“In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter

could
not be considered as "purchaser" of realty since the real properties subject of the merger were merely
absorbed by the surviving corporation by operation of law and these properties are deemed
automatically transferred to and vested in the surviving corporation without further act or deed.
Therefore, the transfer of real properties to the surviving corporation in pursuance of a merger is not
subject to documentary stamp tax. As stated at the outset, documentary stamp tax is imposed only on
all conveyances, deeds, instruments or writing where realty sold shall be conveyed to a purchaser or
purchasers. The transfer of SPPC’s real property to respondent was neither a sale nor was it a
conveyance of real property for a consideration contracted to be paid as contemplated under Section
196 of the Tax Code. Hence, Section 196 of the Tax Code is inapplicable and respondent is not liable for
documentary stamp tax.” (G.R. No. 192398 September 29, 2014 COMMISSIONER OF INTERNAL
REVENUE vs. PILIPINAS SHELL PETROLEUM CORPORATION)

“In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter could
not be considered as "purchaser" of realty since the real properties subject of the merger were merely
absorbed by the surviving corporation by operation of law and these properties are deemed
automatically transferred to and vested in the surviving corporation without further act or deed.
Therefore, the transfer of real properties to the surviving corporation in pursuance of a merger is not
subject to documentary stamp tax. As stated at the outset, documentary stamp tax is imposed only on
all conveyances, deeds, instruments or writing where realty sold shall be conveyed to a purchaser or
purchasers. The transfer of SPPC’s real property to respondent was neither a sale nor was it a
conveyance of real property for a consideration contracted to be paid as contemplated under Section
196 of the Tax Code. Hence, Section 196 of the Tax Code is inapplicable and respondent is not liable for
documentary stamp tax. (Emphasis in the original)

Following the doctrine of stare decisis, which dictates that when a court has reached a conclusion in one
case, it should be applied to those that follow if the facts are substantially the same, even though the
parties may be different, we find that respondent is not liable for DST as the transfer of real properties
from the absorbed corporations to respondent was pursuant to a merger. And having complied with the
provisions of Sections 204(C) and 229 of the NIRC, we agree with the CTA that respondent is entitled to
a refund of the DST it erroneously paid on various dates between October 31, 2001 to November 15,
2001 in the total amount of 14,140,980.00.

Likewise, without merit is petitioner’s contention that respondent cannot claim exemption under RA
9243 as this was enacted only in 2004 or after respondent’s tax liability accrued. To be clear, respondent
did not file its claim for tax refund or tax credit based on the exemption found in RA 9243. Rather, it filed
a claim for tax refund or tax credit on the ground that Section 196 of the NIRC does not include the
transfer of real property pursuant to a merger. In fact, the ratio decidendi (or reason for the decision) in
Pilipinas Shell Petroleum Corporation was based on Section 196 of the NIRC, in relation to Section 80 of
the Corporation Code, not RA 9243. In that case, RA 9243 was mentioned only to emphasize that "the
enactment of the said law now removes any doubt and had made clear that the transfer of real
properties as a consequence of merger or consolidation is not subject to [DST]." (G.R. No. 175188 July
15, 2015 COMMISSIONER OF INTERNAL REVENUE vs. LA TONDENA DISTILLERS, INC. (LTDI [now
GINEBRA SAN MIGUEL])

“Taking a second look on this point, we have come to agree with Justice Brion’s view that it is more in
keeping with the dictates of social justice and the State policy of according full protection to labor to
deem employment contracts as automatically assumed by the surviving corporation in a merger, even in
the absence of an express stipulation in the articles of merger or the merger plan. In his dissenting
opinion, Justice Brion reasoned that: To my mind, due consideration of Section 80 of the Corporation
Code, the constitutionally declared policies on work, labor and employment, and the specific FEBTC-BPI
situation — i.e., a merger with complete "body and soul" transfer of all that FEBTC embodied and
possessed and where both participating banks were willing (albeit by deed, not by their written
agreement) to provide for the affected human resources by recognizing continuity of employment —
should point this Court to a declaration that in a complete merger situation where there is total
takeover by one corporation over another and there is silence in the merger agreement on what the
fate of the human resource complement shall be, the latter should not be left in legal limbo and should
be properly provided for, by compelling the surviving entity to absorb these employees. This is what
Section 80 of the Corporation Code commands, as the surviving corporation has the legal obligation to
assume all the obligations and liabilities of the merged constituent corporation.” (G.R. No. 164301
October 19, 2011 BANK OF THE PHILIPPINE ISLANDS vs. BPI EMPLOYEES UNION-DAVAO CHAPTER-
FEDERATION OF UNIONS IN BPI UNIBANK)

“One or more foreign corporations authorized to transact business in the Philippines may merge or
consolidate with any domestic corporation or corporations if permitted under Philippine laws and by the
law of its incorporation: Provided, That the requirements on merger or consolidation as provided in this
Code are followed.” (Section 149 par 1, Revised Corporation Code)

“Therefore, the correct interpretation of Paragraph 1 of Section 132 (now Section 149) is that it
authorizes a foreign corporation licensed to do business in the Philippines to merge with a domestic
corporation, provided that the former can prove that there is a similar authorizing law in its home
jurisdiction. Such merger will be governed by the Corporation Code and other relevant laws.

It must be emphasized that the phrase “if such is permitted under Philippine laws” should be construed
to include nationality laws. Thus, foreign equity restrictions in the Philippines would prevent merger
between a domestic corporation and the licensed foreign corporation if the surviving corporation will be
engaged in a nationalized industry and foreign control of such surviving corporation will exceed the
limits imposed by law.” (SEC Opinion No 18-18)
ALSO READ: SEC OPINION NO. 12-14

“The raison d’etre for the grant of appraisal rights to minority stockholders has been explained thus:

x x x [Appraisal right] means that a stockholder who dissented and voted against the proposed
corporate action, may choose to get out of the corporation by demanding payment of the fair market
value of his shares. When a person invests in the stocks of a corporation, he subjects his investment to
all the risks of the business and cannot just pull out such investment should the business not come out
as he expected. He will have to wait until the corporation is finally dissolved before he can get back his
investment, and even then, only if sufficient assets are left after paying all corporate creditors. His only
way out before dissolution is to sell his shares should he find a willing buyer. If there is no buyer, then he
has no recourse but to stay with the

corporation. However, in certain specified instances, the Code grants the stockholder the right to get
out of the corporation even before its dissolution because there has been a major change in his contract
of investment with which he does not agree and which the law presumes he did not foresee when he
bought his shares. Since the will of two-thirds of the stocks will have to prevail over his objections, the
law considers it only fair to allow him to get back his investment and withdraw from the corporation. x x
x,” SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their capacity as Directors of
PHILIPPINE RACING CLUB, INC vs. MIGUEL OCAMPO TAN, JEMIE U. TAN and ATTY. BRIGIDO J. DULAY
G.R. No. 181455-56 December 4, 2009

“Allowing stockholders holding preferred shares without voting rights to vote in the 8 corporate matters
enumerated in Section 6 is an acknowledgment of their right of ownership. If the owners of preferred
shares without right to vote/elect directors are not allowed to vote in any of those 8 corporate actions,
then they will not be entitled to the appraisal right provided under Section 81 of the Corporation Code
in the event that they dissent in the corporate act. As required in Section 82, the appraisal right can only
be exercised by any stockholder who voted against the proposed action. Thus, without recognizing the
right of every stockholder to vote in the 8 instances enumerated in Section 6, the stockholder cannot
exercise his appraisal right in case he votes against the corporate action. In simple terms, the right to
vote in the 8 instances enumerated in Section 6 is more in furtherance of the stockholder's right of
ownership rather than as a mode of control.” JOSE M. ROY III vs. CHAIRPERSON TERESITA HERBOSA,
THE SECURITIESAND EXCHANGE COMMISSION, and PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY G.R. No. 207246 November 22, 2016

The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the
payment of the shares of stocks of the withdrawing stockholders. Under the doctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust for the payment of corporate
creditors, who are preferred in the distribution of corporate assets. The creditors of a corporation have
the right to assume that the board of directors will not use the assets of the corporation to purchase its
own stock for as long as the corporation has outstanding debts and liabilities. There can be no
distribution of assets among the stockholders without first paying corporate debts. Thus, any disposition
of corporate funds and assets to the prejudice of creditors is null and void. (G.R. No. 157479 November
24, 2010 PHILIP TURNER and ELNORA TURNER vs. LORENZO SHIPPING CORPORATION

“In any case, the stipulation in the By-Laws is not contrary to the Corporation Code. Section 89 of the
Corporation Code pertaining to non-stock corporations provides that "(t)he right of the members of any
class or classes (of a non-stock corporation) to vote may be limited, broadened or denied to the extent
specified in the articles of incorporation or the by-laws." This is an exception to Section 6 of the same
code where it is provided that "no share may be deprived of voting rights except those classified and
issued as ‘preferred’ or ‘redeemable’ shares, unless otherwise provided in this Code." The stipulation in
the By-Laws providing for the election of the Board of Directors by districts is a form of limitation on the
voting rights of the members of a non-stock corporation as recognized under the aforesaid Section 89.
Section 24, which requires the presence of a majority of the members entitled to vote in the election of
the board of directors, applies only when the directors are elected by the members at large, such as is
always the case in stock corporations by virtue of Section 6”. - REV. LUIS AO-AS, REV. JOSE LAKING,
EUSQUICIO GALANG, REV. ISABELO MONONGGIT, REV. EDWINO MERCADO, REV. DANIEL PONDEVIDA,
REV. TEODORICO TARAN and DR. BENJAMIN GALAPIA vs. HON. COURT OF APPEALS, THOMAS P.
BATONG, JUANITO BASALONG, AUGUSTO CATANGI, PAUL GARCIA, QUIDO RIVERA, VICTORIO Y.
SAQUILAYAN and DANILO ZAMORA G.R. No. 128464 June 20, 2006

Former SEC Chairperson, Rosario Lopez, in her commentaries on the Corporation Code, explains the
import of Section 91 (now Section 90) in a manner relevant to this case:

The prevailing rule is that the provisions of the articles of incorporation or by-laws of termination of
membership must be strictly complied with and applied to the letter. Thus, an association whose
member fails to pay his membership due and annual due as required in the by-laws, and which provides
for the termination or suspension of erring members as well as prohibits the latter from intervening in
any manner in the operational activities of the association, must be observed because by-laws are self-
imposed private laws binding on all members, directors and officers of the corporation. (cited by the
Court in the case of Valley Golf and Country Club, Inc. vs. Rosa O. Vda de Caram G.R. No. 158805 April
16, 2009)
In nonstock corporations, the voting rights attach to membership. Members vote as persons, in
accordance with the law and the bylaws of the corporation. Each member shall be entitled to one vote
unless so limited, broadened, or denied in the articles of incorporation or bylaws. We hold that when
the principle for determining the quorum for stock corporations is applied by analogy to nonstock
corporations, only those who are actual members with voting rights should be counted.

Under Section 52 (now Section 51) of the Corporation Code, the majority of the members representing
the actual number of voting rights, not the number or numerical constant that may originally be
specified in the articles of incorporation, constitutes the quorum. (Paul Lee Tan, et al Vs. Paul Sycip and
Merritto Lim G.R. No. 153468 August 17, 2006

In corporate parlance, the term "meeting" applies to every duly convened assembly either of
stockholders, members, directors, trustees, or managers for any legal purpose, or the transaction of
business of a common interest. Under Philippine corporate laws, meetings may either be regular or
special. A stockholders' or members' meeting must comply with the following requisites to be valid:

1.The meeting must be held on the date fixed in the By-Laws or in accordance with law; 2. Prior written
notice of such meeting must be sent to all stockholders/members of record; 3. It must be called by the
proper party; 4. It must be held at the proper place; and 5. Quorum and voting requirements must be
met.

10

Of these five (5) requirements, the existence of a quorum is crucial. Any act or transaction made during
a meeting without quorum is rendered of no force and effect, thus, not binding on the corporation or
parties concerned.

In relation thereto, Section 52 of the Corporation Code of the Philippines (Corporation Code) provides:
Section 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a
quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a
majority of the members in the case of non-stock corporations.

Thus, for stock corporations, the quorum is based on the number of outstanding voting stocks while for
non-stock corporations, only those who are actual, living members with voting rights shall be counted in
determining the existence of a quorum. To be clear, the basis in determining the presence of quorum
in non-stock corporations is the numerical equivalent of all members who are entitled to vote, unless
some other basis is provided by the By-Laws of the corporation. The qualification "with voting rights"
simply recognizes the power of a non-stock corporation to limit or deny the right to vote of any of its
members. To include these members without voting rights in the total number of members for purposes
of quorum would be superfluous for although they may attend a particular meeting, they cannot cast
their vote on any matter discussed therein. (Lim vs. Moldex Land, Inc G.R. No. 206038 January 25,
2017)

SEC. 95. Definition and Applicability of Title. — A close corporation, within the meaning of this Code, is
one whose articles of incorporation provides that: (a) all the corporation's issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not
exceeding twenty (20); (b) all the issued stock of all classes shall be subject to one (1) or more specified
restrictions on transfer permitted by this Title; and (c) the corporation shall not list in any stock
exchange or make any public offering of its stocks of any class.

Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which
is not a close corporation within the meaning of this Code.

EXAMPLE: Corporation A complies with all the requirements for a close corporation. However,
Corporation B, which owns 75% of the voting stocks of Corporation A, is a widely-held (or open)
corporation. In this case, Corporation A will not be considered a close corporation.

“In San Juan Structural and Steel Fabricators. Inc. v. Court of Appeals, this Court held that a narrow
distribution of ownership does not, by itself, make a close corporation. Courts must look into the articles
of incorporation to find provisions expressly stating that (l) the number of stockholders shall not exceed
20; or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation; or (3) the
listing of the corporate stocks in any stock exchange or making a public offering of those stocks is
prohibited.” (BUSTOS vs. MSI, et al G.R. No. 185024 April 4, 2017)