G.R. No.

177066

September 11, 2009

JOSELITO MUSNI PUNO (as heir of the late Carlos Puno), Petitioner,
vs.
PUNO ENTERPRISES, INC., represented by JESUSA PUNO, Respondent.
DECISION
NACHURA, J.:
Upon the death of a stockholder, the heirs do not automatically become stockholders of the
corporation; neither are they mandatorily entitled to the rights and privileges of a stockholder. This,
we declare in this petition for review on certiorari of the Court of Appeals (CA) Decision 1 dated
October 11, 2006 and Resolution dated March 6, 2007 in CA-G.R. CV No. 86137.
The facts of the case follow:
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. 2
Respondent filed a motion to dismiss on the ground that petitioner did not have the legal personality
to sue because his birth certificate names him as "Joselito Musni Muno." Apropos, there was yet a
need for a judicial declaration that "Joselito Musni Puno" and "Joselito Musni Muno" were one and
the same.
The court ordered that the proceedings be held in abeyance, ratiocinating that petitioner’s certificate
of live birth was no proof of his paternity and relation to Carlos L. Puno.
Petitioner submitted the corrected birth certificate with the name "Joselito M. Puno," certified by the
Civil Registrar of the City of Manila, and the Certificate of Finality thereof. To hasten the disposition
of the case, the court conditionally admitted the corrected birth certificate as genuine and authentic
and ordered respondent to file its answer within fifteen days from the order and set the case for
pretrial.3
On October 11, 2005, the court rendered a Decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering Jesusa Puno and/or Felicidad Fermin to allow
the plaintiff to inspect the corporate books and records of the company from 1962 up to the present
including the financial statements of the corporation.
The costs of copying shall be shouldered by the plaintiff. Any expenses to be incurred by the
defendant to be able to comply with this order shall be the subject of a bill of costs.
SO ORDERED.4

On appeal, the CA ordered the dismissal of the complaint in its Decision dated October 11, 2006.
According to the CA, petitioner was not able to establish the paternity of and his filiation to Carlos L.
Puno since his birth certificate was prepared without the intervention of and the participatory
acknowledgment of paternity by Carlos L. Puno. Accordingly, the CA said that petitioner had no right
to demand that he be allowed to examine respondent’s books. Moreover, petitioner was not a
stockholder of the corporation but was merely claiming rights as an heir of Carlos L. Puno, an
incorporator of the corporation. His action for specific performance therefore appeared to be
premature; the proper action to be taken was to prove the paternity of and his filiation to Carlos L.
Puno in a petition for the settlement of the estate of the latter.5
Petitioner’s motion for reconsideration was denied by the CA in its Resolution 6 dated March 6, 2007.
In this petition, petitioner raises the following issues:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE JOSELITO PUNO
IS ENTITLED TO THE RELIEFS DEMANDED HE BEING THE HEIR OF THE LATE CARLOS
PUNO, ONE OF THE INCORPORATORS [OF] RESPONDENT CORPORATION.
II. HONORABLE COURT OF APPEALS ERRED IN RULING THAT FILIATION OF JOSELITO
PUNO, THE PETITIONER[,] IS NOT DULY PROVEN OR ESTABLISHED.
III. THE HONORABLE COURT ERRED IN NOT RULING THAT JOSELITO MUNO AND JOSELITO
PUNO REFERS TO THE ONE AND THE SAME PERSON.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT
RESPONDENT MERELY DISPUTES IS THE SURNAME OF THE PETITIONER WHICH WAS
MISSPELLED AND THE FACTUAL ALLEGATION E.G. RIGHTS OF PETITIONER AS HEIR OF
CARLOS PUNO ARE DEEMED ADMITTED HYPOTHETICALLY IN THE RESPONDENT[’S]
MOTION TO DISMISS.
V. THE HONORABLE COURT OF APPEALS THEREFORE ERRED I[N] DECREEING THAT
PETITIONER IS NOT ENTITLED TO INSPECT THE CORPORATE BOOKS OF DEFENDANT
CORPORATION.7
The petition is without merit. Petitioner failed to establish the right to inspect respondent
corporation’s books and receive dividends on the stocks owned by Carlos L. Puno.
Petitioner anchors his claim on his being an heir of the deceased stockholder. However, we agree
with the appellate court that petitioner was not able to prove satisfactorily his filiation to the deceased
stockholder; thus, the former cannot claim to be an heir of the latter.
Incessantly, we have declared that factual findings of the CA supported by substantial evidence, are
conclusive and binding.8 In an appeal via certiorari, the Court may not review the factual findings of
the CA. It is not the Court’s function under Rule 45 of the Rules of Court to review, examine, and
evaluate or weigh the probative value of the evidence presented. 9
A certificate of live birth purportedly identifying the putative father is not competent evidence of
paternity when there is no showing that the putative father had a hand in the preparation of the
certificate. The local civil registrar has no authority to record the paternity of an illegitimate child on
the information of a third person.10 As correctly observed by the CA, only petitioner’s mother supplied

except as between the parties. until the transfer is recorded in the books of the corporation. the heirs stand as the equitable owners of the stocks. 74. which shall include a balance sheet as of the end of the last taxable year and a profit or loss of statement for said taxable year. even if petitioner presents sufficient evidence in this case to establish that he is the son of Carlos L. 75. showing in reasonable detail its assets and liabilities and the result of its operations. There was no evidence that Carlos L. thus — Sec. only stockholders of record are entitled to receive dividends declared by the corporation. Puno acknowledged petitioner as his son. This would only be possible if petitioner has been recognized as an heir and has participated in the settlement of the estate of the deceased. .15 1avvphi1 Upon the death of a shareholder. it is the administrator or executor who is entitled to exercise the rights of the deceased as stockholder.18 Consequently. stockholder or member of the corporation at reasonable hours on business days and he may demand. Books to be kept. — x x x. he would still not be allowed to inspect respondent’s books and be entitled to receive dividends from respondent. trustee.11 In any case. Puno. the stocks of the decedent are held by the administrator or executor. Section 63 of the Corporation Code provides that no transfer shall be valid. The stocks must be distributed first to the heirs in estate proceedings.14 Similarly. The records of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director.16 During such interim period. absent any showing in its transfer book that some of the shares owned by Carlos L. we have already decreed that it can only serve as evidence of the administration of the sacrament on the date specified but not of the veracity of the entries with respect to the child’s paternity. the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholder of the corporation. Thus.17 Until a settlement and division of the estate is effected. stock transfer agent. Puno were transferred to him. — Within ten (10) days from receipt of a written request of any stockholder or member. the corporation shall furnish to him its most recent financial statement. the executor or administrator duly appointed by the court being vested with the legal title to the stock.the data in the birth certificate and signed the same. xxxx Sec. a right inherent in the ownership of the shares. Right to financial statements.12 The stockholder’s right of inspection of the corporation’s books and records is based upon his ownership of shares in the corporation and the necessity for self-protection. a shareholder has the right to be intelligently informed about corporate affairs. Sections 74 and 75 of the Corporation Code enumerate the persons who are entitled to the inspection of corporate books.13 Such right rests upon the stockholder’s underlying ownership of the corporation’s assets and property. in writing. and the transfer of the stocks must be recorded in the books of the corporation. As for the baptismal certificate. at his expense. After all. during such time. for a copy of excerpts from said records or minutes.

2006 and Resolution dated March 6. The Court of Appeals Decision dated October 11.Corollary to this is the doctrine that a determination of whether a person. the petition is DENIED. Philippine National Bank . claiming proprietary rights over the estate of a deceased person. is an heir of the deceased must be ventilated in a special proceeding instituted precisely for the purpose of settling the estate of the latter.19 The doctrine applies to the instant case. SO ORDERED. WHEREFORE. which is one for specific performance — to direct respondent corporation to allow petitioner to exercise rights that pertain only to the deceased and his representatives. 2007 are AFFIRMED. The status of an illegitimate child who claims to be an heir to a decedent’s estate cannot be adjudicated in an ordinary civil action. Gonzales vs PNB Case Digest Gonzales vs. as in a case for the recovery of property. premises considered.

requesting submission to look into the records of its transactions covering the purchase of a sugar central by the Southern Negros Development Corp. Whether the inspection sought to be exercised by Gonzales would be violative of the provisions of PNB's charter. Inc. the Commissioner of Public Highways. as amended. Continental Ore Phil. to be financed by Japanese suppliers and financiers. must be asked for in good faith for a specific and honest purpose and not gratify curiosity or for speculative or vicious purposes. or Saravia. Civil Case 71044 versus the Board of Directors of the Bank. Subsequent to his aforementioned acquisition of one share of stock of the Bank. 2. On January 23... Huber Corporation. 30 May 1983] Facts: Ramon A. filed the following cases involving the bank or the members of its Board of Directors to wit: (1) On 18 October 1967. The argument of Gonzales that the right granted to him under Section 51 of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of the books of PNB loses whatever validity it might have had before the amendment of the law. Inc. on the following day. the personality of Gonzales to sue the bank and question the letters of credit it has extended for the importation by the Republic of the Philippines of public works equipment intended for the massive development program of the President was raised.. Passi (Iloilo) Sugar Central. Safary Central. by Gonzales as a taxpayer versus Sec. The unqualified provision on the right of inspection previously contained in Section 51. however. 1969. Calinog-Lambunao Sugar Mill Integrated Farming. 30 August 1967. Inc. In view thereof.. as amended. but is limited to purposes reasonably related to the interest of the stockholder. Talog sugar Milling Co. Gonzales filed the petition for review. Ponce. its financing of the Cebu-Mactan Bridge to be constructed by V. in light of his ownership of one share in the bank. no longer holds true under the provisions of the present law. Gonzales instituted the petition for mandamus. Vice President and Legal Counsel of the Bank answered petitioner's letter denying his request for being not germane to his interest as a one share stockholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. and the construction of the Passi Sugar Mills in Iloilo.. Allis Chalmers and General Motors Corporation.[GR L-33320. First among them is Civil Case 69345 filed on 27 April 1967. Inc. If there is any doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of . the National Investment and Development Corp. Gonzales. Dev.. RA 1300. was transferred in his name in the books of the Bank. Act No.. Continental Ore.C. Inc.. Issue: 1. The Court of First Instance of Manila denied the prayer of Gonzales that he be allowed to examine and inspect the books and records of PNB regarding the transactions mentioned on the grounds that the right of a stockholder to inspect the record of the business transactions of a corporation granted under Section 51 of the former Corporation Law (Act No. (2) On 11 May 1968. Civil Case 72936 versus Roberto Benedicto and other Directors of the Bank.. Marubeni Iida Co. Inc. the Bank. Antonio Raquiza of Public Works and Communications. in his dual capacity as a taxpayer and stockholder. the Asst. and Batangas Sugar Central Inc. and (3) On 8 May 1969. Gonzales initially instituted several cases in the Supreme Court questioning different transactions entered into by the Bank with other parties. Whether Gonzales' can ask for an examination of the books and records of PNB. In the course of the hearing of said case on 3 August 1967. that such examination would violate the confidentiality of the records of the bank as provided in Section 16 of its charter. 1459.. In view of the Bank's refusal. Gonzales addressed a letter to the President of the Bank. On 11 January 1969. Held: 1.. 1459. and Agro-Inc. as amended) is not absolute. and that Gonzales has not exhausted his administrative remedies. Co. he expressed and made known his intention to acquire one share of stock from Congressman Justiniano Montano which. Ltd. Civil Case 76427 versus Alfredo Montelibano and the Directors of both the PNB and DBP.

Admittedly he sought to be a stockholder in order to pry into transactions entered into by the PNB even before he became a stockholder. Section 30 of the same provides that "Penalties for violation of the provisions of this Act. shall not reveal to any person other than the President of the Philippines. — The National Bank shall be subject to inspection by the Department of Supervision and Examination of the Central Bank. . officer.the old Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same. or both such fine and imprisonment. as amended) provides that "Inspection by Department of Supervision and Examination of the Central Bank. as a rule. or agent of the Bank." Section 16 thereof provides that "Confidential information. it is not governed." The Philippine National Bank is not an ordinary corporation. it is now dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Bilang 68. shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years. that the right of inspection under Section 74 of the new Corporation Code may apply in a supplementary capacity to the charter of the PNB. employee. The circumstances under which he acquired one share of stock in the PNB purposely to exercise the right of inspection do not argue in favor of his good faith and proper motivation." On the other hand. and the Board of Directors the details of the inspection or investigation. corporations. Section 15 of the PNB's Charter (RA 1300. The provision of Section 74 of Batas Pambansa Blg. or other officers designated by law to inspect or investigate the condition of the National Bank. the Secretary of Finance. who violates or permits the violation of any of the provisions of this Act. — The Superintendent of Banks and the Auditor General. except to satisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. 2. except by order of a Court of competent jurisdiction. — Any director. or any other entity. he has not set forth the reasons and the purposes for which he desires such inspection. 68 of the new Corporation Code with respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled with the above quoted provisions of the charter of the PNB. its current accounts or deposits belonging to private individuals. Although Gonzales has claimed that he has justifiable motives in seeking the inspection of the books of the PNB. by the Corporation Code of the Philippines. nor shall they give any information relative to the funds in its custody. It is not correct to claim. His obvious purpose was to arm himself with materials which he can use against the PNB for acts done by the latter when Gonzales was a total stranger to the same. Having a charter of its own. therefore. but it could not be said that his purpose is germane to his interest as a stockholder. or any person aiding or abetting the violations of any of the provisions of this Act. He could have been impelled by a laudable sense of civic consciousness.

80. most of which were partially paid by PASUMIL. NASUDECO and PASUMIL. allegedly failed and refused to pay AEEC their just.724. PASUMIL had paid only P250. valid and demandable obligation (The President of the NASUDECO is also the Vice-President of the PNB. Issue: Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to AEEC. and now NASUDECO.PNB vs. 3 reinforced concrete foundation for the 5.000. Andrada Electric & Engineering Co. to whom AEEC agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of attorney's fees.80. and provide electrical equipment and spare parts. amounting to P527. leaving an unpaid balance. the latter being ordered to pay jointly and severally the former (1) the sum of P513. The corporate veil may be lifted only if it has been used to shield fraud. PASUMIL made a partial payment to AEEC of P14. as well as the engineering and repairs.80. PASUMIL required AEEC to perform extra work.250 KW turbo generator sets. Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control — not mere stock control. to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills. insulate bad faith or perpetuate injustice. justify a wrong.623. among others. On 29 October 1971.80 plus interest thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid. will not make PNB liable for the PASUMIL's contractual debts to Andrada Electric & Engineering Company (AEEC).000. and these defendants all benefited from the works. (2) the sum of P102. [GR 142936. AEEC allegedly suffered actual damages in the total amount of P513.263.80. PASUMIL and/or NASUDECO to pay their obligations. in broken amounts. and the electrical. performed by AEEC). covering the period from 5 January 1974 up to 23 May 1974. (3) Costs. Thus. The Court of Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. leaving an unpaid balance of P513.Case Digest Philippine National Bank vs. defeat public convenience. The PNB organized the ational Sugar Development Corporation (NASUDECO) in September 1975. Prior to 29 October 1971. the Trial Court rendered judgment in favor of AEEC and against PNB. the Philippine national Bank (PNB) acquired the assets of the Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI 311. AEEC besought said official to pay the outstanding obligation of PASUMIL. PASUMIL and PNB. PASUMIL engaged the services of the Andrada Electric & Engineering Company (AEEC) for electrical rewinding and repair.000 KW and 1.76 as attorney's fees.263. defend crime. 17 April 2002] Facts: On 26 August 1975. PNB and NASUDECO filed the petition for review. Out of said unpaid balance of P527. Out of the total obligation of P777. and that in order to recover these sums. but complete domination — not only . After due proceedings. Andrada Electric & Engineering Co. PNB and NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to state sufficient allegations to establish a cause of action against PNB and NASUDECO. AEEC and PASUMIL entered into a contract for AEEC to perform the (a) Construction of a power house building.263. and. inasmuch as PNB and NASUDECO now owned and possessed the assets of PASUMIL. leaving several unpaid accounts with AEEC. Because of the failure and refusal of PNB. Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. as of 27 June 1973. AEEC was compelled to engage the professional services of counsel. the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL). and ordered PNB nad NASUDECO to file their answers within 15 days.00.263. 3 reinforced concrete foundation for 3 units 350 KW diesel engine generating sets. which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the Philippines (DBP).263.80. inasmuch as there is lack or want of privity of contract between the them and AEEC.00. Aside from the work contract. PNB and NASUDECO appealed. Said motion was denied by the trial court in its 27 November order.

Neither did PNB expressly or impliedly agree to assume the debt of PASUMIL to AEEC. PASUMIL's corporate existence had not been legally extinguished or terminated. Further. Clearly. As of 27 June 1973. Hence. the corporate separateness between PASUMIL and PNB remains. another P14. PASUMIL had previously made partial payments to AEEC for the former's obligation in the amount of P777. and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. from 5 January 1974 to 23 May 1974. Third. First. other than the fact that PNB and NASUDECO acquired the assets of PASUMIL. the transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for its debt to AEEC. AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets of PASUMIL. but of policy and business practice in respect to the transaction attacked. Neither was there any merger or consolidation with respect to PASUMIL and PNB.80. there is no evidence that their juridical personality was used to commit a fraud or to do a wrong. must have been such that the corporate entity as to this transaction had at the time no separate mind. PASUMIL had paid P250.000 to AEEC and. will or existence of its own.000. or that the separate corporate entity was farcically used as a mere alter ego.263.of finances. Second. The procedure prescribed under Title IX of the Corporation Code 59 was not followed. (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty. business conduit or instrumentality of another entity or person. LOI 11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMIL's creditors. . although the assets of NASUDECO can be easily traced to PASUMIL. or a dishonest and an unjust act in contravention of plaintiff's legal right. despite AEEC's insistence to the contrary. there is no showing that their control over it warrants the disregard of corporate personalities. The absence of the foregoing elements in the present case precludes the piercing of the corporate veil. In fact. prior to PNB's acquisition of the foreclosed assets.

DST-99-00-000049 dated September 11. Makati City. issued by the CIR demanding payment of the amount of P41. BANK OF COMMERCE. the power to decide. 228 of the Tax Code. 180529 November 13. with principal office address at 12th Floor. Respondent is the Commissioner of the Bureau of Internal Revenue [(CIR)]. [BOC] and Traders Royal Bank (TRB) executed a Purchase and Sale Agreement whereby it stipulated the TRB’s desire to sell and the BOC’s desire to purchase identified recorded assets of TRB in consideration of BOC assuming identified recorded liabilities. 2002. addressed to "TRADERS ROYAL BANK (now Bank of Commerce)".T.R. vs. [BOC] received copies of the Formal Letter of Demand and Assessment Notice No. No. [TRB] filed its protest letter contesting the Formal Letter of Demand and Assessment Notice No. 1 2 3 4 The facts of the case.Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.887. 2002. 3. 5 5. 2001. DST-99-00-000049 dated September 11. 2013 COMMISSIONER OF INTERNAL REVENUE. including. pursuant to Sec. cancel and abate tax liabilities pursuant to Section 244(B) of the Tax Code. Petitioner. Under the Purchase and Sale Agreement.467. [Bank of Commerce (BOC)] is a banking corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. among others. DECISION LEONARDO-DE CASTRO. 2. Respondent. as stipulated by the parties are as follows: 1.A. duly appointed to perform the duties of his office. 259. . BOC and TRB shall continue to exist as separate corporations with distinct corporate personalities. as deficiency documentary stamp taxes (DST) on Special Savings Deposit (SSD) account of TRB for taxable year 1999. 6764 Ayala Avenue. J. On November 9. are sought to be nullified and set aside. 2002. EB No. otherwise known as the ‘Tax Reform Act’ ("TRA") of 1997. 2002. as amended by Republic Act ("RA" No. 6.51. On September 27. Bankers Centre Building. 4. On October 11.) 8424.: This is a Petition (or Review on Certiorari filed by the Commissioner of Internal Revenue (CIR) wherein the September 17 2007 Amended Decision and November 15 2007 Resolution of the Court of Tax Appeals En Bane (CTA) in C.

R. 2. B.51. otherwise. is subject to DST. plus interest that have accrued thereon until the actual date of payment.887. it could not be raised for the first time on appeal. 8 In support of the first issue. 10 As for BOC’s liability. adducing the following grounds: 12 13 14 THE HOLDING OF THE HONORABLE SECOND DIVISION THAT [BOC] IS DEEMED TO HAVE ADMITTED THAT IT IS THE PROPER PARTY ASSESSED BY THE [CIR] BECAUSE IT DID NOT RAISE THE ISSUE OF MERGER IN THE LETTER OF PROTEST FILED WITH . Whether TRB’s [SSD] Accounts for taxable year 1999 is subject to [DST]. the CTA 2nd Division dismissed the petition for lack of merit. within thirty (30) days from receipt hereof. Consequently. 2007. The CTA 2nd Division also noted how BOC "actively participated in the proceedings before the administrative body without questioning the legitimacy of the proper party in interest. 9 Ruling of the CTA 2nd Division In a Decision dated August 31. BOC filed a Petition for Review before the CTA En Banc. Diliman. to the Large Taxpayers Service.442. Whether [BOC] can be held liable for [TRB]’s alleged deficiency [DST] liability on [its SSD] Accounts for taxable year 1999 in the amount of P41. BOC called the attention of the CTA 2nd Division to the fact that as stated in Article III of the Purchase and Sale Agreement.7.51. Traders Royal Bank (now Bank of Commerce) is hereby ordered to pay the above-stated amount. [BOC] received the Decision dated March 22. 2002. the CTA 2nd Division said that since the issue of non-merger between BOC and TRB was not raised in the administrative level. in view of all the foregoing. The last two paragraphs of the Decision stated that: "WHEREFORE.I. Quezon City. DST-99-00-000049 demanding payment of the amount of P41. BOC emphasized that there was no merger between it and TRB as it only acquired certain assets of TRB in return for its assumption of some of TRB’s liabilities.51.442. 2006. On March 31. inclusive of penalties.887. This constitutes the Final Decision of this Office on the matter. 2004 denying the protest filed by [TRB] on October 11. the Bank of Commerce (BOC) filed a Petition for Review.467. the issues before the CTA 2nd Division were: 1. which under the then Section 180 of the National Internal Revenue Code (NIRC). it and Traders Royal Bank (TRB) continued to exist as separate corporations with distinct corporate personalities. National Office Building." 11 When its Motion for Reconsideration was denied on January 8. It held that the Special Savings Deposit (SSD) account in issue is subject to DST because its nature and substance are akin to that of a certificate of deposit bearing interest. Assessment Notice No.887. as deficiency stamp tax for the taxable year 1999 is hereby MODIFIED AND/OR REDUCED to P41. assigned to the CTA 2nd Division. 2004. 7 As also stipulated by the parties." 6 On April 30. 2004. collection thereof shall be effected through the summary remedies provided by law. praying that it be held not liable for the subject Documentary Stamp Taxes (DST).

the CTA En Banc affirmed the CTA 2nd Division’s Decision and Resolution. positing the following grounds for reconsideration: 20 I There was no merger between [BOC] and [TRB] as already decided by this Honorable Court in a decision dated 18 June 2007. which though may be withdrawn anytime. Commissioner of Internal Revenue. The CTA En Banc added that it would not be unfair to hold BOC liable for the subject DST as TRB constituted an Escrow Fund in the amount of Fifty Million Pesos (P50. the CTA En Banc said that the CTA 2nd Division was correct when it deemed TRB’s SSD accounts to be certificates of deposit bearing interest. held that BOC was liable for the DST on the subject SSD accounts.THE [CIR] IS WITHOUT BASIS AND VIOLATES ELEMENTARY RULES OF DUE PROCESS. earned a higher rate of interest when kept in the bank for a specified number of days. III The [CIR]’s decision holding [BOC] liable for TRB’s tax liability is void since [BOC] was not a party to the proceedings before the [CIR]. subject to DST under Section 180 of the NIRC. 21 .] II [BOC] could not have raised the issue of non-merger of [BOC] and [TRB] in the proceedings before the [CIR] because it was never a party to the proceedings before the [CIR]. in its Petition for Review before the CTA 2nd Division and Pre-Trial Brief. 2007 Decision. as they involved deposits. 15 Ruling of the CTA En Banc on BOC’s Petition for Review On June 27. Contrary to the Court’s findings. 2007. which are excluded from the Agreement. ruling that BOC was liable for the DST on TRB’s SSD accounts. while stating that it was TRB that filed the protest letter. agreeing with the decision of the CTA 2nd Division. hence [BOC] cannot be held liable for the tax liability of [TRB. The CTA En Banc also noted that BOC was inconsistent in its position. BOC filed before the CTA En Banc a Motion for Reconsideration of its June 27.000.000. in its Joint Stipulation of Facts and Issues. THE HONORABLE SECOND DIVISION ERRED IN HOLDING THAT TRB’S SSD ACCOUNTS FOR TAXABLE YEAR 1999 ARE SUBJECT TO [DST] UNDER THEN SECTION 180 OF THE TAX CODE. the issue of non-merger is no longer an issue but a fact stipulated by both parties.00) to answer for all claims against TRB. 17 18 Proceeding then to what it considered to be the pivotal issue. the CTA En Banc. for claiming that it was the one that filed the protest letter with the BIR. 19 Undaunted. 16 Citing this Court’s decision in International Exchange Bank v.

Court of Appeals. 2007 Decision on the issue of merger between BOC and TRB. the CTA En Banc said that while it did not make a categorical ruling in its June 27. Case No. in this wise: "The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs. 2006 wherein the CIR expressly recognized the fact that the Purchase and Sale Agreement between BOC and TRB did not result in their merger. is accorded great respect and ordinarily controls the construction of the courts. it also relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. 2007.442.887. in its Amended Decision. [BOC]’s Motion for Reconsideration is hereby GRANTED. (Citation omitted. 2007. vs. 6975 is SET ASIDE and a new one is hereby ENTERED finding petitioner Bank of Commerce NOT LIABLE for the amount ofP41.A. We have no reason to disregard the interpretation made by the Commissioner as it is in accord with the aforementioned Resolution of the First Division. reversed itself and ruled that BOC could not be held liable for the deficiency DST of TRB on its SSD accounts. Moreover. 2007 is REVERSED. by simply inserting its name beside TRB’s in the motion for execution.Ruling of the CTA En Banc on BOC’s Motion for Reconsideration On September 17. Elaborating on this point the CTA En Banc said: 26 27 By practice. primarily on the ground that there was no merger between BOC and TRB. a BIR ruling contains the official written interpretative opinion of the Commissioner of Internal Revenue addressed to a particular taxpayer regarding his taxability over certain matters. involved a deficiency DST assessment against TRB on its SSD accounts. the CTA 1st Division did in its June 18. 23 The Traders Royal Bank case.T. which was not a party to the case. Commissioner of Internal Revenue. the CTA En Banc. the CIR filed a Motion for Reconsideration praying that BOC be held liable for the deficiency DST of TRB on its SSD accounts for taxable year 1999. albeit for taxable years 1996 and 1997. entitled Traders Royal Bank v. 10-2006 dated October 6. just like the case at bar. The Decision in the case at bar promulgated on June 27. BOC filed a Motion to Quash (By Way of Special Appearance) with the CTA 1st Division.T. In support of its motion. 2007 Decision. Inc. The reason behind this rule was explained in Nestle Philippines.A. Case No. 6392. 22 In its Amended Decision. When the CIR attempted to implement a writ of execution against BOC. well-settled is the rule that the interpretation of an administrative government agency like the BIR. the CIR presented the following arguments: 29 . Here. which the CTA 1st Division granted in a Resolution on June 18. 25 The CTA En Banc also gave weight to BIR Ruling No. The appealed Decision in C.51 representing the assessment of deficiency Documentary Stamp Tax on the Special Savings Deposit accounts of Traders Royal Bank for taxable year 1999. 24 With the foregoing ruling. The dispositive portion of the CTA En Banc ’s Amended Decision reads: WHEREFORE.) 28 With the reversal of the CTA En Banc ’s June 27. 2007 Resolution in C. the CTA En Banc declared that BOC could not be held liable for the deficiency DST assessed on TRB’s SSD accounts for taxable year 1999 in the interest of substantial justice and to be consistent with the CTA 1st Division’s Resolution in the Traders Royal Bank case.

that BOC could not be held liable for the deficiency DST on the SSD accounts of TRB. the CIR is now before this Court. the CTA En Banc denied the motion for lack of merit. The deficiency Assessment of TRB can be enforced and collected against [BOC]. even though not previously raised in the administrative level.[BOC] is estopped from raising the issue that it is not the party held liable for Trader[s] Royal Bank (TRB)’s deficiency DST assessment because it was not a party to the proceeding before [the] Bureau of Internal Revenue (BIR). which found BOC liable for the subject DST. THE DEFICIENCY ASSESSMENT OF TRADERS ROYAL BANK (TRB) CAN BE ENFORCED AND COLLECTED AGAINST RESPONDENT BANK OF COMMERCE (BOC) BECAUSE THE LATTER ASSUMED THE OBLIGATIONS AND LIABILITIES OF TRB PURSUANT TO THE PURCHASE AND SALE AGREEMENT EXECUTED BETWEEN THEM AND THE APPLICABLE LAW ON MERGER OF CORPORATIONS (SECTION 80 OF THE CORPORATION CODE). II. praying for the reinstatement of the CTA 2nd Division’s August 31. in consonance with the Resolution of the CTA 1st Division in the Traders Royal Bank case. THE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN REVERSING ITS PREVIOUS DECISION WHICH AFFIRMED THE ASSESSMENT AND ENFORCEMENT OF DEFICIENCY . 2007. in the interest of justice. if it finds that their consideration is necessary in arriving at a just decision of the case. 33 The Honorable Court En Banc has no sufficient justification for not considering the Escrow fund in its Amended Decision. 36 With the foregoing disquisition rendering the issue on the Escrow Fund moot. the CTA En Banc found no more reason to discuss it." Thus. 34 On November 15. the CTA En Banc found it necessary to consider and resolve issues. 31 32 The Honorable Court En Banc erred in considering BIR Ruling No. 37 Unsuccessful in its Motion for Reconsideration. 2006 Decision. The CTA En Banc said that the rule that no issue may be raised for the first time on appeal is not a hard and fast rule as "jurisprudence declares that the appellate court is clothed with ample authority to review matters. 10-2006 as basis to justify its conclusion. 10-2006. 30 Issues not raised in the administrative level cannot be raised for the first time on appeal. which has not been shown to have been revoked or nullified by the CIR. 35 The CTA En Banc also reiterated its ruling in its Amended Decision. even if they are not assigned as errors in their appeal. and BIR Ruling No. The CIR posits the following grounds in its Petition for Review: I. if it is necessary for the complete adjudication of the rights and obligations of the parties and it falls within the issues they already identified.

Further. which focused on the taxability of the SSD accounts. 40 This Court’s Ruling The petition is denied for lack of merit. BOC presented in its Comment. explicitly addressed the issue of merge between BOC and TRB. the issue boils down to whether or not BOC is liable for the deficiency DST of TRB for taxable year 1999. II. B. 2006. which included the Purchase and Sale Agreement. 10-2006 THAT THERE WAS NO MERGER BETWEEN THE RESPONDENT AND TRB. The CTA 1st Division. [BOC] claims that the deficiency [DST] amounting . the following grounds in support of its prayer that the CIR’s petition be denied: 39 I. relying on the provisions in both the Purchase and Sale Agreement and the Tax Code. wherein the CTA 1st Division made a categorical pronouncement on the issue of merger based on the evidence at its disposal. THE COURT OF TAX APPEALS EN BANC WAS CORRECT AND DID NOT COMMIT GRAVE ABUSE OF DISCRETION WHEN IT FOUND RESPONDENT NOT LIABLE FOR THE SUBJECT TAX BECAUSE: A. IV. CONTRARY TO LAW AND JURISPRUDENCE. to wit: In the Motion. determined that the agreement did not result in a merger. THE PETITION FOR REVIEW DID NOT RAISE QUESTIONS OF LAW. the CTA En Banc relied on 1) the Resolution in the Traders Royal Bank case. and 2) the CIR’s own administrative ruling on the issue of merger in BIR Ruling No. 2007 issued against it quashed on the ground that it is a separate entity from [TRB]. THE PETITIONER’S DECISION HOLDING RESPONDENT LIABLE FOR TRB’S TAX LIABILITY IS VOID SINCE RESPONDENT WAS NOT A PARTY TO [THE] PROCEEDINGS BEFORE THE PETITIONER. 10-2006 dated October 6. III. 38 In response. In resolving this issue. Unlike the Decision of the CTA 2nd Division in this case.TAXES BY PETITIONER AGAINST RESPONDENT. THE PETITIONER ITSELF RULED AND RENDERED AN OPINION UNDER BIR REVENUE RULING NO. THERE WAS NO MERGER CREATED BETWEEN THE RESPONDENT BANK OF COMMERCE AND TRADERS ROYAL BANK (TRB). the CTA 1st Division’s Resolution in Traders Royal Bank. [BOC] moves to have the Writ of Execution dated March 09. RESPONDENT IS NOT ESTOPPED FROM RAISING THE ISSUE OF NON-MERGER BETWEEN RESPONDENT AND TRB BECAUSE IT WAS NOT A PARTY TO THE PROCEEDINGS BEFORE THE PETITIONER. As the CTA En Banc stated in its Amended Decision. that there was no merger or consolidation between the two entities.

After carefully evaluating the records. to wit: ARTICLE II CONSIDERATION: ASSUMPTION OF LIABILITIES . the Purchase and Sale Agreement does not contain any provision that the [BOC] acquired the identified assets of [TRB] solely in exchange for the latter’s stocks. against [TRB] are excluded from the liabilities to be assumed by the Bank of Commerce (Article II.562. viz: 1. and b) The Bank of Commerce and Traders Royal Bank shall continue to exist as separate corporations with distinct corporate personalities (Article III. Second. while Article II was about the consideration for those assets. Thus.92 for the taxable years 1996 and 1997 of [TRB] was not one of the liabilities assumed by [BOC] in the Purchase and Sale Agreement. it necessarily affirmed the findings of the CTA 1st Division and found them to be correct. the Bank of Commerce is considered an entity separate from petitioner. it cannot be held liable for the payment of the deficiency DST assessed against petitioner. aside from the foregoing. the document that is supposed to have tied BOC and TRB together. paragraph 1). The Purchase and Sale Agreement.698. or (ii) the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock: Provided. Merger is defined under Section 40 (C)(6)(b) of the Tax Code as follows: "b) The term "merger" or "consolidation". it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation: x x x." Since the purchase and sale of identified assets between the two companies does not constitute a merger under the foregoing definition.) 41 Thus. was replete with provisions that clearly stated the intent of the parties and the purpose of its execution. [t]hat for a transaction to be regarded as a merger or consolidation within the purview of this Section. This Court likewise finds the foregoing ruling to be correct. paragraph 2).to P27. a close reading of the Purchase and Sale Agreement shows the following self-explanatory provisions: a) Items in litigation. shall be understood to mean: (i) the ordinary merger or consolidation. both actual and prospective. Moreover. The CTA 1st Division was spot on when it interpreted the Purchase and Sale Agreement to be just that and not a merger. it was explicitly stated that liabilities not included in the Consolidated Statement of Condition were excluded from the liabilities BOC was to assume. (Citation omitted. the [CTA 1st Division] agrees with [BOC] for the following reasons: First. Article I of the Purchase and Sale Agreement set the terms of the assets sold to BOC. when the CTA En Banc took into consideration the above ruling in its Amended Decision. when used in this Section.

Article III of the Purchase and Sale Agreement enumerated in no uncertain terms the effects and consequences of such agreement as follows: ARTICLE III EFFECTS AND CONSEQUENCES The effectivity of this Agreement shall have the following effects and consequences: 1.) 42 2. and 1999. 3. With the transfer of its branching licenses to [BOC] and upon surrender of its commercial banking license to BSP. the CIR insists that BIR Ruling No. provided that the liabilities so assumed shall not include: xxxx 2. 44 The clear terms of the above agreement did not escape the CIR itself when it issued BIR Ruling No.) 43 Moreover. To this end. (Emphases supplied.401. In this petition however. 45 . viz: WHEREAS. both actual and prospective. TRB desires to sell and [BOC] desires to purchase identified recorded assets of TRB in consideration of [BOC] assuming identified recorded liabilities of TRB x x x. [BOC] shall assume identified recorded TRB’s liabilities including booked contingent liabilities as listed and referred to in its Consolidated Statement of Condition as of August 31. against TRB which include but are not limited to the following: xxxx 2. 2001. stated that the sale of TRB’s assets to BOC were in consideration of BOC’s assumption of some of TRB’s liabilities.In consideration of the sale of identified recorded assets and properties covered by this Agreement. which served as the premise for the subsequent terms in the agreement. 10-2006 cannot be used as a basis for the CTA En Banc’s Amended Decision. in the total amount of PESOS: TEN BILLION FOUR HUNDRED ONE MILLION FOUR HUNDRED THIRTY-SIX THOUSAND (P10. TRB shall cause the amendment of its articles and by-laws to delete the terms "bank" and "banking" from its corporate name and purpose. 10-2006. There shall be no employer-employee relationship between [BOC] and the personnel and officers of TRB. [BOC] and TRB shall continue to exist as separate corporations with distinct corporate personalities.436. wherein it was concluded that the Purchase and Sale Agreement did not result in a merger between BOC and TRB. (Emphases supplied. due to BOC’s failure. to inform the CIR of TRB’s deficiency DST assessments for taxable years 1996. Items in litigation. TRB shall exist as an ordinary corporation placed outside the supervisory jurisdiction of BSP. the second whereas clause.3 Other liabilities not included in said Consolidated Statement of Condition. 1997. 2. at the time it requested for such ruling.000.00).

Much have been said that the transaction between TRB and [BOC] is not a merger within the contemplation of Section 40(C)(b) of the Tax Code of 1997. The resolution of the issue on merger depended on the agreement between TRB and BOC. factual evidence on the status of both companies. [BOC] assumed certain liabilities of TRB which were identified in the Consolidated Statement of Condition as of August 31. which stocks are in turn distributed to the stockholders of the absorbed corporation in proportion to the respective share. To reiterate. As such. as detailed in the Purchase and Sale Agreement. The relevant portions of such ruling are quoted below: One distinctive characteristic for a merger to exist under the second part of [Section 40(C)(b) of the 1997 NIRC] is that. in BIR Ruling No. 436. x x x. A perusal of BIR Ruling No. In this wise. As such.The CIR’s contention is untenable. 10-2006 will show that the CIR ruled on the issue of merger without any reference to TRB’s subject tax liabilities. The [Purchase and Sale] Agreement did not mention with respect to the issuance of shares of stock of [BOC] in favor of the stockholders of TRB.000. 2001.) 1âwphi1 xxxx 2.401. 47 . (Emphasis supplied. x x x.00 with some enumerated exclusion in the Agreeement. Such transaction is absent of the requisite of a stock transfer and same belies the existence of a merger. 2001 amounting in all to Ten Billion Four Hundred One Million Four Hundred Thirty-Six Thousand Pesos (P10. Stated differently. the liabilities of TRB assumed by [BOC] were limited only to those already identified as of August 31. and the Tax Code provision on merger. 10-2006. After a careful perusal of the facts presented as well as the details of the instant case. 46 Clearly. this Office has ruled in the foregoing discussion that the transaction is one of sale of assets with assumption of identified recorded liabilities of TRB.000. In consideration thereof.401. The ruling was based on the Purchase and Sale Agreement." xxxx In the case at bar. [BOC] purchased identified recorded assets and properties of TRB. it was explicitly stated that both BOC and TRB continued to exist as separate corporations with distinct corporate personalities. despite the effectivity of the Purchase and Sale Agreement. it is observed by this Office that the transaction was purely concerning acquisition and assumption by [BOC] of the recorded liabilities of TRB. it is not enough for a corporation to acquire all or substantially all the properties of another corporation but it is also necessary that such acquisition is solely for stock of the absorbing corporation. It is worthy to note that in the Joint Stipulation of Facts and Issues submitted by the parties. liabilities that were not assumed by [BOC] should not be enforced against it. the acquiring corporation will issue a block of shares equal to the net asset value transferred. this Office considers the Agreement between [BOC] and TRB as one of "a sale of assets with an assumption of liabilities rather than ‘merger’. the CIR. ruled on the issue of merger without taking into consideration TRB’s pending tax deficiencies.436. and not contingent on TRB’s tax liabilities. the liabilities assumed by [BOC] amounted only to P10. The CIR’s knowledge then of TRB’s tax deficiencies would not be material as to affect the CIR’s ruling.00) x x x. More so.

the surviving bank. Negotiable June Instruments. Corporation. Also. For failure to pay the amount due. executed in favor of Associated Bank a promissory note. Sarmiento was sued by Associated Bank. which. 123793. Court of Appeals CASE DIGEST: G. but before a certificate of merger was issued. while respondent executed the promissory note in favor of CBTC. Associated Bank vs. in support thereof. said note was a contract pour autrui. After the merger agreement had been signed. the petition is hereby DENIED. this Court finds no reason to reverse the CTA En Banc’s Amended Decision. In reconsidering its June 27. 1998 Promissory Note FACTS: Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form just one banking corporation known as Associated Citizens Bank (later renamed Associated Bank). the CTA En Banc not only took into account the CTA 1st Division’s ruling in Traders Royal Bank. 29. cites petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned. and the deficiency DST assessed were for taxable years 1996 and 1997. Jr.Considering the foregoing. the CIR’s very own ruling on the issue of merger between BOC WHEREFORE. Commercial Law. respondent Lorenzo Sarmiento. ISSUE: . one in favor of a third person who may demand its fulfillment. Also. Merger.5 million on or before due date at 14% interest per annum. but more importantly. respondent claimed that he received no consideration for the promissory note and. Respondent argued that the plaintiff is not the proper party in interest because the promissory note was executed in favor of CBTC. SO ORDERED. R. among other accessory dues. is almost identical to the case herein. promising to pay the bank P2. save for the facts that BOC was not made a party to the case. 2007 Decision. No.

1. The instrument itself says nothing on the purpose of the loan. The instrument. we still cannot agree that petitioner no longer has any interest in the promissory note. Records do not show when the SEC approved the merger. which another person gains.) Whether or not Associated Bank. the surviving corporation. The "fairest test" in determining whether the third person's interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed by their contract. The merger. The contracting parties must have clearly and deliberately conferred a favor upon a third person. because the surviving corporation automatically acquires all their rights. citing petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned. is not sufficient. speaks for itself. privileges and powers. The agreement itself clearly provides that all contracts — irrespective of the date of execution — entered into in the name of CBTC shall be understood as pertaining to the surviving bank. Res ipsa loquitur.) Whether or not the promissory note was a contract pour autrui and was issued without consideration? HELD: The petition is impressed with merit. may enforce the promissory note made by private respondent in favor of CBTC. The Securities and Exchange Commission (SEC) and majority of the respective stockholders of the constituent corporations must have approved the merger. does not become effective upon the mere agreement of the constituent corporations. That he partially paid his obligation is itself an express acknowledgment of his obligation. Such must have been deliberately included in the agreement in order to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. only the terms of payment and the penalties in case of failure to pay. Associated Bank assumed all the rights of CBTC. as a reference to petitioner bank. On the issue that the promissory note was a contract pour autrui and was issued without consideration. an incidental benefit or interest. but before a certificate of merger was issued? 2. Respondent Sarmiento has not questioned the genuineness and due execution thereof. WHEREFORE. Thus. after the merger agreement had been signed. bearing the signature of private respondent. But assuming that the effectivity date of the merger was the date of its execution. as well as their liabilities. Although absorbed corporations are dissolved. (Section 79. herein petitioner. the petition is GRANTED. These arguments deserve no merit. the Supreme Court held it was not. It did not indicate that a benefit or interest was created in favor of a third person. In a contract pour autrui. although the subject promissory note names CBTC as the payee. under the very provisions of the merger agreement. the absorbed company. Corporation Code) It will be effective only upon the issuance by the SEC of a certificate of merger. the reference to CBTC in the note shall be construed. however. Private respondent also claims that he received no consideration for the promissory note. . there is no winding up of their affairs or liquidation of their assets.

015. which ELISCON used . evidenced by a promissory note. Court of Appeals [GR 99398.702. ELISCON obtained from Commercial Bank and Trust Company (CBTC) a loan in the amount of P8.00 each. vs. Sometime in October 1978. on the other hand. 26 January 2001].72.869. Subsequently.000. also Elizalde Steel Consolidated Inc.240. whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8. pursuant to the Resolution of the Board of Directors of MULTI adopted on 31 August 1977.795. Babst executed a Continuing Suretyship. P1.307. Inc.000. Court of Appeals [GR 104625] First Division.805. CBTC opened for ELISCON in favor of National Steel Corporation (NSC) 3 domestic letters of credit in the amounts of P1. leaving an outstanding indebtedness in the amount of P2.84. (ELISCON) defaulted in its payments.946.32 and P200.73. respectively.900. Ynares Santiago (J): 4 concur Facts: On 8 June 1973.67 as of 31 October 1982. Antonio Roxas Chua and Chester G. on 26 September 1978. were opened for ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial Corporation (MULTI) with the said bank. Elizalde Steel Consolidated. The letters of credit. with interest at the rate of 14% per annum.Babst vs.

The authority granted by BPI to its account officer to attend the creditors' meeting was an authority to represent the bank. at the creditors' meeting held in June 1981 and thereafter. ELISCON defaulted in its obligation to pay the amounts of the letters of credit.372. the surviving corporation in a merger with CBTC. 104625). a complaint for sum of money against ELISCON. but BPI expressly rejected the formula submitted to it for not being acceptable. as the surviving corporation. In order to settle its obligations. as of 31 October 1982. one of the corporations survives and continues the business. Meanwhile. As repeatedly pointed out by ELISCON and MULTI. Meanwhile.16. the Court of Appeals rendered a Decision modifying the judgment of the trial court.833. as successor-in-interest of CBTC. On 29 April 1991. acquired all the assets and assumed all the liabilities of CBTC. Held [2]: Due to the failure of BPI to register its objection to the take-over by DBP of ELISCON's assets.963.to purchase tin black plates from NSC. ELISCON proposed to convey to DBP by way of dacion en pago all its fixed assets mortgaged with DBP. the Bank of the Philippine Islands (BPI) and CBTC entered into a merger. while the other is dissolved and all its rights. such that when he failed to object to the substitution of debtors. in the total amount of P3. Issue [2]: Whether BPI. wherein BPI. Thereafter.08. BPI has a right to institute the present case. BPI's objection was to the proposed payment . Its failure to do so can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. however. DBP proposed formulas for the settlement of all of ELISCON's obligations to its creditors. he did so on behalf of and for the bank. Hence. including its indebtedness to BPI. In due time. BPI. Babst also filed a petition for review with the Court (GR 99398). On 22 December 1980. Branch 147. ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets. the trial court rendered its Decision in favor of BPI. instituted with the Regional Trial Court of Makati. ELISCON. ELISCON encountered financial difficulties and became heavily indebted to the Development Bank of the Philippines (DBP). consented to the assumption by DBP of the obligations of ELISCON. denied in a Resolution dated 9 March 1992. Even granting arguendo that the said account officer was not so empowered. Consequently. leaving an outstanding account. Subsequently. as payment for its total indebtedness in the amount of P201. On 28 December 1978. especially after it had already learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Held [1]: There was a valid merger between BPI and CBTC. BPI could have subsequently registered its objection to the substitution. In June 1981. ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was. on 17 January 1983. On 20 February 1987. MULTI and Babst filed their respective notices of appeal. It is settled that in the merger of two existing corporations. MULTI and Babst (Civil Case 49226). In October 1981. ELISCON and DBP executed a Deed of Cession of Property in Payment of Debt. Issue [1]: Whether the BPI can institute the present case. it is deemed to have consented to the substitution of DBP for ELISCON as debtor. DBP formally took over the assets of ELISCON.181. properties and liabilities are acquired by the surviving corporation. ELISCON filed a petition for review on certiorari (GR.

not to the substitution itself. Bank of the Philippine Islands vs Carlito Lee G. DBP. and earmarked for that purpose the amount of P4. BPI gives no cogent reason in withholding its consent to the substitution.534.R. not as mere surety but as substitute principal debtor. 190144. August 1. Its authorized capital stock was increased by the government. More importantly. He alleged that he was enticed to .54 for payment to BPI. there was a valid novation which resulted in the release of ELISCON from its obligation to BPI.015. Hence. BPI. In fact. however. TOPIC: Merger. which had stepped into the shoes of ELISCON.formula. the National Development Company took over the business of ELISCON and undertook to pay ELISCON's creditors. was capable of payment. no. whose cause of action should be directed against DBP as the new debtor. 2012. that while a surety is solidarily liable with the principal debtor. BPI's conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Notwithstanding the fact that a reliable institution backed by government funds was offering to pay ELISCON's debts. It must be remembered. Effects FACTS: Respondent Carlito Lee filed a complaint for sum of money with damages and application for issuance of a writ of attachment against Trendline and Buelva. other than its desire to preserve its causes of action and legal recourse against the sureties of ELISCON. for reasons known only to itself. insisted in going after the sureties. There was no indication that the principal debtor will default in payment. his obligation to pay only arises upon the principal debtor's failure or refusal to pay.

The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights. Lee was denied. As such. control and custody of any deposits or properties belonging to defendants. it became bound by the orders and processes issued by the trial court despite not having been properly impleaded therein. Merger of two corporations produces the following effects: 1. Lee filed again a motion for execution and-or enforcement of garnishment to enforce against BPI the garnishment of Trendline’s deposit and other deposits it may have had with Citytrust. 3. effectively became the garnishee. the motion was denied. Citytrust filed an urgent motion to release the amount garnished to pay Trendline’s obligation and a similar motion was also filed by Trendline with the CA. 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 separate existence of the constituent corporation shall cease. Lee filed a motion for execution to release the garnished deposits of Trendline. Later on Citytrust and BPI merged with BPI as the surviving corporation. upon service of the notice of garnishment and its acknowledgment that it was in possession of defendants’ deposit accounts in its letter became a virtual party to or a forced intervenor in the civil case. by virtue of its merger with BPI on October 9. Through the service of the writ of garnishment. Subsequently it held defendants jointly and severally liable to Lee for the full amount of his investment plus legal interest' attorney’s fees and costs of suit. shall be the surviving corporation designated in the plan of merger and in case of consolidation. prompting Lee to seek the production of their records of accounts with BPI. 4. The Articles of Merger provides among others that all liabilities and obligations of Citytrust shall be transferred to and become the liabilities and obligations of BPI in the same manner as if the BPI had itself incurred such liabilities or obligations. shall be the consolidated corporation designated in the plan of consolidation. BPI as the surviving corporation. . or a forced intervenor in the case and the trial court thereby acquires jurisdiction to bind him to compliance with all orders and processes of the trial court with a view to the complete satisfaction of the judgment of the court.invest his money with Trendline upon Buelva’s misrepresentation that she was its duly licensed investment consultant or commodity saleswoman. Citytrust. therefore. BPI’s manager Mendoza denied having possession. The CA then annulled RTC’s orders finding grave abuse of discretion on the part of RTC in denying Lee’smotion to enforce garnishment against Trendline’s attached bank deposits with Citytrust. The constituent corporations shall become a single corporation which. except that of the surviving or the consolidated corporation. which have been transferred to BPI by virtue of their merger. Petition is denied. Consequently. thus the virtual party to the civil case. in case of merger. the garnishee becomes a virtual party to. BPI said that it cannot locate the defendant’s bank records with Citytrust. RTC issued a writ of preliminary attachment whereby the savings account of Trendline with Citytrust Banking Corporation were garnished. 2. Issue: Whether or not BPI may be held liable because of its merger with Citytrust HELD: Yes. privileges.

or due to each constituent corporation. As the surviving corporation. and FEBTC. privileges. 2000. real or personal. 2000 by and between BPI. all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation. the deposits of the defendants with Citytrust were placed in custodia legis of the court. and 5. including . Citytrust. powers and liabilities took place. assets. including subscriptions to shares and other choses in action. including the latter’s obligation over the garnished deposits of the defendants. BPI simply continued the combined businesses of the two banks and absorbed all the rights. and all and every other interest of or belonging to. BPI is liable to deliver the fund subject of the writ of garnishment. privileges. FEBTC employees. From that time onwards' their deposits were under the sole control of the RTC and Citytrust holds them subject to its orders until such time that the attachment or garnishment is discharged. is obliged to keep the deposit intact and to deliver the same to the proper officer upon order of the court. BPI’s liability for the garnished deposits of the defendants has been clearly established. Pursuant to the Article and Plan of Merger. BPI cannot avoid the obligation attached to the writ of garnishment by claiming that the fund was not transferred to it. in light of the Articles of Merger which provides that all liabilities and obligations of Citytrust shall be transferred to and become the liabilities and obligations of BPI in the same manner as if the BPI had itself incurred such liabilities or obligations' and in order that the rights and interest of creditors of Citytrust or liens upon the property of Citytrust shall not be impaired by merger. BPI VS BPI EMPLOYEES UNION Facts: The BSP approved the Articles of Merger executed on January 20. action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. Although Citytrust was dissolved. shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed. 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.immunities and franchises of each of the constituent corporations and all property. By virtue of the writ of garnishment. Thus. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation. and thereafter BPI. liabilities and obligations of Citytrust. which automatically assumed the former’s liabilities and obligations upon the approval of their Articles of Merger. or the judgment in favor of Lee is satisfied or the credit or deposit is delivered to the proper officer of the court. no winding up of its affairs or liquidation of its assets. This Article and Plan of Merger was approved by the SEC on April 7. The loss of bank records of a garnished deposit is not a ground for the dissolution of garnishment. and all receivables due on whatever account.

while others refused. The rule is that unless expressly assumed. however. the issue remained unresolved at this level and so it was subsequently submitted for voluntary arbitration by the parties. respondent union invited said FEBTC employees to a meeting regarding the Union Shop Clause of the existing CBA between petitioner BPI and respondent union. 2000 did not contain any specific stipulation with respect to the employment contracts of existing personnel of the non-surviving entity which is FEBTC. were hired by petitioner as its own employees. it does not follow that the absorbed employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation. Later. labor . as well as those who retracted their membership and called them to a hearing regarding the matter. Issue: May a corporation invoke its merger with another corporation as a valid ground to exempt its absorbed employees from the coverage of a union shop clause contained in its existing CBA with its own certified labor union Employment Contracts Significantly.those in its different branches across the country. respondent informed petitioner of its decision to refer the issue of the implementation of the Union Shop Clause of the CBA to the Grievance Committee. but the voluntary arbitrator denied the same. Respondent Union filed a motion for reconsideration. Voluntary Arbitrator ruled in favor of petitioner BPI. After two months of management inaction on the request. too. the Articles of Merger and Plan of Merger dated April 7. this Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI nor the FEBTC employees allegedly could do anything about it. The former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the merger. some of those who initially joined retracted their membership. After the meeting called by the union. The parties both advert to certain provisions of the existing CBA. Hence. When these former FEBTC employees refused to attend the hearing. the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate their employment. Even if it is so. Respondent union then sent notices to the former FEBTC employees who refused to join. Prior to the effectivity of the merger. this petition. However. some of the former FEBTC employees joined the union. Unlike the Voluntary Arbitrator. It appealed to the CA and the CA reversed and set aside the decision of the voluntary arbitrator. with their status and tenure recognized and salaries and benefits maintained. Respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank is the exclusive bargaining agent of BPI’s rank and file employees in Davao City. labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise.

No.R.(BANK OF THE PHILIPPINE ISLANDS v. A labor contract merely creates an action in personam and does not create any real right which should be respected by third parties. G. BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK. and the same can only be restricted by law through the exercise of the police power. 2010) Equality) . August 10.contracts being in personam. 164301. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution. thus binding only between the parties.