Puno vs. Puno Enterprises G.R. No.

177066 (September 11, 2009)

Facts:

Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc. On
March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a
complaint for specific performance against respondent. Petitioner averred that he is the son of the
deceased with the latter‘s common-law wife, Amelia Puno. As surviving heir, he claimed entitlement to
the rights and privileges of his late father as stockholder of respondent. The complaint thus prayed that
respondent allow petitioner to inspect its corporate book, render an accounting of all the transactions it
entered into from 1962, and give petitioner all the profits, earnings, dividends, or income pertaining
to the shares of Carlos L. Puno.

Issue:
Whether or not Joselito Musni Puno as an heir is automatically entitled for the stocks upon the death of a
shareholder.

Held:
Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation
and acquire the rights and privileges of the deceased as shareholder of the corporation. The stocks
must be distributed first to the heirs in estate proceedings, and the transfer of the stocks must
be recorded in the books of the corporation. Section 63 of the Corporation Code provides that no transfer
shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation.
During such interim period, the heirs stand as the equitable owners of the stocks, the executor or
administrator duly appointed by the court being vested with the legal title to the stock. Until a settlement
and division of the estate is effected, the stocks of the decedent are held by the administrator or executor.

Consequently, during such time, it is the administrator or executor who is entitled to exercise the rights
of the deceased as stockholder.

Turner v. Lorenzo Shipping Corp.

G.R. No. 157479, [November 24, 2010], 650 PHIL 372-392)
An action commenced before the cause of action has accrued is prematurely brought and should be
dismissed. The fact that the cause of action accrues after the action is commenced and while the
case is pending is of no moment.
The petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged
primarily in cargo shipping activities. In June 1999, the respondent decided to amend its articles of
incorporation to remove the stockholders' pre-emptive rights to newly issued shares of stock. Feeling
that the corporate move would be prejudicial to their interest as stockholders, the petitioners voted
against the amendment and demanded payment of their shares at the rate of P2.276/share based
on the book value of the shares, or a total of P2,298,760.00. The respondent found the fair value of the
shares demanded by the petitioners unacceptable. Upon the respondent's refusal to pay, the petitioners
sued the respondent for collection and damages despite the corporation has no unretained
restricted earnings in the RTC in Makati City on January 22, 2001.
RTC decided the case in favor of the petitioner. Subsequently, on November 28, 2002, the RTC issued a
writ of execution. On the scheduled hearing of the motion for reconsideration on November 22, 2002,
the petitioners Uiled a motion for immediate execution and a motion to strike out motion for
reconsideration upon knowing that the corporation has now unrestricted retained earnings
which granted the petitioners' motion for immediate execution.
CA reversed.

ISSUE: WON the petitioners are entitled to exercise their appraisal right?

RULING:
NO, still premature. That the respondent had indisputably no unrestricted retained earnings in its
books at the time the petitioners commenced Civil Case No. 01-086 on January 22, 2001 proved that the
respondent's legal obligation to pay the value of the petitioners' shares did not yet arise.
Neither did the subsequent existence of unrestricted retained earnings after the ailing of the
complaint cure the lack of cause of action in Civil Case No. 01-086. The petitioners' right of action
could only spring from an existing cause of action. Thus, a complaint whose cause of action has not
yet accrued cannot be cured by an amended or supplemental pleading alleging the existence or
accrual of a cause of action during the pendency of the action. Verily, a premature invocation of the
court's intervention renders the complaint without a cause of action and dismissible on such ground.
The motion for partial summary judgment, being a mere application for relief other than by a
pleading, was not the same as the complaint in Civil Case No. 01-086. Thereby, the petitioners did
not meet the requirement of the Rules of Court that a cause of action must exist at the commencement of
an action, which is "commenced by the Filing of the original complaint in court.” An action prematurely
brought is a groundless suit. Unless the plaintiff has a valid and subsisting cause of action at the
time his action is commenced, the defect cannot be cured or remedied by the acquisition or
accrual of one while the action is pending, and a supplemental complaint or an amendment setting
up such after-accrued cause of action is not permissible.

ANALYSIS:
Right of Appraisal:
Stockholder who dissents from certain corporate actions has the right to demand payment of the
fair value of his or her shares. This right, known as the right of appraisal, is expressly recognized in
Section 81 of the Corporation Code. Clearly, the right of appraisal may be exercised when there is a
fundamental change in the charter or articles of incorporation substantially prejudicing the rights
of the stockholders. It does not vest unless objectionable corporate action is taken. It serves the purpose
of enabling the dissenting stockholder to have his interests purchased and to retire from the corporation.
Now, however, a corporation can purchase its own shares, provided payment is made out of surplus
proaits and the acquisition is for a legitimate corporate purpose. In the Philippines, this new rule
is embodied in Section 41 of the Corporation Code, to wit: Section 41.Power to acquire own shares. —
A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including but not limited to the following cases: Provided, That the corporation
has unrestricted retained earnings in its books to cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the pr
ovisions of this Code.
In case the corporation has no available unrestricted retained earnings in its books, Section 83 of the
Corporation Code provides that if the dissenting stockholder is not paid the value of his shares within 30
days after the award, his voting and dividend rights shall immediately be restored.|

Trust Fund Doctrine:

The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the
payment of the shares of stocks of the withdrawing stockholders. Under thedoctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors, who are preferred in the distribution of corporate assets. The creditors of a
corporation have the right to assume that the board of directors will not use the assets of the
corporation to purchase its own stock for as long as the corporation has outstanding debts
and liabilities. There can be no distribution of assets among the stockholders without Uirst paying
corporate debts. Thus, any disposition of corporate funds and assets to the prejudice of
creditors is null and void.

Teng v. Securities and Exchange Commission, G.R. No. 184332, [February 17, 2016]

Facts:
Herein respondent Ting Ping purchased:
- 480 shares of TCL Sales Corporation (TCL)
- 1,400 shares from his brother Teng Ching Lay (Teng Ching), who was also the president and operations
manager of TCL; and - 1,440 shares from Ismaelita Maluto.
Upon Teng Ching's death, to protect his shareholdings with TCL, Ting Ping requested TCL's Corporate
Secretary, herein petitioner Teng, to enter the transfer in the Stock and Transfer Book of TCL for the
proper recording of his acquisition. He also demanded the issuance of new certificates of stock in his
favor. TCL and Teng, however, refused despite repeated demands. Because of their refusal, Ting Ping filed
a petition for mandamus.

ISSUE:
Whether the surrender of the certificates of stock is a requisite before registration of the
transfer may be made in the corporate books AND for the issuance of new certificates’ in its stead.
RULING:
For Registration, NO; For Issuance, YES

On registration:
Teng's position — that Ting Ping must first surrender Chiu's and Maluto's respective certificates
of stock before the transfer to Ting Ping may be registered in the books of the corporation — does not
have legal basis. The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not a
requisite before the conveyance may be recorded in its books. To compel Ting Ping to deliver to
the corporation the certificates’ as a condition for the registration of the transfer would amount to a
restriction on the right of Ting Ping to have the stocks transferred to his name, which is not
sanctioned by law. The only limitation imposed by Section 63 is when the corporation holds any
unpaid claim against the shares intended to be transferred. The Court stressed that a corporation, either
by its board, its by-laws, or the act of its officers, CANNOT create restrictions in stock transfers.
In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not
try to decide the question of ownership.

On issuance of new certificates:

In Bitong v. CA, the Court outlined the procedure for the issuance of new certificates’ of stock in the name
of a transferee: First, the certificates’ must be signed by the president or vice-president, countersigned by
the secretary or assistant secretary, and sealed with the seal of the corporation. . . . Second, delivery of the
certificates is an essential element of its issuance. . . . Third, the par value, as to par value shares, or the
full subscription as to no par value shares, must First be fully paid. Fourth, the original certificate
must be surrendered where the person requesting the issuance of a certificate is a transferee
from a stockholder. The surrender of the original certificate of stock is necessary before the
issuance of a new one so that the old certificates may be cancelled. A corporation is not bound and cannot
be required to issue a new certificates unless the original certificates is produced and surrendered.
Surrender and cancellation of the old certificates’ serve to protect not only the corporation but the
legitimate shareholder and the public as well, as it ensures that there is only one document
covering a particular share of stock.

ANALYSIS:
Reasons why registration of the transfer is necessary:
1. To enable the transferee to exercise all the rights of a stockholder;
2. To inform the corporation of any change in share ownership so that it can ascertain the persons
entitled to the rights and subject to the liabilities of a stockholder; and
3. To avoid Fictitious or fraudulent transfers, among others.

F & S Velasco Co., Inc. v. Madrid, G.R. No. 208844, [November 10, 2015])
All transfers of shares of stock must be registered in the corporate books in order to be binding on the
corporation.

Facts:
F & S Velasco Co., Inc. was duly organized and registered as a corporation with Francisco O.
Velasco (Francisco), Simona J. Velasco (Simona), Angela V. Madrid (Angela), herein respondent Dr.
Rommel L. Madrid (Madrid), and petitioner Saturnino O. Velasco (Saturnino) as its incorporators. When
Sps. Simona and Francisco died on June 12, 1998 and June 22, 1999, respectively, their daughter,
Angela, inherited their shares, thereby giving her control of 70.82% of FSVCI's total shares of
stock.
On September 20, 2009 and during her tenure as Chairman of the Board of Directors of FSVCI (the other
members of the Board of Directors being Madrid, Scribner, Seva, and Sunico), Angela died intestate
and without issue. On October 8, 2009, MADRID, as Angela's spouse, executed an Affidavit of
Self-Adjudication covering the latter's estate which includes her 70.82% ownership of FSVCI's shares of
stock. Believing that he is already the controlling stockholder of FSVCI by virtue of such self-adjudication,
Madrid called for a Special Stockholders' and Re-Organizational Meeting to be held on November
18, 2009. On November 10, 2009 and in preparation for said meeting, Madrid executed separate deeds of
assignment transferring one share each to Vitaliano B. Ricafort and to respondents Peter Paul L. Danao
(Danao), Maureen R. Labalan (Labalan), and Manuel L. Arimado (Arimado; collectively, MADRID
GROUP). Meanwhile, another meeting was held on November 6, 2009 which was attended by
Saturnino, Seva, and Sunico (November 6, 2009 Meeting), during which, Saturnino was recognized as a
member of the FSVCI Board of Directors and thereafter, as FSVCI President, while Scribner was elected
FSVCI Vice-President (SATURNINO GROUP). In view of the November 18, 2009 Meeting, the Saturnino
Group Filed a petition for Declaration of Nullity of Corporate Election against the Madrid Group
before the RTC.

ISSUES:
(a) WON November 18, 2009 Meeting organized by Madrid is legal and valid; and
(b) WON a Management Committee should be appointed or constituted to take over the corporate and
business affairs of FSVCI.

RULING:
(a)NO.
At the time Madrid called for the November 18, 2009 Meeting, as well as the actual conduct
thereof, he was already the owner of 74.98% shares of stock of FSVCI as a result of his inheritance of
Angela's 70.82% ownership thereof. However, records are bereft of any showing that the transfer
of Angela's shares of stock to Madrid had been registered in FSVCI's Stock and Transfer Book
when he made such call and when the November 18, 2009 Meeting was held. The Court is constrained to
view that Madrid is indeed Angela's sole heir and her death caused the immediate transfer of her
properties, including her 70.82% ownership of FSVCI's shares of stock, to Madrid. Be that as it may, it
must be clarified that Madrid's inheritance of Angela's shares of stock does not ipso facto afford him
the rights accorded to such majority ownership of FSVCI's shares of stock. Section 63 of the Corporation
Code xxx No transfer, however, shall be valid, except as between the parties, until the transfer
is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificate’s and the
number of shares transferred.
Verily, all transfers of shares of stock must be registered in the corporate books in order to be
binding on the corporation.
(b) NO Absent any actual evidence from the records showing such imminent danger, the CA's
Findings have no legal or factual basis to support the appointment/constitution of a Management
Committee for FSVCI.
The creation and appointment of a management committee . . . is an extraordinary and drastic remedy
to be exercised with care and caution; and only when the requirements under the Interim Rules [of
Procedure Governing Intra-Corporate Controversies] are shown. It is a drastic course for the benefits of
the minority stockholders, the parties-litigants or the general public [and is] allowed only under
pressing circumstances and when there is inadequacy, ineffectual or exhaustion of legal or
other remedies.

Requisites:
(1) Dissipation, loss, wastage or destruction of assets or other properties; and
(2) Paralyzation of its business operations which may be prejudicial to the interest of the minority
stockholders, parties-litigants or the general public.

On General Information Sheet:

While it may be true that petitioners were named as shareholders in the General Information Sheet
submitted to the SEC, that document alone does not conclusively prove that they are shareholders
of PFSC. The information in the document will still have to be correlated with the corporate books of
PFSC. As between the General Information Sheet and the corporate books, it is the latter that is
controlling. Mere inclusion in the General Information Sheets as stockholders and officer’s does not make
one a stockholder of a corporation, for this may have come to pass by mistake, expediency or
negligence. As professed by respondent-appellee, this was done merely
to comply with the reportorial requirements with the SEC.
PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, vs.BASIC POLYPRINTERS AND PACKAGING
CORPORATION, Respondent. G.R. No. 187581 October 20, 2014

PONENTE: Bersamin

TOPIC: FRIA, insolvency, rehabilitation plan

FACTS:

Basic Polyprinters, along with the eight other corporations belonging to the Limtong Group of Companies
filed a joint petition for suspension of payments with approval of the proposed rehabilitation in the RTC.
The RTC issued a stay order, and eventually approved the rehabilitation plan, but the CA reversed the
RTC and directed the petitioning corporations to file their individual petitions for suspension of
payments and rehabilitation in the appropriate courts.

Accordingly, Basic Polyprinters brought its individual petition, averring therein that: (a) its business
since incorporation had been very viable and financially profitable; (b) it had obtained loans from various
banks, and had owed accounts payable to various creditors; (c) the Asian currency crisis, devaluation of
the Philippine peso, and the current state of affairs of the Philippine economy; (d) its operations would be
hampered and would render rehabilitation difficult should its creditors enforce their claims through legal
actions, including foreclosure proceedings; (e) included in its overall Rehabilitation Program was the full
payment of its outstanding loans in favor of petitioner PBCOM and other banks

ISSUES:

Whether or not liquidity is an issue in a petition for rehabilitation

Whether or not material financial commitment is required in a rehabilitation plan

HELD:

FIRST ISSUE: No.

The Court held that liquidity is not an issue in a petition for rehabilitation.

Under the Interim Rules, rehabilitation is the process of restoring “the debtor to a position of successful
operation and solvency, if it is shown that its continuance of operation is economically feasible and its
creditors can recover by way of the present value of payments projected in the plan more if the
corporation continues as a going concern that if it is immediately liquidated.” It contemplates a
continuance of corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency.

Two-pronged purpose of rehabilitation proceedings

Equitable purpose: To efficiently and equitably distribute the assets of the insolvent debtor to its
creditors; and
Rehabilitative purpose: To provide the debtor with a fresh start
On the one hand, they attempt to provide for the efficient and equitable distribution of an insolvent
debtor’s remaining assets to its creditors; and on the other, to provide debtors with a “fresh start” by
relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs.
The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and
thereby allow creditors to be paid their claims from its earnings.

Consequently, the basic issues in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the petitioning corporation. The determination of such issues was
to be carried out by the court-appointed rehabilitation receiver.

Moreover, Republic Act No. 10142 (FRIA of 2010), a law that is applicable hereto, has defined a corporate
debtor as a corporation duly organized and existing under Philippine laws that has become insolvent. The
term insolvent is defined in said law as “the financial condition of a debtor that is generally unable to pay
its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater
than its or his assets.”
As such, the contention that rehabilitation becomes inappropriate because of the perceived insolvency of
Basic Polyprinters was incorrect.

SECOND ISSUE: Yes.

The Court held that a material financial commitment is significant in a rehabilitation plan.

A material financial commitment becomes significant in gauging the resolve, determination, earnestness
and good faith of the distressed corporation in financing the proposed rehabilitation plan. This
commitment may include the voluntary undertakings of the stockholders or the would-be investors of
the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property
to guarantee the continued successful operation of the debtor corporation during the period of
rehabilitation.

However, the Court held that Basic Polyprinters commitment was insufficient for the following reasons:

The commitment to add P10,000,000.00 working capital appeared to be doubtful considering that the
insurance claim from which said working capital would be sourced had already been written-off by Basic
Polyprinters’s affiliate, Wonder Book Corporation.

The conversion of all deposits for future subscriptions to common stock and the treatment of all payables
to officers and stockholders as trade payables was hardly constituting material financial commitments.
Such “conversion” of cash advances to trade payables was, in fact, a mere re-classification of the liability
entry and had no effect on the shareholders’ deficit.

Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to
address the low demands for their products and the effect of direct competition from stores like SM,
Gaisano, Robinsons, and other malls.

Basic Polyprinters’s proposal to enter into the dacion en pagoto create a source of “fresh capital” was not
feasible because the object thereof would not be its own property but one belonging to its affiliate, TOL
Realty and Development Corporation, a corporation also undergoing rehabilitation.

Hence, the Court held that the rehabilitation plan for Basic Polyprinters to be genuine and in good faith,
for it was, in fact, unilateral and detrimental to its creditors and the public.

THE PHILIPPINE GEOTHERMAL, INC. EMPLOYEES UNION v. UNOCAL PHILIPPINES, INC. (NOW
KNOWN AS CHEVRON GEOTHERMAL PHILIPPINES HOLDINGS, INC.) G.R. No. 190187, September
28, 2016

Philippine Geothermal, Inc. Employees Union is a legitimate labor union that stands as the bargaining
agent of the rank-and-file employees of Unocal Philippines.
Unocal Philippines, formerly known as Philippine Geothermal, Inc., is a foreign corporation incorporated
under the laws of the State of California, United States of America, licensed to do business in the
Philippines for the "exploration and development of geothermal resources as alternative sources of
energy." On April 4, 2005, Unocal Corporation executed an Agreement and Plan of Merger (Merger
Agreement) with Chevron Texaco Corporation (Chevron) and Blue Merger Sub, Inc. (Blue Merger). On
January 31, 2006, Unocal Philippines executed a Collective Bargaining Agreement with the Union.
However, on October 20, 2006, the Union wrote Unocal Philippines asking for the separation benefits
provided for under the Collective Bargaining Agreement. According to the Union, the Merger Agreement
of Unocal Corporation, Blue Merger, and Chevron resulted in the closure and cessation of operations of
Unocal Philippines and the implied dismissal of its employees. Unocal Philippines refused the Union's
request and asserted that the employee-members were not terminated and that the merger did not result
in its closure or the cessation of its operations. Court ruled that Merger is not one of the circumstances
where the employees may claim separation pay. The only instances where separation pay may be
awarded to petitioner are: (a) reduction in workforce as a result of redundancy; (b) retrenchment or
installation of labor-saving devices; or (c) closure and cessation of operations. In this case, there is no
dismissal of the employees on account of the merger. Petitioner does not deny that respondent actually
continued its normal course of operations after the merger, and that its members, as employees, resumed
their work with their tenure, salaries, wages, and other benefits intact. Petitioner was even able to
execute with respondent, after the merger, the Collective Bargaining Agreement from which it anchors its
claims. Given these circumstances, petitioner is not entitled to separation pay. Although the policy of the
state is to rule in favor of labor in light of the social justice provisions under the Constitution, this Court
cannot unduly trample upon the rights of management, which are likewise entitled to respect in the
interest of fair play.

Doctrine
EFFECT OF MERGER OF CORPORATION ON EMPLOYEES; ENTITLEMENT TO SEPARATION PAY
The merger of a corporation with another does not operate to dismiss the employees of the corporation
absorbed by the surviving corporation. This is in keeping with the nature and effects of a merger as
provided under law and the constitutional policy protecting the rights of labor. The employment of the
absorbed employees subsists. Necessarily, these absorbed employees are not entitled to separation pay
on account of such merger in the absence of any other ground for its award.

Sumifro vs. Baya

G.R. 188269

Facts:
Baya filed an illegal/constructive dismissal against AMS Farming Corporation (AMSFC) and Davao Fruits
Corporation (DFC), before the NLRC.

Baya was employed as a supervisor and joined the union of supervisors, and eventually, formed AMS
Kapalong Agrarian Reform Beneficiaries Multipurpose Cooperative (AMSKARBEMCO), the basic agrarian
reform organization of the regular employees of AMSFC.

Baya was reassigned to a series of supervisory positions in AMSFC’s sister company also joined the
supervisory positions and became a member of the latter’s supervisory union.

Later on and upon AMSKARBEMCO’s petition before the Department of Agrarian Reform (DAR), some
220 hectares of AMSFC’s 513-hectare banana plantation were covered by the Comprehensive Agrarian
Reform Law. Eventually, said portion was transferred to AMSFC’s regular employees as Agrarian Reform
Beneficiaries (ARBs), including Baya.

ARBs held a referendum in order to choose as to which group between AMSKARBEMCO or SAFFPAI, an
association of pro-company beneficiaries, they wanted to belong. 280 went to AMSKARBEMCO while 85
joined SAFFPAI.

When AMSFC learned that AMSKARBEMCO entered into an export agreement with another company, it
summoned AMSKARBEMCO officers, including Baya, to lash out at them and even threatened them that
the ARBs’ takeover of the lands would not push through. Thereafter, Baya was again summoned, this time
by a DFC manager, who told the former that he would be putting himself in a “difficult situation” if he will
not shift his loyalty to SAFFPAI; this notwithstanding, Baya politely refused to betray his cooperative. A
few days later, Baya received a letter stating that his secondment with DFC has ended, thus, ordering his
return to AMSFC. However, upon Baya’s return to AMSFC on August 30, 2002, he was informed that there
were no supervisory positions available; thus, he was assigned to different rank-and-file positions
instead.

Baya filed a Complaint. LA ruled in Baya’s favor.

NLRC found that the termination of Baya’s employment was not caused by illegal/ constructive dismissal,
but by the cessation of AMSFC’s business operation or undertaking in large portions of its banana
plantation due to the implementation of the agrarian reform program. Thus, the NLRC opined that Baya is
not entitled to separation pay as such cessation was not voluntary, but rather involuntary, on the part of
AMSFC as it was an act of the State, i.e., the agrarian reform program, that caused the same.

Issues:
1. Whether or not NLRC committed grave abuse of discretion;
2. Whether or not Abaya was constructive dismissal;
3. Whether or not AMSFC and DFC are liable to Baya for separation pay, moral damages, and attorney’s
fees;
4. Whether or not Sumifru should be held solidarily liable with AMSFC’s for Baya’s monetary awards.
Held:

1. Yes.“To justify the grant of the extraordinary remedy of certiorari, the petitioner must
satisfactorily show that the court or quasi-judicial authority gravely abused the discretion conferred
upon it. Grave abuse of discretion connotes a capricious and whimsical exercise of judgment, done in a
despotic manner by reason of passion or personal hostility, the character of which being 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 at all in contemplation of law.” Guided by the foregoing considerations, the Court finds that the CA
correctly ascribed grave abuse of discretion on the part of the NLRC in reversing the LA ruling, as the LA’s
finding that Baya was constructively dismissed from employment is supported by substantial evidence.

2. Yes. “Constructive dismissal exists where there is cessation of work, because ‘continued
employment is rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank or
a diminution in pay’ and other benefits. Aptly called a dismissal in disguise or an act amounting to
dismissal but made to appear as if it were not, constructive dismissal may, likewise, exist if an act of clear
discrimination, insensibility, or disdain by an employer becomes so unbearable on the part of the
employee that it could foreclose any choice by him except to forego his continued employment.” In
Peckson v. Robinsons Supermarket Corp., the Court held that the burden is on the employer to prove that
the transfer or demotion of an employee was a valid exercise of management prerogative and was not a
mere subterfuge to get rid of an employee; failing in which, the employer will be found liable for
constructive dismissal, viz.:
In case of a constructive dismissal, the employer has the burden of proving that the transfer and
demotion of an employee are for valid and legitimate grounds such as genuine business necessity.
Particularly, for a transfer not to be considered a constructive dismissal, the employer must be able to
show that such transfer is not unreasonable, inconvenient, or prejudicial to the employee; nor does it
involve a demotion in rank or a diminution of his salaries, privileges and other benefits. Failure of the
employer to overcome this burden of proof, the employee’s demotion shall no doubt be tantamount to
unlawful constructive dismissal.

In this case, a judicious review of the records reveals that the top management of both AMSFC and DFC,
which were sister companies at the time, were well-aware of the lack of supervisory positions in AMSFC.
This notwithstanding, they still proceeded to order Baya’s return therein, thus, forcing him to accept
rank-and-file positions. Notably, AMSFC and DFC failed to refute the allegation that Baya’s “end of
secondment with DFC” only occurred after: (a) he and the rest of AMSKARBEMCO officials and members
were subjected to harassment and cooperative busting tactics employed by AMSFC and DFC; and (b) he
refused to switch loyalties from AMSKARBEMCO to SAFFPAI, the pro-company cooperative. In this
relation, the Court cannot lend credence to the contention that Baya’s termination was due to the ARBs’
takeover of the banana plantation, because the said takeover only occurred on September 20, 2002, while
the acts constitutive of constructive dismissal were performed as early as August 30, 2002, when Baya
returned to AMSFC. Thus, AMSFC and DFC are guilty of constructively dismissing Baya.

3. Yes. Under the doctrine of strained relations, the payment of separation pay is considered an
acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On one
hand, such payment liberates the employee from what could be a highly oppressive work environment.
On the other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its
employ a worker it could no longer trust.”36 Thus, it is more prudent that Baya be awarded separation
pay, instead of being reinstated, as computed by the CA.
4.
Further, and as aptly pointed out by both the LA and the CA, the acts constitutive of Baya’s constructive
dismissal are clearly tainted with bad faith as they were done to punish him for the actions of his
cooperative, AMSKARBEMCO, and for not switching his loyalty to the pro-company cooperative, SAFFPAI.
This prompted Baya to litigate in order to protect his interest and to recover what is properly due him.
Hence, the award of moral damages and attorney’s fees are warranted.

4 Yes. Finally, Sumifru’s contention that it should only be held liable for the period when Baya
stayed with DFC as it only merged with the latter and not with AMSFC is untenable. Section 80 of the
Corporation Code of the Philippines clearly states that one of the effects of a merger is that the surviving
company shall inherit not only the assets, but also the liabilities of the corporation it merged with, to wit:
Section 80. Effects of merger or consolidation. – The merger or consolidation shall have the following
effects:
The constituent corporations shall become a single corporation which, in case of merger, shall be the
surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of consolidation;

The separate existence of the constituent corporations shall cease, except that of the surviving or the
consolidated corporation;

The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and
powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;

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
corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation
without further act or deed; and

The surviving or consolidated corporation shall be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action
or proceeding brought by or against any of such constituent corporations may be prosecuted by or
against the surviving or consolidated corporation. The rights of creditors or liens upon the property of
any of such constituent corporations shall not be impaired by such merger or consolidation.

In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts constitutive of constructive
dismissal performed against Baya. As such, they should be deemed as solidarily liable for the monetary
awards in favor of Baya. Meanwhile, Sumifru, as the surviving entity in its merger with DFC, must be held
answerable for the latter’s liabilities, including its solidary liability with AMSFC arising herein. Verily,
jurisprudence states that “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,” as in this case.

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE
PHILIPPINE DEPOSITINSURANCE CORPORATION v. EDWARD WILLKOM; GILDA GO; REMEDIOS UY;
MALAYO BANTUAS, in hiscapacity as the Deputy Sheriff of RTC, Branch 3, Iligan City; and the
REGISTER OF DEEDS of Cagayan de Oro City,Respondent
2010 Oct 202nd DivisionG.R. No. 178618NACHURA, J.:

FACTS
First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao Savings and Loan Association, Inc.
(DSLAI) areentities duly registered with the SEC primarily engaged in the business of granting loans and
receiving deposits from thegeneral public, and treated as banks. In 1985, FISLAI and DSLAI entered into a
merger, with DSLAI as the survivingcorporation but their articles of merger were not registered with the
SEC due to incomplete documentation. DSLAI changed its corporate name to MSLAI by way of an
amendment to its Articles of Incorporation which was approved by the SEC. In1986, the Board of
Directors of FISLAI passed and approved Board Resolution assigning its assets in favor of DSLAI which in
turn assumed the former’s liabilities. The business of MSLAI, however, failed. Hence, the Monetary Board
of the Central Bank of the Philippines ordered its liquidation with PDIC as its liquidator. Prior to the
closure of MSLAI, Uy filed with the RTC of Iligan City, an action for collection of sum of money against
FISLAI. The RTC issued a summary decision in favor of Uy, directing FISLAI to pay. As a consequence, 6
parcels of land owned by FISLAI were levied and sold to Willkom. In 1995, MSLAI, represented by PDIC,
filed before the RTC a complaint for the annulment of the Sheriff’s Sale alleging that the sale on execution
of the subject properties was conducted without notice to it and PDIC. Respondents, in its answer,
averred that MSLAI had no cause of action because MSLAI is a separate and distinct entity from FISLAI on
the ground 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. RTC dismissed the case for
lack of jurisdiction. CA affirmed but 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.
ISSUE
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?

HELD
NO.
In merger, one of the corporations survives while the rest are dissolved and all their rights, properties,
and liabilities are acquired by the surviving corporation. 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. The merger, however, does not become effective upon the mere agreement of the constituent
corporations. 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.
The steps necessary to accomplish a merger or consolidation, as provided for in Sections 76,[24] 77,[25]
78,[26] and 79[27] 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;(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 stock holders 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 or 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.Clearly, the merger shall only be effective upon the issuance of a certificate of merger by
the SEC, subject to itsprior determination that the merger is not inconsistent with the Corporation Code
or existing laws. In this case, it isundisputed that the articles of merger between FISLAI and DSLAI were
not registered with the SEC due to incompletedocumentation. Consequently, the SEC did not issue the
required certificate of merger. Even if it is true that the MonetaryBoard of the Central Bank of the
Philippines recognized such merger, the fact remains that no certificate was issued by theSEC. Such
merger is still incomplete without the certification. The issuance of the certificate of merger is crucial
because notonly does it bear out SEC’s approval but it also marks the moment when the consequences of
a merger take place.