April 20, 2004

SEC OPINION NO. 25-04

Re : Consolidated rural bank not

exempt from filing fees

Atty. Jose Balingit Jr.

Corporate Secretary
Network Rural Bank Inc.
Davao City

Sir:

This refers to your letter-query on the issue whether or not a consolidated rural bank
(Network Rural Bank Inc.) is exempt from paying filing fees on the registration of its Articles of
Incorporation and By-Laws on account of Rural Banks Act of 1992 or Republic Act No. 7353.

We answer your query in the negative.

Section 15 of RA 7353 provides:

"Section 15. All rural banks created and organized under the provisions of this Act
shall be exempt from the payment of all taxes, fees and charges of whatever nature and
description, except the corporate income tax and local taxes, fees and charges, for a period of
five (5) years from the date of commencement of operations.

All rural banks in operation as of the date of approval of this Act shall be exempt from
the payment of all taxes, fees, and charges of whatever nature and description, except the
corporate income tax and local tax, fees and charges, for a period of five (5) years from
approval of this Act."

The afore-quoted provision exempts rural banks and those which are already operating as of
the date of approval of RA 7353 from paying all taxes, fees and charges of whatever nature and
description, except corporate income taxes and local tax, fees and charges for a period of five (5)
years from the date of commencement of operations or from the approval of RA 7353.

The five (5)-year exemption mentioned in the first paragraph of Section 15 of RA 7353 can
only be availed of from the date of commencement of corporate operations. What the law mandates

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for rural banks to avail themselves of the exemption is the original creation, organization and initial
commencement of operations of corporation. There is no doubt that the constituent corporations
have been in operation for years and may have acquired rights, properties and liabilities which have
been transferred now to the consolidated corporation. This is premised on Section 80 of the
Corporation Code which reads:

"Section 80. Effects of merger or consolidation. — The merger or consolidation shall

have the following effects:

1. The constituent corporations shall become a single corporation which, in case of

merger, shall be the surviving corporation designated in the plan of merger; and, in case of
consolidation, shall be the consolidated corporation designated in the plan of consolidation;

2. The separate existence of the constituent corporations shall cease, except that of
the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and thereafter

possess all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever account,
including subscriptions to shares and other choses in action, and all and every other interest
of, or belonging to, or due to each constituent corporation, shall be deemed transferred to and
vested in such surviving or consolidated corporation without further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all
the liabilities and obligations of each of the constituent corporations in the same manner as if
such surviving or consolidated corporation had itself incurred such liabilities or obligations;
and any pending claim, action or proceeding brought by or against any of such constituent
corporations may be prosecuted by or against the surviving or consolidated corporation. The
rights of creditors or liens upon the property of any of such constituent corporations shall not
be impaired by such merger or consolidation."

The legal effect of either merger or consolidation is not to disturb the legal continuity of the
underlying business enterprises of each of the constituent corporations. In Associated Bank -vs- CA,
the Supreme Court ruled:

"Ordinarily, in the merger of two or more existing corporations, one of the combining
corporations survives and continues the combined business, while the rest are dissolved and all
their rights, properties and liabilities are acquired by the surviving corporation. Although there
is a dissolution of the absorbed corporations, there is no winding up of their affairs or
liquidation of their assets, because the surviving corporation automatically acquires all their
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 rights, privileges and powers, as well as their liabilities. [GR-123793, June 29, 1998]

Neither can the consolidated rural bank invoke the Second paragraph of Section 15 of RA
7353. It speaks of five (5) years from the approval of said law or from 2 April 1992. Obviously, the
5-year period had expired.

Finally, for your guidance, we are providing you copy of the Guidelines on Request for
Legal Opinion or SEC Memorandum Circular No. 15 dated 16 December 2003. cASTED

Very truly yours,

(SGD.) VERNETTE G. UMALI PACO

General Counsel

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