Tauniño Jillandro G.

Neri Corporation Law Digest February 23, 2019

1. BANK OF COMMERCE vs. RADIO PHILIPPINES NETWORK, INC.,

INTERCONTINENTAL BROADCASTING CORPORATION, and BANAHA W
BROADCASTING CORPORATION, THRU BOARD OF ADMINISTRATOR, and
SHERIFF BIENVENIDO S. REYES, JR.,
CASE LAW/ DOCTRINE:

Merger is a reorganization of two or more corporations that results in their consolidating into
a single corporation, which is one of the constituent corporations, one disappearing or dissolving and
the other surviving. A merger does not become effective upon the mere agreement of the constituent
corporations; Section 79 of the Corporation Code further provides that the merger shall be effective
only upon the issuance by the Securities and ExchangeCommission (SEC) of a certificate of merger.
FACTS:

In late 2001 the Traders Royal Bank (TRB) proposed to sell to petitioner Bank of Commerce
for ₱10.4 billion its banking business consisting of specified assets and liabilities. Bancommerce agreed
subject to prior BSP's approval of their Purchase and Assumption (P & A) Agreement. On November
8, 2001 the BSP approved that agreement subject to the condition that Bancommerce and TRB would
set up an escrow fund of PSO million with another bank to cover TRB liabilities for contingent claims
that may subsequently be adjudged against it, which liabilities were excluded from the purchase. To
comply with the BSP mandate, on December 6, 2001 TRB placed ₱50 million in escrow with
Metrobank to answer for those claims and liabilities that were excluded from the P & A Agreement
and remained with TRB. Accordingly, the BSP finally approved such agreement on July 3, 2002. On
October 10, 2002, acting in G.R. 138510, TRB v. RPN Inc., this Court ordered TRB to pay RPN actual
damages of ₱10 million plus 12% legal interest and some amounts. Rather than pursue a levy in
execution of the corresponding amounts on escrow with Metrobank, RPN filed a Supplemental
Motion for Execution where they described TRB as "now Bank of Commerce" based on the assumption
that TRB had been merged into Bancommerce.
Bancommerce filed its Special Appearance with Opposition to the same questioning the jurisdiction
of the RTC over Bancommerce and denying that there was a merger between TRB and
Bancommerce. The RTC issued an Order granting and issuing the writ of execution to cover any and
all assets of TRB, including those subject of the merger/consolidation in the guise of a Purchase and Sale
Agreement with Bank of Commerce, and/or against the Escrow Fund established by TRB and Bank of Commerce
with the Metrobank. Bancommerce filed a petition for certiorari with the CA assailing the RTC’s Order,
but was denied.

The CA pointed out that the Decision of the RTC was clear in that Bancommerce was not being
made to answer for the liabilities of TRB, but rather the assets or properties of TRB under its possession
and custody. In the same Decision, the CA modified the Decision of the RTC by deleting the phrase
that the P & A Agreement is a farce or "a mere tool to effectuate a merger and/or consolidation between TRB
and BANCOM.” RPN then filed with the RTC a motion to cause the issuance of an alias writ of
execution against Bancommerce based on the CA Decision. The RTC granted the motion on February
19, 2010 on the premise that the CA Decision allowed it to execute on the assets that Bancommerce
acquired from TRB under their P & A Agreement. Bancommerce sought reconsideration of the RTC
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Order considering that the December 2009 CA Decision actually declared that no merger existed
between TRB and Bancommerce. But, since the RTC had already issued the alias writ, Bancommerce
filed a motion to quash the same, followed by supplemental Motion. The RTC then issued the assailed
Order denying Bancommerce pleas and, among others, directing the release to the Sheriff of
Bancommerce’s "garnished monies and shares of stock or their monetary equivalent.” Aggrieved,
Bancommerce appealed to the CA. However, the CA dismissed the petition outright for the supposed
failure of Bancommerce to file a motion for reconsideration of the assailed order.

ISSUE(S):
(1) W/N TRB and Bancommerce were validly merged.
(2) W/N the RTC could regard Bancommerce as RPN’s judgment debtor
HELD: (1)NO. (2)NO.
RATIO:

(1)
Merger is a re-organization of two or more corporations that results in their consolidating into a single
corporation, which is one of the constituent corporations, one disappearing or dissolving and the other
surviving. To put it another way, merger is the absorption of one or more corporations by another
existing corporation, which retains its identity and takes over the rights, privileges, franchises,
properties, claims, liabilities and obligations of the absorbed corporation(s). The absorbing corporation
continues its existence while the life or lives of the other corporation(s) is or are terminated.
Indubitably, it is clear that no merger took place between Bancommerce and TRB as the requirements
and procedures for a merger were absent. A merger does not become effective upon the mere agreement
of the constituent corporations. All the requirements specified in the law must be complied with in
order for merger to take effect. Section 79 of the Corporation Code further provides that the merger
shall be effective only upon the issuance by the SEC of a certificate of merger. Here, Bancommerce
and TRB remained separate corporations with distinct corporate personalities. What happened is that
TRB sold and Bancommerce purchased identified recorded assets of TRB in consideration of
Bancommerce’s assumption of identified recorded liabilities of TRB including booked contingent
accounts. There is no law that prohibits this kind of transaction especially when it is done openly and
with appropriate government approval. No merger or consolidation took place as the records do not
show any plan or articles of merger or consolidation. More importantly, the SEC did not issue any
certificate of merger or consolidation. In his book, Dean Cesar Villanueva explained that under the
Corporation Code, "a de facto merger can be pursued by one corporation acquiring all or substantially all of the
properties of another corporation in exchange of shares of stock of the acquiring corporation. The acquiring
corporation would end up with the business enterprise of the target corporation; whereas, the target corporation
would end up with basically its only remaining assets being the shares of stock of the acquiring corporation." No
de facto merger took place in the present case simply because the TRB owners did not get in exchange
for the bank’s assets and liabilities an equivalent value in Bancommerce shares of stock. Bancommerce
and TRB agreed with BSP approval to exclude from the sale the TRB’s contingent judicial liabilities,
including those owing to RPN.

(2)

Bancommerce agreed to assume those liabilities of TRB that are specified in their P & A Agreement.
That agreement specifically excluded TRB’s contingent liabilities that the latter might have arising
from pending litigations in court, including the claims of respondent RPN, et al. The evidence in this
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case fails to show that Bancommerce was a mere continuation of TRB. TRB retained its separate and
distinct identity after the purchase. Although it subsequently changed its name to Traders Royal
Holding’s, Inc. such change did not result in its dissolution. "The changing of the name of a corporation
is no more than creation of a corporation than the changing of the name of a natural person is the
begetting of a natural person. The act, in both cases, would seem to be what the language which we
use to designate it imports—a change of name and not a change of being."26 As such, Bancommerce
and TRB remained separate corporations. To protect contingent claims, the BSP directed
Bancommerce and TRB to put up ₱50 million in escrow with another bank. It was the BSP, not
Bancommerce that fixed the amount of the escrow. Consequently, it cannot be said that the latter bank
acted in bad faith with respect to the excluded liabilities. They did not enter into the P & A Agreement
to enable TRB to escape from its liability to creditors with pending court cases.

Further, even without the escrow, TRB continued to be liable to its creditors although under its new
name. Parenthetically, the P & A Agreement shows that Bancommerce acquired greater amount of
TRB liabilities than assets. Article II of the P & A Agreement shows that Bancommerce assumed total
liabilities of ₱10,401,436,000.00 while it received total assets of only ₱10,262,154,000.00. This proves
the arms length quality of the transaction

2. YUJUICO vs. QUIAMBAO G.R. No. 168639, January 29, 2007

Facts: On July 27, 1998, the Securities and Exchange Commission (SEC) approved the amendment of
Strategic Alliance Development Corporation’s (STRADEC) Articles of Incorporation authorizing the
change of its principal office from Pasig City Pangasinan. On March 1, 2004, STRADEC held its
annual stockholders meeting in Pasig City its office as indicated in the notices sent to the stockholders.
Herein petitioners and respondents were elected members of the Board of Directors. Five months
thereafter, respondents filed with the RTC in Pangasinan a complaint against STRADEC. The
complaint seeks for the nullification of the election on the ground of improper venue, pursuant to
Section 51 of the Corporation Code, next is the nullification of all subsequent transactions conducted
by the elected directors and lastly that a special stockholder’s meeting be held once again. The RTC
under pairing Judge Emuslan issued an Order for granting respondents application for preliminary
injunction ordering (1) the holding of a special stockholders meeting of STRADEC on December 10,
2004 in the principal office of the corporation in Bayambang, Pangasinan; and (2) the turn-over by
petitioner Bonifacio Sumbilla to the court of the duplicate key of the safety deposit box in Export
Industry Bank, Shaw Boulevard, Pasig City where the original Stock and Transfer Book of STRADEC
was deposited. The plaintiff filed with the Court of Appeals (CA) a Petition for Certiorari. CA
dismissed such petition and upheld the jurisdiction of the RTC.
Issue: Whether the RTC has the power to call a special stockholder’s meeting involving an intra-
corporate controversy?
Ruling: Yes. Upon the enactment of R.A. No. 8799, otherwise known as The Securities Regulation
Code which took effect on August 8, 2000, the jurisdiction of the SEC over intra- corporate
controversies and other cases enumerated in Section 5 of P.D. No. 902-A has been transferred to the
courts of general jurisdiction, or the appropriate RTC. Section 5.2 of R.A. No. 8799 provides: 5.2. The
Commissions jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A is
hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court,
Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra- corporate disputes submitted for final resolution which

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should be resolved within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until
finally disposed. The RTC has the power to hear and decide the intra-corporate controversy of the
parties herein. Concomitant to said power is the authority to issue orders necessary or incidental to the
carrying out of the powers expressly granted to it. Thus, the RTC may, in appropriate cases, order the
holding of a special meeting of stockholders or members of a corporation involving an intra-corporate
dispute under its supervision.

3. JUANITO ANG vs SPOUSES ROBERTO and RACHEL ANG

Facts:
Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned by the Ang
family. Its current stockholders and their respective stockholdings are Juanito, Anecita, Jeannevieve,
Roberto, and Rachel Roberto was elected President of SMBI, while Juanito was elected as its Vice
President. Rachel Lu-Ang (Rachel) and Anecita are SMBI’s Corporate Secretary and Treasurer,
respectively. On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito and Roberto, and her husband,
Theodore Ang (Theodore), agreed to extend a loan to settle the obligations of SMBI and other
corporations owned by the Ang family, specifically Bayshore Aqua Culture Corporation, Oceanside
Marine Resources and JR Aqua Venture. Nancy and Theodore issued a check in the amount of
$1,000,000.00 payable to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang."
Nancy was a former stockholder of SMBI, but she no longer appears in SMBI’s General Information
Sheets as early as 1996. There was no written loan agreement, in view of the close relationship between
the parties. Part of the loan was also used to purchase real properties for SMBI, for Juanito, and for
Roberto. On 22 December 2005, SMBI increased its authorized capital stock to ₱10,000,000.00. The
Certificate of Increase of Capital Stock was signed by Juanito, Anecita, Roberto, and Rachel as
directors of SMBI.

Juanito claimed, however, that the increase of SMBI’s capital stock was done in contravention
of the Corporation Code.10 According to Juanito, when he and Anecita left for Canada: Sps. Roberto
and Rachel Ang took over the active management of [SMBI]. Through the employment of sugar coated
words, they were able to successfully manipulate the stocks sharings between themselves at 50-50
under the condition that the procedures mandated by the Corporation Code on increase of capital stock
be strictly observed (valid Board Meeting). No such meeting of the Board to increase capital stock
materialized. It was more of an accommodation to buy peace Juanito claimed that payments to Nancy
and Theodore (their creditors) ceased sometime after 2006. On 24 November 2008, Nancy and
Theodore, through their counsel here in the Philippines, sent a demand letter to "Spouses Juanito L.
Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel L. Ang" for payment of the principal
amounting to $1,000,000.00 plus interest at ten percent (10%) per annum, for a total of $2,585,577.37
within ten days from receipt of the letter. Roberto and Rachel then sent a letter to Nancy and
Theodore’s counsel on 5 January 2009, saying that they are not complying with the demand letter
because they have not personally contracted a loan from Nancy and Theodore. On 8 January 2009,
Juanito and Anecita executed a Deed of Acknowledgment and Settlement Agreement (Settlement
Agreement) and an Extra-Judicial Real Estate Mortgage (Mortgage).

Under the foregoing instruments, Juanito and Anecita admitted that they, together with
Roberto and Rachel, obtained a loan from Nancy and Theodore for $1,000,000.00 on 31 July 1995
and such loan shall be secured by: Robert and Rachel regused to pay their share of the loanThereafter,

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Juanito filed a "Stockholder Derivative Suit with prayer for an ex-parte Writ of
Attachment/Receivership" (Complaint) before the RTC Bacolod on 29 January 2009. He alleged that
"the intentional and malicious refusal of defendant Sps. Roberto and Rachel Ang to settle their 50%
share x x x of the total obligation x x x will definitely affect the financial viability of plaintiff SMBI."
Juanito also claimed that he has been "illegally excluded from the management and participation in
the business of [SMBI through] force, violence and intimidation" and that Rachel and Roberto have
seized and carted away SMBI’s records from its office. Rachel also argued that the Complaint failed
to allege that Juanito "exerted all reasonable efforts to exhaust all intra-corporate remedies available
under the articles of incorporation, by-laws, laws or rules governing the corporation to obtain the relief
he desires," as required by the Interim Rules. During cross-examination, Juanito admitted that there
was no prior demand for accounting or liquidation nor any written objection to SMBI’s increase of
capital stock.

ISSUES:
I. Whether based on the allegations of the complaint, the nature of the case is one of a
derivative suit or not.

RULING: Complaint is not a derivative suit.

A derivative suit is an Corporation Code, the directors or officers, as provided under the by-
laws,32 have the right to decide whether or not a corporation should sue. Since these directors or
officers will never be willing to sue themselves, or impugn their wrongful or fraudulent decisions,
stockholders are permitted by law to bring an action in the name of the corporation to hold these
directors and officers accountable.33 In derivative suits, the real party ininterest is the corporation,
while the stockholder is a mere nominal party.

However, it cannot prosper without first complying with the legal requisites for its institution.

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:

1. The person filing the suit must be a stockholder or member at the time the acts or transactions subject
of the action occurred and the time the action was filed;
2. He must have exerted all reasonable efforts, and alleges the same with particularity in the complaint,
to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.

Applying the foregoing, we find that the Complaint is not a derivative suit. The Complaint
failed to show how the acts of Rachel and Roberto resulted in any detriment to SMBI. The CA-Cebu
correctly concluded that the loan was not a corporate obligation, but a personal debt of the Ang
brothers and their spouses. The check was issued to "Juanito Ang and/or Anecita Ang and/or Roberto
Ang and/or Rachel Ang" and not SMBI. The proceeds of the loan were used for payment of the
obligations of the other corporations owned by the Angs as well as the purchase of real properties for
the Ang brothers. SMBI was never a party to the Settlement Agreement or the Mortgage. It was never
named as a co-debtor or guarantor of the loan. Both instruments were executed by Juanito and Anecita

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in their personal capacity, and not in their capacity as directors or officers of SMBI. Thus, SMBI is
under no legal obligation to satisfy the obligation.

Since damage to the corporation was not sufficiently proven by Juanito, the Complaint cannot
be considered a bona fide derivative suit. A derivative suit is one that seeks redress for injury to the
corporation, and not the stockholder. No such injury was proven in this case. The Complaint also
failed to allege that all available corporate remedies under the articles of incorporation, by-laws, laws
or rules governing the corporation were exhausted, as required under the Interim Rules.

o x x x No written demand was ever made for the board of directors to address private respondent
Juanito Ang’s concerns.

The fact that [SMBI] is a family corporation does not exempt private respondent Juanito Ang
from complying with the Interim Rules. In the x x x Yu case, the Supreme Court held that a family
corporation is not exempt from complying with the clear requirements and formalities of the rules for
filing a derivative suit. There is nothing in the pertinent laws or rules which state that there is a
distinction between x x x family corporations x x x and other types of corporations in the institution
by a stockholder of a derivative suit. The CA-Cebu correctly ruled that the Complaint should be
dismissed since it is a nuisance or harassment suit under Section 1(b) of the Interim Rules. Section 1(b)
thereof provides: b) Prohibition against nuisance and harassment suits. - Nuisance and harassment
suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall
consider, among others, the following:
(1) The extent of the shareholding or interest of the initiating stockholder or member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or acts complained of; and
(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith
dismiss the case action brought by a stockholder on behalf of the corporation to enforce corporate
rights against the corporation’s directors, officers or other insiders.29 Under Sections 2330 and 3631
of the

4. Dionisio Lao vs Lao

Facts:
Petitioners David and Jose Lao filed a petition with the SEC against respondent Dionisio Lao,
president of Pacific Foundry Shop Corporation (PFSC). Petitioners prayed for a declaration as
stockholders and directors of PFSC, issuance of certificates of shares in their name and to be allowed
to examine the corporate books of PFSC. Petitioners claimed that they are stockholders of PFSC based
on the General Information Sheet filed with the SEC, in which they are named as stockholders and
directors of the corporation. David Lao acquired his shares from his father and Jose Lao from
respondent himself. Respondent denied petitioners' claim. He also claimed that petitioners did not
acquire any shares in PFSC by any of the modes recognized by law, namely subscription, purchase, or
transfer.

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 Meanwhile, R.A. 8799, otherwise known as the Securities Regulation Code, was enacted,
transferring jurisdiction over all intra-corporate disputes from the SEC to the RTC. RTC denied their
petition on the ground that they have no stock certificates in their names.

ISSUE:
Is the mere inclusion as shareholder in the General Information Sheet of a corporation sufficient
proof that one is a shareholder in such corporation?

HELD:
NO. The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC
is insufficient proof that they are shareholders of the company. The information in the document will
still have to be correlated with the corporate books of PFSC.
A certificate of stock is the evidence of a holder's interest and status in a corporation. It is a
written instrument signed by the proper officer of a corporation stating or acknowledging that the
person named in the document is the owner of a designated number of shares of its stock. It is prima
facie evidence that the holder is a shareholder of a corporation.
5. Africa vs PCGG
Facts:
These are four cases separately filed before the SC since they involve issues arising from, incidental
or related to the sequestratio of Eastern Telecommunications Philippines, Inc. (ETPI) by the
Presidential Commission on Good Government (PCGG) on March 14, 1986. Shortly after the PCGG
sequestered ETPI, the sequestration order was partially lifted. Subsequently, during the annual
stockholders meeting, Eduardo M. Villanueva, as PCGG nominee, Roman Mabanta, Jr. and
Eduardode los Angeles as nominees of the foreign investors, and Jose L. Africa (who was absent) were
elected as members of the board of directors. An organizational meeting was later held where
Villanueva was elected as president and general manager, along with other newly elected officials. The
nomination and election of PCGG nominees/designees to the ETPI Board of Directors, as well as the
election of its new officers, triggered a chain of contentious proceedings before the Sandiganbayan and
the SC between the members of the ETPI Board and its stockholders.
Victor Africa, who claims to be an employee of ETPI holding the positions of vice-president,
general counsel(on official leave without pay), corporate secretary and special assistant to the chairman
(and president), filed directly with this Court on June 30, 1988 a petition for injunction, seeking to
enjoin the PCGG and its nominees/designees to the board of directors and the newly-installed officers
of ETPI from implementing their alleged illegal act of ousting him from his offices and positions at the
ETPI pending the determination of whether they have validly, legally and morally assumed their
supposed positions and offices as "directors" and/or "officers" of ETPI.
An inter-office memorandum was circulated easing out the legitimate members of the board from
their rooms in the executive offices for the benefit of the newly-installed members of the questioned
PCGG board. The petitioner was also allegedly forcibly taken out of his office on the basis of a PCGG
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order, petitioner Africa sought to have the Commissioner declared in contempt of court for having
committed "improper conduct tending directly or indirectly, to impede, obstruct or degrade the
administration of justice." He likewise sought the issuance of a writ of preliminary mandatory
injunction ordering respondents to open his office and allow him access to and use of the same.
85597 and 85621
Jose L. Africa, Manuel Nieto and Rafael Valdez, allegedly the registered stockholders of ETPI, filed
a complaint for injunction and damages with prayer for a temporary restraining order seeking to enjoin
Eduardo M. Villanueva from acting as "Director, President and/or General Manager" of ETPI and
from exercising the powers and functions of said positions, as well as to stop the PCGG from directly
or indirectly interfering with the management of ETPI. They contend that the assumption of
Villanueva to said positions was effected without due process of law through the PCGG using and
voting the sequestered shares without legal justification. Eduardo M. Villanueva filed a motion to
dismiss/opposition to the issuance of a restraining order on the grounds of lack of jurisdiction, because
the complaint partakes of the nature of a suit against the State without its consent; that plaintiffs are
not the real parties in interest in the action, which is actually a quo warranto proceeding; that the
complaint is premature for failure to exhaust administrative remedies; and that the issues raised have
already been passed upon by the Supreme Court
In G.R. No. 85621, petitioner Villanueva imputes grave abuse of discretion to the
Sandiganbayan in proceeding with the deferred hearing of Civil Case No. 0048. To his mind, the
injunction suit filed by Africa, Nieto and Valdez is in effect a suit against the State and, since there is
no waiver of immunity by the State, respondent court cannot acquire jurisdiction over the same.

RULING:
The issue raised in the original petition in G.R. No. 85594 relating to the validity of the issuance
by the Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its
representative to testify and produce the stock and transfer book, all stubs of the outstanding stock
certificates of ETPI and the minutes of all meetings of the board of directors and stockholders of ETPI
held from January 29, 1988 to date was laid to rest by our joint resolution in two cases, both
entitled Republic vs. Sandiganbayan and Eduardo Cojuangco, Jr., 29 which applies squarely in the
instant petitions.
In upholding therein the right of a stockholder of a sequestered company to inspect and/or examine
the records of a corporation pursuant to Section 74 of the Corporation Code, the Court found nothing
in Executive Orders Nos. 1, 2 and 14, as well as in BASECO, to indicate an implied amendment of the
Corporation Code, much less an implied modification of a stockholder's right of inspection as
guaranteed by Section 74 thereof. The only express limitation on the right of inspection, according to
the Court, is that (1) the right of inspection should be exercised at reasonable hours on business days;
(2) the person demanding the right to examine and copy excerpts from the corporate records and
minutes has not improperly used any information secured through any previous examination of the
records of such corporation; and (3) the demand is made in good faith or for a legitimate purpose.