Professional Documents
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stockholders. Under the doctrine, the capital stock, property, and other
assets of a corporation are regarded as equity in trust for the payment of
corporate creditors, who are preferred in the distribution of corporate
assets. The creditors of a corporation have the right to assume that the
board of directors will not use the assets of the corporation to purchase its
own stock for as long as the corporation has outstanding debts and
liabilities. There can be no distribution of assets among the stockholders
without first paying corporate debts. Thus, any disposition of corporate
funds and assets to the prejudice of creditors is null and void.
2. Lu vs Lu Ym Sr. 643 SCRA 23 (2011)
To suggest at all that David Lu, et al. were seeking to recover specific
properties of LLDC through Civil Case No. CEB-25502 was even
absolutely fallacious. Under the trust fund doctrine, the capital stock,
properties, and other assets of a corporation are regarded as held in trust
for the corporate creditors, who, being preferred in the distribution of the
corporate assets, must first be paid before any corporate assets may be
distributed among the stockholders.13 In the event of the dissolution of
LLDC, therefore, David Lu, et al. would get only the value of their minority
number of shares, not the value of the 600,000 shares. Indeed, a basic
concept in corporate law is that a shareholders interest in corporate
property, if it exists at all, is indirect, contingent, remote, conjectural,
consequential, and collateral. A share of stock, although representing a
proportionate or aliquot interest in the properties of the corporation, does
not vest its holder with any legal right or title to any of the properties, such
holders interest in the properties being equitable or beneficial in nature. A
shareholder is in no legal sense the owner of corporate properties, which
are owned by the corporation as a distinct legal person.
3. Halley vs Printwell GR 157549 May 30 2011
FACTS:
BMPI (Business Media Philippines Inc.) is a corporation under the control
of its stockholders, including Donnina Halley. In the course of its business,
BMPI commissioned PRINTWELL to print Philippines, Inc. (a magazine
published and distributed by BMPI). PRINTWELL extended 30-day credit
accommodation in favor of BMPI and in a period of 9 mos. BMPI placed
several orders amounting to 316,000.
However, only 25,000 was paid hence a balance of 291,000. PRINTWELL
sued BMPI for collection of the unpaid balance and later on impleaded
BMPIs original stockholders and incorporators to recover on their unpaid
subscriptions.
To reiterate, the petitioner was liable pursuant to the trust fund doctrine for the
corporate obligation of BMPI by virtue of her subscription being still unpaid.
Printwell, as BMPIs creditor, had a right to reach her unpaid subscription in
satisfaction of its claim.
Subscription of Contracts
6. Ong Yong vs Tiu GR 144476 April 8, 2003
The Tius allege that they were prevented from participating in the management of
the corporation. There is evidence that the Ongs did prevent the rightfully elected
Treasurer, Cely Tiu, from exercising her function as such. The records show that
the President, Wilson Ong, supervised the collection and receipt of rentals in the
Masagana Citimall;[19] that he ordered the same to be deposited in the bank;[20]
and that he held on to the cash and properties of the corporation.[21] Section 25 of
the Corporation Code prohibits the President from acting concurrently as Treasurer
of the corporation. The rationale behind the provision is to ensure the effective
monitoring of each officers separate functions.
However, although the Tius were adversely affected by the Ongs unwillingness to
let them assume their positions, rescission due to breach of contract is definitely
the wrong remedy for their personal grievances. The Corporation Code, SEC rules
and even the Rules of Court provide for appropriate and adequate intra-corporate
remedies, other than rescission, in situations like this. Rescission is certainly not
one of them, specially if the party asking for it has no legal personality to do so and
the requirements of the law therefor have not been met. A contrary doctrine will
tread on extremely dangerous ground because it will allow just any stockholder, for
just about any real or imagined offense, to demand rescission of his subscription
and call for the distribution of some part of the corporate assets to him without
complying with the requirements of the Corporation Code.
Hence, the Tius, in their personal capacities, cannot seek the ultimate and
extraordinary remedy of rescission of the subject agreement based on a less than
substantial breach of subscription contract. Not only are they not parties to the
subscription contract between the Ongs and FLADC; they also have other
available and effective remedies under the law.
All this notwithstanding, granting but not conceding that the Tius possess the legal
standing to sue for rescission based on breach of contract, said action will
nevertheless still not prosper since rescission will violate the Trust Fund Doctrine
and the procedures for the valid distribution of assets and property under the
Corporation Code.
Certificate of Stocks and Transfer of Shares
7. Puno vs Puno Enterprises GR 177066 Sept. 11, 2009
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 latters common-law wife, Amelia Puno. As surviving heir, he
claimed entitlement to the rights and privileges of his late father as stockholder of
respondent. The complaint thus prayed that respondent allow petitioner to inspect
its corporate book, render an accounting of all the transactions it entered into from
1962, and give petitioner all the profits, earnings, dividends, or income pertaining
to the shares of Carlos L. Puno.
Issue:
Whether Joselito Musni Puno as an heir is automatically entitled for the stocks
upon the death of a shareholder.
(2) Whether or not there is an intra-corporate relationship between the parties that
would characterize the case as an intra-corporate dispute?
Held:
RULINGS:
(1) No. Rodrigo must, hurdle two obstacles before he can be considered a
stockholder of Zenith with respect to the shareholdings originally belonging to
Anastacia. First, he must prove that there are shareholdings that will be left to him
and his co-heirs, and this can be determined only in a settlement of the decedents
estate. No such proceeding has been commenced to date. Second, he must
register the transfer of the shares allotted to him to make it binding against the
corporation. He cannot demand that this be done unless and until he has
established his specific allotment (and prima facie ownership) of the shares.
Without the settlement of Anastacias estate, there can be no definite partition and
distribution of the estate to the heirs. Without the partition and distribution, there
can be no registration of the transfer. And without the registration, we cannot
consider the transferee-heir a stockholder who may invoke the existence of an
intra-corporate relationship as premise for an intra-corporate controversy within the
c.
the cause of action actually devolves on the corporation; the wrongdoing or
harm having been or being caused to the corporation and not to the particular
stockholder bringing the suit.
SEC. 63. Certificate of stock and transfer of shares.The capital stock of stock
corporations shall be divided into shares for which certificates signed by the
president or vice-president, countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation shall be issued in accordance with the
by-laws. Shares of stock so issued are personal property and may be transferred
by delivery of the certificate or certificates indorsed by the owner or his attorney-infact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the
books of the corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate or certificates and the number
of shares transferred.
Based on these standards, we hold that the allegations of the present complaint do
not amount to a derivative suit.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.
First, as already discussed above, Rodrigo is not a shareholder with respect to the
shareholdings originally belonging to Anastacia; he only stands as a transfereeheir whose rights to the share are inchoate and unrecorded. With respect to his
own individually-held shareholdings, Rodrigo has not alleged any individual cause
or basis as a shareholder on record to proceed against Oscar.
a.
the party bringing suit should be a shareholder during the time of the act or
transaction complained of, the number of shares not being material;
b.
the party has tried to exhaust intra-corporate remedies, i.e., has made a
demand on the board of directors for the appropriate relief, but the latter has failed
or refused to heed his plea; and
Second, in order that a stockholder may show a right to sue on behalf of the
corporation, he must allege with some particularity in his complaint that he has
exhausted his remedies within the corporation by making a sufficient demand upon
the directors or other officers for appropriate relief with the expressed intent to sue
if relief is denied.[35] Paragraph 8 of the complaint hardly satisfies this requirement
since what the rule contemplates is the exhaustion of remedies within the
corporate setting:
8. As members of the same family, complainant Rodrigo C. Reyes has resorted [to]
and exhausted all legal means of resolving the dispute with the end view of
amicably settling the case, but the dispute between them ensued.
Lastly, we find no injury, actual or threatened, alleged to have been done to the
corporation due to Oscars acts. If indeed he illegally and fraudulently transferred
Anastacias shares in his own name, then the damage is not to the corporation but
to his co-heirs; the wrongful transfer did not affect the capital stock or the assets of
Zenith. As already mentioned, neither has Rodrigo alleged any particular cause or
Hence, without such recording, the transferee may not be regarded by the
corporation as one among its stockholders and the corporation may legally refuse
the issuance of stock certificates in the name of the transferee even when there
has been compliance with the requirements of Section 64[24] of the Corporation
Code. This is the import of Section 63 which states that No transfer, however, shall
be valid, except between the parties, until the transfer is recorded in the books of
the corporation showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares
transferred. The situation would be different if the petitioner was himself the
registered owner of the stock which he sought to transfer to a third party, for then
he would be entitled to the remedy of mandamus.[25]
From the corporations point of view, the transfer is not effective until it is recorded.
Unless and until such recording is made the demand for the issuance of stock
certificates to the alleged transferee has no legal basis. As between the
corporation on the one hand, and its shareholders and third persons on the other,
the corporation looks only to its books for the purpose of determining who its
shareholders are.[26] In other words, the stock and transfer book is the basis for
ascertaining the persons entitled to the rights and subject to the liabilities of a
stockholder. Where a transferee is not yet recognized as a stockholder, the
corporation is under no specific legal duty to issue stock certificates in the
transferees name.
Absent an allegation that the transfer of shares is recorded in the stock and
transfer book of respondent ALSONS, there appears no basis for a clear and
indisputable duty or clear legal obligation that can be imposed upon the
respondent corporate secretary, so as to justify the issuance of the writ of
mandamus to compel him to perform the transfer of the shares to petitioner. The
test of sufficiency of the facts alleged in a petition is whether or not, admitting the
facts alleged, the court could render a valid judgment thereon in accordance with
the prayer of the petition.[33] This test would not be satisfied if, as in this case, not
all the elements of a cause of action are alleged in the complaint.[34] Where the
corporate secretary is under no clear legal duty to issue stock certificates because
of the petitioners failure to record earlier the transfer of shares, one of the
elements of the cause of action for mandamus is clearly missing.
That petitioner was under no obligation to request for the registration of the
transfer is not in issue. It has no pertinence in this controversy. One may own
shares of corporate stock without possessing a stock certificate. In Tan vs. SEC,
206 SCRA 740 (1992), we had occasion to declare that a certificate of stock is not
necessary to render one a stockholder in a corporation. But a certificate of stock is
the tangible evidence of the stock itself and of the various interests therein. The
certificate is the evidence of the holders interest and status in the corporation, his
ownership of the share represented thereby. The certificate is in law, so to speak,
an equivalent of such ownership. It expresses the contract between the
corporation and the stockholder, but it is not essential to the existence of a share in
stock or the creation of the relation of shareholder to the corporation. In fact, it
rests on the will of the stockholder whether he wants to be issued stock
certificates, and a stockholder may opt not to be issued a certificate. In Won vs.
Wack Wack Golf and Country Club, Inc., 104 Phil. 466 (1958), we held that
considering that the law does not prescribe a period within which the registration
should be effected, the action to enforce the right does not accrue until there has
been a demand and a refusal concerning the transfer. In the present case,
petitioners complaint for mandamus must fail, not because of laches or estoppel,
but because he had alleged no cause of action sufficient for the issuance of the
writ.
10. Makati Sports Club Inc vs Cheng GR 178523 June 16, 2010
Whether the cert. of stocks of Gaid can be transferred to Ponce
HELD: NO. petition Denied.
SEC. 63. Certificate of stock and transfer of shares.The capital stock of stock
corporations shall be divided into shares for which certificates signed by the
president or vice-president, countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation shall be issued in accordance with the
by-laws. Shares of stock so issued are personal property and may be transferred
by delivery of the certificate or certificates indorsed by the owner or his attorney-infact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the
books of the corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate or certificates and the number
of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.
the stock and transfer book is the basis for ascertaining the persons entitled to the
rights and subject to the liabilities of a stockholder
Where a transferee is not yet recognized as a stockholder, the corporation is under
no specific legal duty to issue stock certificates in the transferees name.
In a case such as that at bar, a mandamus should not issue to compel the
secretary of a corporation to make a transfer of the stock on the books of the
company
Unless it affirmatively appears that he has failed or refused so to do, upon the
demand either of the person in whose name the stock is registered, or of some
person holding a power of attorney for that purpose from the registered owner of
the stock.
Mere indorsee of a stock certificate, claiming to be the owner, will not necessarily
be recognized as such by the corporation and its officers, in the absence of
express instructions of the registered owner to make such transfer to the indorsee,
or a power of attorney authorizing such transfer
mandamus - proper remedy to make him the rightful owner and holder of a stock
certificate to be issued in his name
11. Republic vs Sandiganbayan 648 SCRA 47
Concerning respondents shares of stock here, there is no evidence presented by
petitioner that they belong to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions. Nor is there
evidence that respondents, taking undue advantage of their connections or
relationship with former President Marcos or his family, relatives and close
associates, were able to acquire those shares of stock.
12. Fontana Resort and Country Club vs Spouses Tan GR 154670 June
30, 2012
In this case, respondents have miserably failed to prove how petitioners employed
fraud to induce respondents to buy FRCCI shares. It can only be expected that
petitioners presented the FLP and the country club in the most positive light in
order to attract investor-members. There is no showing that in their sales talk to
respondents, petitioners actually used insidious words or machinations, without
which, respondents would not have bought the FRCCI shares. Respondents
appear to be literate and of above-average means, who may not be so easily
deceived into parting with a substantial amount of money. What is apparent to us is
that respondents knowingly and willingly consented to buying FRCCI shares, but
were later on disappointed with the actual FLP facilities and club membership
benefits.
Similarly, we find no evidence on record that petitioners defaulted on any of their
obligations that would have called for the rescission of the sale of the FRCCI
shares to respondents.
The right to rescind a contract arises once the other party defaults in the
performance of his obligation. Rescission of a contract will not be permitted for a
slight or casual breach, but only such substantial and fundamental breach as
would defeat the very object of the parties in making the agreement.[34] In the
same case as fraud, the burden of establishing the default of petitioners lies upon
respondents, but respondents once more failed to discharge the same.
Respondents decry the alleged arbitrary and unreasonable denial of their request
for reservation at FLP and the obscure and ever-changing rules of the country club
as regards free accommodations for FRCCI class D shareholders.
Yet, petitioners were able to satisfactorily explain, based on clear policies, rules,
and regulations governing FLP club memberships, why they rejected respondents
request for reservation on October 17, 1998. Respondents do not dispute that the
13. Forests Hills Gold and Country Club vs Vertex Sales and Trading GR
202205 March 6, 2013
ISSUE: w/n the delay in the issuance of
a stock
substantial breach that warrants rescission of the sale? YES
certificate
is
of the contract. Accordingly, the amount paid to FEGDI by reason of the sale
should be returned to Vertex. On the amount of damages, the CA is correct in not
awarding damages since Vertex failed to prove by sufficient evidence that it
suffered actual damage due to the delay in the issuance of the certificate of stock.
14. Teng vs SEC GR 184332 Feb 17, 2016
Under the sec. 63, certain minimum requisites must be complied with for there to
be a valid transfer of stocks, to wit: (a) there must be delivery of the stock
certificate; (b) the certificate must be endorsed by the owner or his attorney-in-fact
or other persons legally authorized to make the transfer; and (c) to be valid against
third parties, the transfer must be recorded in the books of the corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner or
his duly authorized representative that is the operative act of transfer of shares
from the original owner to the transferee.41 The Court even emphatically declared
in Fil-Estate Golf and Development, Inc., et al. v. Vertex Sales and Trading, Inc.42
that in "a sale of shares of stock, physical delivery of a stock certificate is one of
the essential requisites for the transfer of ownership of the stocks purchased."43
The delivery contemplated in Section 63, however, pertains to the delivery of the
certificate of shares by the transferor to the transferee, that is, from the original
stockholder named in the certificate to the person or entity the stockholder was
transferring the shares to, whether by sale or some other valid form of absolute
conveyance of ownership.44 "[S]hares of stock may be transferred by delivery to
the transferee of the certificate properly indorsed. Title may be vested in the
transferee by the delivery of the duly indorsed certificate of stock."
It is thus clear that Teng's position - that Ting Ping must first surrender Chiu's and
Maluto's respective certificates of stock before the transfer to Ting Ping may be
registered in the books of the corporation -does not have legal basis. The delivery
or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not a requisite
before the conveyance may be recorded in its books. To compel Ting Ping to
deliver to the corporation the certificates as a condition for the registration of the
transfer would amount to a restriction on the right of Ting Ping to have the stocks
transferred to his name, which is not sanctioned by law. The only limitation
imposed by Section 63 is when the corporation holds any unpaid claim against the
shares intended to be transferred.
Merger and Consolidation
15. BPI vs BPI Employees Union GR 164301 Aug. 10 2010 and Oct 19 2011
Although by virtue of the merger BPI steps into the shoes of FEBTC as a
successor employer as if the former had been the employer of the latters
employees from the beginning it must be emphasized that, in reality, the legal
consequences of the merger only occur at a specific date, i.e., upon its effectivity
which is the date of approval of the merger by the SEC. Thus, we observed in the
Decision that BPI and FEBTC stipulated in the Articles of Merger that they will both
continue their respective business operations until the SEC issues the certificate of
merger and in the event no such certificate is issued, they shall hold each other
blameless for the non-consummation of the merger.[16] We likewise previously
noted that BPI made its assignments of the former FEBTC employees effective on
April 10, 2000, or after the SEC approved the merger.[17] In other words, the
obligation of BPI to pay the salaries and benefits of the former FEBTC employees
and its right of discipline and control over them only arose with the effectivity of the
merger. Concomitantly, the obligation of former FEBTC employees to render
service to BPI and their right to receive benefits from the latter also arose upon the
effectivity of the merger. What is material is that all of these legal consequences of
the merger took place during the life of an existing and valid CBA between BPI and
the Union wherein they have mutually consented to include a Union Shop Clause.
From the plain, ordinary meaning of the terms of the Union Shop Clause, it covers
employees who (a) enter the employ of BPI during the term of the CBA; (b) are
part of the bargaining unit (defined in the CBA as comprised of BPIs rank and file
employees); and (c) become regular employees without distinguishing as to the
manner they acquire their regular status. Consequently, the number of such
employees may adversely affect the majority status of the Union and even its
existence itself, as already amply explained in the Decision.
Indeed, there are differences between (a) new employees who are hired as
probationary or temporary but later regularized, and (b) new employees who, by
virtue of a merger, are absorbed from another company as regular and permanent
from the beginning of their employment with the surviving corporation. It bears
reiterating here that these differences are too insubstantial to warrant the exclusion
of the absorbed employees from the application of the Union Shop Clause. In the
Decision, we noted that:
Verily, we agree with the Court of Appeals that there are no substantial differences
between a newly hired non-regular employee who was regularized weeks or
months after his hiring and a new employee who was absorbed from another bank
as a regular employee pursuant to a merger, for purposes of applying the Union
Shop Clause. Both employees were hired/employed only after the CBA was
signed. At the time they are being required to join the Union, they are both already
regular rank and file employees of BPI. They belong to the same bargaining unit
being represented by the Union. They both enjoy benefits that the Union was able
to secure for them under the CBA. When they both entered the employ of BPI, the
CBA and the Union Shop Clause therein were already in effect and neither of them
had the opportunity to express their preference for unionism or not. We see no
cogent reason why the Union Shop Clause should not be applied equally to these
two types of new employees, for they are undeniably similarly situated.
16. Mindanao Savings and Loan Association vs Wilkom 634 SCRA 291
(2010)
To resolve this petition, we must address two basic questions: (1) Was the merger
between FISLAI and DSLAI (now MSLAI) valid and effective; and (2) Was there
novation of the obligation by substituting the person of the debtor?
We answer both questions in the negative.
Ordinarily, in the merger of two or more existing corporations, one of the
corporations survives and continues the combined business, while the rest are
dissolved and all their rights, properties, and liabilities are acquired by the surviving
corporation. Although there is a dissolution of the absorbed or merged
corporations, there is no winding up of their affairs or liquidation of their assets
because the surviving corporation automatically acquires all their rights, privileges,
and powers, as well as their liabilities.
The merger, however, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of stockholders and creditors,
there must be an express provision of law authorizing them.
The steps necessary to accomplish a merger or consolidation, as provided for in
Sections 76,24 77,25 78,26 and 7927 of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation.
Such plan must include any amendment, if necessary, to the articles of
incorporation of the surviving corporation, or in case of consolidation, all the
statements required in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for
approval. A meeting must be called and at least two (2) weeks notice must be sent
to all stockholders or members, personally or by registered mail. A summary of the
plan must be attached to the notice. Vote of two-thirds of the members or of
stockholders representing two-thirds of the outstanding capital stock will be
needed. Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r]
consolidation, by the corporate officers of each constituent corporation. These take
the place of the articles of incorporation of the consolidated corporation, or amend
the articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned
at least two weeks before.
(6) Issuance of certificate of merger or consolidation.
Clearly, the merger shall only be effective upon the issuance of a certificate of
merger by the SEC, subject to its prior determination that the merger is not
inconsistent with the Corporation Code or existing laws. Where a party to the
merger is, a special corporation governed by its own charter, the Code particularly
mandates that a favorable recommendation of the appropriate government agency
should first be obtained.
In this case, it is undisputed that the articles of merger between FISLAI and DSLAI
were not registered with the SEC due to incomplete documentation. Consequently,
the SEC did not issue the required certificate of merger. Even if it is true that the
Monetary Board of the Central Bank of the Philippines recognized such merger,
the fact remains that no certificate was issued by the SEC. Such merger is still
incomplete without the certification.
The issuance of the certificate of merger is crucial because not only does it bear
out SECs approval but it also marks the moment when the consequences of a
merger take place. By operation of law, upon the effectivity of the merger, the
absorbed corporation ceases to exist but its rights and properties, as well as
liabilities, shall be taken and deemed transferred to and vested in the surviving
corporation.
The same rule applies to consolidation which becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of
consolidation by the SEC. When the SEC, upon processing and examining the
articles of consolidation, is satisfied that the consolidation of the corporations is not
inconsistent with the provisions of the Corporation Code and existing laws, it
issues a certificate of consolidation which makes the reorganization official. The
new consolidated corporation comes into existence and the constituent
corporations are dissolved and cease to exist.
There being no merger between FISLAI and DSLAI (now MSLAI), for third parties
such as respondents, the two corporations shall not be considered as one but two
separate corporations. A corporation is an artificial being created by operation of
law. It possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It has a
personality separate and distinct from the persons composing it, as well as from
any other legal entity to which it may be related. Being separate entities, the
property of one cannot be considered the property of the other.
garnishment of Trendlines deposit and other deposits it may have had with
Citytrust. Lee was denied. The CA then annulled RTCs orders finding grave abuse
of discretion on the part of RTC in denying Leesmotion to enforce garnishment
against Trendlines attached bank deposits with Citytrust, which have been
transferred to BPI by virtue of their merger.
Thus, in the instant case, as far as third parties are concerned, the assets of
FISLAI remain as its assets and cannot be considered as belonging to DSLAI and
MSLAI, notwithstanding the Deed of Assignment wherein FISLAI assigned its
assets and properties to DSLAI, and the latter assumed all the liabilities of the
former. As provided in Article 1625 of the Civil Code, "an assignment of credit, right
or action shall produce no effect as against third persons, unless it appears in a
public instrument, or the instrument is recorded in the Registry of Property in case
the assignment involves real property." The certificates of title of the subject
properties were clean and contained no annotation of the fact of assignment.
Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI
on the properties registered under its name. Accordingly, MSLAI, as the successorin-interest of DSLAI, has no legal standing to annul the execution sale over the
properties of FISLAI. With more reason can it not cause the cancellation of the title
to the subject properties of Willkom and Go.
Issue:
Whether or not BPI may be held liable because of its merger with Citytrust
HELD: Yes. Petition is denied. Through the service of the writ of garnishment, the
garnishee becomes a virtual party to, 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. Citytrust, therefore, 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. As such, it became bound by the orders and processes issued by the
trial court despite not having been properly impleaded therein.
Consequently, by virtue of its merger with BPI on October 9, BPI as the surviving
corporation, effectively became the garnishee, thus the virtual party to the civil
case. Merger of two corporations produces the following effects: 1. The constituent
corporations shall become a single corporation which, in case of merger, shall be
the surviving corporation designated in the plan of merger and in case of
consolidation, shall be the consolidated corporation designated in the plan of
consolidation; 2. The separate existence of the constituent corporation shall cease,
except that of the surviving or the consolidated corporation; 3. 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; 4. The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights, privileges, immunities and
franchises of each of the constituent corporations and all property, real or
personal, and all receivables due on whatever account, including subscriptions to
shares and other choses in action, and all and every other interest of or belonging
to, or due to each constituent corporation, shall be deemed transferred to and
vested in such surviving or consolidated corporation without further act or deed;
and 5. The surviving or consolidated corporation shall be responsible and liable for
all the liabilities and obligations of each of the constituent corporations in the same
manner as if such surviving or consolidated corporation had itself incurred such
liabilities or obligations and any pending claim, action or proceeding brought by or
against any of such constituent corporations may be prosecuted by or against the
surviving or consolidated corporation. The rights of creditors or liens upon the
stamp tax (DST) imposed under Section 196 of the NIRC. The corporation thus
paid under protest the DST from October 31, 2011 to November 15, 2001.
Claiming that it is exempt from payment of the DST, it filed with the Commissioner
of Internal Revenue an administrative claim for tax refund or tax credit in the
amount of P14,140,980.00 which it allegedly erroneously paid to the BIR. The
company also filed a Petition for Review with the CTA 2nd Division. The latter
decided in favour of the company, ruling that it is entitled to tax refund since
Section 196 of the NIRC does not apply because there is purchaser or buyer in the
case of a merger. Citing Section 80 of the Corporation Code, the CTA 2nd Division
explained that the assets of the absorbed corporations were not bought or
purchased by respondent but were transferred to and vested in respondent as an
inherent legal consequence of the merger, without any further act or deed.. Any
doubts as to the tax-free nature of the meter was removed by the subsequent
enactment of RA No. 9423 amending Section 199 0f the NIRC by specifically
exempting from the payment of DST the transfer of property pursuant to a merger.
When its motion for reconsideration was denied, the petitioner elevated the matter
to the CTA En Banc thru a Petition for Review, which also denied its petition,
holding that Section 196 of the NIRC does not apply to a merger as the properties
subject of a merger are not sold, but are merely absorbed by the surviving
corporation. In other words, the properties are transferred by operation of law,
without any further act or deed.
The petitioner assailed the CTA En Banc decision thru a petition for review on
certiorari with the Supreme Court, arguing that DST is levied on the exercise of the
privilege to convey real property regardless of the manner of conveyance. Thus, it
is imposed on all conveyances of realty, including realty transfer during a corporate
merger. As to the subsequent enactment of RA 9243, petitioner claims that
respondent cannot benefit from it as laws apply prospectively.
The Issue:
Whether DST may be levied on transfer or property during a merger.
The Ruling:
The Petition must fail.
[W]e do not find merit in petitioners contention that Section 196 covers all
transfers and conveyances of real property for a valuable consideration. A perusal
of the subject provision would clearly show it pertains only to sale transactions
where real property is conveyed to a purchaser for a consideration. The phrase
granted, assigned, transferred or otherwise conveyed is qualified by the word
sold which means that documentary stamp tax under Section 196 is imposed on
the transfer of realty by way of sale and does not apply to all conveyances of real
property. Indeed, as correctly noted by the respondent, the fact that Section 196
refers to words sold, purchaser and consideration undoubtedly leads to the
conclusion that only sales of real property are contemplated therein.
Thus, petitioner obviously erred when it relied on the phrase granted, assigned,
transferred or otherwise conveyed in claiming that all conveyances of real
property regardless of the manner of transfer are subject to documentary stamp
tax under Section 196. It is not proper to construe the meaning of a statute on the
basis of one part. x x x