INTRACORPORATE CONTROVERSIES

Q: When do you call a controversy an intracorporate controversy?

A: There are two tests: Relationship test and Nature of the controversy test.
First test – Relationship test
There should be an intracorporate relations sometimes intra-partnership relation, intra-association
relation in non-corporate situations.
Let’s have this summarized:
a. The first relationship is the corporation, the partnership or the association versus the public;
b. The second situation is the corporation, the partnership the association versus the
stockholders, the members, the associates, etc. and the officers;
c. Another situation would be a controversy between the corporation, the partnership and the
association versus the state with respect to the franchise, with to the respect the business
permit, with respect to the license of that corporation, partnership or association;
d. Another situation would be stockholders versus stockholders;
e. Another situation would be members versus members.
This is the relationship test. That’s the first indication of a corporate controversy. This has been the
only test followed by the Supreme Court before until September 28, 1984 in the famous case of DMRC
Corporation v. Esta Del Sol.
Second test – Nature of the Controversy test
DMRC CORPORATION v. ESTA DEL SOL MOUNTAIN RESERVES
The Supreme Court said, the test should no longer be the relationship test alone. Why? Because it
would lead to absurdities.
Example: I am a stockholder. I borrowed money from a fellow stockholder. I did not pay
despite demand. He even threw a stone at me when he demanded payment. He sued me for a
collection of a sum of money. If you are going to use the relationship test alone and the
controversy is between me as a stockholder versus another stockholder, the chances are you
would say it is an intracorporate controversy which is absurd because it is a simple civil case.
Our being stockholders are only incidental to the case.
The Supreme Court introduced the second part of the test: Nature of the Controversy test
You don't simply look at the relationship, look at the nature of the controversy.
NATURE OF THE CONTROVERSY
Q: I filed an action against the corporation to compel the corporate officers to allow me to
inspect the corporate books. I am the stockholder. There is a relationship test. It was met. I
am a stockholder suing the corporation or suing the officers. No problem. Now, the nature of
the controversy, is that intra corporate?
A: Yes. There is no such thing as inspection of corporate books if there is no corporation. Therefore,
the nature of the controversy is intra corporate.
Q: The question is the illegality or legality of the election of the members of the board. Is it
intrinsically linked to corporate affairs?
A: Yes. Because there would not be a controversy on elections of officers of the board if there is no
corporation. So, in the second test the topic must be linked to corporate activities.
Naglakakad ako sa kalsada. Nabangga ako ng kotse na minamaneho ng presidente ng corporation.
Dinemanda ko ang presidente ng corporation. Pareho kaming stockholder dahil hindi siya pwedeng
maging presidente kung hindi siya stockholder. Isn't not? At least one share. Kung babasehan mo lang
ang relationship test ay para bang intra corporate controversy pero ang suit ko ay suit for damages.
The nature of the controversy is not intra corporate.
INTRACORPORATE RELATIONSHIP
REYES v. RTC OF MAKATI BR. 142, AUGUST 11, 2008
Q: Reyes together with some of his brothers are stockholders of a corporation called Zenith
Corporation. They are stockholders but the majority stockholder was their mother who had
more than 132, 000 shares. In fact, the mother owned the majority of the corporation's
outstanding capital stock. You know what outstanding means - in the hands of stockholders.
What happened was she died. This actually is controlled by the family. And this Reyes here,
Rodrigo Reyes, suspected that there were some mambo jumbo going on in the corporation
which was actually, the management was controlled by his brothers. So, in his capacity as an
heir of his mother who just died, he filed an action to compel the corporation to make an
accounting of the shares of his mother together with the dividends that have accrued plus
damages. Why did he do so? His pleading said, in his capacity as an heir of his mother. He was
invoking the civil code. He was invoking art. 777 of the civil code: that successional rights are
automatically transmitted at the time of death of the decedent. He was not suing as a
stockholder and he was a stockholder. He was suing as an heir of his mother to the shares of
his mother. Is there an intracorporate relationship leading to an intracorporate controversy?
A: None. If you talk about the nature of the case, it is intracorporate. But with respect to the shares
he inherited from his mother, he is not even a stockholder. He is only a stockholder with respect to
his own shares but he was not suing as his personal capacity as stockholder but as an heir of his
mother. The Supreme Court said, while it is true that you inherited shares from your mother by virtue
of art. 777 of the Civil Code, that is binding between you and the estate of your mother but it is not
binding on the corporation because it is not registered in the corporate books because of section 63,
the last part. Was there a transfer of shares from the mother to the child? Under succession, yes.
Automatically from the death of the decedent but that transfer is not yet a registered transfer, not yet
registered in the books of the corporation. Bago maging binding sa corporation, kailangan
nakarehistro sa corporation, sa mga libro ng corporation.
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 endorsed by the owner or his attorney-in-fact 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 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.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.
Q: Can you now compel the corporation to register those inherited shares in its books?
A: No, not yet. There must first be a settlement proceeding. Kapag meron kang legal na dokumento,
punta ka na saamin at parehistro mo. Pero hangga't hindi nangyayari yon, hindi ka stockholder doon
sa shares ng nanay mo. Stockholder ka lang sa shares mo. Eh ang suit mo ay bilang heir ng nanay mo.
Hindi ka pa stockholder. Walang intra corporate relationship.

LESLIE OKOL v. SLIMMERS WORLD INTERNATIONAL, DEC. 11, 2009

Q: Okol, she's a lady in 1992 began as a simple trainee in Slimmer's World International. Then
after many years she ascended in the corporate ladder and she became the vice president of
that company. But one day, she was suspended because some sports equipment of the
company or the corporation were confiscated by the Bureau of Customs because of
irregularities which according to the case, she was involved with a man of Bureau of Customs.
She was suspended and later on removed as vice president. If you look at the by-laws of the
corporation, the vice president is one of the officers of the corporation. She went to the Labor
Arbiter. When she was dismissed, she said illegal dismissal. Is an illegal dismissal case filed
by a corporate officer one that falls under intra corporate relationship?
A: Yes. Dismissal of corporate officers are intra corporate controversies. They cannot fall under the
jurisdiction of the NLRC or the Labor Arbiter but that refers only to corporate officers. Dismissals of
corporate officers as mentioned in the by-laws are always intra corporate controversies.
Q: How do you know he is a corporate officer?
A: You look at the by-laws if his position is included in the by-laws. If his position is not included in
the by-laws, he is not a corporate officer because corporate officers have their positions in the by-
laws or even probably in the articles of incorporation as a redundant provision.
GARCIA v. EASTERN TELECOMMUNICATIONS, APRIL 16, 2009
Q: First, he (Garcia) was suspended but then he was dismissed for alleged sexual harassment
of 3 corporate female officers. He sued for illegal dismissal before the Labor Arbiter. Is it an
intracorporate controversy with an intracorporate relationship?
A: Yes. Therefore, it is the Regional Trial Court acting as the special commercial court which will act
on this and not the Labor Arbiter or the NLRC.
DOCTRINE: Illegal dismissal cases of corporate officers as long as the office is mentioned in the by-
laws (or in the Articles) is an intracorporate controversy.
CORPORATE REHABILITATION
New rules on corporate rehabilitation became effective on January 16, 2009.
A corporation files an action for corporate rehabilitation. Included there is the so-called suspension
of payments. Dati, sa lumang insolvency act na in relation to corporate rehabilitation nakahiwalay
yung corporate rehabilitation sa suspension of payments. Ngayon, kapag nagfile ka ng petition for
corporate rehabilitation kasama na ang suspension of certain payments and proceedings.
Why? Because of Rule 3, section 7 of the Rules:
Section 7. Stay Order. - If the court finds the petition to be sufficient in form and
substance, it shall; not later than five (5) working days from the filing of the petition,
issue an order: (a) appointing a rehabilitation receive and fixing his bond; (b) staying
enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and
persons not solidarily liable with the debtor; provided, that the stay order shall not cover
claims against letters of credit and similar security arrangements issued by a third party
to secure the payment of the debtor's obligations; provided, further, that the stay order
shall not cover foreclosure by a creditor of property not belonging to a debtor under
corporate rehabilitation; provided, however, that where the owner of such property
sought to be foreclosed is also a guarantor or one who is not solidarily liable, said owner
shall be entitled to the benefit of excussion as such guarantor; (c) prohibiting the debtor
from selling, encumbering, transferring, or disposing in any manner any of its properties
except in the ordinary course of business; (d) prohibiting the debtor from making any
payment of its liabilities except as provided in items (e), (f) and (g) of this Section or
when ordered by the court pursuant to Section 10 of Rule 3; (e) prohibiting the debtor's
suppliers of goods or services from withholding supply of goods and services in the
ordinary course of business for as long as the debtor makes payments for the services
and goods supplied after the issuance of the stay order; (f) directing the payment in full
of all administrative expenses incurred after the issuance of the stay order; (g) directing
the payment of new loans or other forms of credit accommodations obtained for the
rehabilitation of the debtor with prior court approval; (h) fixing the dates of the initial
hearing on the petition not earlier than forty-five (45) days but not later than sixty (60)
days from the filing thereof; (I) directing the petitioner to publish the Order in a
newspaper of general circulation in the Philippines once a week for two (2) consecutive
weeks; (j) directing the petitioner to furnish a copy of the petition and its annexes, as
well as the stay order, to the creditors named in the petition and the appropriate
regulatory agencies such as, but not limited to, the Securities and Exchange Commission,
the Bangko Sentral ng Pilipinas, the Insurance Commission, the National
Telecommunications Commission, the Housing and Land Use Regulatory Board and the
Energy Regulatory Commission; (k) directing the petitioner that foreign creditors with
no known addresses in the Philippines be individually given a copy of the stay order at
their foreign addresses; (l) directing all creditors and all interested parties (including the
regulatory agencies concerned) to file and serve on the debtor a verified comment on or
opposition to the petition, with supporting affidavits and documents, not later than
fifteen (15) days before the date of the first initial hearing and putting them on notice
that their failure to do so will bar them from participating in the proceedings; and (m)
directing the creditors and interested parties to secure from the court copies of the
petition and its annexes within such time as to enable themselves to file their comment
on or opposition to the petition and to prepare for the initial hearing of the petition.
 The issuance of a stay order does not affect the right to commence actions or proceedings
insofar as it is necessary to preserve a claim against the debtor.
Q: When does a corporation file a petition for corporate rehabilitation?
A: when the corporation is in a state of insolvency.
Q: What kind of insolvency is it?
A: Technical insolvency.
There are two kinds of insolvencies. The so-called actual insolvency and the so-called technical
insolvency.
Actual insolvency is the true insolvency. Meaning, your liabilities exceed your assets. Effect is zero
balance. This is not the ground for petition for corporate rehabilitation. (There is nothing more to
rehabilitate)
Technical insolvency – Here, you still have sufficient assets. The only problem is you cannot meet
your obligations as they fall due because kulang ka ng liquidity. See? Wala kang cash. Wala kang
pera pang operate pero may assets ka kaya lang yung fixed assets mo, hanggang assets na lang. Wala
kang liquidity. You cannot meet your day to day business operations. Now, if you project that
situation will continue for more than one year from the filing of the petition, then file for it – the
petition for corporate rehabilitation. (It is not yet dead)
Q: Where do you file a petition for corporate rehabilitation under the rules?
A: You file it also with the RTC acting as a special commercial court.
Q: The venue?
A: The venue is the place where the principal office of the corporation is located.
Q: Are there characteristics of a petition of corporate rehabilitation?
A: Yes, there are.
1. It is actually an action in rem.
2. All persons affected by the rehabilitation of the corporation like the creditors, or any person
holding a property of the corporation fall automatically within the jurisdiction of the court.
This is an instance where mere publication subjects a particular person to the jurisdiction of
the court.
3. A petition for rehabilitation is also a summary proceeding.
4. The orders of the court in this proceeding is IMMEDIATELY EXECUTORY. If the court issues
an order, it is immediately executory, UNLESS ENJOINED by higher court.
Q: What is the evidence that it is an action in rem?
A: According to the rules, in rule 3, the moment there is a publication of the notice of the
commencement of the proceedings, there is no need to notify individual creditors and individual
persons. They are deemed to be notified by the publication. There is no need for service in person.
The mere publication itself is enough to be a notice to anyone in the world that there is now a petition
for rehabilitation even if you did not receive a specific individual notice.
Q: How to enjoin?
A: By a Writ of Preliminary Injunction and/or TRO. But the general rule is they are immediately
executory.
Q: Is a petition for corporate rehabilitation an ordinary civil action, special civil action, or a
special proceeding?
A: The rules DO NOT say. But Supreme Court said, every petition for Corporate Rehabilitation is a
special proceeding. (New Frontier Sugar Corp v. RTC of Iloilo Branch 39)
Q: What are the 3 kinds of petitions that could be filed in court?
A:
1. Debtor-initiated petition – this debtor is the corporation. It wants to be rehabilitated. It files
the petition. What is the ground? Technical insolvency (it cannot meet its debts/obligations
as they fall due).
There are certain corporations which are financially related to each other as told in corporate
combinations. It is called Parent/subsidiary/affiliates. These are financially-related
corporations. If one of them or two of them, one or more suffer from the problem of failure to
meet its debts or obligations as they fall due, they could actually, as a group, file a petition for
rehabilitation (this is a debtor initiated petition for rehabilitation as well). The rules called
them “group of companies.”
2. Creditor-initiated petition – one requirement, the creditor should actually hold at least 20%
of the liabilities of the debtor corporation.
3. Negotiated petition for rehabilitation – is filed JOINTLY by the debtor-corporation and the
creditors. The creditors here should hold at least 2/3 of the liabilities.
Q: Is there any similarity among all of them?
A: Yes, all these petitions have to submit for approval by the court, the so called, REHABILITATION
PLAN. These petitions must submit to the court’s consideration.
Q: What should be the characteristics of this Rehabilitation Plan?
A: it must contain 2 particular matters. Meaning, these matters must be convincingly shown to the
court. (no need to memorize the attachments and documents) but all those attachments must prove 2
things:
1. that the rehabilitation is feasible or it is attainable.
2. you might have successfully shown that it is feasible or attainable, BUT, very important, you
must be able to show in your plan, that the creditors of the corporation WILL BE PAID. There
must be PLAN on how to pay the creditors of the corporation. If there is no part that the plan
would convince the court that creditors could be paid, it will be dismissed.
THESE 2 MUST APPEAR in all your documents.
There is one feature or act which the court has to do. This is one of the most important features of
the petition. When the petition or rehabilitation plan is approved, the court at the same time, will also
issue an order called the STAY ORDER.
But before the stay order, the rehabilitation plan may be objected to by the creditors. There are some
creditors who will actually object because they would prefer a LIQUIDATION of the assets of the
corporation especially those who hold mortgages on real property. Those who are holding mortgages
in real property are not prejudiced. So many of them are going to object. And there are certain
grounds for their objection:
1. The Rehabilitation plan is not attainable.
2. They will look at the plan and say the plan has material omissions or material concealment.
3. It contains material falsities.
4. The items are misleading.
But even if there are objections by creditors, the court may still disregard these objections, if the court
feels that the objections are unreasonable, meaning, no factual basis.
There is a traditional common law doctrine on this, adopted from American Jurisprudence; the so
called concept of a CRAM DOWN PRINCIPLE. It means that the court may still approve the
rehabilitation plan despite the objections of creditors, as long as in the mind of the court, objection is
unreasonable and the plan is attainable.
STAY ORDER
The most important aspect here for the bar is the so called STAY ORDER. This has the effect of
SUSPENSION of payment. And because this is an order, this is immediately executory because these
are orders of the rehabilitation court UNLESS enjoined.
Q: At what point of the proceedings will it be issued?
A: The moment it is filed and when the court realizes that the petition is sufficient in form and
substance. It will know make several orders including the appointment of a rehabilitation receiver.
The stay order is a suspension order.
Q: Now what does Rule 3 of Section 7 say? What are stayed? What are suspended?
A: All claims, whether money or otherwise, against the debtor, against his guarantors and all
persons not solidarily liable with the debtor. Hence if you are jointly liable, the claim against you is
suspended. But if you are solidarily liable with the debtor, it is not suspended. An example of which
are sureties; they are solidarily liable with the debtor.
Q: what is the meaning of “claims”?
A: The same rules define the meaning of claims. It says all claims of whatever nature and character.
All money claims are suspended. An action to collect a sum of money against the corporation is
suspended. Likewise, an action for damages against the corporation is suspended.
EXAMPLE OF SUPREME COURT CASES WHICH ARE NOT MONEY CLAIMS
1. SOBREJUANITE v. ASB DEVELOPMENT CORP.
 Facts: Action for Rescission of a Contract that was filed against ASB Development Corp. by
Sobrejuanite. While the case was pending ASB Development Corp filed a debtor-initiated
petition for rehabilitation.
Issue: Is that action for rescission suspended?
Sobrejuanite’s Argument: It is not suspended because this is not a money claim but an
action for rescission, so it should not be suspended by the stay order.
Ruling: Even an Action for Rescission is also suspended because it has the effect of being a
claim and all claims are stayed of whatever nature and character.

2. HEIRS OF ZAMORA AND GARCIA v. PAL

Facts: The court was already about to render a judgment against PAL, but at that time, PAL
already filed a Petition for Corporate Rehabilitation in 1998.
Issue: Is the rendition of Judgment also stayed and suspended?
Ruling: Yes. It is not only the payment of claims or collections of claims that is
suspended, what is suspended is the proceedings itself, the suit, the action. It cannot
move it has to stay there. It has to stop. It is frozen. Even the rendition of judgment is stayed.

3. MALAYAN INSURANCE v. VICTORIA SMILLING CORPORATION, APRIL 07, 2009

Facts: There was already a Writ of Execution and the same is now supposed to be enforced.
Issue: Is the enforcement of the Writ of Execution also suspended?
Ruling: Yes. Even enforcement of writ of execution is also suspended.

4. Negros Navigation Corp v. CA (December 10, 2008)

Facts: There was a case for the enforcement of Maritime Lien under P.D. 1521.
Issue: Is the enforcement of that maritime lien also suspended?
Ruling: Yes. It is also suspended because of the words “whatever nature and character”
Hence in the Bar Exams, when in DOUBT, SUSPEND IT.
*of whatever nature and character whether in money or otherwise.
5. ABRERA v. BARZA (SEPTEMBER 11, 2009)
Issue: Is the claim against the pre-need corporation also suspended when that corporation
files a petition for rehabilitation?
Ruling: Yes. Because what is suspended is any claim of whatever nature and character.

Q: Are there matters which are not suspended?

A: Yes, there is under the last part of section 7 Rule 3 of the Rules on Corporate Rehabilitation.
The filing of an action to prevent the prescription of your cause of action is not suspended. So if your
cause of action is about to be barred by the statute of limitations, you can file it. BUT hanggang FILING
ka lang. Example, kung may petition for corporate rehabilitation na pending yung corporation na
dinedemanda at mayroong stay order, yung pag-file mo to prevent the prescription is not barred.
Pero hindi uusad ang kaso. Hanggang filing lang.
Examples:
1. A letter of credit was issued by a 3rd party to secure the debtor’s obligation. A claim against
that 3rd person is not suspended or stayed.
2. An action to foreclose a mortgage, where the mortgagor is not the debtor, is not suspended
or stayed.
3. ABC Corporation borrowed money from XYZ Bank. The collateral given by ABC Corporation
is not the property of ABC Corp. but the property of Mr. A. The debt was not paid. The
foreclosure over the property of Mr. A. is not barred because this is not the claim against the
debtor. It is a claim against someone else. If the mortgagor is a third person other than the
corporate-debtor, that foreclosure suit is not barred. But if the mortgagor is the corporation
itself, it is suspended; it is stayed. (Pacific Wide Realty v. Puerto Azul Land Incorporated,
November 25, 2009)
PACIFIC WIDE REALTY v. PUERTO AZUL LAND INCORPORATED
Q: Puerto Azul to finance its expansion operations borrowed money from the bank. But, the
security was not its land. The security was the land of some stockholders. Because of business
reverses, the Puerto Azul filed a petition for rehabilitation. But at the same time, before it filed
a petition for rehabilitation, there was already a foreclosure suit filed by the bank against the
property of the stockholders. Is that foreclosure suit barred or suspended?
A: No. It is not suspended because the mortgagor is not the debtor-corporation. Mortgagor is a third
person, so it is not suspended. That is also in Sec. 7 of Rule 3.
CASTILLO v. UNIWIDE WAREHOUSE CLUB INC. APRIL 30, 2010
Q: This was a case of illegal dismissal filed by a certain Mr. Castillo against corporation,
Uniwide Warehouse Club, Inc. While the illegal dismissal was pending before the Labor
Arbiter, Uniwide filed a petition for rehabilitation. The LA said – suspended, because there
was already a stay order. NLRC said SUSPENDED. Is an illegal dismissal case, suspended or
stayed by the stay order of the rehabilitation court?
A: Yes. This will tell you the extent of the Stay Order. It is suspended because “of whatever nature and
character.” It is stayed.
Q: Why are these claims suspended?
A: Even if the claim is not in court, even if the proceeding is an administrative tribunal, even if it is in
a quasi-judicial body, they are stayed.
ROSARIO v. CO
A case for violation of BP 22 was filed against a corporate officer undergoing rehabilitation is not
suspended; it is not stayed. Because this is a criminal case against a particular officer not involving a
corporation.
So if I, a president of a corporation, is being sued criminally for violation of BP 22, even if the
corporation that I am a president of is under corporate rehabilitation, that criminal case will continue
against me. That is not suspended, that is not stayed.
So you now know, if you are in doubt, what are you going to say? Stayed. If you’re in doubt. But if
you’re filing the case to prevent prescription of the case, to preserve your cause of action, meaning to
prevent the operation of the Statute of Limitations, the filing will not be stayed, but is only up to the
filing. It cannot continue. It is stayed in the meantime (the proceeding)
Claims in the Letters of Credit issued by a third person to secure the obligation of the corporate-
debtor is not covered by the stay order. Foreclosure of mortgage of a property of the mortgagor who
is not the corporate-debtor is not stayed; it is not suspended.
Q: Why is there such thing as a stay order?
A: If we don’t suspend proceedings or claims against the corporation, the corporation rehabilitation
receiver will spend his time defending the suits against the corporation. It can no longer do something
to resuscitate and rehabilitate the corporation. (PAL v. Zamora) To give the corporation a breathing
space; to give it a chance to fully rehabilitate itself instead of defending suits. (Rosario v. Co)
If you do not suspend the claims of creditors, some creditors will be paid, others will not be paid.
Those who did not file will not be paid. But this is not the purpose of rehabilitation. The purpose of
rehabilitation is to pay all creditors because the rehabilitation plan must show that the creditors can
all be paid. The Supreme Court came out with a doctrine: that all creditors must be placed on equal
footing, sabay-sabay silang babayaran later on, suspended lang. Kaya hindi pwedeng mauna bayaran
yung isa, mahuli yung iba, because of the doctrine of equality is equity. Meaning all creditors will be
placed on equal footing, all of them will be paid together. Equality is equity. (Philippine Imports
Corporation v. CA)
CORPORATION CODE
Q: Is a corporation under the Corporation Code created by law?
A: No. The corporations under the Corporation Code are not created by law, they are created by
operation of law.
Q: Is there a lot of difference between these concepts?
A: Yes. When you say a private corporation under the Corporation Code is created by law, that means,
it is created by special law. But when you say created by operation of law, that means, it is created
with the tolerance of the law, with the permission of the law, with the authority of the law; that means
the private corporations under the Corporation Code are created by a general law.
Under your Phil Constitution, you cannot create a private corporation by a special law. Under Sec. 16
of Article 12., Congress shall not, except by general law, provide for the formation, organization and
regulation of private corporations except Government Owned and Controlled Corporations. A private
corporation under the Corporation Code is not created by a special law. That is why it is not created
by law.
Sec. 2. Corporation defined. - A corporation is an artificial being created by operation
of law, having the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence.
Q: What are examples of corporations created by law?
A:
 1. Public Corporations or Local Government
2. Government Owned and Controlled Corporations
CORPORATE ACQUISITIONS
Section 76 of the Corporation Code
Sec. 76. Plan or merger of consolidation. - Two or more corporations may merge into a single
corporation which shall be one of the constituent corporations or may consolidate into a new single
corporation which shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the merger or consolidation, shall
approve a plan of merger or consolidation setting forth the following:
1. The names of the corporations proposing to merge or consolidate, hereinafter referred to as the
constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the same into effect;
3. A statement of the changes, if any, in the articles of incorporation of the surviving corporation in
case of merger; and, with respect to the consolidated corporation in case of consolidation, all the
statements required to be set forth in the articles of incorporation for corporations organized
under this Code; and
4. Such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or desirable.
Kinds of transfer
a. Assets only transfer
b. Business enterprise transfer
c. Equity transfers
d. Merger
e. Consolidation
Q: What is the concept of merger (and consolidation)?
A: A and B corporations, they merged. One is dissolved, only one survives. So B may survive, A will
die. Surviving corporation, dissolved corporation, they are the constituent corporation. In
consolidation, it is different. A and B will consolidate, they die, a new one is born, a consolidated
corporation.
Q: Who will approve the plan of merger and consolidation within the corporation?
A: Members, the stockholders, the board.
Always remember that the vote of the board is always majority vote.
Voting requirement of the outstanding capital stock – 2/3

Amendment of By-laws
Entering into management contract Majority vote
Granting compensation to the board
where there has no compensation before
Q: Do you need the vote of the outstanding capital stock, if the corporation sells its assets,
mortgages its assets, pledges its assets?
A: It depends. Only when it is all and substantially all. But not when it is not all and substantially all
because that would only be a simple act of management, covered by the powers of the board under
the business judgment rule. But if it all or substantially all, you need 2/3 of the outstanding capital
stock; meaning the vote of the stockholders representing at least 2/3 of the outstanding capital stock.
Q: Suppose yung nadissolve na mga corporation ay may utang, merong liabilities, what
happens?
A: The surviving corporation in merger and the consolidated corporation in consolidation are going
to inherit the liabilities and the obligations but they are also going to inherit the rights of the
corporations, the privileges, the franchises and immunities will also be inherited. Yung mga pautang
mo, ako na magkokolekta niyan, yung mga utang mo, ako rin ang magbabayad niyan. That is the effect.
The privileges, the immunities, the franchises are inherited by the new corporation but the liabilities
and obligations are also inherited.
ASSETS ONLY TRANSFER
If the assets are sold and substantially all, you need stockholders’ consent, or if in the non-stock, you
need the members’ consent.
Members – 2/3
Stock – at least 2/3 stock of the outstanding capital.
What is the effect on the liabilities?
Q: X Corp sells some of its assets to another corp. will the buyer-purchaser corporation be
liable for the obligations of the seller corporation?
A: No, unless there is an agreement. Why? Seller-corporation, buyer-corporation, creditors of this
seller-corp. This corporation buys some of its assets. Ang mga utang nito dito sa creditors, problema
niya yan, reason? Because when he sells some of his assets to this, there is no privity of contract
between this and that. That is the simple civil law explanation. Wala akong pakelam sa mga utang mo,
ang concern ko lang sa yo is yung property mo. (Art. 1311, relativity of contracts)
There is no assumption of liabilities, unless there is a stipulation. In fact the answer is common sense.
yung utang mo, utang mo lang, hindi ko utang.
The buyer does not inherit the liabilities of the seller. (Mcleod v. NLRC, January 23, 2007)
BUSINESS ENTERPRISE TRANSFER
What is transferred to the other corporation is the entire business. Yung transferee has no interest
in the juridical personality of the transferor. Ang binibili lang ay business. Everything about the
business. Anong business mo, importation of motor parts from Japan, yung buong business binibili,
hindi lang assets, yung assets na nabibili ay in relation to the business na ginagamit. Buong business
but not the personality of the corporation. Eh ang business may utang, pati yung utang binibili mo.
So there is a transfer of liabilities from the transferor to the transferee because the business might
have debts.
EQUITY TRANSFERS
Equity transfers, eto ay bumibili ka ng shares of stock para maging controlling stockholders. Ang
utang ng corporation ay hindi mo utang. Ang binibili mo lang ay yung controlling part ng corporation
so yung utang ng corporation kanya yan, hindi sa ‘yo.