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Chapter XVI – Dissolution o attempted extension after term has expired: renewal of

Why was there a dissolution? charter which is clearly beyond corporate powers
Nature of dissolution Does dissolution result in application of 81? — corporation can amend its AOI to shorten its term
Key: who initiates the proceedings? o should follow procedure in Sec 37 and 16
— Signifies the extinguishment of3 its franchise
parties: and
State, the termination
creditor, SHs of its  notice to each SH or member
corporate existence or business purpose.
creditors rights: satisfied during winding up  holding of meeting
— May be either de jure or de facto
period of 3 years when board undertakes  vote of 2/3 OCS
o De jure: one adjudged andactiondetermined by administrative or judicial  filing certified copy of amended AOI with SEC
sentence or brought aboutonlyby an act
one of the sovereign
purpose power to wind
during liquidation:  approval of amendment within 6 mos by SEC
o De facto: one which takes up place in substance and in fact when the
corporation by reason of insolvency, cessation of business, or
suspension of all its operations, goes into liquidation, still retaining Sec 120
its primary franchise to be a corporation

Cause of dissolution
— 120: corporation automatically dissolved upon the happening of
either of two events:
o approval of amended AOI or
— Defn of dissolution: the corporation ceases to be a juridical person and o expiration of shortened term
consequently can no longer continue transacting its business, but may — no need of further proceedings
continue its corporate existence for a period of 3 years from such o expiration before SEC approval: no automatic dissolution
dissolution for the purpose of winding up and liquidation o expiration after SEC approval: dissolution can take effect only
— Defn of winding up: collection of all assets, payment of all creditors, upon the expiration of sich shortened term
distribution of all remaining assets (if any) among the SHs — SH has appraisal right if he dissents to either the extension or
— Defn of liquidation: the settlement of the affairs of the corporation shortening of term
which consists of adjusting the debts and claims, that is, of collecting all
that is due the corporation, the settlement and adjustment of claims 2. voluntary dissolution when no creditors affected
against it and the payment of its just debts (China Bank v M Michelin)
Sec 118
— Ways in which a corporation is dissolved:
— voluntary dissolution requires an act of state to be effective
1. expiration of original, extended or shortened term
— a corporation can be dissolved voluntarily where no creditors are
— life of corporation= not exceed 50 years affected, through an administrative application for dissolution
filed with the SEC
— once the period in the AOI expires, the corporation is automatically
dissolved without any further proceeding; corporation is deemed o process is equivalent to an application for amendment of the
dissolved by such expiration without need for further action on the AOI, except that dissolution should be published
part of the corporation or the State — Summary of procedural requirements
— In Sec 11: corporate term may be extended by an amendment of the o Majority vote of the board adopting a resolution
AOI but cannot be made earlier than 5 years prior to the original or o Sending of notices to each SH
subsequent expiry date  By registered mail or special delivery
o cannot even be considered a de facto corporation  Time, place, object of meeting
o original term cannot be more than 50 years  At least 30 days prior to meeting
o each extension= 50 years o Publication of notice of meeting for 3 consecutive weeks
o number of extensions= unlimited  Newspaper published where the principal office is
o extension may be accomplished by amending the AOI before located
expiration of term  Newspaper of general circulation
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o Resolution duly approved by vote of 2/3 OCS receiver
o Certified copy of the resolution filed with SEC o SEC retains supervision in either case
o SEC issues certificate of dissolution — Vote of 2/3 OCS is required to signify corporation’s intent to
— SEC will generally not deny an application for dissolution where no dissolve
creditors are involved o GR: No member may prevent such dissolution
— Sec 130 on the other hand does not require publication for the o Exception: majority SH acted in BF or for the purpose of
shortening of the corporate term “freezing out” the minority
— Certificate of dissolution issued by SEC is the act of State which will
legally effect the dissolution Sec 122
o Mere resolution not sufficient without the certificate
o Except: expiration of term (no need for certificate) 4. dissolution by minority in close corporations

3. voluntary dissolution where creditors affected — Code requires vote of 2/3 OCS
— Two special rules on dissolution of close corporations:
— basis: creditors must be given the opportunity to present their o Deadlocks; in its exercise of power to arbitrate, SEC is
claims and objections to protect their interests and rights authorized to order dissolution
o Sec 105:
Sec 119
Sec 105
— a corporation can be dissolved voluntarily where creditors are affect,
through a petition for dissolution filed with the SEC, with due notice — Can the minority group in a non-close corporation petition for
and hearing dissolution under the grounds in 105?
o quasi-judicial in nature o Campos: express grant of such right of the minority in close
o SEC is not mandated to dissolve corporations should not be interpreted to preclude the right
— Summary of procedural requirements: to the minority in non-close corporations
o File petition for dissolution:
 Signed by majority of the board or corporate officers Financing Corporation v Teodoro. F: Lizares et al, minority SHs of
 Verified by president or corporate secretary or a director the Financing Corp of the Phils, sued the corporation and J Amado
 Set forth all claims and demands against it Araneta, its president and GM, alleging gross mismanagement and
 Resolved upon by vote of 2/3 OCS at a meeting fraudulent conduct of the corporate affairs by Araneta and asking
o SEC determines whether the petition is sufficient in form and that the corporation be dissolved and Araneta be declared personally
substance accountable for the unauthorized and fraudulent disbursements of
o If satisfied, SEC shall issue an order fixing the date on or before the corporate assets. Judge Teodoro granted petition for appointment
objections may be filed by any person of a receiver (Yulo). The corporation contends that the appointment is
 30 days<date<60 days merely an auxiliary remedy; that the principal remedy was the
o order published in a newspaper of general circulation at least dissolution of the corporation, and that the minority SHs have nor
once a week for 3 consecutive weeks right and personality to maintain an action for dissolution, that right
o SEC hears petition and try any issue upon 5 days notice belonging only to the State.
 If no objections and material allegations are true…
 …SEC renders judgment dissolving the corporation and H: GR: minority SHs of a corporation cannot sue and demand
directing disposition of its assets dissolution. Exception: if they are unable to obtain redress and
 may appoint a receiver to collect assets and pay the protection of their rights within the corporation (Hall v Piccio). Even
debts the existence of a de jure corporation may be terminated in a private
— SEC may direct the manner in which liquidation of corporate assets suit for its dissolution by SHs without the intervention of the State.
should be made by assigning the task to the corporation itself or to a
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The question of the right of minority SHs to ask for dissolution in Hall — by-laws must be adopted within one month of receipt of notice of
was held not to affect the court’s jurisdiction over the case, and that the the issuance of the certificate of incorporation, otherwise the
remedy by the party dissatisfied was to appeal. certificate may be suspended or revoked
— corporate business must be commenced within 2 years,
GR: minority SHs cannot ask for dissolution in a private suit, and that otherwise corporation deemed dissolved and corporate powers
action should be brought by the government through its legal officer. will cease
Exception: cases wherein the intervention of the State cannot be o corporation would neither be a de jure or de facto corporation
obtained because the complaint is a matter strictly between the SH and — transacting business implies a continuity of acts or dealings in the
the corporation and does not involve issues which involve accomplishment of the purpose for which the corporation was
formed (Mentholatum case infra)
acts/omissions warranting a quo warranto. When such action is brought,
o even a single act would be sufficient if it is intended to be a
the TC has jurisdiction and has discretion to grant the prayer or not.
series of acts in pursuance of the corporate business
Having such jurisdiction, the appointment of e receiver pendent elite is
o but must take place within the 2-year period
left to the sound discretion of the TC. In Angeles v Santos, it was held
— Art 3 of Code of Commerce: presumption of habituality
that it is within the power of the court upon proper showing to appoint a o Rebuttable
receiver pendente lite once the action is properly brought and court
— Sec 22: corporate powers will cease, and corporation will be
acquires jurisdiction. deemed dissolved if not complied with the 2-year requirement
— If corporation commenced its business within 2 years but
The appointment of a receiver upon petition by the minority SH is a discontinues for at least 5 continuous years, certificate of
power that must be exercised with great caution, and should be incorporation may be revoked by SEC
exercised when necessary to protect their rights, especially when they o No automatic dissolution
cannot obtain redress through or within the corporation. SC ruled that o SEC proceeding necessary
the TC had jurisdiction and properly entertained the original case and o Notice must be given to the corporation and opportunity to
had jurisdiction to appoint a receiver pendente lite. be heard
— If the corporation fails to commence operation within the 2 year
period but does so only after the 2-year period lapses:
5. failure to organize and commence business; cessation of o Doctrine of corporation by estoppel may apply
business for 5 years o Innocent third persons cannot be prejudiced by such
dissolution
— “organize”: involves the election of officers, providing for
subscription and payment of capital stock, adoption of by-laws, and 6. involuntary dissolution
other such steps as necessary to endow the legal entity with the
capacity to transact the legitimate business for which it was created Sec 121
— “organization”: the systematization and orderly arrangement of the
internal and managerial affairs and organs of the corporation — a corporation may be dissolved by the SEC upon a filing of a
— “commence business”: perform preparatory acts geared towards the verified complaint and after notice and hearing
fulfillment of the purposes for which it was established such as but — Grounds for involuntary dissolution:
not limited to: a. Does not formally organize and commence business
o entering into contracts or negotiations for lease or sale of within 2 years from date of incorporation—corporate
properties power ceases and corporation is deemed dissolved
o making plans for and the construction of the factory b. Subsequently becomes continuously inoperative after
o taking steps to expedite construction commencing business for at least 5 years
c. Failure to adopt by-laws
Sec 22 d. Offended against a provision of law for its creation or
renewal

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e. Commission/omission of an act tantamount to a surrender of The other directors argue that the petition should be dismissed as to
corporate rights and privileges Cuenco because his claims did not arise out of the transactions the
f. Misuse of a right, privilege, franchise conferred by law or the subject matter of the quo warranto, which did not assert any claim
exercise of the same in contravention of law against any of the directors. TC denies MTD the quo warranto.
g. Continuance of business would not be feasible or profitable Corporation then filed a motion for judgment on consent, manifesting
nor work to the best interests of SHs, parties, creditors, its consent to the ordering of the dissolution of the corporation, and
general public ordered the board to proceed with the liquidation of its assets. It
i. Based on findings and recommendations of a contended that the pendency of the quo warranto petition had
management committee or receiver
prejudiced the corporation and its business, and that immediate
h. Guilty of fraud in procuring certificate of registration
relied be given the corporation. It also alleged that the majority of the
i. Guilty of serious misrepresentation
j. Refusal to comply or defiance to a lawful order of the SEC
board and 2/3 SHs acceded to the request to dissolve as the most
k. Failure to file required reports feasible remedy to its problems. Republic moves that the matter of
implementation of the dissolution be submitted to the TC for
(1) revocation of certificate of registration by SEC judgment. Cuenco concurs but urges the appointment of a receiver.
Directors not Cuenco filed a motion to withdraw its previous motion
— certificate of registration refers to certificate of incorporation for judgment on consent on the ground that the conditions to which
— other grounds for suspending or revoking certificate are motion was subject had not been accepted. Cuenco opposes
recognized. Examples: withdrawal and pressed for appointment of receiver. TC denied
o violation by the corporation of any provision in the Corpo motion to withdraw. Corporation appeals. SolGen Barredo moved to
Code dismiss quo warranto proceedings, to which Cuenco opposed. TC
o deadlock in a close corporation grants Republic’s motion but denies Cuenco’s crossclaim.
o grounds for quo warranto I: W/N the TC should have ordered dissolution upon its motion and not
o Sec 3 Rule 66 of ROC the Republic’s, as it amounted to a confession of judgment.
o Non-compliance with 25% minimum requirement for H; A motion for judgment on consent is not to be equated with
subscription and/or paid-up capital judgment by confession. There must be an unqualified agreement
o Continuous inoperation for 5 years among the parties to the action entered in the record with leave of
o Non-adoption or non-filing of by-laws within 1 month court. A judgment by confession is not a plea but an affirmative and
o Failure to submit annual report of financial statements of voluntary act of the defendant himself. In this case, there was no
assets and liabilities meeting of the minds among the parties with respect to the motion
for judgment on consent. Corporation wanted its liquidation to be
effected by its Board. Cuenco wanted the appointment of a receiver
(2) quo warranto proceedings in agreeing to dissolution, and after his cross-claims were considered.
Before the parties could come to an unqualified agreement, the
— PD 902-A grants exclusive jurisdiction to the SEC over any corporation moves to withdraw its motion for judgment on consent. It
controversy between the corporation and the State is clear that the parties could not agree as to the terms of dissolution,
and the TC correctly rendered judgment dissolving the corporation.
Republic v Bisaya Land Trans Co. F: Government files petition for quo
I: W/n TC was wrong in not granting quo warranto because the
warranto against the Bisaya Land Tranpo Co and its board, and asks for
evidence presented fails to constitute grounds for quo warranto
the appointment of a receiver pendente lite, alleging that the H: TC found that the alleged misuse of funds were committed more
corporation, through the board, violated the provisions of the
particularly by Dr Manuel Cuenco with the cooperation of Velez, for
Corporation Law as outlined in 9 causes of action. Miguel Cuenco, a which they are personally liable. The alleged illegal corporate acts
member of the Board, sets up a cross-claim against the other members
had not resulted in substantial injury to the public, nor were they
to recover P4M arising for illegal acts of the corporation of which willful and clearly obdurate. It found that the controversy between
damage was caused him, and asks for the appointment of a receiver.
the parties was more personal than anything else and did not at all
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affect public interest. Such private controversies can be ventilated in to reimburse the petitioners the amount of P 289,260.88 + damages.
appropriate SHs suit which do not have to occupy the time and attention The RPBank, Philsucom and herein respondent SRA moved to dismiss
of government officials. The SolGen himself admits that his reason for the complaint upon the ground of lack of cause of action. Philsucom
the MTD is to take the State out of an unnecessary court litigation. Relief and respondent SRA through the Solicitor General, denied any
by dissolution would only be awarded where no adequate relief is obligation on the part of the Philsucom to return any amount to
available, and is not available where the rights of SHs can be or are petitioners on account of allegedly unauthorized deductions from the
protected in some other way. proceeds of petitioners' sugar sold by the Philsucom. For its part, the
I: W/N the SolGen, as the lawyer for the Republic, was vested with full SRA also noted that while the deductions complained of were made
power to manage and control the State’s litigation. by the Philsucom during the period from 1980 to 1984, the SRA itself
H: GR: the SolGen may do so with the approval of the court, subject to had been created by Executive Order No. 18 only on 18 May 1986
well-defined exceptions. If it is discovered that the action commenced and that it was not a party to the real estate mortgage between
was brought for the purpose of enforcing a right, the advisability or petitioners and the RPBank.
necessity of which he later discovers no longer exists, then he should be
permitted to withdraw his action. Courts should not require parties to H: Executive Order No. 18, promulgated on 28 May 1986, abolished
litigate whey they no longer desire to do so. Thus the SolGen was within the Philsucom, created the SRA and authorized the transfer of assets
his power to move to dismiss the petition for quo warranto, and the TC from Philsucom to SRA. Although the Philsucom is hereby abolished, it
was correct in dismissing Cuenco’s cross-claim, and receivership is shall nevertheless continue as a juridical entity for three years after
ordered terminated. the time when it would have been so abolished, for the purpose of
prosecuting and defending suits by or against it and enabling it to
— Dissolution is a serious remedy granted to the courts against settle and close its affairs, to dispose of and convey its property and
offending corporations. Courts, as a general rule, should not to distribute its assets, but not for the purpose of continuing the
resort to dissolution when the prejudice is not against the public functions for which it was established, under the supervision of the
or not an outright abuse or violation of the corporate charter. Sugar Regulatory Administration. (Emphasis supplied). We note that
Even if the prejudice is public in nature, the remedy is to enjoin Executive Order No. 18 did not provide for universal succession, as it
or rectify the mistake. Only when it cannot be remedied were, of SRA to Philsucom, or more specifically to the assets and
anymore then that dissolution can come in. liabilities of Philsucom. The SRA has been authorized to determine
which of the assets and records of Philsucom are required for the
Gonzales v Sugar Regulatory Administration. F: Spouses Gonzales carrying out of the activities which the SRA is to carry on or
obtained a loan from the RPBank in the amount of P 176,000.00 secured undertake. The succession of the SRA to the assets and records of the
by a real estate mortgage. The proceeds of the loan were released on a Philsucom is thus limited in nature; the extent of such succession is
staggered basis and the loan was "payable from [the] 1980-1981 sugar left to the discretionary determination of the SRA itself. More
crop, " the amortization payments to be remitted by the Philsucom to importantly, Executive Order No. 18 is silent as to the liabilities of
the RPBank. The RPBank is owned and controlled by the Philsucom. Philsucom; it does not speak of assumption of such liabilities by the
Gonzales received a statement of account from the RPBank setting forth SRA.
that they had an outstanding loan balance due to the bank of P
652,446.38. It appeared that the Gonzaleses had received the total The Philsucom, it will be seen, succeeded as a matter of course to all
amount of P l,041,610.55 in loan funds from the RPBank and that they the assets, liabilities and records of the Philippine Sugar Institute and
had re-paid thereon the total amount of P 1,051,296.77; in other words, the Sugar Quota Administration. The SRA did not, quite possibly
they had already more than fully repaid their loan. The Gonzales further because the Government wanted the opportunity to examine the
averred that Philsucom had deducted from the export sugar proceeds of assets, liabilities and records carefully and to determine the
petitioners the amount of P 421,517.32 without their authority and compatibility of (asserted) liabilities of the Philsucom with applicable
consent with the result that the spouses had overpaid the RPBank by P law and relevant requirements of public policy and the public interest.
289,260.88. the spouses prayed that the real estate mortgage be
cancelled, and that Philsucom and SRA be required jointly and severally

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That the assets of the Philsucom must respond for payment of lawful second paragraph of Section 122 of the Corporation Code. Should
obligations of Philsucom, does not appear to require demonstration. The Philsucom decline to so appoint SRA as trustee, the principles set
assets which, in accordance with the second paragraph of Section 13 of forth above would of course apply, mutatis mutandis, in respect of
Executive Order No. 18, may be taken over by the SRA can thus be only whichever public agency may find itself actually holding the assets
net or residual assets, assets remaining after payment of the valid and and records of Philsucom.
enforceable liabilities of Philsucom has been made or been adequately
provided for. We believe, in other words, that Section 13 of Executive We conclude that dismissal of petitioners' complaint against
Order No. 18 is not to be interpreted as authorizing respondent SRA to respondent SRA was clearly premature. Petitioners have a cause of
disable Philsucom from paying Philsucom's demandable obligations by action against SRA to the extent that they are able to prove lawful
simply taking over Philsucom's assets and immunizing them from claims against Philsucom, which claims Philsucom is or may be
legitimate claims against Philsucom. The right of those who have unable to satisfy, and to the extent respondent SRA did, or does, in
previously contracted with, or otherwise acquired lawful claims against, fact take over all or some of the assets of Philsucom. At the very
Philsucom, to have the assets of Philsucom applied to the satisfaction of least, the motion to dismiss was not shown to rest upon indubitable
those claims, is a substantive right and not merely a procedural remedy. grounds and should, therefore, have been denied not only in respect
Section 13 cannot be read as permitting the SRA to destroy that of Philsucom but also in respect of respondent SRA.
substantive right. We think that such an interpretation would result in
Section 13 of Executive Order No. 18 colliding with the non-impairment H: The termination of the life of a juridical entity does not by itself imply
of contracts clause of the Constitution insofar as contractual claims are the diminution of extinction of rights demandable against such juridical
concerned, and with the due process clause insofar as the non- entity among which would be the priority claims of corporate creditors
contractual claims are concerned. 5 To avoid such a result, we believe against corporate assets. Since the assets must respond for payment of
and so hold that should the assets of Philsucom remaining in Philsucom lawful obligations of a dissolved corporation, then it is required that the
at the time of its abolition not be adequate to pay for all lawful claims succeeding corporation would be liable for all such lawful claims to the
against Philsucom, respondent SRA must be held liable for such claims extent of the fair value of assets actually taken over.
against Philsucom to the extent of the fair value of assets actually taken
over by the SRA from Philsucom, if any. To this extent, claimants against No person who assets a claim against a juridical entity can claim any
Philsucom do have a right to follow Philsucom's assets in the hands of constitutional right to the perpetual existence of such entity. Juridical
SRA or any other agency for that matter. This result appears no more persons, whether incorporated or not, whether owned by the government
than a dictate of elementary fairness, particularly when one takes into or the private sector, may come to any end at one time or another for a
account that under Section 11 of Executive Order No. 18, the SRA will variety of reasons, ex the fulfillment or abandonment of the business
continue, "until otherwise provided, as directed and ordered by the purposes for which a corporation was set up. Thus the Code provides for
termination of corporate life, the dissolution of the corporation, the
President of the Philippines," to collect and receive the proceeds of
winding up of its operations, the liquidation of its assets, the payment of
"levies, charges and other impositions as [then] granted by law, decree
its obligations and distribution of any residual assets to its SHs.
and/or executive order, to the [Philsucom]." Whether the deductions
here assailed by petitioners are included among the "levies, charges and
Termination of life of a juridical entity does not by itself imply the
other impositions" then made by Philsucom and now continued by SRA
diminution or extinction of rights demandable against a juridical entity.
must be determined by the trial court. Consequently, when the assets of a dissolved entity are taken over by
another entity, the successor entity must be held liable for the
Petitioners have noted in this connection that the three (3) year period obligations of the dissolved entity pertaining to the assets so assumed, to
provided for in the third paragraph of Section 13 of Executive Order No. the extent of the fair value of assets actually taken over.
18 is about to expire. There is nothing to prevent Philsucom from
appointing a trustee SRA for instance and conveying all its properties to
such trustee, for the benefit of the Government, creditors and other Effects of dissolution; winding up and liquidation
persons in interest, following at least by analogy the provisions of the

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— GR: no personality after dissolution workers in Region 9 were not. Pepsi Distributors appeals to NLRC,
— Exception: liquidation and liquidation only which affirms. Pending resolution of its MR, ownership of various
— Termination itself of personality does not cause extinction or Pepsi-Cola bottling plants was transferred to petitioner Pepsi-Cola
diminution of rights and liabilities of the dissolved entity nor of Products Philippines, Inc. (PCPPI). The PCDP alleged that it had ceased
its creditors (Gonzales) to exist as a corporation on July 24, 1989 and that it has winded up its
— During the 3-year liquidation period, the dissolved corporation is corporate affairs in accordance with law. It also averred that it was
authorized and empowered to convey all of its property to now owned by PCPPI. NLRC dismisses complaint, holding that with the
trustees for the benefit of SHs, creditors, and other persons in cessation and dissolution of the corporate existence of the PCDP,
interest
rendering any judgment against it is incapable of execution and
o If expired without a trustee or receiver, board may be
satisfaction. The CA reverses, and declared that the PCDP was still in
permitted to continue as trustees
existence when the complaint was filed, and that the supervening
o In the absence of the board or trustees, those having
dissolution of the corporation did not warrant the dismissal of the
pecuniary interest in the assets may make proper
complaint against it. After all, the appellate court ratiocinated, every
representations with the SEC for working out a final
settlement of corporate concerns corporation is given three (3) years to wind up its affairs. Hence, in
— All interests which the corporation has in the corporate property case any litigation is filed by or against the corporation within the
terminates, and legal interest vests in the trustees, and three (3)-year period which could not be terminated within the
beneficial interest in the SHs, creditors or other persons in expiration of the same, such period must necessarily be prolonged
interest until the final determination of the case.
— Any asset undistributable to any creditor or SH shall be
escheated to the city or municipality where such assets are H: Under Section 122 of the Corporation Code, a corporation whose
located corporate existence is terminated in any manner continues to be a
— A corporation in process of liquidation has no legal authority to body corporate for three (3) years after its dissolution for purposes of
engage in any new business, even if consistent with its primary prosecuting and defending suits by and against it and to enable it to
purpose settle and close its affairs, culminating in the disposition and
distribution of its remaining assets. It may, during the three-year
Sec 122 term, appoint a trustee or a receiver who may act beyond that period.
1. loss of juridical personality At any time during the said three (3) years, the corporation is
authorized and empowered to convey all of its properties to trustees
— except for the purpose of winding up its affairs for the benefit of stockholders, members, creditors, and other
— cannot even be a de facto corporation
persons in interest. From and after any such conveyance by the
— existence cannot be subject to collateral attack
corporation of its properties in trust for the benefit of its stockholders,
— cannot enter into new contracts
— during 3 year period, corporation must collect all debts owing to
members, creditors and others in interest, all interest which the
it and pay all its creditors corporation had in the properties terminates the legal interest vests
— it may sue and be sued in the trustees, and the beneficial interest in the stockholders,
— all pending actions by or against the dissolved corporation abate members, creditors or other persons in interest.

Pepsi-Cola Products Phils. v CA. F: Pepsi-Cola Products Philippines, Inc. Upon the winding up of the corporate affairs, any asset distributable
Employees and Workers Union (PCEWU), a duly- registered labor union of to any creditor or stockholder or member, who is unknown or cannot
the employees of the Pepsi-Cola Distributors of the Philippines (PCDP) be found, shall be escheated to the city or municipality where such
filed a Complaint against PCDP for payment of overtime services assets are located.
rendered by fifty-three (53) of its members, for work done during 8
Muslim Holidays. LA held that workers in Region 12 were entitled, but Except by decrease of capital stock and as otherwise allowed by this
Code, no corporation shall distribute any of its assets or property
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except upon lawful dissolution and after payment of all its debts and as a body corporate for 3 years after the time when it would have
liabilities. been dissolved, for purposes of prosecuting and defending suit by or
against it. During the time which the corporation, through its officers,
The termination of the life of a corporate entity does not by itself cause may conduct the liquidation of assets and sue and be sued as a
the extinction or diminution of the rights and liabilities of such entity. If corporation is limited to 3 years from the time period of dissolution
the three-year extended life has expired without a trustee or receiver commences, but that there is no time limit within which trustees
having been expressly designated by the corporation, within that period, must complete a liquidation placed in their hands. The conveyance to
the board of directors (or trustees) itself, may be permitted to so the trustees must be made within the 3 year period. It may be found
continue as "trustees" by legal implication to complete the corporate impossible to complete the work of liquidation within the 3 year
liquidation. period or to reduce dispute claims to judgment. Suits by or against a
corporate abate when it ceased to be an entity capable of suing or
National Abaca v Pore. F: National Abaca Corp sued Apolonia Pore to being sued; but trustees to whom the corporate assets have been
recover money advanced for the purchase of hemp for the account of conveyed pursuant to the authority of the code may sue and be sued
the corporation for which she failed to account therefor. Pore in defense, as such in all matters connected with the liquidation. The effect of
contends that she made an accounting of the advances received by her. conveyance is to make the trustees legal owners of the property
TC held her accountable and ordered to her to pay the corporation. conveyed, subject to the beneficial interest therein of creditors and
SHs. The complete loss of Abaca’s corporate existence after the
Pore moved to dismiss on the ground that the corporation had no legal expiration of 3 year period is what impelled the creation of the Board
capacity to sue, it having been abolished by EO 372. Corporation of Liquidators, to continue the management of pending matters.
contends that the EO also stipulates that it shall continue as a body
corporate for 3 years from date of effectivity of the EO, for the purpose — GR: in the absence of statutory rules to the contrary, pending actions
of defending and prosecuting suits and enabling the Board of Liquidators by or against a corporation are abated upon the expiration of the 3-
to settle and close all its affairs. year period allowed by law for liquidation

TC ordered corporation to amend the complaint by including the Board 2. executory contracts
of Liquidators as co-party plaintiff, otherwise case shall be dismissed.
The corporation fails to submit amended complaint, and the TC — executory contracts are not extinguished by dissolution
dismisses case. Corporation in seeking reconsideration, said that it was — all rights and obligations in an executory contract pass on to
a liquidating trustee or receiver
not able to submit the amended complaint on time because of the
negligence of the filing clerk, Ms Ocampo, and that it was lost despite
Sec 145
diligent efforts to look for it. TC denies motion.
3. methods of liquidation
I: W/n an action, commenced within 3 years after the abolition of the
corporation, may be continued by the same after expiration of the 122
period. NO
— manner of liquidation or winding up may be stipulated in the
W/m the TC was correct in dismissing motion. NO. should have granted by-laws
the motion… — three methods of liquidation:

H: GR: pending actions by or against a corporation are abated upon the a. liquidation by the corporation itself through the
expiration of the period allowed by law for liquidation. The old corpo law Board—the normal procedure is for directors and officers
contains no provision authorizing a corporation after 3 years from to have charge of the winding up operations, though
there is the alternative method of assigning the property
expiration of its lifetime, to continue in its corporate name actions
to the trustees for the benefit of creditors and SHs. While
instituted by it within a period of 3 years. It provides that it will continue
8
the appointment of a receiver rests with the sound discretion proportion to their interest
of the court, such discretion must be exercised with caution — liquidating dividend: share of each SH in the assets upon
and governed by legal and equitable principles (China Bank liquidation
v Michelin) o not a partition of corporate assets among co-owners but
i. authority of the board to manage the corporate a transfer or conveyance by the corporation to its SHs
affairs includes the power to undertake the and therefore exempt from doc stamps (SHs of Guanzon
liquidation of corporate affairs case)
ii. 3-years to liquidate — director or liquidator may be liable for negligence or fraud to
b. conveying all corporate assets to trustees who will a creditor prejudiced by distribution of dividends
take charge of liquidation o may follow the assets in the hands of SHs who received
i. 3-year limitation does not apply them as dividends (Tan Tiong Bio case)
ii. but trusteeship may be limited in duration by the — GR: corporation cannot distribute any of its assets or property
deed of trust — Exception: lawful dissolution and after payment of debts and
iii. trustee may sue even beyond the 3 year period liabilities
c. liquidation conducted by a receiver appointed by the o GR: SH cannot get back any part of his invested capital
SEC upon decree of dissolution until dissolution and liquidation
i. 3-year limitation does not apply o Exceptions:
ii. mere appointment of receiver does not result in  Decrease of capital stock: results in a surplus
dissolution which can be distributed to SHs provided no
— receiver in liquidation stands on a different legal basis from a creditors are prejudiced
trustee in liquidation  Otherwise allowed by the Code:
o trusteeship: basically a contractual relationship, governed by
• Appraisal right under 81 and 42
the Law on Trust, such that the trustee assumes naked title
• Deadlock in a close corporation (104)
to the property placed in trust
• SH of close corp can compel the corp to
 it is a relationship created by a corporation through
its board without need of judicial authorization buy his shares at fair value for any reason
(105)
 trustee in liquidation is not appointed by any court,
but he is actually a transferee who holds legal title to • Corporation repurchases shares of any SH
the corporate assets and is accountable under the for legitimate corporate purpose (41)
trust agreement • Corporation validly distributes dividends
o receivership: created by means of judicial or quasi-judicial (43)
appointment of a receiver — Directors/trustees/liquidators must still act with due diligence
 receiver is actually an officer of the court and is and GF in settling corporate affairs
accountable to the court — Duty of the liquidator to look for creditors with reasonable
diligence
 SEC is empowered to create or appoint a
o Notice by publication sufficient
management committee, board or body to
undertake the management of a corporation o SEC should not order dissolution without giving creditors
— if three year period expires, a creditor may still sue the trustee opportunity to be heard
or follow the corporate assets in the hands of SHs who may have o Creditors prejudiced by distribution of assets can attack
received the same as liquidating dividends its validity for lack of due process

China Banking Corporation v. Michelin & Co. F: George O’Farrel &
4. distribution of assets after payments of debts Cie Inc is a domestic corporation acting as agent and representative
of the M Michelin & Cie, a foreign corporation engaged in the sale and
— remaining assets, if any, must be distributed to the SHs in distribution of Michelin tires. Michelin decided to discontinue their

9
business relations, and it was discovered that O Farrel failed to account themselves.
for an amount representing the price of tires sold by the latter. Michelin
claims the money was disposed by O Farrel for its own use and benefit China Bank’s motion was filed 13 months after the decree of
and without the authority or consent of Michelin. Gaston O’Farrel (the dissolution was entered, thus the motion was flied on time to have its
person) and Sanchez executed a mortgage on the house of O’Farrel and claim reviewed by the court. The appointment of Gaston as the
shares owned by both to guarantee payment of the amount to the receiver, who was also the principal promoter of the corporation and
Michelin, but left a balance which the latter seeks to recover. The board at one time the majority SH, president, and GM, lends itself to serious
of O’Farrel filed a petition for its dissolution and sought the appointment suspicion. His administration of the business left much to be desired
of Gaston as receiver and liquidator, which was granted by TC. Michelin and that he alone ought to be blamed for the shortage claimed by
filed its claim against O’Farrel Corp with a prayer that its claim be Michelin, but to save himself he made the corporation shoulder the
allowed as a preferred one against the latter. TC grants motion of burden of obligations in exchange for a simulated conveyance of his
Michelin. Nobody except Michelin and Gaston was notified of the order. house and shares to the corporation. Once delinquent, Gaston
China Bank intervened and moved that Michelin’s claim be allowed as resorted to a judicial proceeding of voluntary dissolution in an
an ordinary one under the Insolvency Law and sought the nullification of attempt to settle Michelin’ claim and to free himself from any liability,
the TC orders. and allowed the claim to be a preferred claim without informing or
H: Claims against a corporation in the hands of a receiver should not be notifying interested parties, such as China Bank, which also had a
approved and paid without some formal and regular proceeding after a claim.
reasonable opportunity is given to all parties in interest.
Michelin’s claim cannot be allowed as a preferred claim, because the
The SC held that the provisions of the Insolvency Law should operate. merchandise was no longer in the corporation’s possession. The
There is no reason for the corporation to resort to the court for a decree rubber tires consigned were to be sold on order, and the claim for the
of voluntary dissolution. If the corporation was under such a financial advance seems to be in the nature of a current account between the
condition as alleged, and did not desire to continue doing business, two companies more than anything else.
there is no necessity for judicial intervention in the winding up of affairs
coupled with the appointment for a receiver to deal with creditors as
though they were creditors of an insolvent corporation. Under the old Republic v Marsman Devt Co. F: Marsman is a lumber company. An
corpo law, with respect to decrees of dissolution upon voluntary investigation was conducted and certain taxes due from logs
application, the court may appoint receivers to collect and take charge produced from its timber concession granted by the government. CIR
of the assets. It is permissive and not mandatory, because in cases of demanded payment representing three assessments made on forest
voluntary dissolution there is no occasion for the appointment of a charges, deficiency sales tax and other surcharges and penalties.
receiver except under special circumstances. Such discretion on the part Counsel for the corporation requested for reinvestigation, but was
of the court to appoint must be exercised with caution. IT does not denied unless the legal requirements for such a request were
empower the court to hear and pass upon the claims of creditors of the complied with and payment of ½ of total assessments were made,
corporation at first hand. In such cases, the receiver does not act as a and to furnish a bond to guarantee payment of the balance. The
receiver of an insolvent corporation. Since liquidation consists of corporation repeated failed to comply with the conditions set by the
collecting all that is due the corporation, all claims must be presented CIR, which was constrained to make extrajudicial demand for the tax
for allowance to the receiver or trustees during winding up, within 3 liabilities. Marsman was then extrajudicially dissolved. BIR files a
years as provided in Corpo Law. The rulings of the receiver are subject to complaint for its demands after more than 3 years following the
judicial review by the court which appointed him. corporation’s dissolution, and the TC sentenced the corporation to
pay the amount demanded by CIR.
The normal method is for directors/officers to have charge of the H: TC did not err in holding that the period to question the tax
winding up, though there is the alternative method of assigning property assessments had already expired. By its own omission, the
of the corporation to trustees. The law authorizing voluntary dissolutions corporation made it possible for the BIR to act on its own MR. Mere
are generally held to apply only to dissolutions brought about by the SHs filing of a motion does not suspend the running of the period for

10
collection of the tax, which implies that any assessment made by the H: Tan Tiong, as substitute parties-in-interest, cannot now be heard to
BIR is supposed to be final and executory as to the taxpayer concerned. complain that they were being held liable for the tax due from the
I: w/n present action is barred by prescription, in light of the fact that the corporation whose representation they assumed and whose assets
corporation law allows corporations to continue only for 3 years after its are distributed to them.
dissolution, for the purpose of presenting or defending suits by or
against it, and to settle its affairs. no The creditor of a dissolved corporation may follow its assets once
H: Stress given by Marsman on the extinction of corporate personality they passed into the hands of a SH. The dissolution of a corporation
by virtue of its extra0judicial dissolution is misplaced. The assessments does not extinguish debts due or owing to it. A creditor of a dissolved
against the corporation were made before its dissolution and not later corporation may follow its assets, as in the nature of a trust fund, into
than 6 months after dissolution. Thus the government became the the hands of the SHs. The hands of government cannot collect taxes
creditor of the corporation before the completion of its dissolution. from a defunct corporation, it loses thereby none of its rights to
Burgess the liquidator became in law the trustee of all its assets for the assess taxes due, and to collect the taxes due from the corporation
benefit of all person interested, including the government. It is from persons who by reason of transactions with the corporation, hold
immaterial that the present action was filed after expiration of the 3 property against which the tex may be enforced. Court ruled that the
year period, because the assessment definitely established the net profit remained intact and was distributed among the SHs
government as a creditor of the corporation for whom the liquidator is immediately after sale of surplus. Tan Tiong et al are thus the
supposed to hold corporate assets. beneficiaries of the defunct corporation and should be held liable to
pay the taxes, but only in proportion to their respective shares in the
— Code provides for a 3-year period for continuation of the corporate distribution of assets.
existence for purposes of liquidation
— But there is nothing in the provision which bars an action for recovery of — Even after the 3 year period of liquidation, corporate creditors can
debts of the corporation against the liquidator himself, after the lapse of still pursue their claims against corporate assets against the officers
the 3-year period or SHs who have taken over the properties of the corporation
— SC held that the State cannot insist on making tax assessments
Tan Tiong Bio v CIR. F: Tan Tiong Bio et al are incorporators and against a corporation that no longer exists and then turn around and
directors (some are officers—President and treasurer) of the Central oppose the appeal questioning the legality of the assessment
Syndicate. The company realized a net profit of close to P300K, and sale precisely on the same ground that the corporation is non-existent
of goods was the only transaction undertaken by it. BIR sues the Tan — The remedy of corporate creditors after the 3-year period is to race
Tiong et al for deficiency sales taxes and surcharges on surplus goods where the corporate assets have gone, wherever they rested, be he a
purchased by the corporation from the Foreign Liquidation Commission. SH or a non-SH. Cause of action is to file an action against that
Corporation was dissolved, and Tan Tiong and company substituted person who has control over the corporate assets.
themselves as parties, thereby becoming successors-in-interests in the
corporate assets after liquidation. TC rules ifo BIR, and Tan Tiong et al Distribution of assets of non-stock corporations
appeals, claiming that they cannot be held liable for tax liability there
Sec 94
being no law authorizing the government to proceed against SHs of a
defunct corporation as transferees of the corporate assets upon Dissolution
liquidation. If they were liable, it is only to the extent of the benefits
derived by them, and that the action is barred by prescription due to the Method Initiating party Action to be taken
3-year limit in the corpo Law.
Voluntary SHs Amendment of AOI
I: W/n the sales tax can be enforced against the corporation’s (shorten term)
successors-in-interest, even if corporation has been dissolved by Petition for dissolution
expiration of corporate existence. with creditors consent
--YES Involuntary Minority/majority SHs Petition for dissolution

11
State Quo warranto
Creditors Petition for dissolution 1. collation of property/assets
Inaction SEC Revocation of 2. enforcement of contractual rights
certificate of 3. settlement of obligations
registration

Chapter XVII – Corporate Combinations
Purposes of Combinations; Methods
SHs do not have unconditional right to determine
whether a dissolution should happen, neither can they
Merger and Consolidation
enjoin the State to dissolve
Is dissolution sought to enforce obligations, or satisfy
— Parties to a merger or consolidation are called constituent
liabilities?
corporations
Can creditors sue for dissolution to enforce
o No liquidation of assets of dissolved corporations
obligations? GR: No!
Exceptions: insufficiency of assets; inability to pay o Surviving or consolidated corporation acquires all their
obligations properties, rights, and franchises
Trust fund doctrine continues until every obligation is o The SHs of the dissolved corporation become SHs of the
satisfied consolidated corporation
Result of dissolution: mandatory institution of actions — Consolidation is the union of two or more existing corporations to
to enforce obligations form a new corporation called the consolidated corporation.
Is dissolution limited to distressed corporations? o A combination by agreement between two or more corporations
Apparently yes. by which their rights, franchises, privileges, and properties are
Dissolution is a step-by-step process united and become those of a single new corporation
Omit one, you don’t proceed! o All constituents are dissolved and absorbed by the new
Sale of substantially all assets does not mean consolidated enterprise
dissolution — Merger is a union whereby one or more existing corporations are
Liquidating dividends: assumes these are properties absorbed by another corporation which survives and continues the
remaining for distribution among SHs as dividends combined business
May even be the assets themselves! Distribution still o All constituent corporations are dissolved, except the surviving
based on shares/aliquot ownership corporation
In Teodoro: minority wanted out, but did not have o May be horizontal (competing firms), vertical (corporation
representation on the board! Personal action sought acquired is a user of products of the absorbing corporation), or
to be enforced. (compare with Republic and Cease) conglomerate
Should a derivative suit be filed in Teodoro? No. its — In both cases, there is no liquidation of the assets of the dissolved
purpose is to seek redress for a wrong done to the corporations
— The surviving or consolidated corporation assumes ipso jure the
Board liabilities of dissolved corporations

Winding Up 3-yr period 1. Nature; distinction
Board of Trustees
— The power to merge or consolidate is not among the inherent
“limited corporate existence” powers of corporations and must be expressly granted by law

12
— Amendment of Plan
2. Only de facto merger under corporation law o Amendment must be approved by majority vote of the
board
— Old law contained no express provision on merger or o Ratified by at least 2/3 OCS
consolidation — Articles of Merger (AOM)
— Reyes v Blouse paved the way for de facto o Executed by each of the constituent corporations
mergers/consolidations o Signed by president or VP
o Even without express provisions authorizing mergers or o Certified by secretary
consolidations, the effects of such could be obtained by the o Sets forth:
ff:  Merger plan
 Sale of all corporate assets of the absorbed to the  Number of shares outstanding or number of
absorbing members
 Subsequent dissolution of the selling corporation by  Number of shares or members voting for and
shortening its corporate term against the plan
 Amendment of the AOI of the absorbing o AOM must be filed not more than 120 days from date of
o No automatic assumption by the absorbing corporation of long form audit report of each corporation
the liabilities of the absorbed — Submission of financial statements
o Creditor consent is indispensable — Approval by SEC
o SEC issues a certificate of merger or consolidation
3. Express authority to merge granted by Code; requirements o Date of issuance makes merger effective
o Merger does not become effective upon the mere
Secs 76-80 agreement of the constituent corporations
— Once all requirements in 76-80 are complied with,
Procedures in Merger or Consolidation: combination gains legal recognition
— Plan of Merger or Consolidation — Apply to stock and non-stock
o Under Sec 76, the board is expressly empowered to approve — Steps to accomplish a merger/consolidation:
a plan of merger or consolidation which shall set forth the ff: (1) board draws up plan of merger or consolidation
 Names of constituent corporations a. includes any amendment to the AOI or statements
 Terms of the merger and mode of carrying it into required therein
effect (2) submission of plan to SHs of each corporation for approval, at a
 A statement of changes in the AOI of the surviving meeting (2 weeks notice)
corporation in case of merger; all statements a. vote of 2/3 representing 2/3 OCS
required to be set forth in the AOI in the case of (3) execution of formal agreement—Articles of Merger or
consolidation Consolidation
 Such other provisions as are deemed necessary (4) submission of AOM to Sec for approval
o Approval by majority vote of the board (5) SEC sets hearing
— SHs approval (6) Issuance of certificate of merger or consolidation
o at separate corporate meetings of SHs of each corporation a. Only upon issuance of certificate would the merger
o notice given to all SHs at least 2 weeks prior to the meetings become effective
o vote of 2/3 of OCS
— Appraisal right — Effects of merger:
o Available to dissenting SHs (of the absorbing or absorbed o All constituent corporations, except the surviving corporation
corporations or both?) in case of merger, shall be dissolved
o Extinguished when the board decides to abandon its merger o There is no winding up or liquidation of assets of the
plans absorbed—absorbing automatically acquires rights,

13
privileges, powers and liabilities 2. no assumption of liabilities; exceptions
o Creditors rights are not impaired
— GR: purchasing corporation will not be liable for the debts of
4. Remedies of creditors and dissenting SHs; appraisal right the selling corporation if it acted in GF and paid adequate
consideration
— Creditors cannot prevent the merger or consolidation, even if the — Exceptions:
new entity is unacceptable a debtor as the old corporation o Purchasing corp impliedly agreed to assume such debts
o Remedy: enforce claims against the surviving or consolidated o Transaction amounts to a consolidation or merger
corporation o Purchasing corp is merely a continuation of the selling
o Fraudulent conveyance: follow the assets of the dissolved o Transaction entered into fraudulently
constituents in the hands of the surviving or consolidated
corporation 3. remedies of dissenting SHs: appraisal right
— SHs who dissent cannot prevent the merger or consolidation
o Remedy: exercise their appraisal right — minority SH cannot prevent sale if approved by the required
o Fraud or gross unfairness: can enjoin the merger vote
 If merger already executed: sue for the value of their o remedy: appraisal right
interests  only if there is unrestricted retained earnings
 Rescission not granted, generally — if sale is fraudulent and entered into to “freeze out” the
o Only a derivative suit in behalf of the corporation is proper minority
 Exception: personal action may be allowed o remedy: sue in court to enjoin the sale
o If new stock as are issued by the absorbing to SHs of the — if sale already executed:
absorbed, SHs of the absorbing cannot exercise preemptive right o remedy: sue for value of proportionate interest in the new
 Why? Consideration is for property. No preemptive right corporation
— majority SHs do not have appraisal right
Sale of substantially all corporate assets o GR: corporation can purchase assets of another
corporation by mere resolution and no need for SH
— Other ways to effect a merger or combination (other than in code) approval
— Sale of all its assets to the other in exchange for stock o Exceptions:
o Acquiring corporation assumes selling corporation’s liabilities  where amendment to AOI would be necessary to
o Selling corporation shortens its term, dissolves, and liquidates and effect it or
distributes stock received form the acquiring  Where investment in the selling corporation’s
o Consideration must be stocks if the intent is to combine business is not reasonable necessary for the
— No intent to combine: consideration for the sale would be in cash or accomplishment of the purpose
other properties and selling corporation may still continue in existence
or remain in suspended animation 4. compared with merger and consolidation

Sec 40 — merger v sale of all corporate assets:
o merger:
1. legal requirements  short cut to the accomplishment of various
transactions
— sale of all or substantially all assets: one which will render the  avoid difficulty of dissolution
corporation incapable of continuing the business or  constitutes a transfer of property and business of
accomplishing the purpose= SH action required one corporation to another in exchange for
— short of “substantially all”= no SH action required securities issued by the absorbing corp to the
absorbed

14
 automatic assumption of liabilities that Insular had no leviable property. Nell Co sued Pacific Farms, on
o sale: the ground as a result of the purchase of all or substantially all assets
 there must be sufficient funds reserved by the of Insular, Pacific became the alter ego of Insular Farms.
absorbed to pay its liabilities H: GR: where the corporation sells or otherwise transfers all of its
 chance that sale may be attacked by creditors assets to another corporation, the latter is not liable for the debts and
alleging fraud liabilities of the former.
 lesser problems in securing SH approval and Exception: (1) purchaser expressly or impliedly assumes such debts;
recognizing appraisal rights (2) transaction amounts to a consolidation or merger; (3) purchasing
corporation is merely a continuation of the selling corp; (4) there is
Reyes v. Blouse et al. F: Minority SHs of the Laguna Tayabas Bus Co file fraud to escape liability for the debts
an action to enjoin Blouse et al from executing its resolution approved
by 99 ½% of SHs to consolidate the properties and franchises of Laguna In the present case, no proof was submitted that Pacific expressly
Tayabas with Batangas Transport. Blouse believes it is merely an agreed to assume the debts of Insular or that it is a continuation of
exchange of properties and not a consolidation. Insular, or that the transaction was tainted in fraud of creditors, or
I: W/n the real purpose of the resolution is merger or consolidation, and that the two parties merged or consolidated. In fact, the sales took
if so, whether it can be carried out under the old Corpo Law. place, not only over 6 months before judgment, but also over a
H: The questioned resolution charges the board of Laguna to consolidate month before the filing of the case. Pacific also purchased the shares
properties and franchises thereof with that of Batangas Transport. Both as the highest bidder at an auction sale held at the instance of a bank
corporations have passed similar resolutions to take steps to effect the to which shares have been pledged as security by Insular. Nell Co’s
consolidation. It is apparent that the purpose of the resolution is not to theory that Pacific is the alter ego of Insular negates the fact of
dissolve but to merely transfer its assets to a new corporation in consolidation/merger, because a corporation cannot be its own alter
exchange for its shares. This comes within the purview of the old ego.
corporation law, which provides that a corporation may sell, exchange,
lease or otherwise dispose of all its property and assets when authorized As to the allegation that the selling price of the assets of P10K was
by affirmative vote of 2/3 of SHs. The phrase “otherwise dispose of” grossly inadequate and thus tainted with fraud, the SC held that the
covers mergers and consolidations. The transaction in this case cannot sale was approved by the SEC and that it should be presumed that
be considered, strictly speaking, as a merger or consolidation because a the price was fair and reasonable, and should be a matter litigated in
merger implies the termination or cessation of the merged corporations another venue.
and not merely a merger of assets and properties. The two companies
will not lose their corporate existence but will continue to exist after SC: since there is neither proof nor allegation that the transferee-
consolidation. What is intended to be managed and operated by a new corporation expressly or impliedly agreed to assume the debt of the
corporation, and not a merger. corporation, or that the sale of either the shares or the assets to the
appellee has been entered into fraudulently, in order to escape liability
The court added that the merger/consolidation (if any) would still be for the debt of the subject corporation, there was no basis to hold the
carried out under the Public Service Law. It does not impose any transferee liable for the debts and liabilities of the subject corporation
qualification other that it shall be done with the approval of the PSC.
Rules on enforceability of liabilities of the transferor against the
Edward Nell Company v Pacific Farms Inc. F: The Edward Nell Co transferee after the transfer
1. pure assets-only transfer: transferee not liable
secured a judgment representing the unpaid balance of the price of a
2. transfer of business enterprise: transferee liable
pump sold to Insular Farms. Pacific Farms then purchased all or
3. transfer of equity: not liable except where transferee expressly or
substantially all of shares of stock as well as real and personal property
impliedly agrees to assume the same
of Insular, selling the shares to certain individuals who reorganized
Insular. The board of the reorganized Insular then sold its assets to be Exchange of stocks
sold to Pacific for P10000. The writ of execution was returned, stating

15
— yet another method of corporate combination
— acquisition of all or substantially all stock of one corporation
from SHs in exchange for stock of another corporation
o SHs of the acquiring become SHs of the acquired
o Once completed, acquired corp becomes a subsidiary of the
acquiring (parent)
— Right of dissenting SHs: depends on whether the mother decides
to retain the acquired corporation as a subsidiary, merges with
it, or buys all its assets
o If parent retains as subsidiary:
 No appraisal right
 No express provision in the Code, but…
 … Campos: SH can sell his stocks to another
corporation, but may be liable for damages if in BF
or if it damages the corporation
o If parent merges or purchases: provisions of the Code
 Same rights as dissenting SHs in a merger or sale—
appraisal right

You have to comply with the provisions of the Code to
legally effect mergers/consolidations; short of that, no
merger, no consolidation!
Parties to a merger/consolidation are the
corporations, not the SHs!
Merger: marriage of assets and assumption of
liabilities
SHs of absorbing become SHs of the absorbed
Isa lang ang patay; or maraming patay pero buhay and
kumain!
Consolidation: lahat ng sumali, patay! Why? Objective
is to put up a new one, which shall own all combined
assets and is the successor-in-interest to all
obligations
Combinations can happen to distressed corporations
Blouse was NOT a merger/consolidation!
Each corporation still had personality
They shared assets, business operations; neither
absorbed the other
There was no new corporation formed
All of the elements below must be present!

Merger/Consolidation

16