of the
Netherlands, entered into a software license agreement with Asian Bank Corporation (ABC), a domestic corporation, for the use of its IMEX
Software System (System) in the banks computer system for a period of twenty (20) years.3
In July 2000, ABC merged with petitioner Global Business Holdings, Inc. (Global),4 with Global as the surviving corporation. When Global took
over the operations of ABC, it found the System unworkable for its operations, and informed Surecomp of its decision to discontinue with the
agreement and to stop further payments thereon. Consequently, for failure of Global to pay its obligations under the agreement despite
demands, Surecomp filed a complaint for breach of contract with damages before the Regional Trial Court (RTC) of Makati. The case was
docketed as Civil Case No. 01-1278.5
In its complaint, Surecomp alleged that it is a foreign corporation not doing business in the Philippines and is suing on an isolated transaction.
Pursuant to the agreement, it installed the System in ABCs computers for a consideration of US$298,000.00 as license fee. ABC also undertook
to pay Surecomp professional services, which included on-site support and development of interfaces, and annual maintenance fees for five (5)
subsequent anniversaries, and committed to purchase one (1) or two (2) Remote Access solutions at discounted prices. In a separate
transaction, ABC requested Surecomp to purchase on its behalf a software called MF Cobol Runtime with a promise to reimburse its cost.
Notwithstanding the delivery of the product and the services provided, Global failed to pay and comply with its obligations under the
agreement. Thus, Surecomp demanded payment of actual damages amounting to US$319,955.00 and an additional amount of US$227,610.00
for Globals unilateral pretermination of the agreement, exemplary damages, attorneys fees and costs of suit.6
Instead of filing an answer, Global filed a motion to dismiss based on two grounds: (1) that Surecomp had no capacity to sue because it was
doing business in the Philippines without a license; and (2) that the claim on which the action was founded was unenforceable under the
Intellectual Property Code of the Philippines.7
On the first ground, Global argued that the contract entered into was not an isolated transaction since the contract was for a period of 20 years.
Furthermore, Global stressed that it could not be held accountable for any breach as the agreement was entered into between Surecomp and
ABC. It had not, in any manner, taken part in the negotiation and execution of the agreement but merely took over the operations of ABC as a
result of the merger. On the second ground, Global averred that the agreement, being a technology transfer arrangement, failed to comply
with Sections 87 and 88 of the Intellectual Property Code of the Philippines.8
In the interim, Global filed a motion for leave to serve written interrogatories to Surecomp in preparation for the hearing on the motion to
dismiss, attaching thereto its written interrogatories.
After an exchange of pleadings on the motions filed by Global, on June 18, 2002, the RTC issued an Order,9 the pertinent portions of which
read:
After a thorough and careful deliberation of the respective arguments advanced by the parties in support of their positions in these two (2)
incidents, and since it cannot be denied that there is indeed a contract entered into between the plaintiff [Surecomp] and the defendant
[Global], the latter as a successor in interest of the merging corporation Asian Bank, defendant [Global] is estopped from denying plaintiffs
[Surecomps] capacity to sue it for alleged breach of that contract with damages. Its argument that it was not the one who actually contracted

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with the plaintiff [Surecomp] as it was the merging Asian Bank which did, is of no moment as it does not relieve defendant Global Bank of its
contractual obligation under the Agreement on account of its undertaking under it:
"x x x shall be responsible for all the liabilities and obligations of ASIANBANK in the same manner as if the Merged Bank had itself incurred such
liabilities or obligations, and any pending claim, action or proceeding brought by or against ASIANBANK may be prosecuted by or against the
Merged Bank. The right of creditors or liens upon the property of ASIANBANK shall not be impaired by the merger; provided that the Merged
Bank shall have the right to exercise all defenses, rights, privileges, set-offs and counter-claims of every kind and nature which ASIANBANK may
have, or with the Merged Bank may invoke under existing laws."
It appearing however that the second ground relied upon by the defendant [Global], i.e., that the cause of action of the plaintiff is anchored on
an unenforceable contract under the provision of the Intellectual Property Code, will require a hearing before the motion to dismiss can be
resolved and considering the established jurisprudence in this jurisdiction, that availment of mode of discovery by any of the parties to a
litigation, shall be liberally construed to the end that the truth of the controversy on hand, shall be ascertained at a less expense with the
concomitant facility and expeditiousness, the motion to serve written interrogatories upon the plaintiff [Surecomp] filed by the defendant
[Global] is GRANTED insofar as the alleged unenforceability of the subject contract is concerned. Accordingly, the latter is directed to serve the
written interrogatories upon the plaintiff [Surecomp], which is required to act on it in accordance with the pertinent rule on the matter.
Necessarily, the resolution of the motion to dismiss is held in abeyance until after a hearing on it is property conducted, relative to the second
ground aforementioned.
SO ORDERED.10
Surecomp moved for partial reconsideration, praying for an outright denial of the motion to dismiss, while Global filed a motion for
reconsideration.11
On November 27, 2002, the RTC issued an Order,12 the fallo of which reads:
WHEREFORE, the Order of this Court dated 18 June 2002 is modified. Defendants [Globals] Motion to Dismiss dated 17 October 2001 is denied
on the two grounds therein alleged. Defendant [Global] is given five (5) days from receipt of this Order within which to file its Answer.
The resolution of defendants [Globals] Motion to Serve Written Interrogatories is held in abeyance pending the filing of the Answer.
SO ORDERED.13
In partially modifying the first assailed Order, the RTC ratiocinated, viz.:
This court sees no reason to further belabor the issue on plaintiffs capacity to sue since there is a prima facie showing that defendant entered
into a contract with defendant and having done so, willingly, it cannot now be made to raise the issue of capacity to sue [Merrill Lynch Futures,
Inc. v. CA, 211 SCRA 824]. That defendant was not aware of plaintiffs lack of capacity to sue or that defendant did not benefit from the
transaction are arguments that are hardly supported by the evidence already presented for the resolution of the Motion to Dismiss.
As to the issue of unenforceability of the subject contract under the Intellectual Property Code, this court finds justification in modifying the
earlier Order allowing the further presentation of evidence. It appearing that the subject contract between the parties is an executed, rather
than an executory, contract the statute of frauds therefore finds no application here.
xxxx
As to defendants Motion to Serve Written Interrogatories, this court finds that resort to such a discovery mechanism while laudable is
premature as defendant has yet to file its Answer. As the case now stands, the issues are not yet joined and the disputed facts are not clear.14
Undaunted, Global filed a petition for certiorari with prayer for the issuance of a temporary restraining order and/or writ of preliminary
injunction under Rule 65 of the Rules of Court before the CA, contending that the RTC abused its discretion and acted in excess of its
jurisdiction.

On May 5, 2006, the CA rendered a Decision,16 the dispositive portion of which reads:
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Orders dated June 18, 2002 and November 27, 2002 of the
Regional Trial Court of Makati City, Branch 146, in Civil Case No. 01-1278 are hereby AFFIRMED.
SO ORDERED.17
A motion for reconsideration was filed by Global. On July 10, 2006, the CA issued a Resolution18 denying the motion for reconsideration for lack
of merit.

Hence, this petition.

Global presents the following issues for resolution: (1) whether a special civil action for certiorari is the proper remedy for a denial of a motion
to dismiss; and (2) whether Global is estopped from questioning Surecomps capacity to sue.19
The petition is bereft of merit.
I
An order denying a motion to dismiss is an interlocutory order which neither terminates nor finally disposes of a case as it leaves something to
be done by the court before the case is finally decided on the merits. As such, the general rule is that the denial of a motion to dismiss cannot
be questioned in a special civil action for certiorari which is a remedy designed to correct errors of jurisdiction and not errors of judgment.20
To justify the grant of the extraordinary remedy of certiorari, the denial of the motion to dismiss must have been tainted with grave abuse of
discretion. By "grave abuse of discretion" is meant such capricious and whimsical exercise of judgment that is equivalent to lack of jurisdiction.
The abuse of discretion must be grave as where the power is exercised in an arbitrary or despotic manner by reason of passion or personal
hostility, and must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined by or
to act all in contemplation of law.21
In the instant case, Global did not properly substantiate its claim of arbitrariness on the part of the trial court judge that issued the assailed
orders denying the motion to dismiss. In a petition for certiorari, absent such showing of arbitrariness, capriciousness, or ill motive in the
disposition of the trial judge in the case, we are constrained to uphold the courts ruling, especially because its decision was upheld by the CA.
II
The determination of a corporations capacity is a factual question that requires the elicitation of a preponderant set of facts. 22 As a rule,
unlicensed foreign non-resident corporations doing business in the Philippines cannot file suits in the Philippines.23 This is mandated under
Section 133 of the Corporation Code, which reads:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines,
but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
A corporation has a legal status only within the state or territory in which it was organized. For this reason, a corporation organized in another
country has no personality to file suits in the Philippines. In order to subject a foreign corporation doing business in the country to the
jurisdiction of our courts, it must acquire a license from the Securities and Exchange Commission and appoint an agent for service of process.
Without such license, it cannot institute a suit in the Philippines.241avvphi1
The exception to this rule is the doctrine of estoppel. Global is estopped from challenging Surecomps capacity to sue.
A foreign corporation doing business in the Philippines without license may sue in Philippine courts a Filipino citizen or a Philippine entity that
had contracted with and benefited from it.25 A party is estopped from challenging the personality of a corporation after having acknowledged
the same by entering into a contract with it.26 The principle is applied to prevent a person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract. 27
Due to Globals merger with ABC and because it is the surviving corporation, it is as if it was the one which entered into contract with
Surecomp. In the merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved,
and all its rights, properties, and liabilities are acquired by the surviving corporation.28 This is particularly true in this case. Based on the findings
of fact of the RTC, as affirmed by the CA, under the terms of the merger or consolidation, Global assumed all the liabilities and obligations of
ABC as if it had incurred such liabilities or obligations itself. In the same way, Global also has the right to exercise all defenses, rights, privileges,
and counter-claims of every kind and nature which ABC may have or invoke under the law. These findings of fact were never contested by
Global in any of its pleadings filed before this Court.
WHEREFORE, in view of the foregoing, the Decision dated May 5, 2006 and the Resolution dated July 10, 2006 of the Court of Appeals in CA-
G.R. SP No. 75524 are hereby AFFIRMED. Costs against petitioner.

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SO ORDERED.

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