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Facts: Sometime in 1971, Islamic leaders of all Muslim major tribal groups in the
Philippines headed by Dean Cesar Adib Majul organized and incorporated the
ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to
establish an Islamic Center in Quezon City for, the construction of a "Mosque
(prayer place, Madrasah (Arabic School), and other religious infrastructures" so as to
facilitate the effective practice of Islamic faith in the area. Towards this end, that is,
in the same year, the Libyan government donated money to the IDP to purchase
land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic
populace. The land, with an area of 49,652 square meters, we covered by two titles:
TCTs RT-26520 (176616) and RT-26521 (170567), both registered in the name of IDP.
In 1971, the Board of Trustees of the IDP was composed of Senator Mamintal
Tamano, Congressman Ali Dimaporo, Congressman Salipada Pendatun, Dean Cesar
Adib Majul, Sultan Harun Al-Rashid Lucman, Delegate Ahmad Alonto, Commissioner
Datu Mama Sinsuat and Mayor Aminkadra Abubakar. In 1972, after the purchase of
the land by the Libyan government in the name of IDP, Martial Law was declared by
the late President Ferdinand Marcos. Most of the members of the 1971 Board of
Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and
Congressman Al-Rashid Lucman flew to the Middle East to escape political
persecution. Thereafter, two Muslim groups sprung, the Carpizo Group, headed by
Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and
Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly, on
3 October 1986, the SEC, in a suit between these two contending groups, came out
with a Decision in SEC Case 2687 declaring the election of both the Carpizo Group
and the Abbas Group as IDP board members to be null and void. Neither group,
however, took the necessary steps prescribed by the SEC in its 3 October 1986
Decision, and no valid election of the members of the Board of Trustees of IDP was
ever called. Although the Carpizo Group attempted to submit a set of by-laws, the
SEC found that, aside from that Engineer Farouk Carpizo and Atty. Musib Buat, those
who prepared and adopted the by-laws were not bona fide members of the IDP, thus
rendering the adoption of the by-laws likewise null and void. On 20 April 1989,
without having been properly elected as new members of the Board of Trustees of
IDP, the Carpizo Group caused to be signed an alleged Board Resolution of the IDP,
authorizing the sale of the subject two parcels of land to the Iglesia ni Cristo (INC)
for a consideration of P22,343,400.00, which sale was evidenced by a Deed of
Absolute Sale 12 dated 20 April 1989. On 30 May 1991, the 1971 IDP Board of
Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a
petition before the SEC (SEC Case 4012) seeking to declare null and void the Deed
of Absolute Sale signed by the Carpizo Group and the INC since the group of
Engineer Carpizo was not the legitimate Board of Trustees of the IDP. Meanwhile,
INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for
Specific Performance with Damages against the vendor, Carpizo Group, before
Branch 81 of the Regional Trial Court of Quezon City (Civil Case Q-90-6937) to

compel said group to clear the property of squatters and deliver complete and full
physical possession thereof to INC. Likewise, INC filed a motion in the same case to
compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds
of Quezon City the owner's duplicate copy of TCTs RT-26521 and RT-26520 covering
the two parcels of land, so that the sale in INC's favor may be registered and new
titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the
two parcels of land executed in her favor by certain Abdulrahman R.T. Linzag and
Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group. Judge Celia
Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City, denied IDP's motion
to intervene on the ground of lack of juridical personality of the IDP-Tamano Group
and that the issues being raised by way of intervention are intra-corporate in
nature, jurisdiction thereto properly pertaining to the SEC. Apprised of the pendency
of SEC Case 4012 involving the controverted status of the IDP-Carpizo Group but
without waiting for the outcome of said case, Judge Reyes, on 12 September 1991,
rendered Partial Judgment in Civil Case Q-90-6937 ordering the IDP-Carpizo Group to
comply with its obligation under the Deed of Sale of clearing the subject lots of
squatters and of delivering the actual possession thereof to INC. Thereupon Judge
Reyes in another Order, dated 2 March 1992, pertaining also to Civil Case Q-906937, treated INC as the rightful owner of the real properties and disposed. On 6
April 1992, the Order was amended by Judge Reyes directing Ligon "to deliver the
owner's duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to
the Register of Deeds of Quezon City for the purposes stated in the Order of March
2, 1992." Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari
(CA-GR SP-27973), assailing the Orders of Judge Reyes. The appellate court
dismissed her petition on 28 October 1992. Undaunted, Ligon filed a petition for
review before the Supreme Court (GR 107751). In the meantime, the SEC, on 5 July
1993, finally came out with a Decision in SEC Case 4012, Declaring the by-laws
submitted by the IDP-Caprizo group as unauthorized, and hence, null and void;
declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed
of Absolute Sale entered into by Iglesia ni Kristo and the Islamic Directorate of the
Philippines, Inc. null and void; declaring the election of the Board of Directors 23 of
the corporation from 1986 to 1991 as null and void; and Declaring the acceptance
of the respondents, except Farouk Carpizo and Musnib Buat, as members of the IDP
null and void. The INC filed a Motion for Intervention, dated 7 September 1993, in
SEC Case 4012, but the same was denied on account of the fact that the decision of
the case had become final and executory, no appeal having been taken therefrom.
INC elevated SEC Case 4012 to the Court of Appeals by way of a special civil action
for certiorari (CA-GR SP 33295). On 28 October 1994, the appeallate court
promulgated a Decision granting INC's petition. The portion of the SEC Decision in
SEC Case 4012 which declared the sale of the two (2) lots in question to INC as void
was ordered set aside by the Court of Appeals. Thus, the IDP-Tamano Group brought
the petition for review, dated 21 December 1994, to the Supreme Court. While the
petition was pending, however, the Supreme Court rendered judgment in GR
107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated 1 June
1995, denied the Ligon petition and affirmed the 28 October 1992 Decision of the
Court of Appeals in CA-GR SP-27973 which sustained the Order of Judge Reyes
compelling mortgagee Ligon to surrender the owner's duplicate copies of TCTs RT-

26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so
that the Deed of Absolute Sale in INC's favor may be properly registered.
Issue: Whether the Tandang Sora property was legitimately sold to the INC.
Held: As far back as 3 October 1986, the SEC, in Case 2687, in a suit between the
Carpizo Group and the Abbas Group, already declared the election of the Carpizo
Group (as well as the Abbas Group) to the IDP Board as null and void for being
violative of the Articles of Incorporation. Nothing thus becomes more settled than
that the IDP-Carpizo Group with whom INC contracted is a fake Board. Premises
considered, all acts carried out by the Carpizo Board, particularly the sale of the
Tandang Sora property, allegedly in the name of the IDP, have to be struck down for
having been done without the consent of the IDP thru a legitimate Board of
Trustees. Article 1318 of the New Civil Code lays down the essential requisites of
contracts, and where all these elements must be present to constitute a valid
contract. For, where even one is absent, the contract is void. Specifically, consent is
essential for the existence of a contract, and where it is wanting, the contract is
non-existent. Herein, the IDP, owner of the subject parcels of land, never gave its
consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale
executed in favor of INC. This is, therefore, a case not only of vitiated consent, but
one where consent on the part of one of the supposed contracting parties is totally
wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.
The Carpizo Group-INC sale is further deemed null and void ab initio because of the
Carpizo Group's failure to comply with Section 40 of the Corporation Code
pertaining to the disposition of all or substantially all assets of the corporation. The
Tandang Sora property, it appears from the records, constitutes the only property of
the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate
property and assets of IDP falling squarely within the contemplation of the foregoing
section. For the sale to be valid, the majority vote of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the
corporation should have been obtained. These twin requirements were no met as
the Carpizo Group which voted to sell the Tandang Sora property was a fake Board
of Trustees, and those whose names and signatures were affixed by the Carpizo
Group together with the sham Board Resolution authorizing the negotiation for the
sale were, from all indications, not bona fide members of the IDP as they were made
to appear to be. Apparently, there are only 15 official members of the IDP including
the 8 members of the Board of Trustees. All told, the disputed Deed of Absolute Sale
executed by the fake Carpizo Board and INC was intrinsically void ab initio.



Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr. (Ricardo),

Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and
Liberato Mangoba (Liberato) were employees of Small and Medium Enterprise Bank,
Incorporated (SME Bank).Originally, the principal shareholders and corporate
directors of the bank were Eduardo M. Agustin, Jr. (Agustin) and Peregrin de
Guzman, Jr. (De Guzman).

SME Bank experienced financial difficulties. To remedy the situation, the bank
officials proposed its sale to Samson.

Accordingly, negotiations ensued, Letter Agreements were sent to Agustin and De

Guzman, conditioning that it shall guarantee the peaceful turn over of all assets as
well as the peaceful transition of management of the bank and shall terminate/retire
the employees we mutually agree upon, upon transfer of shares in favor of groups
nominees; and all retirement benefits, if any of the above
officers/stockholders/board of directors are hereby waived upon consummation of
the above sale. The retirement benefits of the rank and file employees including the
managers shall be honored by the new management. Thereafter, the Letter
Agreement was accepted.

Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting
with all the employees and persuaded them to tender their resignations,with the
promise that they would be rehired upon reapplication. His directive was allegedly
done at the behest of petitioner Olga Samson.

Relying on this representation, Elicerio,Ricardo,Fidel,Simeon, Jr.,and

Liberatotendered their resignations. As for Eufemia, she first tendered a resignation
letterand then a retirement letter.

Agustin and De Guzman signified their conformity to the Letter Agreements and
sold 86.365% of the shares of stock of SME Bank to spouses Abelardo and Olga
Samson. Spouses Samson then became the principal shareholders of SME Bank,
while Aurelio Villaflor, Jr. was appointed bank president. As it turned out, respondent
employees, except for Simeon, Jr.,were not rehired. After a month in service,
Simeon, Jr. again resigned on October 2001.

Respondent-employees demanded the payment of their respective separation pays,

but their requests were denied. Aggrieved by the loss of their jobs, respondent
employees filed a Complaint before NLRC and sued SME Bank, spouses Abelardo
and Olga Samson and Aurelio Villaflor (the Samson Group). Subsequently, they

amended their Complaint to include Agustin and De Guzman as respondents to the


The labor arbiter ruled that the buyer of an enterprise is not bound to absorb its
employees, unless there is an express stipulation to the contrary. However, he also
found that respondent employees were illegally dismissed, because they had
involuntarily executed their resignation letters after relying on representations that
they would be given their separation benefits and rehired by the new management.
Accordingly, the labor arbiter decided the case against Agustin and De Guzman, but
dismissed the Complaint against the Samson Group.

Respondent employees questioned the labor arbiters failure to award backwages,

while Agustin and De Guzman contended that they should not be held liable for the
payment of the employees claims.

The NLRC found that there was only a mere transfer of shares and therefore, a mere
change of management. As the change of management was not a valid ground to
terminate respondent bank employees, the NLRC ruled that they had indeed been
illegally dismissed. It further ruled that Agustin, De Guzman and the Samson Group
should be held jointly and severally liable for the employees separation pay and

On appeal, the CA affirmed the decision of the NLRC.

ISSUE: Whether or not the respondents were illegally dismissed.
We therefore see it fit to expressly reverse our ruling in Manlimos insofar as it
upheld that, in a stock sale, the buyer in good faith has no obligation to retain the
employees of the selling corporation; and that the dismissal of the affected
employees is lawful, even absent a just or authorized cause.
None of the parties dispute that SME Bank was the employer of respondent
employees. The fact that there was a change in the composition of its shareholders
did not affect the employer-employee relationship between the employees and the
corporation, because an equity transfer affects neither the existence nor the
liabilities of a corporation. Thus, SME Bank continued to be the employer of
respondent employees notwithstanding the equity change in the corporation. This
outcome is in line with the rule that a corporation has a personality separate and
distinct from that of its individual shareholders or members, such that a change in
the composition of its shareholders or members would not affect its corporate

Therefore, we conclude that, as the employer of the illegally dismissed employees

before and after the equity transfer, petitioner SME Bank is liable for the satisfaction
of their claims.
change of ownership in a business concern is not proscribed bylaw. In Central
Azucarera del Danao vs. Court of Appeals, this Court stated:

There can be no controversy for it is a principle well-recognized, that it is within the

employers legitimate sphere of management control of the business to adopt
economic policies or make some changes or adjustments in their organization or
operations that would insure profit to itself or protect the investment of its
stockholders. As in the exercise of such management prerogative, the employer
may merge or consolidate its business with another, or sellor dispose all or
substantially all of its assets and properties which may bring about the dismissal or
termination of its employees in the process. Such dismissal or termination should
not however be interpreted in such a manner as to permit the employer to escape
payment of termination pay. For such a situation is not envisioned in the law. It
strikes at the very concept of social justice.
here is no question that both Agustin and De Guzman were corporate directors of
SME Bank. An analysis of the facts likewise reveals that the dismissal of the
employees was done in bad faith. Motivated by their desire to dispose of their
shares of stock to Samson, they agreed to and later implemented the precondition
in the Letter Agreements as to the termination or retirement of SME Banks
employees. However, instead of going through the proper procedure, the bank
manager induced respondent employees to resign or retire from their respective
employments, while promising that they would be rehired by the new management.
Fully relying on that promise, they tendered courtesy resignations or retirements
and eventually found themselves jobless. Clearly, this sequence of events
constituted a gross circumvention of our labor laws and a violation of the
employees constitutionally guaranteed right to security of tenure. We therefore rule
that, as Agustin and De Guzman are corporate directors who have acted in bad
faith, they may be held solidarily liable with SME Bank for the satisfaction of the
employees lawful claims.
The petitioners were regular employees of the Philippine Banking Corporation
(Philbank), each with at least tenyears of service in the company.3 Pursuant to its
Memorandum dated August 28, 1970, Philbank established aGratuity Pay Plan (Old
Plan) for its employees. Philbank merged with Global Business Bank, Inc.
(Globalbank),with the former as the surviving corporation and the latter as the
absorbed corporation, but the bank operated underthe name Global Business
Bank, Inc. As a result of the merger, complainants respective positions
becameredundant. A Special Separation Program (SSP) was implemented and the
petitioners were granted a separationpackage. As their positions were included in
the redundancy declaration, the petitioners availed of the SSP, signedacceptance

letters and executed quitclaims. In August 2002, respondent Metropolitan Bank and
Trust Company(Metrobank) acquired the assets and liabilities of Globalbank
through a Deed of Assignment of Assets andAssumption of Liabilities.
Subsequently, the petitioners filed separate complaints for non-payment of
separation paywith prayer for damages and attorneys fees before the National
Labor Relations Commission (NLRC). Thepetitioners insist that Metrobank is liable
because it is the parent company of Globalbank and that majority of thelatters
board of directors are also members of the formers board of directors. Can
Metrobank be held liable for the claims of petitioners?No, considering that the
petitioners have already waived their right to file an action for any of their claims in
relationto their employment with Globalbank, the question of whether Metrobank
can be held liable for these claims is nowacademic. However, in order to put to rest
any doubt in the petitioners minds as to Metrobanks liabilities, we shallproceed to
discuss this issue. We hold that Metrobank cannot be held liable for the petitioners
claims. As a rule, acorporation that purchases the assets of another will not be liable
for the debts of the selling corporation, providedthe former acted in good faith and
paid adequate consideration for such assets, except when any of the
followingcircumstances is present: (1) where the purchaser expressly or impliedly
agrees to assume the debts; (2) where thetransaction amounts to a consolidation or
merger of the corporations; (3) where the purchasing corporation is merelya
continuation of the selling corporation; and (4) where the selling
corporation fraudulently enters into thetransaction to escape liability for those
In late 2001 the Traders Royal Bank (TRB) proposed to sell to petitioner Bank of
Commerce (Bancommerce) for P10.4 billion its banking business consisting of
specified assets and liabilities. Bancommerce agreed subject to prior Bangko Sentral
ng Pilipinas' (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.

Specifically, the BSP Monetary Board Min. No. 58 (MB Res. 58) decided as follows:

1. To approve the revised terms sheet as finalized on September 21, 2001 granting
certain incentives pursuant to Circular No. 237, series of 2000 to serve as a basis for
the final Purchase and Assumption (P & A) Agreement between the Bank of
Commerce (BOC) and Traders Royal Bank (TRB); subject to inclusion of the following
provision in the P & A:

The parties to the P & A had considered other potential liabilities against TRB, and
to address these claims, the parties have agreed to set up an escrow fund
amounting to Fifty Million Pesos (P50,000,000.00) in cash to be invested in
government securities to answer for any such claim that shall be judicially
established, which fund shall be kept for 15 years in the trust department of any
other bank acceptable to the BSP. Any deviation therefrom shall require prior
approval from the Monetary Board.


Following the above approval, on November 9, 2001 Bancommerce entered into a P

& A Agreement with TRB and acquired its specified assets and liabilities, excluding
liabilities arising from judicial actions which were to be covered by the BSPmandated escrow of P50 million.

To comply with the BSP mandate, on December 6, 2001 TRB placed P50 million in
escrow with Metropolitan Bank and Trust Co. (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.

Shortly after or on October 10, 2002, acting in G.R. 138510, Traders Royal Bank v.
Radio Philippines Network (RPN), Inc., this Court ordered TRB to pay respondents
RPN, Intercontinental Broadcasting Corporation, and Banahaw Broadcasting
Corporation (collectively, RPN, et al.) actual damages of P9,790,716.87 plus 12%
legal interest and some amounts. Based on this decision, RPN, et al.filed a motion
for execution against TRB before the Regional Trial Court (RTC) of Quezon City. But
rather than pursue a levy in execution of the corresponding amounts on escrow with
Metrobank, RPN, et al. filed a Supplemental Motion for Execution1 where they
described TRB as "now Bank of Commerce" based on the assumption that TRB had
been merged into Bancommerce.

On February 20, 2004, having learned of the supplemental application for execution,
Bancommerce filed its Special Appearance with Opposition to the same2
questioning the jurisdiction of the RTC over Bancommerce and denying that there
was a merger between TRB and Bancommerce. On August 15, 2005 the RTC issued
an Order3 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 Metropolitan Bank and Trust

This prompted Bancommerce to file a petition for certiorari with the Court of
Appeals (CA) in CA-G.R. SP 91258 assailing the RTCs Order. On December 8, 2009
the CA4 denied the petition. 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.5

In the same Decision, the CA modified the Decision of the RTC by deleting the
phrase that the P & A Agreement between TRB and Bancommerce is a farce or "a
mere tool to effectuate a merger and/or consolidation between TRB and BANCOM."
The CA Decision partly reads:


We are not prepared though, unlike the respondent Judge, to declare the PSA
between TRB and BANCOM as a farce or "a mere tool to effectuate a merger and/or
consolidation" of the parties to the PSA. There is just a dearth of conclusive
evidence to support such a finding, at least at this point. Consequently, the
statement in the dispositive portion of the assailed August 15, 2005 Order referring
to a merger/consolidation between TRB and BANCOM is deleted.6
Merger and De Facto Merger

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.13

The Corporation Code requires the following steps for merger or consolidation
ndubitably, 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.15 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 Securities and Exchange
Commission (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 Bancommerces
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. Indeed, the dissenting
opinions of Justices Jose Catral Mendoza and Marvic Mario Victor F. Leonen are of the
same opinion. In strict sense, 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.

The dissenting opinion of Justice Mendoza finds, however, that a "de facto" merger
existed between TRB and Bancommerce considering that (1) the P & A Agreement
between them involved substantially all the assets and liabilities of TRB; (2) in an Ex
Parte Petition for Issuance of Writ of Possession filed in a case, Bancommerce
qualified TRB, the petitioner, with the words "now known as Bancommerce;" and (3)
the BSP issued a Circular Letter (series of 2002) advising all banks and non-bank
financial intermediaries that the banking activities and transaction of TRB and
Bancommerce were consolidated and that the latter continued the operations of the

The idea of a de facto merger came about because, prior to the present Corporation
Code, no law authorized the merger or consolidation of Philippine Corporations,
except insurance companies, railway corporations, and public utilities.16 And,
except in the case of insurance corporations, no procedure existed for bringing
about a merger.17 Still, the Supreme Court held in Reyes v. Blouse,18 that authority
to merge or consolidate can be derived from Section 28 (now Section 40) of the
former Corporation Law which provides, among others, that a corporation may "sell,
exchange, lease or otherwise dispose of all or substantially all of its property and
assets" if the board of directors is so authorized by the affirmative vote of the
stockholders holding at least two-thirds of the voting power. The words "or
otherwise dispose of," according to the Supreme Court, is very broad and in a
sense, covers a merger or consolidation.

But the facts in Reyes show that the Board of Directors of the Corporation being
dissolved clearly intended to be merged into the other corporations. Said this Court:

It is apparent that the purpose of the resolution is not to dissolve the [company] 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 [company] 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 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 phrase] "or otherwise dispose of" is very broad and in a sense
covers a merger or consolidation."19

In his book, Philippine Corporate Law,20 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." (Emphasis supplied)

No de facto merger took place in the present case simply because the TRB owners
did not get in exchange for the banks assets and liabilities an equivalent value in
Bancommerce shares of stock. Bancommerce and TRB agreed with BSP approval to
exclude from the sale the TRBs contingent judicial liabilities, including those owing
to RPN, et al.21

The Bureau of Internal Revenue (BIR) treated the transaction between the two
banks purely as a sale of specified assets and liabilities when it rendered its
opinion22 on the tax consequences of the transaction given that there is a
difference in tax treatment between a sale and a merger or consolidation.

Indubitably, since the transaction between TRB and Bancommerce was neither a
merger nor a de facto merger but a mere "sale of assets with assumption of
liabilities," the next question before the Court is whether or not the RTC could
regard Bancommerce as RPN, et al.s judgment debtor.

It is pointed out that under common law,23 if one corporation sells or otherwise
transfers all its assets to another corporation, the latter is not liable for the debts
and liabilities of the transferor if it has acted in good faith and has paid adequate
consideration for the assets, except: (1) where the purchaser expressly or impliedly
agrees to assume such debts; (2) where the transaction amounts to a consolidation
or merger of the corporations; (3) where the purchasing corporation is merely a
continuation of the selling corporation; and (4) where the transaction is entered into
fraudulently in order to escape liability for such debts.24

But, in the first place, common law has no application in this j

Indeed, what was "consolidated" per the above letter was the banking activities and
transactions of Bancommerce and TRB, not their corporate existence. The BSP did
not remotely suggest a merger of the two corporations. What controls the
relationship between those corporations cannot be the BSP letter circular, which had
been issued without their participation, but the terms of their P & A Agreement that
the BSP approved through its Monetary Board.


On 18 September 1961, the Robes-Francisco Realty & Development Corporation

(RFRDC) secured a loan from the Republic Planters Bank. As part of the proceeds of
the loan, preferred shares of stocks were issued to RFRDC through its officers then,
Adalia F. Robes and Carlos F. Robes. In other words, instead of giving the legal
tender totaling to the full amount of the loan, which is P120,000.00, the Bank lent
such amount partially in the form of money and partially in the form of stock
certificates numbered 3204 and 3205, each for 400 shares with a par value of
P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock
certificates were in the name of Adalia F. Robes and Carlos F. Robes, who
subsequently, however, endorsed his shares in favor of Adalia F. Robes. Said
certificates of stock had the following terms and conditions: "The Preferred Stock
shall have the following rights, preferences, qualifications and limitations, to wit: 1.
Of the right to receive a quarterly dividend of 1%, cumulative and participating. 2.
That such preferred shares may be redeemed, by the system of drawing lots, at any
time after 2 years from the date of issue at the option of the Corporation."

On 31 January 1979, RFRDC and Robes proceeded against the Bank and filed a
complaint anchored on their alleged rights to collect dividends under the preferred
shares in question and to have the bank redeem the same under the terms and
conditions of the stock certificates. The bank filed a Motion to dismiss which was
subsequently denied by the trial court.

On 7 September 1979, the trial court rendered a decision in favor of RFRDC and
Robes; ordering the bank to pay RFRDC and Robes the face value of the stock
certificates as redemption price, plus 1% quarterly interest thereon until full
payment. Hence, this petition.

Whether the bank can be compelled to redeem the preferred shares issued to
RFRDC and Robes.

Whether RFRDC and Robes are entitled to the payment of certain rate of
interest on the stocks as a matter of right without necessity of a prior declaration of


While the stock certificate does allow redemption, the option to do so was clearly
vested in the bank. The redemption therefore is clearly the type known as
"optional". Thus, except as otherwise provided in the stock certificate, the
redemption rests entirely with the corporation and the stockholder is without right
to either compel or refuse the redemption of its stock. Furthermore, the terms and
conditions set forth therein use the word "may". It is a settled doctrine in statutory
construction that the word "may" denotes discretion, and cannot be construed as
having a mandatory effect. The redemption of said shares cannot be allowed. The
Central Bank issued an order to the petitioner bank prohibiting it from redeeming
any preferred share, on the ground that said redemption would reduce its assets to
the prejudice of its depositors and creditors. Redemption of preferred shares was
prohibited for a just and valid reason. The directive issued by the Central Bank
Governor was obviously meant to preserve the status quo, and to prevent the
financial ruin of a banking institution that would have resulted in adverse
repercussions, not only to its depositors and creditors, but also to the banking
industry as a whole. The directive, in limiting the exercise of a right granted by law
to a corporate entity, may thus be considered as an exercise of police power.

Both Section 16 of the Corporation Law and Section 43 of the present Corporation
Code prohibit the issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds(2/3) of the outstanding capital
stock at a regular or special meeting duly called for the purpose. These provisions
underscore the fact that payment of dividends to a stockholder is not a matter of
right but a matter of consensus. Furthermore, "interest bearing stocks", on which
the corporation agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring payment of interest
as dividends from net earnings or surplus only. Hence, the respondents are not, as a
matter of right, entitled to the payment of interest.



The evidence presented by the respondents through the testimony of Marife O.

Nio, shows that she is the daughter of Francisca Ocfemia and the late Renato
Ocfemia who died on July 23, 1994. The parents of her father, Renato Ocfemia, were
Juanita Arellano Ocfemia and Felicisimo Ocfemia.

Marife O. Nio knows the five (5) parcels of land which are located in Bombon,
Camarines Sur and that they are the ones possessing them which were originally
owned by her grandparents. During the lifetime of her grandparents, respondents
mortgaged the said five (5) parcels of land and two (2) others to the Rural Bank of

The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to
redeem the mortgaged properties consisting of 7 parcels of land and so the
mortgage was foreclosed and thereafter ownership thereof was transferred to the
bank. Out of the 7 parcels that were foreclosed, 5 of them are in the possession of
the respondents because these 5 parcels of land were sold by the bank to the
parents of Marife O. Nio as evidenced by a Deed of Sale executed in January 1988.

The aforementioned 5 parcels of land subject of the deed of sale, have not been,
however transferred in the name of the parents of Merife O. Nio after they were
sold to her parents by the bank because according to the Assessor's Office the five
(5) parcels of land, subject of the sale, cannot be transferred in the name of the
buyers as there is a need to have the document of sale registered with the Register
of Deeds of Camarines Sur.

In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines
Sur with the Deed of Sale in order to have the same registered. The Register of
Deeds, however, informed her that the document of sale cannot be registered
without a board resolution of the Bank. Marife Nio then went to the bank, showed
to it the Deed of Sale, the tax declaration and receipt of tax payments and
requested the bank for a board resolution so that the property can be transferred to
the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the
father of the other respondents having died already.

Despite several requests, the bank refused her request for a board resolution and
made many alibis. She was told that the bank had a new manager and it had no
record of the sale.

Whether the board of directors of a rural banking corporation be compelled to
confirm a deed of absolute sale of real property which deed of sale was executed by
the bank manager without prior authority of the board of directors of the rural
banking corporation


Yes, the board of directors can be compelled to confirm a deed of absolute sale
even though the bank manager executed such deed without prior authority from the
banking corporation.

The Supreme Court ruled that the bank acknowledged, by its own acts or failure to
act, the authority of the manager to enter into binding contracts. After the execution
of the Deed of Sale, respondents occupied the properties in dispute and paid the
real estate taxes due thereon. If the bank management believed that it had title to
the property, it should have taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.

In this light, the bank is estopped from questioning the authority of the bank
manager to enter into the contract of sale. If a corporation knowingly permits one of
its officers or any other agent to act within the scope of an apparent authority, it
holds the agent out to the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with it through such
agent, be estopped from denying the agent's authority.

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale.
Accordingly, it has a clear legal duty to issue the board resolution sought by
respondents. Having au