[G.R. No. 123793.
June 29, 1998] the promissory note does not accurately reflect the true intention and agreement
ASSOCIATED BANK, petitioner, vs. COURT OF APPEALS and LORENZO
SARMIENTO JR., respondents.
DECISION
PANGANIBAN, J.:
In a merger, does the surviving corporation have a right to enforce a contract entered
into by the absorbed company subsequent to the date of the merger agreement, but prior to
the issuance of a certificate of merger by the Securities and Exchange Commission?
The Case
This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the
Decision[1] of the Court of Appeals[2] in CA-GR CV No. 26465 promulgated on January 30,
1996, which answered the above question in the negative. The challenged Decision reversed
and set aside the October 17, 1986 Decision[3] in Civil Case No. 85-32243, promulgated by the
Regional Trial Court of Manila, Branch 48, which disposed of the controversy in favor of
herein petitioner as follows:[4]
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated
Bank. The defendant Lorenzo Sarmiento, Jr. is ordered to pay plaintiff:
1. The amount of P4,689,413.63 with interest thereon at 14% per annum until fully paid;
2. The amount of P200,000.00 as and for attorneys fees; and
3. The costs of suit.
On the other hand, the Court of Appeals resolved the case in this wise: [5]
WHEREFORE, premises considered, the decision appealed from, dated October
17, 1986 is REVERSED and SET ASIDE and another judgment rendered
DISMISSING plaintiff-appellees complaint, docketed as Civil Case No. 85-
32243. There is no pronouncement as to costs.
The Facts
The undisputed factual antecedents, as narrated by the trial court and adopted by public
respondent, are as follows:[6]
x x x [O]n or about September 16, 1975 Associated Banking Corporation and
Citizens Bank and Trust Company merged to form just one banking corporation
known as Associated Citizens Bank, the surviving bank. On or about March 10,
1981, the Associated Citizens Bank changed its corporate name to Associated
Bank by virtue of the Amended Articles of Incorporation. On September 7, 1977,
the defendant executed in favor of Associated Bank a promissory note whereby
the former undertook to pay the latter the sum of P2,500,000.00 payable on or
before March 6, 1978. As per said promissory note, the defendant agreed to pay
interest at 14% per annum, 3% per annum in the form of liquidated damages,
compounded interests, and attorneys fees, in case of litigation equivalent to 10%
of the amount due. The defendant, to date, still owes plaintiff bank the amount
of P2,250,000.00 exclusive of interest and other charges. Despite repeated
demands the defendant failed to pay the amount due.
xxx xxx xxx
x x x [T]he defendant denied all the pertinent allegations in the complaint and
alleged as affirmative and[/]or special defenses that the complaint states no valid
cause of action; that the plaintiff is not the proper party in interest because the
promissory note was executed in favor of Citizens Bank and Trust Company; that
of the parties; that terms and conditions of the promissory note are onerous and
must be construed against the creditor-payee bank; that several partial payments
made in the promissory note are not properly applied; that the present action is
premature; that as compulsory counterclaim the defendant prays for attorneys
fees, moral damages and expenses of litigation.
On May 22, 1986, the defendant was declared as if in default for failure to appear
at the Pre-Trial Conference despite due notice.
A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22,
1986 was filed by defendants counsel which was denied by the Court in [an] order
dated September 16, 1986 and the plaintiff was allowed to present its evidence
before the Court ex-parte on October 16, 1986.
At the hearing before the Court ex-parte, Esteban C. Ocampo testified that x x x he
is an accountant of the Loans and Discount Department of the plaintiff bank; that
as such, he supervises the accounting section of the bank, he counterchecks all the
transactions that transpired during the day and is responsible for all the accounts
and records and other things that may[ ]be assigned to the Loans and Discount
Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has
an outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr.
executed a promissory note No. TL-2649-77 dated September 7, 1977 in the
amount of P2,500,000.00 (Exhibit A); that Associated Banking Corporation and the
Citizens Bank and Trust Company merged to form one banking corporation
known as the Associated Citizens Bank and is now known as Associated Bank by
virtue of its Amended Articles of Incorporation; that there were partial payments
made but not full; that the defendant has not paid his obligation as evidenced by
the latest statement of account (Exh. B); that as per statement of account the
outstanding obligation of the defendant is P5,689,413.63 less P1,000,000.00
or P4,689,413.63 (Exh. B, B-1); that a demand letter dated June 6, 1985 was sent by
the bank thru its counsel (Exh. C) which was received by the defendant on
November 12, 1985 (Exh. C, C-1, C-2, C-3); that the defendant paid
only P1,000,000.00 which is reflected in the Exhibit C.
Based on the evidence presented by petitioner, the trial court ordered Respondent
Sarmiento to pay the bank his remaining balance plus interests and attorneys fees. In his
appeal, Sarmiento assigned to the trial court several errors, namely:[7]
I The [trial court] erred in denying appellants motion to dismiss appellee
banks complaint on the ground of lack of cause of action and for being
barred by prescription and laches.
II The same lower court erred in admitting plaintiff-appellee banks amended
complaint while defendant-appellants motion to dismiss appellee banks
original complaint and using/availing [itself of] the new additional
allegations as bases in denial of said appellants motion and in the
interpretation and application of the agreement of merger and Section 80 of
BP Blg. 68, Corporation Code of the Philippines.
III The [trial court] erred and gravely abuse[d] its discretion in rendering the
two as if in default orders dated May 22, 1986 and September 16, 1986 and
 in not reconsidering the same upon technical grounds which in effect
subvert the best primordial interest of substantial justice and equity.
IV The court a quo erred in issuing the orders dated May 22, 1986 and
September 16, 1986 declaring appellant as if in default due to non-
appearance of appellants attending counsel who had resigned from the law
firm and while the parties [were] negotiating for settlement of the case and
after a one million peso payment had in fact been paid to appellee bank for
appellants account at the start of such negotiation on February 18, 1986 as
act of earnest desire to settle the obligation in good faith by the interested
parties.
V The lower court erred in according credence to appellee banks Exhibit B
statement of account which had been merely requested by its counsel
during the trial and bearing date of September 30, 1986.
VI The lower court erred in accepting and giving credence to appellee banks
27-year-old witness Esteban C. Ocampo as of the date he testified on
October 16, 1986, and therefore, he was merely an eighteen-year-old minor
when appellant supposedly incurred the foisted obligation under the subject
PN No. TL-2649-77 dated September 7, 1977, Exhibit A of appellee bank.
VII The [trial court] erred in adopting appellee banks Exhibit B dated
September 30, 1986 in its decision given in open court on October 17, 1986
which exacted eighteen percent (18%) per annum on the foisted principal
amount of P2.5 million when the subject PN, Exhibit A, stipulated only
fourteen percent (14%) per annum and which was actually prayed for in
appellee banks original and amended complaints.
VIII The appealed decision of the lower court erred in not considering at all
appellants affirmative defenses that (1) the subject PN No. TL-2649-77
for P2.5 million dated September 7, 1977, is merely an accommodation pour
autrui bereft of any actual consideration to appellant himself and (2) the
subject PN is a contract of adhesion, hence, [it] needs [to] be strictly
construed against appellee bank -- assuming for granted that it has the right
to enforce and seek collection thereof.
IX The lower court should have at least allowed appellant the opportunity to
present countervailing evidence considering the huge amounts claimed by
appellee bank (principal sum of P2.5 million which including accrued
interests, penalties and cost of litigation totaled P4,689,413.63) and
appellants affirmative defenses -- pursuant to substantial justice and equity.
The appellate court, however, found no need to tackle all the assigned errors and limited
itself to the question of whether [herein petitioner had] established or proven a cause of action
against [herein private respondent]. Accordingly, Respondent Court held that the Associated
Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to
the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company
(CBTC). The court ruled that the earlier merger between the two banks could not have vested
Associated Bank with any interest arising from the promissory note executed in favor of
CBTC after such merger.
Thus, as earlier stated, Respondent Court set aside the decision of the trial court and
dismissed the complaint. Petitioner now comes to us for a reversal of this ruling.[8]
Issues
In its petition, petitioner cites the following reasons:[9]
I The Court of Appeals erred in reversing the decision of the trial court and in
declaring that petitioner has no cause of action against respondent over the
promissory note.
II The Court of Appeals also erred in declaring that, since the promissory note
was executed in favor of Citizens Bank and Trust Company two years after the
merger between Associated Banking Corporation and Citizens Bank and Trust
Company, respondent is not liable to petitioner because there is no privity of
contract between respondent and Associated Bank.
III The Court of Appeals erred when it ruled that petitioner, despite the merger
between petitioner and Citizens Bank and Trust Company, is not a real party in
interest insofar as the promissory note executed in favor of the merger.
In a nutshell, the main issue is whether Associated Bank, the surviving corporation, may
enforce the promissory note made by private respondent in favor of CBTC, the absorbed
company, after the merger agreement had been signed.
The Courts Ruling
The petition is impressed with merit.
The Main Issue:
Associated Bank Assumed
All Rights of CBTC
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.[10] 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 rights, privileges and powers, as well as their liabilities.[11]
The merger, however, does not become effective upon the mere agreement of the
constituent corporations. The procedure to be followed is prescribed under the Corporation
Code.[12] Section 79 of said Code requires the approval by the Securities and Exchange
Commission (SEC) of the articles of merger which, in turn, must have been duly approved
by a majority of the respective stockholders of theconstituent corporations. The same
provision further states that the merger shall be effective only upon the issuance by the SEC
of a certificate of merger. The effectivity date of the merger is crucial for determining when
the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties
as well as liabilities pass on to the surviving corporation.
Consistent with the aforementioned Section 79, the September 16, 1975 Agreement of
Merger,[13] which Associated Banking Corporation (ABC) and Citizens Bank and Trust
Company (CBTC) entered into, provided that its effectivity shall, for all intents and purposes,
be the date when the necessary papers to carry out this [m]erger shall have been approved
by the Securities and Exchange Commission.[14] As to the transfer of the properties of CBTC
to ABC, the agreement provides:
10. Upon effective date of the Merger, all rights, privileges, powers,
immunities, franchises, assets and property of [CBTC], whether real,
personal or mixed, and including [CBTCs] goodwill and tradename,
and all debts due to [CBTC] on whatever act, and all other things in
 action belonging to [CBTC] as of the effective date of the [m]erger
shall be vested in [ABC], the SURVIVING BANK, without need of
further act or deed, unless by express requirements of law or of a
government agency, any separate or specific deed of conveyance to
legally effect the transfer or assignment of any kind of property [or]
asset is required, in which case such document or deed shall be
executed accordingly; and all property, rights, privileges, powers,
immunities, franchises and all appointments, designations and
nominations, and all other rights and interests of [CBTC] as trustee,
executor, administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver, trustee of estates of persons mentally ill
and in every other fiduciary capacity, and all and every other interest
of [CBTC] shall thereafter be effectually the property of [ABC] as they
were of [CBTC], and title to any real estate, whether by deed or
otherwise, vested in [CBTC] shall not revert or be in any way
impaired by reason thereof; provided, however, that all rights of
creditors and all liens upon any property of [CBTC] shall be
preserved and unimpaired and all debts, liabilities, obligations,
duties and undertakings of [CBTC], whether contractual or
otherwise, expressed or implied, actual or contingent, shall
henceforth attach to [ABC] which shall be responsible therefor and
may be enforced against [ABC] to the same extent as if the same
debts, liabilities, obligations, duties and undertakings have been
originally incurred or contracted by [ABC], subject, however, to all
rights, privileges, defenses, set-offs and counterclaims which [CBTC]
has or might have and which shall pertain to [ABC].[15]
The records do not show when the SEC approved the merger. Private respondents
theory is that it took effect on the date of the execution of the agreement itself, which was
September 16, 1975. Private respondent contends that, since he issued the promissory note to
CBTC on September 7, 1977 -- two years after the merger agreement had been executed --
CBTC could not have conveyed or transferred to petitioner its interest in the said note, which
was not yet in existence at the time of the merger. Therefore, petitioner, the surviving bank,
has no right to enforce the promissory note on private respondent; such right properly
pertains only to CBTC.
Assuming that the effectivity date of the merger was the date of its execution, we still
cannot agree that petitioner no longer has any interest in the promissory note. A closer
perusal of the merger agreement leads to a different conclusion. The provision quoted earlier
has this other clause:
Upon the effective date of the [m]erger, all references to [CBTC] in any deed,
documents, or other papers of whatever kind or nature and wherever found shall
be deemed for all intents and purposes, references to [ABC], the SURVIVING
BANK, as if such references were direct references to [ABC]. x x
x[16] (Underscoring supplied)
Thus, the fact that the promissory note was executed after the effectivity date of the
merger does not militate against petitioner. The agreement itself clearly provides
that all contracts -- irrespective of the date of execution -- entered into in the name of CBTC
shall be understood as pertaining to the surviving bank, herein petitioner. Since, in contrast
to the earlier aforequoted provision, the latter clause no longer specifically refers only to
contracts existing at the time of the merger, no distinction should be made. The clause must
have been deliberately included in the agreement in order to protect the interests of the
combining banks; specifically, to avoid giving the merger agreement a farcical interpretation
aimed at evading fulfillment of a due obligation.
Thus, although the subject promissory note names CBTC as the payee, the reference to
CBTC in the note shall be construed, under the very provisions of the merger agreement, as
a reference to petitioner bank, as if such reference [was a] direct reference to the latter for all
intents and purposes.
No other construction can be given to the unequivocal stipulation. Being clear, plain
and free of ambiguity, the provision must be given its literal meaning[17] and applied without
a convoluted interpretation. Verba legis non est recedendum.[18]
In light of the foregoing, the Court holds that petitioner has a valid cause of action
against private respondent. Clearly, the failure of private respondent to honor his obligation
under the promissory note constitutes a violation of petitioners right to collect the proceeds
of the loan it extended to the former.
Secondary Issues:
Prescription, Laches, Contract
Pour Autrui, Lack of Consideration
No Prescription
or Laches
Private respondents claim that the action has prescribed, pursuant to Article 1149 of the
Civil Code, is legally untenable. Petitioners suit for collection of a sum of money was based
on a written contract and prescribes after ten years from the time its right of action
arose.[19]Sarmientos obligation under the promissory note became due and demandable on
March 6, 1978. Petitioners complaint was instituted on August 22, 1985, before the lapse of
the ten-year prescriptive period. Definitely, petitioner still had every right to commence suit
against the payor/obligor, the private respondent herein.
Neither is petitioners action barred by laches. The principle of laches is a creation of
equity, which is applied not to penalize neglect or failure to assert a right within a reasonable
time, but rather to avoid recognizing a right when to do so would result in a clearly
inequitable situation[20] or in an injustice.[21] To require private respondent to pay the
remaining balance of his loan is certainly not inequitable or unjust.What would be manifestly
unjust and inequitable is his contention that CBTC is the proper party to proceed against him
despite the fact, which he himself asserts, that CBTCs corporate personality has been
dissolved by virtue of its merger with petitioner. To hold that no payee/obligee exists and to
let private respondent enjoy the fruits of his loan without liability is surely most unfair and
unconscionable, amounting to unjust enrichment at the expense of petitioner. Besides, this
Court has held that the doctrine of laches is inapplicable where the claim was filed within the
prescriptive period set forth under the law.[22]
No Contract
Pour Autrui
Private respondent, while not denying that he executed the promissory note in the
amount of P2,500,000 in favor of CBTC, offers the alternative defense that said note was a
contract pour autrui.
 A stipulation pour autrui is one in favor of a third person who may demand its
fulfillment, provided he communicated his acceptance to the obligor before its revocation. An
incidental benefit or interest, which another person gains, is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a third person. [23]
Florentino vs. Encarnacion Sr.[24] enumerates the requisites for such contract: (1) the
stipulation in favor of a third person must be a part of the contract, and not the contract itself;
(2) the favorable stipulation should not be conditioned or compensated by any kind of
obligation; and (3) neither of the contracting parties bears the legal representation or
authorization of the third party. The fairest test in determining whether the third persons
interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine
the intention of the parties as disclosed by their contract. [25]
We carefully and thoroughly perused the promissory note, but found no stipulation at
all that would even resemble a provision in consideration of a third person. The instrument
itself does not disclose the purpose of the loan contract. It merely lays down the terms of
payment and the penalties incurred for failure to pay upon maturity. It is patently devoid of
any indication that a benefit or interest was thereby created in favor of a person other than
the contracting parties. In fact, in no part of the instrument is there any mention of a third
party at all. Except for his barefaced statement, no evidence was proffered by private
respondent to support his argument. Accordingly, his contention cannot be sustained. At any
rate, if indeed the loan actually benefited a third person who undertook to repay the bank,
private respondent could have availed himself of the legal remedy of a third-party
complaint.[26] That he made no effort to implead such third person proves the hollowness of
his arguments.
Consideration
Private respondent also claims that he received no consideration for the promissory note
and, in support thereof, cites petitioners failure to submit any proof of his loan application
and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa
loquitur. The instrument, bearing the signature of private respondent, speaks for
itself. Respondent Sarmiento has not questioned the genuineness and due execution
thereof. No further proof is necessary to show that he undertook to pay P2,500,000, plus
interest, to petitioner bank on or before March 6, 1978. This he failed to do, as testified to by
petitioners accountant. The latter presented before the trial court private respondents
statement of account[27] as of September 30, 1986, showing an outstanding balance
of P4,689,413.63 after deducting P1,000,000.00 paid seven months earlier. Furthermore, such
partial payment is equivalent to an express acknowledgment of his obligation. Private
respondent can no longer backtrack and deny his liability to petitioner bank. A person cannot
accept and reject the same instrument.[28]
WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the
Decision of RTC-Manila, Branch 48, in Civil Case No. 26465 is hereby REINSTATED.
SO ORDERED.
G.R. No. 178618 October 11, 2010
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its
Liquidator, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner,
vs.
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his
capacity as the Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City; and the
REGISTER OF DEEDS of Cagayan de Oro City,Respondent.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
Mindanao Savings and Loan Association, Inc. (MSLAI), represented by its liquidator,
Philippine Deposit Insurance Corporation (PDIC), against respondents Edward R. Willkom
(Willkom); Gilda Go (Go); Remedios Uy (Uy); Malayo Bantuas (sheriff Bantuas), in his
capacity as sheriff of the Regional Trial Court (RTC), Branch 3 of Iligan City; and the
Register of Deeds of Cagayan de Oro City. MSLAI seeks the reversal and setting aside of the
Court of Appeals1 (CA) Decision2 dated March 21, 2007 and Resolution3 dated June 1, 2007
in CA-G.R. CV No. 58337.
The controversy stemmed from the following facts:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and
Loan Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange
Commission (SEC) under Registry Nos. 34869 and 32388, respectively, primarily engaged in
the business of granting loans and receiving deposits from the general public, and treated as
banks.4
Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving
corporation.5 The articles of merger were not registered with the SEC due to incomplete
documentation.6 On August 12, 1985, DSLAI changed its corporate name to MSLAI by way
of an amendment to Article 1 of its Articles of Incorporation, but the amendment was
approved by the SEC only on April 3, 1987.7
Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed and approved Board
Resolution No. 86-002, assigning its assets in favor of DSLAI which in turn assumed the
formers liabilities.8
The business of MSLAI, however, failed. Hence, the Monetary Board of the Central Bank of
the Philippines ordered its closure and placed it under receivership per Monetary Board
Resolution No. 922 dated August 31, 1990. The Monetary Board found that MSLAIs
financial condition was one of insolvency, and for it to continue in business would involve
probable loss to its depositors and creditors. On May 24, 1991, the Monetary Board ordered
the liquidation of MSLAI, with PDIC as its liquidator.9
It appears that prior to the closure of MSLAI, Uy filed with the RTC, Branch 3 of Iligan City,
an action for collection of sum of money against FISLAI, docketed as Civil Case No. 111-697.
On October 19, 1989, the RTC issued a summary decision in favor of Uy, directing
defendants therein (which included FISLAI) to pay the former the sum of 136,801.70, plus
interest until full payment, 25% as attorneys fees, and the costs of suit. The decision was
modified by the CA by further ordering the third-party defendant therein to reimburse the
payments that would be made by the defendants. The decision became final and executory
on February 21, 1992. A writ of execution was thereafter issued. 10
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located
in Cagayan de Oro City, and the notice of sale was subsequently published. During the
public auction on May 17, 1993, Willkom was the highest bidder. A certificate of sale was
issued and eventually registered with the Register of Deeds of Cagayan de Oro City. Upon
the expiration of the redemption period, sheriff Bantuas issued the sheriffs definite deed of
sale. New certificates of title covering the subject properties were issued in favor of
Willkom. On September 20, 1994, Willkom sold one of the subject parcels of land to Go.11
On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC, Branch 41 of Cagayan
de Oro City, a complaint for Annulment of Sheriffs Sale, Cancellation of Title and
Reconveyance of Properties against respondents.12 MSLAI alleged that the sale on execution
of the subject properties was conducted without notice to it and PDIC; that PDIC only came
to know about the sale for the first time in February 1995 while discharging its mandate of
liquidating MSLAIs assets; that the execution of the RTC decision in Civil Case No. 111-697
was illegal and contrary to law and jurisprudence, not only because PDIC was not notified
of the execution sale, but also because the assets of an institution placed under receivership
or liquidation such as MSLAI should be deemed in custodia legis and should be exempt
from any order of garnishment, levy, attachment, or execution. 13
In answer, respondents averred that MSLAI had no cause of action against them or the right
to recover the subject properties because MSLAI is a separate and distinct entity from
FISLAI. They further contended that the "unofficial merger" between FISLAI and DSLAI
(now MSLAI) did not take effect considering that the merging companies did not comply
with the formalities and procedure for merger or consolidation as prescribed by the
Corporation Code of the Philippines. Finally, they claimed that FISLAI is still a SEC
registered corporation and could not have been absorbed by petitioner.14
On March 13, 1997, the RTC issued a resolution dismissing the case for lack of jurisdiction.
The RTC declared that it could not annul the decision in Civil Case No. 111-697, having
been rendered by a court of coordinate jurisdiction.15
On appeal, MSLAI failed to obtain a favorable decision when the CA affirmed the RTC
resolution. The dispositive portion of the assailed CA Decision reads:
WHEREFORE, premises considered, the instant appeal is DENIED. The decision assailed is
AFFIRMED.
We REFER Sheriff Malayo B. Bantuas violation of the Supreme Court Administrative
Circular No. 12 to the Office of the Court Administrator for appropriate action. The Division
Clerk of Court is hereby DIRECTED to furnish the Office of the Court Administrator a copy
of this decision.
SO ORDERED.16
The appellate court sustained the dismissal of petitioners complaint not because it had no
jurisdiction over the case, as held by the RTC, but on a different ground. Citing Associated
Bank v. CA,17 the CA ruled that there was no merger between FISLAI and MSLAI (formerly
DSLAI) for their failure to follow the procedure laid down by the Corporation Code for a
valid merger or consolidation. The CA then concluded that the two corporations retained
their separate personalities; consequently, the claim against FISLAI is warranted, and the
subsequent sale of the levied properties at public auction is valid. The CA went on to say
that even if there had been a de facto merger between FISLAI and MSLAI (formerly DSLAI),
Willkom, having relied on the clean certificates of title, was an innocent purchaser for value,
whose right is superior to that of MSLAI. Furthermore, the alleged assignment of assets and
liabilities executed by FISLAI in favor of MSLAI was not binding on third parties because it
was not registered. Finally, the CA said that the validity of the auction sale could not be
invalidated by the fact that the sheriff had no authority to conduct the execution sale. 18
Petitioners motion for reconsideration was denied in a Resolution dated June 1, 2007.
Hence, the instant petition anchored on the following grounds:
THE HONORABLE COURT OF APPEALS, CAGAYAN DE ORO COMMITTED GRAVE
AND REVERSIBLE ERROR WHEN:
(1)
IT PASSED UPON THE EXISTENCE AND STATUS OF DSLAI (now MSLAI) AS THE
SURVIVING ENTITY IN THE MERGER BETWEEN DSLAI AND FISLAI AS A DEFENSE
IN AN ACTION OTHER THAN IN A QUO WARRANTO PROCEEDING UPON THE
INSTITUTION OF THE SOLICITOR GENERAL AS MANDATED UNDER SECTION 20 OF
BATAS PAMBANSA BLG. 68.
(2)
IT REFUSED TO RECOGNIZE THE MERGER BETWEEN F[I]SLAI AND DSLAI WITH
DSLAI AS THE SURVIVING CORPORATION.
(3)
IT HELD THAT THE PROPERTIES SUBJECT OF THE CASE ARE NOT IN CUSTODIA
LEGIS AND THEREFORE, EXEMPT FROM GARNISHMENT, LEVY, ATTACHMENT OR
EXECUTION.19
To resolve this petition, we must address two basic questions: (1) Was the merger between
FISLAI and DSLAI (now MSLAI) valid and effective; and (2) Was there novation of the
obligation by substituting the person of the debtor?
We answer both questions in the negative.
Ordinarily, in the merger of two or more existing corporations, one of the corporations
survives and continues the combined business, while the rest are dissolved and all their
rights, properties, and liabilities are acquired by the surviving corporation.20 Although there
is a dissolution of the absorbed or merged corporations, there is no winding up of their
affairs or liquidation of their assets because the surviving corporation automatically
acquires all their rights, privileges, and powers, as well as their liabilities. 21
The merger, however, does not become effective upon the mere agreement of the
constituent corporations.22 Since a merger or consolidation involves fundamental changes in
the corporation, as well as in the rights of stockholders and creditors, there must be an
express provision of law authorizing them.23
The steps necessary to accomplish a merger or consolidation, as provided for in Sections
76,24 77,25 78,26 and 7927 of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan
must include any amendment, if necessary, to the articles of incorporation of the surviving
corporation, or in case of consolidation, all the statements required in the articles of
incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A
meeting must be called and at least two (2) weeks notice must be sent to all stockholders or
members, personally or by registered mail. A summary of the plan must be attached to the
notice. Vote of two-thirds of the members or of stockholders representing two-thirds of the
outstanding capital stock will be needed. Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r]
consolidation, by the corporate officers of each constituent corporation. These take the place
of the articles of incorporation of the consolidated corporation, or amend the articles of
incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two
weeks before.
(6) Issuance of certificate of merger or consolidation.28
Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the
SEC, subject to its prior determination that the merger is not inconsistent with the
Corporation Code or existing laws.29 Where a party to the merger is a special corporation
governed by its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained. 30
In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not
registered with the SEC due to incomplete documentation. Consequently, the SEC did not
issue the required certificate of merger. Even if it is true that the Monetary Board of the
Central Bank of the Philippines recognized such merger, the fact remains that no certificate
was issued by the SEC. Such merger is still incomplete without the certification.
The issuance of the certificate of merger is crucial because not only does it bear out SECs
approval but it also marks the moment when the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist
but its rights and properties, as well as liabilities, shall be taken and deemed transferred to
and vested in the surviving corporation.31
The same rule applies to consolidation which becomes effective not upon mere agreement
of the members but only upon issuance of the certificate of consolidation by the
SEC.32 When the SEC, upon processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not inconsistent with the provisions of
the Corporation Code and existing laws, it issues a certificate of consolidation which makes
the reorganization official.33 The new consolidated corporation comes into existence and the
constituent corporations are dissolved and cease to exist.34
There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as
respondents, the two corporations shall not be considered as one but two separate
corporations. A corporation is an artificial being created by operation of law. It possesses
the right of succession and such powers, attributes, and properties expressly authorized by
law or incident to its existence.35 It has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which it may be related. 36 Being
separate entities, the property of one cannot be considered the property of the other.
Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI remain as
its assets and cannot be considered as belonging to DSLAI and MSLAI, notwithstanding the
Deed of Assignment wherein FISLAI assigned its assets and properties to DSLAI, and the
latter assumed all the liabilities of the former. As provided in Article 1625 of the Civil Code,
"an assignment of credit, right or action shall produce no effect as against third persons,
unless it appears in a public instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property." The certificates of title of the
subject properties were clean and contained no annotation of the fact of assignment.
Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI on the
properties registered under its name. Accordingly, MSLAI, as the successor-in-interest of
DSLAI, has no legal standing to annul the execution sale over the properties of FISLAI.
With more reason can it not cause the cancellation of the title to the subject properties of
Willkom and Go.
Petitioner cannot also anchor its right to annul the execution sale on the principle of
novation.1avvphi1 While it is true that DSLAI (now MSLAI) assumed all the liabilities of
FISLAI, such assumption did not result in novation as would release the latter from
liability, thereby exempting its properties from execution. Novation is the extinguishment
of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, by
substituting another in place of the debtor, or by subrogating a third person in the rights of
the creditor.37
It is a rule that novation by substitution of debtor must always be made with the consent of
the creditor.38 Article 1293 of the Civil Code is explicit, thus:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237.
In this case, there was no showing that Uy, the creditor, gave her consent to the agreement
that DSLAI (now MSLAI) would assume the liabilities of FISLAI. Such agreement cannot
prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to
execution to satisfy the judgment claim of Uy against FISLAI. The subsequent sale of the
properties by Uy to Willkom, and of one of the properties by Willkom to Go, cannot,
therefore, be questioned by MSLAI.
The consent of the creditor to a novation by change of debtor is as indispensable as the
creditors consent in conventional subrogation in order that a novation shall legally take
place.39 Since novation implies a waiver of the right which the creditor had before the
novation, such waiver must be express.40
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals
Decision dated March 21, 2007 and Resolution dated June 1, 2007 in CA-G.R. CV No. 58337
are AFFIRMED.
SO ORDERED.
EN BANC merger in 2000 were covered by the Union Shop Clause in the then existing collective
bargaining agreement (CBA)[2] of BPI with respondent BPI Employees Union-Davao
Chapter-Federation of Unions in BPI Unibank (the Union).
BANK OF THE PHILIPPINE ISLANDS, G.R. No. 164301
Petitioner, To recall, the Union Shop Clause involved in this long standing controversy provided, thus:

Present: ARTICLE II

CORONA, C.J., xxxx

CARPIO,
VELASCO, JR., Section 2. Union Shop - New employees falling within the bargaining unit as defined in
LEONARDO-DE CASTRO, Article I of this Agreement, who may hereafter be regularly employed by the Bank shall,
BRION, within thirty (30) days after they become regular employees, join the Union as a
PERALTA, condition of their continued employment. It is understood that membership in good
- versus - BERSAMIN,* standing in the Union is a condition of their continued employment with the
DEL CASTILLO,** Bank.[3] (Emphases supplied.)
ABAD,
VILLARAMA, JR.,
PEREZ,** The bone of contention between the parties was whether or not the absorbed FEBTC
MENDOZA, employees fell within the definition of new employees under the Union Shop Clause, such
SERENO, that they may be required to join respondent union and if they fail to do so, the Union may
REYES,*** and request BPI to terminate their employment, as the Union in fact did in the present case.
PERLAS-BERNABE, JJ. Needless to state, BPI refused to accede to the Unions request. Although BPI won the initial
battle at the Voluntary Arbitrator level, BPIs position was rejected by the Court of Appeals
BPI EMPLOYEES UNION-DAVAO CHAPTER- which ruled that the Voluntary Arbitrators interpretation of the Union Shop Clause was at
FEDERATION OF UNIONS IN BPI UNIBANK, Promulgated: war with the spirit and rationale why the Labor Code allows the existence of such
Respondent. provision. On review with this Court, we upheld the appellate courts ruling and disposed
of the case as follows:

October 19, 2011 WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003
x--------------------------------------------------x of the Court of Appeals is AFFIRMED, subject to the thirty (30) day notice requirement
imposed herein. Former FEBTC employees who opt not to become union members but who
qualify for retirement shall receive their retirement benefits in accordance with law, the
applicable retirement plan, or the CBA, as the case may be. [4]

Notwithstanding our affirmation of the applicability of the Union Shop Clause to former
FEBTC employees, for reasons already extensively discussed in the August 10, 2010
RESOLUTION Decision, even now BPI continues to protest the inclusion of said employees in the Union
Shop Clause.

LEONARDO-DE CASTRO, J.:
In the present incident, petitioner Bank of the Philippine Islands (BPI) moves for
reconsideration[1] of our Decision dated August 10, 2010, holding that former employees of
the Far East Bank and Trust Company (FEBTC) absorbed by BPI pursuant to the two banks
In seeking the reversal of our August 10, 2010 Decision, petitioner insists that the parties to
the CBA clearly intended to limit the application of the Union Shop Clause only to new
employees who were hired as non-regular employees but later attained regular status at
some point after hiring. FEBTC employees cannot be considered new employees as BPI
merely stepped into the shoes of FEBTC as an employer purely as a consequence of the
merger.[5]
Petitioner likewise relies heavily on the dissenting opinions of our respected colleagues,
Associate Justices Antonio T. Carpio and Arturo D. Brion. From both dissenting opinions,
petitioner derives its contention that the situation of absorbed employees can be likened to
old employees of BPI, insofar as their full tenure with FEBTC was recognized by BPI and
their salaries were maintained and safeguarded from diminution but such absorbed
employees cannot and should not be treated in exactly the same way as old BPI employees
for there are substantial differences between them.[6] Although petitioner admits that there
are similarities between absorbed and new employees, they insist there are marked
differences between them as well. Thus, adopting Justice Brions stance, petitioner contends
that the absorbed FEBTC employees should be considered a sui generis group of employees
whose classification will not be duplicated until BPI has another merger where it would be
the surviving corporation.[7] Apparently borrowing from Justice Carpio, petitioner
propounds that the Union Shop Clause should be strictly construed since it purportedly
curtails the right of the absorbed employees to abstain from joining labor organizations. [8]
Pursuant to our directive, the Union filed its Comment[9] on the Motion for
Reconsideration. In opposition to petitioners arguments, the Union, in turn, adverts to our
discussion in the August 10, 2010 Decision regarding the voluntary nature of the merger
between BPI and FEBTC, the lack of an express stipulation in the Articles of Merger
regarding the transfer of employment contracts to the surviving corporation, and the
consensual nature of employment contracts as valid bases for the conclusion that former
FEBTC employees should be deemed new employees.[10] The Union argues that the creation
of employment relations between former FEBTC employees and BPI (i.e., BPIs selection and
engagement of former FEBTC employees, its payment of their wages, power of dismissal
and of control over the employees conduct) occurred after the merger, or to be more precise,
after the Securities and Exchange Commissions (SEC) approval of the merger. [11] The Union
likewise points out that BPI failed to offer any counterargument to the Courts reasoning
that:
The rationale for upholding the validity of union shop clauses in a CBA, even if they
impinge upon the individual employee's right or freedom of association, is not to protect
the union for the union's sake. Laws and jurisprudence promote unionism and afford
certain protections to the certified bargaining agent in a unionized company because a
strong and effective union presumably benefits all employees in the bargaining unit since
such a union would be in a better position to demand improved benefits and conditions of
work from the employer. x x x.
x x x Nonetheless, settled jurisprudence has already swung the balance in favor of
unionism, in recognition that ultimately the individual employee will be benefited by that
policy. In the hierarchy of constitutional values, this Court has repeatedly held that the right
to abstain from joining a labor organization is subordinate to the policy of encouraging
unionism as an instrument of social justice.[12]
While most of the arguments offered by BPI have already been thoroughly addressed in the
August 10, 2010 Decision, we find that a qualification of our ruling is in order only with
respect to the interpretation of the provisions of the Articles of Merger and its implications
on the former FEBTC employees security of tenure.
Taking a second look on this point, we have come to agree with Justice Brions 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.
Not to be forgotten is that the affected employees managed, operated and worked on the
transferred assets and properties as their means of livelihood; they constituted a basic
component of their corporation during its existence. In a merger and consolidation
situation, they cannot be treated without consideration of the applicable constitutional
declarations and directives, or, worse, be simply disregarded. If they are so treated, it is up
to this Court to read and interpret the law so that they are treated in accordance with the
legal requirements of mergers and consolidation, read in light of the social justice, economic
and social provisions of our Constitution. Hence, there is a need for the surviving
corporation to take responsibility for the affected employees and to absorb them into its
workforce where no appropriate provision for the merged corporation's human resources
component is made in the Merger Plan.[13]
By upholding the automatic assumption of the non-surviving corporations existing
employment contracts by the surviving corporation in a merger, the Court strengthens
judicial protection of the right to security of tenure of employees affected by a merger and
avoids confusion regarding the status of their various benefits which were among the chief
objections of our dissenting colleagues. However, nothing in this Resolution shall impair
the right of an employer to terminate the employment of the absorbed employees for a
lawful or authorized cause or the right of such an employee to resign, retire or otherwise
sever his employment, whether before or after the merger, subject to existing contractual
obligations. In this manner, Justice Brions theory of automatic assumption may be
reconciled with the majoritys concerns with the successor employers prerogative to choose
its employees and the prohibition against involuntary servitude.
Notwithstanding this concession, we find no reason to reverse our previous pronouncement
that the absorbed FEBTC employees are covered by the Union Shop Clause.
Even in our August 10, 2010 Decision, we already observed that the legal fiction in the law
on mergers (that the surviving corporation continues the corporate existence of the non-
surviving corporation) is mainly a tool to adjudicate the rights and obligations between and
among the merged corporations and the persons that deal with them. [14] Such a legal fiction
cannot be unduly extended to an interpretation of a Union Shop Clause so as to defeat its
purpose under labor law. Hence, we stated in the Decision that:
In any event, it is of no moment that the former FEBTC employees retained the regular
status that they possessed while working for their former employer upon their absorption
by petitioner. This fact would not remove them from the scope of the phrase "new
employees" as contemplated in the Union Shop Clause of the CBA, contrary to petitioner's
insistence that the term "new employees" only refers to those who are initially hired as non-
regular employees for possible regular employment.
The Union Shop Clause in the CBA simply states that "new employees" who during the
effectivity of the CBA "may be regularly employed" by the Bank must join the union within
thirty (30) days from their regularization. There is nothing in the said clause that limits its
application to only new employees who possess non-regular status, meaning probationary
status, at the start of their employment. Petitioner likewise failed to point to any provision
in the CBA expressly excluding from the Union Shop Clause new employees who are
"absorbed" as regular employees from the beginning of their employment. What is
indubitable from the Union Shop Clause is that upon the effectivity of the CBA, petitioner's
new regular employees (regardless of the manner by which they became employees of BPI)
are required to join the Union as a condition of their continued employment.[15]
Although by virtue of the merger BPI steps into the shoes of FEBTC as a successor employer
as if the former had been the employer of the latters employees from the beginning it must
be emphasized that, in reality, the legal consequences of the merger only occur at a specific
date, i.e., upon its effectivity which is the date of approval of the merger by the SEC. Thus,
we observed in the Decision that BPI and FEBTC stipulated in the Articles of Merger that
they will both continue their respective business operations until the SEC issues the
certificate of merger and in the event no such certificate is issued, they shall hold each other
blameless for the non-consummation of the merger.[16] We likewise previously noted that
BPI made its assignments of the former FEBTC employees effective on April 10, 2000, or
after the SEC approved the merger.[17] In other words, the obligation of BPI to pay the
salaries and benefits of the former FEBTC employees and its right of discipline and control
over them only arose with the effectivity of the merger. Concomitantly, the obligation of
former FEBTC employees to render service to BPI and their right to receive benefits from
the latter also arose upon the effectivity of the merger. What is material is that all of these
legal consequences of the merger took place during the life of an existing and valid CBA
between BPI and the Union wherein they have mutually consented to include a Union Shop
Clause.
From the plain, ordinary meaning of the terms of the Union Shop Clause, it covers
employees who (a) enter the employ of BPI during the term of the CBA; (b) are part of the
bargaining unit (defined in the CBA as comprised of BPIs rank and file employees); and (c)
become regular employees without distinguishing as to the manner they acquire their
regular status.Consequently, the number of such employees may adversely affect the
majority status of the Union and even its existence itself, as already amply explained in the
Decision.
Indeed, there are differences between (a) new employees who are hired as probationary or
temporary but later regularized, and (b) new employees who, by virtue of a merger, are
absorbed from another company as regular and permanent from the beginning of their
employment with the surviving corporation. It bears reiterating here that these differences
are too insubstantial to warrant the exclusion of the absorbed employees from the
application of the Union Shop Clause. In the Decision, we noted that:
Verily, we agree with the Court of Appeals that there are no substantial differences between
a newly hired non-regular employee who was regularized weeks or months after his hiring
and a new employee who was absorbed from another bank as a regular employee pursuant
to a merger, for purposes of applying the Union Shop Clause. Both employees were
hired/employed only after the CBA was signed. At the time they are being required to join
the Union, they are both already regular rank and file employees of BPI. They belong to the
same bargaining unit being represented by the Union. They both enjoy benefits that the
Union was able to secure for them under the CBA. When they both entered the employ of
BPI, the CBA and the Union Shop Clause therein were already in effect and neither of them
had the opportunity to express their preference for unionism or not. We see no cogent
reason why the Union Shop Clause should not be applied equally to these two types of new
employees, for they are undeniably similarly situated.[18]
Again, it is worthwhile to highlight that a contrary interpretation of the Union Shop Clause
would dilute its efficacy and put the certified union that is supposedly being protected
thereby at the mercy of management. For if the former FEBTC employees had no say in the
merger of its former employer with another bank, as petitioner BPI repeatedly decries on
their behalf, the Union likewise could not prevent BPI from proceeding with the merger
which undisputedly affected the number of employees in the bargaining unit that the Union
represents and may negatively impact on the Unions majority status. In this instance, we
should be guided by the principle that courts must place a practical and realistic
construction upon a CBA, giving due consideration to the context in which it is negotiated
and purpose which it is intended to serve.[19]
We now come to the question: Does our affirmance of our ruling that former FEBTC
employees absorbed by BPI are covered by the Union Shop Clause violate their right to
security of tenure which we expressly upheld in this Resolution? We answer in the
negative.
In Rance v. National Labor Relations Commission,[20] we held that:
It is the policy of the state to assure the right of workers to "security of tenure" (Article XIII,
Sec. 3 of the New Constitution, Section 9, Article II of the 1973 Constitution). The guarantee
is an act of social justice. When a person has no property, his job may possibly be his only
possession or means of livelihood. Therefore, he should be protected against any arbitrary
deprivation of his job. Article 280 of the Labor Code has construed security of tenure as
meaning that "the employer shall not terminate the services of an employee except for a
just cause or when authorized by" the Code. x x x (Emphasis supplied.)
We have also previously held that the fundamental guarantee of security of tenure and due
process dictates that no worker shall be dismissed except for a just and authorized cause
provided by law and after due process is observed.[21] Even as we now recognize the right
to continuous, unbroken employment of workers who are absorbed into a new company
pursuant to a merger, it is but logical that their employment may be terminated for any
causes provided for under the law or in jurisprudence without violating their right to
security of tenure. As Justice Carpio discussed in his dissenting opinion, it is well-settled
that termination of employment by virtue of a union security clause embodied in a CBA is
recognized in our jurisdiction.[22] In Del Monte Philippines, Inc. v. Saldivar,[23] we explained
the rationale for this policy in this wise:
Article 279 of the Labor Code ordains that "in cases of regular employment, the employer
shall not terminate the services of an employee except for a just cause or when authorized
by [Title I, Book Six of the Labor Code]." Admittedly, the enforcement of a closed-shop or
union security provision in the CBA as a ground for termination finds no extension
within any of the provisions under Title I, Book Six of the Labor Code. Yet jurisprudence
has consistently recognized, thus: "It is State policy to promote unionism to enable
workers to negotiate with management on an even playing field and with more
persuasiveness than if they were to individually and separately bargain with the employer.
For this reason, the law has allowed stipulations for 'union shop' and 'closed shop' as means
of encouraging workers to join and support the union of their choice in the protection of
their rights and interests vis-a-vis the employer."[24](Emphasis supplied.)
Although it is accepted that non-compliance with a union security clause is a valid ground
for an employees dismissal, jurisprudence dictates that such a dismissal must still be done
in accordance with due process. This much we decreed in General Milling Corporation v.
Casio,[25] to wit:
The Court reiterated in Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos that:
While respondent company may validly dismiss the employees expelled by the union for
disloyalty under the union security clause of the collective bargaining agreement upon the
recommendation by the union, this dismissal should not be done hastily and summarily
thereby eroding the employees' right to due process, self-organization and security of
tenure. The enforcement of union security clauses is authorized by law provided such
enforcement is not characterized by arbitrariness, and always with due process. Even on
the assumption that the federation had valid grounds to expel the union officers, due
process requires that these union officers be accorded a separate hearing by respondent
company.
The twin requirements of notice and hearing constitute the essential elements of procedural
due process. The law requires the employer to furnish the employee sought to be dismissed
with two written notices before termination of employment can be legally effected: (1) a
written notice apprising the employee of the particular acts or omissions for which his
dismissal is sought in order to afford him an opportunity to be heard and to defend himself
with the assistance of counsel, if he desires, and (2) a subsequent notice informing the
employee of the employer's decision to dismiss him. This procedure is mandatory and its
absence taints the dismissal with illegality.
Irrefragably, GMC cannot dispense with the requirements of notice and hearing before
dismissing Casio, et al. even when said dismissal is pursuant to the closed shop
provision in the CBA. The rights of an employee to be informed of the charges against him
and to reasonable opportunity to present his side in a controversy with either the company
or his own union are not wiped away by a union security clause or a union shop clause in a
collective bargaining agreement. x x x[26] (Emphases supplied.)
In light of the foregoing, we find it appropriate to state that, apart from the fresh thirty (30)-
day period from notice of finality of the Decision given to the affected FEBTC employees to
join the Union before the latter can request petitioner to terminate the formers employment,
petitioner must still accord said employees the twin requirements of notice and hearing on
the possibility that they may have other justifications for not joining the Union. Similar to
our August 10, 2010 Decision, we reiterate that our ruling presupposes there has been no
material change in the situation of the parties in the interim.
WHEREFORE, the Motion for Reconsideration is DENIED. The Decision dated August 10,
2010 is AFFIRMED, subject to the qualifications that:
(a) Petitioner is deemed to have assumed the employment contracts of the Far East Bank
and Trust Company (FEBTC) employees upon effectivity of the merger without break in the
continuity of their employment, even without express stipulation in the Articles of Merger;
and
(b) Aside from the thirty (30) days, counted from notice of finality of the August 10, 2010
Decision, given to former FEBTC employees to join the respondent, said employees shall be
accorded full procedural due process before their employment may be terminated.
SO ORDERED.

G.R. No. 192398 September 29, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari filed by petitioner Commissioner of Internal
Revenue, who seeks to nullify and set aside the September 10, 2009 Decision 1 of the Court of
Appeals (CA) in CA-G.R. SP No. 77117. The CA had affirmed the Decision 2 of the Court of
Tax Appeals ordering petitioner to refund, or in the alternative, issue a tax credit certificate
in favor of Pilipinas Shell Petroleum Corporation (respondent) in the amount of
1!22,101,407.64 representing the latter's erroneously paid documentary stamp tax for the
taxable year 2000. Petitioner likewise assails the CA Resolution 3 denying petitioner's motion
for reconsideration. The antecedent facts:
Petitioner is the duly appointed Commissioner of Internal Revenue who holds office at the
Bureau of Internal Revenue (BIR) National Office located at Agham Road, Diliman, Quezon
City.
Respondent Pilipinas Shell Petroleum Corporation (PSPC) is a corporation organized and
existing under the laws of the Philippines and was incorporated to construct, operate and
maintain petroleum refineries, works, plant machinery, equipment dock and harbor
facilities and auxiliary works and other facilities of all kinds and used in or in connection
with the manufacture of products of all kinds which are wholly or partly derived from
crude oil.
On April 27, 1999, respondent entered into a Plan of Merger with its affiliate, Shell
Philippine Petroleum Corporation (SPPC), a corporation organized and existing under the
laws ofthe Philippines. In the Plan of Merger, it was provided that the entire assets and
liabilities of SPPC will be transferred to, and absorbed by, respondent as the surviving
entity. The Securities and Exchange Commission approved the merger on July 1, 1999.
On August 10, 1999, respondent paidto the BIR documentary stamp taxes amounting to
524,316.00 on the original issuance of shares of stock of respondent issued in exchange for
the surrendered SPPC shares pursuant to Section 175 of the National InternalRevenue Code
of1997 (NIRC or Tax Code).
Confirming the tax-free nature of the merger between respondent and SPPC, the BIR, in a
ruling4 dated October 4, 1999, ruled that pursuant to Section 40 (C)(2) and (6)(b) of the
NIRC, no gain or loss shall be recognized, if, in pursuance to a planof merger or
consolidation, a shareholder exchanges stock in a corporation which is a party to the merger
or consolidation solely for the stock ofanother corporation which is also a party to the
merger or consolidation. The BIR ruled, among others, that no gain or loss shall be
recognized by the stockholders of SPPC on the exchange of their shares of stock of SPPC
solely for shares of stock of respondent pursuant to the Plan of Merger.
The BIR, however, stated in said Ruling that
3. The issuance by PSPC of its own shares of stock to the shareholders of SPPC in exchange
for the surrendered certificates of stock of SPPC shall be subject to the documentary stamp
tax (DST) at the rate of Two Pesos (2.00) on each Two HundredPesos (200.00), or
fractional part thereof, based on the total par value of the PSPC shares of stock issued
pursuant to Section 175 of the Tax Code of 1997.
xxxx
6. The exchange of land and improvements by SPPC to PSPC for the latters shares of stock
shall be subject to documentary stamp tax imposed under Section 196 of the Tax Code of
1997, based on the consideration contracted to be paid for such realty or its fair market
value determined in accordance withSection 6(E) of the said Code, whichever is higher. x x
x5
On May 10, 2000, respondent paid to the BIR the amount of 22,101,407.64 representing
documentary stamp tax on the transfer of real property from SPPC to respondent.
Believing that it erroneously paid documentary stamp tax on its absorption of real property
owned by SPPC, respondent filed with petitioner on September 18, 2000, a formal claim for
refund or tax credit of the documentary stamp tax in the amount of 22,101,407.64.
There being no action by petitioner, respondent filed on May 8, 2002, a petition 6 for review
with the Court of Tax Appeals (CTA) in order to suspend the running of the two-year
prescriptive period.
Petitioner filed an Answer7 on June 11, 2002 praying that the petition for review be
dismissed for lack of merit. Petitioner asserted that in taxdeferred exchanges, documentary
stamp tax is imposed. Petitioner cited BIR Ruling No. 2-20018 dated February 2, 2001 which
states:
In view of all the foregoing, it is the opinion of this Office, as we hereby hold, that the tax-
deferred exchange of properties of a corporation, which is a party to a merger or
consolidation, solely for shares of stock in a corporation, which is also a party to the merger
or consolidation, is subject to the documentary stamp tax under Section 176 if the properties
to be transferred are shares of stock or even certificates of obligations, and also to the
documentary stamp tax under Sec[tion] 196, if the properties to be transferred are real
properties. Finally, it may be worth mentioning that the original issuance of shares of stock
ofthe surviving corporation in favor of the stockholders of the absorbed corporation as a
result of the merger, is subject to the documentary stamp tax under Sec[tion] 175 of the Tax
Code of 1997. (BIR Ruling No. S-40-220-2000, December 21, 2000).9
In its Decision10 promulgated on April 30,2003, the CTA granted respondents prayer for tax
refund or credit.
The CTA held that
Based on the foregoing, it is evident that the transfer of real property from the absorbed
corporation to the surviving or consolidated corporation pursuant to a merger or
consolidation occurs by operation of lawinasmuch as the real property is deemed
transferred without further act or deed. In the case at bar, the petitioners theory is that DST
on the transfer of real property does not apply to a "statutorymerger" where real property of
the absorbed corporation is deemed automatically vested in the surviving corporation by
operation of law, i.e., without any further act of deed.
xxxx
To reiterate, since the transfer of real property of SPPC to petitioner was not effected by or
dependent on any voluntary act or deed of the parties to the merger, DST, therefore, should
not attach to the same.
xxxx
A perusal of the above-cited provision would reveal that the DST is imposed only on all
conveyances, deeds, instruments, or writings where realty sold shall be conveyed to
purchaser or purchasers. Clearly, in case of merger, as in the case at bar, only by straining
the imagination can the transferee be said to have "bought" or "purchased" real property
from the transferor. The absorption by petitioner of real property of SPPC as an inherent
legal consequence of the merger is not a sale or other conveyance of real property for a
consideration in money or moneys worth.
As correctly pointed out by the petitioner, SPPCs real property was not conveyed to or
vested inpetitioner by means of any deed, instrument or writing, considering that real
properties were automatically vested in petitioner without"further act or deed".There was a
complete absence of any formal instrument or writing upon which DST may be imposed.
Nor can the realty be said tohave been "sold" or vested in a "purchaser or purchasers"
within the ordinary meanings of those terms.
xxxx
Moreover, under Revenue Memorandum Circular No. 44-86 dated December 4, 1986, which
outlines the procedure in the determination and collection of stamp tax on instruments of
sale or conveyance of real property, it is clear that the DST applies only if the instrument is a
sale or other conveyance of real property for a consideration in money or moneys worth.
Finally, the absorption by petitioner of real property of SPPC by operation of law pursuant
to the merger is part and parcel of a single and continuing transaction. Accordingly, the
same should not be subject to DST as if it constituted a separate and distinct transaction.
As earlier stated, DST is in the nature of an excise tax because it is really imposed on the
privilege to enter into a transaction. Its imposition, therefore, should be only once. And in a
statutory merger, there is only one transaction, i.e., the issuance by the surviving
corporation of its own shares of stock to the stockholdersof the absorbed corporation in
exchange for the shares surrendered by the shareholders of the absorbed corporation. All
other transactions which are an integral and inherent part of the merger, such as the
absorption of real property, should no longer be subject to another round of DST. In other
words,all the integral parts of the merger (e.g., surrender of shares inexchange for shares,
transfer of assets, assumption of liabilities, etc.) should be treated as a single and continuing
transaction subject only to one DST. The transfer of real property is not a transaction
separate and distinct from the merger but an integral part or a mere continuation of the
initial transaction which was previously consummated. Applying the same in petitioners
case, the absorption by petitioner of real property of SPPC is not a transaction separate and
distinct from the merger, wherein petitioner issued its own shares to SPPC shareholders in
exchange for the latters shares in SPPC, the absorbed entity, but a mere continuation of the
initial transaction which was previously consummated, and for which the required DST
was already paid.11
On June 4, 2003, petitioner filed a petition for review with the CA. In the herein assailed
Decision dated September 10, 2009, the CA dismissed the petition and affirmed the Decision
of the CTA. The appellate court held that the transfer of the properties of SPPC to
respondent was not in exchange for the latters shares of stock but is a legal consequence of
the merger. The CA ruled that the actual transfer of SPPCs real properties to respondent
was not effected by or dependent upon any voluntary deed, conveyance or assignment but
occurred by operation of law. The CA held that since the basis of the BIR in imposing the
documentary stamp tax is not applicable to a transfer of realproperty by operation of law,
PSPC erroneously paid the documentary stamp tax and is therefore, entitled to a tax refund
or tax credit.
Petitioner filed a motion for reconsideration which was denied by the CA in its Resolution
dated April 13, 2010.
Hence, petitioner filed the present petition on the sole ground that
THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRANSFER OF REAL
PROPERTIES OF SPPC TO RESPONDENT IN EXCHANGE FOR THE LATTERS SHARES
OF STOCK IS NOT SUBJECT TO THE DST IMPOSED UNDER SECTION 196 OF THE TAX
CODE.12
Petitioner points out that the mergerbetween SPPC and respondent resulted in the
following: (1) the issuanceby respondent of its own shares of stock to the shareholders of
SPPC in exchange for the surrendered certificates of stock of SPPC and was imposed a
documentary stamp tax under Section 175 of the Tax Code in the amount of 524,316.00;
and (2) the transfer of SPPCs real properties to respondent in exchange for the latters
shares of stock which was imposed a documentary stamp tax under Section 196 of the Tax
Code in the amount of 22,101,407.64. Respondent claims that the documentary stamp tax
imposed on the second transaction had been erroneously paid and seeks to claim a refund
or tax credit in the amount of 22,101,407.64. Both the CTA and the CA held that
respondent is entitled to refund or tax credit.
Petitioner insists that the transfer of SPPCs real properties to respondent in exchange for
the latters shares of stock is subject to documentary stamp tax. Petitioner contends that
Section 196 of the Tax Code covers all transfers of real property for a valuable consideration
and does not only refer to sale of realtysince it speaks of real property being "granted,
assigned, transferred or otherwise conveyed."
Petitioner also claims that the subject transfer was not entirely by operation of law since the
merger agreement between respondent and SPPC involves the voluntary act of the parties.
Petitioner avers that it is wrong to say that no documentary stamp tax isimposable allegedly
because the transfer to respondent of SPPCs realproperties was not effected by means of
any deed, instrument or writing. Petitioner contends that Section 196 of the Tax Code does
not require that a particular document be executed for the transfer of real property in order
to be subject to documentary stamp tax. Petitioner adds that it is enough that a conveyance
of real property has been effected since documentary stamp tax is imposed not on the
document alone but on the transaction. Petitioner avers that the merger between SPPC and
respondent, while constituting a single transaction, gave riseto several tax incidents which,
for tax purposes, should be treated individually and apart from the merger as a whole.
Lastly, petitioner argues that the enactment of Republic Act No. 924313 (RA 9243) which
specifically exempts the transfers of real property in merger or consolidation from
documentary stamp tax only supports further the conclusion that prior to RA9243, such
transfers are subject to documentary stamp tax. Otherwise, there would have been no
reason to specifically exempt such transfers from documentary stamp taxes.
Respondent in its Comment14 primarily submits that the decision sought to be reviewed is
already final and executory and the petition is filed out of time.
Respondent asserts that it is a rule of statutory construction that a statutes clauses and
phrases should not be taken as detached and isolated expressions, but the whole and every
part thereof must be considered in fixing the meaning of any of its parts. Respondent claims
that petitioners interpretation that a mere grant, assignment, transferor conveyance of real
property is subject to documentary stamp tax under Section 196 is erroneous since
petitioner disregarded the qualifyingword "sold" which describes the kind of transfer that is
contemplated as subject to documentary stamp tax. Respondent also points out that the fact
that Section 196 refers to the words "sold", "purchaser" and "consideration"undoubtedly
leads to the conclusion that only sales of real property are contemplated. That contrary to
petitioners claim, documentary stamp tax is not levied on the privilege to convey real
properties regardless of the manner of conveyance. Respondent emphasizes that the
transaction between respondent and SPPC was not one whereby SPPC transferred its real
properties to respondent in exchange for the latters shares of stock. SPPC and respondent
did not enter into some Deed of Assignment or a Deed of Exchange whereby SPPC assigned
or conveyed its real properties to respondent either for cash or in exchange for some
property like shares of stock. Rather, the transaction that SPPC and respondent entered into
was a merger and the transfer of the real properties of SPPC to respondent was merely a
legal consequence of the merger of SPPC with respondent. Respondent, therefore,posits that
since the absorption by respondent of SPPCs real properties as a consequence of the merger
is without consideration in money or moneys worth, the same is not subject to
documentary stamp tax. Furthermore, respondent maintains that in a statutory merger or
consolidation, real property ofthe absorbed corporation is transferred to and automatically
vested in the surviving corporation purely and strictly by operation of law and not by
voluntary act of the parties to the merger.
The issues presented for our resolution are as follows: (1) whether the transfer of SPPCs
real properties to respondent is subject to documentary stamp tax under Section 196 of the
Tax Code; and (2) whether respondent is entitled to the refund/tax credit inthe amount of
22,101,407.64 representing documentary stamp tax paid for the taxable year 2000 in
connection with the transfer of real properties from SPPC to respondent.
Prefatorily, we first address respondents contention that the petition for review on
certiorari was filed late.
Records show that on September 10, 2009, the CA issued the assailed decision. Petitioner
filed a motion for reconsideration but the motion was denied by the CA in a Resolution
dated April 13, 2010. Petitioner received notice of the Resolution on April 29, 2010 and thus
had 15 days from that date or until May 14, 2010 to file its petition for review on certiorari.
On June 3, 2010, the Office of the Solicitor General (OSG), representing petitioner, filed a
manifestation and motion (ad cautelam) requesting for an extension of time within which to
file a petition for review on certiorari. The OSG averred that petitioner forwarded the case
to the OSG for representation; however, the records ofthe case, due to inadvertence and
without fault of the handling lawyer, were forwarded to him only on May 26, 2010. Hence,
it was impossible for him to file the petition or a motion for extension on May 14, 2010.
Thereafter, the OSG filed a motion for extension dated June 10, 2010 requesting for a second
extension of time to file its petition. Petitioner filed the present petition for review on
certiorari on July 9, 2010.
In a Resolution15 dated July 26, 2010, this Court granted pro hac vice petitioners first and
second motions for extension totalling 45 days from May 26, 2010. Hence, petitioner had
until July 10, 2010 to file its petition for review on certiorari. Since the present petition was
filed on July 9, 2010, it was filed within the 45-day extension period granted to petitioner.
We now proceed to the primordial issue of whether the transfer of SPPCs real properties to
respondent issubject to documentary stamp tax under Section 196 of the Tax Code. The
pertinent provision states, to wit:
SEC. 196. Stamp Tax on Deeds of Sale and Conveyance of Real Property. On all
conveyances, deeds, instruments, or writings, other than grants, patents, or original
certificates of adjudication issued by the Government, whereby any land, tenement or other
realty sold shall be granted, assigned, transferred orotherwise conveyed to the purchaser, or
purchasers, or to any other person or persons designated by such purchaser or purchasers,
there shall be collected a documentary stamp tax,at the rates herein below prescribed based
on the consideration contracted to be paid for such realty or on its fair market value
determined in accordance with Section 6(E) of this Code, whichever is higher: Provided,
That when one of the contracting parties is the Government, the tax herein imposed shall be
based on the actual consideration. (Emphasis and underscoring ours.)
As can be gleaned from the aforequoted provision, documentary stamp tax is imposed on
all conveyances, deeds, instruments or writings whereby land or realty sold shall be
conveyed to the purchaser or purchasers.
It is a rule in statutory construction that every part of the statute must be interpreted with
reference to the context, i.e.,that every part of the statute must be considered together with
the other parts, and kept subservient to the general intent of the whole enactment. 16 The law
must not be read in truncated parts, its provisions must beread in relation to the whole
law.17 The particular words, clauses and phrases should not be studied as detached and
isolated expression, but the whole and every part of the statute must be considered in fixing
the meaning of any of its parts and in order to produce a harmonious whole. 18
Here, we do not find merit in petitioners contention that Section 196 covers all transfers
and conveyancesof real property for a valuable consideration. A perusal of the subject
provision would clearly show it pertains only to sale transactions where real property is
conveyed to a purchaser for a consideration. The phrase "granted, assigned, transferred or
otherwise conveyed" is qualified by the word "sold" which means that documentary stamp
tax under Section 196 is imposed on the transfer of realty by way of sale and does not apply
to all conveyances of real property. Indeed, as correctly noted by the respondent, the fact
that Section 196 refers to words "sold", "purchaser" and "consideration" undoubtedly leads
to the conclusion that only sales of real property are contemplated therein.
Thus, petitioner obviously erred when it relied on the phrase "granted, assigned, transferred
or otherwise conveyed" in claiming that all conveyances of real property regardless of the
manner of transfer are subject to documentary stamp tax under Section 196. It is not proper
to construe the meaning of a statute on the basis of one part. As we have previously
explained,
A statute is passed as a whole and not in parts or sections, and is animated by one general
purpose and intent. Consequently, each part or section should be construed in connection
with every other part or section so as to produce a harmonious whole. It is not proper to
confine its intention to the one section construed. It is always an unsafe way of construing a
statute or contract to divide it by a process of etymological dissection, into separate words,
and then apply to each, thus separated from the context, some particular meaning to be
attached to any word or phrase usually to be ascertained from the context.19
We quote with approval the following statements of the appellate court in the assailed
decision, Section 196 should be read as a whole and not phrase by phrase. The phrase
granted, assigned, transferred or otherwise conveyedclearly refers to the phrase whereby
any land, tenement or other realty is sold. This clearly shows that the legislature intended
Section 196 to refer to a transfer of realty byvirtue of sale. This is further bolstered by the
fact that the property is granted, assigned, transferred or otherwise conveyed to the
purchaser, or purchasers, or to any other person or persons designated by such purchaser
or purchasers. In addition, the basis of the stamp tax is the consideration agreed upon by
the parties or the propertys fair market value. Taking all of these into consideration, it is
beyond doubt that Section 196 pertains to a transfer of realty by way of sale. 20
It should be emphasized that in the instant case, the transfer of SPPCs real property to
respondent was pursuant to their approved plan of merger. In a merger of two existing
corporations, one of the corporations survives and continues the business, while the other is
dissolved, and all its rights, properties, and liabilities are acquired by the surviving
corporation.21 Although there is a dissolution of the absorbed or merged corporations, there
is no winding up of their affairs or liquidation of their assets because the surviving
corporation automatically acquires all their rights,privileges, and powers, as well as their
liabilities.22 Here, SPPC ceasedto have any legal personality and respondent PSPC stepped
into everything that was SPPCs, pursuant to the law and the terms of their Plan of Merger.
Pertinently, a merger of two corporations produces the following effects, among others:
Sec. 80. Effects of merger or consolidation. x x x
xxxx
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 corporations, shall be taken and deemed to be
transferred to and vested in such surviving or consolidated corporation without further act
or deed;23 (Emphasis supplied.)
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 vestedin 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
SPPCs real property to respondent was neither a sale nor was it a conveyance of real
property for a consideration contracted to be paidas contemplated under Section 196 of the
Tax Code. Hence, Section 196 ofthe Tax Code is inapplicable and respondent is not liable for
documentary stamp tax.
In fact, as properly cited in the CTA Decision, Section 185 of Revenue Regulations No. 26,
otherwise known as the documentary stamp tax regulations, provides:
Section 185. Conveyances withoutconsideration. Conveyances of realty, not in connection
with a sale, to trustees or other persons without consideration are not taxable.
Furthermore, it should be noted that a documentary stamp tax is in the nature of an excise
tax because it is imposed upon the privilege, opportunity or facility offered at exchanges for
the transaction of the business.24 Documentary stamp tax is a tax on documents,
instruments, loan agreements, and papers evidencing the acceptance, assignment, or
transfer of an obligation, right or property incident thereto. 25 Documentary stamp tax is
thus imposed on the exercise of these privileges through the execution of specific
instruments, independently of the legal status of the transactions giving rise thereto. 26 Based
on the foregoing, the transfer of real properties from SPPC to respondent is not subject to
documentary stamp tax considering that the same was not conveyed to or vested in
respondent by means of any specific deed, instrumentor writing. There was no deed of
assignment and transfer separatelyexecuted by the parties for the conveyance of the real
properties. The conveyance of real properties not being embodied in a separate
instrumentbut is incorporated in the merger plan, thus, respondent is not liable to pay
documentarystamp tax.
Notably, RA 9243, entitled "An Act Rationalizing the Provisions of the Documentary Stamp
Tax of the National Internal Revenue Code of 1997" was enacted and took effect on April 27,
2004 which exempts the transfer of real property of a corporation, which is a party to the
merger or consolidation, to another corporation, which is also a party to the merger or
consolidation, from the payment of documentary stamp tax.
Section 9 of the law which amends Section 199 of the NIRC states,
SECTION 9. Section 199 of the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:
Section 199. Documents and Papers Not Subject to Stamp Tax. The provisions of Section
173 to the contrary notwithstanding, the following instruments, documents and papers shall
be exempt from the documentary stamp tax:
xxxx
(m) Transfer of property pursuant to Section 40 (C)(2)27 of the National Internal Revenue
Code of 1997, as amended. (Emphasis supplied.)
The enactment of the said law nowremoves any doubt and had made clear that the transfer
of real properties as a consequence of merger or consolidation is not subject to documentary
stamp tax.1wphi1
Thus, we find no error on the part of the CA in affirming the Decision of the CTA which
ruled that respondent is entitled to a refund or issuance of a tax credit certificate in the
amount of 22,101,407.64 representing respondents erroneously paid documentary stamp
tax on the transfer of real property from SPPC torespondent.
We reiterate the well-established doctrine that as a matter of practice and principle, this
Court will not set aside the conclusion reached by an agency, like the CTA, especially if
affirmed by the CA. By the very nature of its function, it has dedicated itself to the study
and consideration of tax problems and has necessarily developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority on its part
which is not present here.28 WHEREFORE, we DENY the petition for lack of merit. The
Decision dated September 10, 2009 and Resolution dated April 13, 2010 of the Court of
Appeals in CA-G.R. SP No. 77117 are hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
 of its IMEX Software System (System) in the banks computer system for a period of twenty
SECOND DIVISION (20) years.[3]

GLOBAL BUSINESS HOLDINGS, INC. (formerly Global Business Bank, Inc.), In July 2000, ABC merged with petitioner Global Business Holdings, Inc. (Global),[4] with
Petitioner, Global as the surviving corporation. When Global took over the operations of ABC, it found
the System unworkable for its operations, and informed Surecomp of its decision to
discontinue with the agreement and to stop further payments thereon. Consequently, for
failure of Global to pay its obligations under the agreement despite demands, Surecomp
- versus - filed a complaint for breach of contract with damages before the Regional Trial Court (RTC)
of Makati. The case was docketed as Civil Case No. 01-1278.[5]

In its complaint, Surecomp alleged that it is a foreign corporation not doing business in the
Philippines and is suing on an isolated transaction. Pursuant to the agreement, it installed
SURECOMP SOFTWARE, B.V., the System in ABCs computers for a consideration of US$298,000.00 as license fee. ABC also
Respondent. undertook to pay Surecomp professional services, which included on-site support and
development of interfaces, and annual maintenance fees for five (5) subsequent
G.R. No. 173463 anniversaries, and committed to purchase one (1) or two (2) Remote Access solutions at
discounted prices. In a separate transaction, ABC requested Surecomp to purchase on its
behalf a software called MF Cobol Runtime with a promise to reimburse its cost.
Present: Notwithstanding the delivery of the product and the services provided, Global failed to pay
VELASCO, JR., J.,* and comply with its obligations under the agreement. Thus, Surecomp demanded payment
NACHURA,** of actual damages amounting to US$319,955.00 and an additional amount of US$227,610.00
Acting Chairperson, for Globals unilateral pretermination of the agreement, exemplary damages, attorneys fees
LEONARDO-DE CASTRO,*** and costs of suit.[6]
BRION,**** and
MENDOZA, JJ. Instead of filing an answer, Global filed a motion to dismiss based on two grounds: (1) that
Surecomp had no capacity to sue because it was doing business in the Philippines without a
Promulgated: license; and (2) that the claim on which the action was founded was unenforceable under
the Intellectual Property Code of the Philippines.[7]
October 13, 2010
x----------------------------------------------------------------------------------x On the first ground, Global argued that the contract entered into was not an isolated
transaction since the contract was for a period of 20 years. Furthermore, Global stressed that
DECISION it could not be held accountable for any breach as the agreement was entered into between
Surecomp and ABC. It had not, in any manner, taken part in the negotiation and execution
NACHURA, J.: of the agreement but merely took over the operations of ABC as a result of the merger. On
the second ground, Global averred that the agreement, being a technology transfer
arrangement, failed to comply with Sections 87 and 88 of the Intellectual Property Code of
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, the Philippines.[8]
assailing the Decision[1] dated May 5, 2006 and the Resolution[2] dated July 10, 2006 of the
Court of Appeals (CA) in CA-G.R. SP No. 75524. In the interim, Global filed a motion for leave to serve written interrogatories to Surecomp
in preparation for the hearing on the motion to dismiss, attaching thereto its written
The facts of the case are as follows: interrogatories.

On March 29, 1999, respondent Surecomp Software, B.V. (Surecomp), a foreign corporation After an exchange of pleadings on the motions filed by Global, on June 18, 2002, the RTC
duly organized and existing under the laws of the Netherlands, entered into a software issued an Order,[9] the pertinent portions of which read:
license agreement with Asian Bank Corporation (ABC), a domestic corporation, for the use
After a thorough and careful deliberation of the respective arguments advanced by the
parties in support of their positions in these two (2) incidents, and since it cannot be denied
that there is indeed a contract entered into between the plaintiff [Surecomp] and the
defendant [Global], the latter as a successor in interest of the merging corporation Asian
Bank, defendant [Global] is estopped from denying plaintiffs [Surecomps] capacity to sue it
for alleged breach of that contract with damages. Its argument that it was not the one who
actually contracted with the plaintiff [Surecomp] as it was the merging Asian Bank which
did, is of no moment as it does not relieve defendant Global Bank of its contractual
obligation under the Agreement on account of its undertaking under it:
x x x shall be responsible for all the liabilities and obligations of ASIANBANK in the same
manner as if the Merged Bank had itself incurred such liabilities or obligations, and any
pending claim, action or proceeding brought by or against ASIANBANK may be
prosecuted by or against the Merged Bank. The right of creditors or liens upon the property
of ASIANBANK shall not be impaired by the merger; provided that the Merged Bank shall
have the right to exercise all defenses, rights, privileges, set-offs and counter-claims of every
kind and nature which ASIANBANK may have, or with the Merged Bank may invoke
under existing laws.
It appearing however that the second ground relied upon by the defendant [Global], i.e.,
that the cause of action of the plaintiff is anchored on an unenforceable contract under the
provision of the Intellectual Property Code, will require a hearing before the motion to
dismiss can be resolved and considering the established jurisprudence in this jurisdiction,
that availment of mode of discovery by any of the parties to a litigation, shall be liberally
construed to the end that the truth of the controversy on hand, shall be ascertained at a less
expense with the concomitant facility and expeditiousness, the motion to serve written
interrogatories upon the plaintiff [Surecomp] filed by the defendant [Global] is GRANTED
insofar as the alleged unenforceability of the subject contract is concerned. Accordingly, the
latter is directed to serve the written interrogatories upon the plaintiff [Surecomp], which is
required to act on it in accordance with the pertinent rule on the matter.
Necessarily, the resolution of the motion to dismiss is held in abeyance until after a hearing
on it is property conducted, relative to the second ground aforementioned.
SO ORDERED.[10]
Surecomp moved for partial reconsideration, praying for an outright denial of the motion to
dismiss, while Global filed a motion for reconsideration.[11]
On November 27, 2002, the RTC issued an Order,[12] the fallo of which reads:
WHEREFORE, the Order of this Court dated 18 June 2002 is modified. Defendants [Globals]
Motion to Dismiss dated 17 October 2001 is denied on the two grounds therein alleged.
Defendant [Global] is given five (5) days from receipt of this Order within which to file its
Answer.
The resolution of defendants [Globals] Motion to Serve Written Interrogatories is held in
abeyance pending the filing of the Answer.
SO ORDERED.[13]
In partially modifying the first assailed Order, the RTC ratiocinated, viz.:
This court sees no reason to further belabor the issue on plaintiffs capacity to sue since there
is a prima facie showing that defendant entered into a contract with defendant and having
done so, willingly, it cannot now be made to raise the issue of capacity to sue [Merrill Lynch
Futures, Inc. v. CA, 211 SCRA 824]. That defendant was not aware of plaintiffs lack of
capacity to sue or that defendant did not benefit from the transaction are arguments that are
hardly supported by the evidence already presented for the resolution of the Motion to
Dismiss.
As to the issue of unenforceability of the subject contract under the Intellectual Property
Code, this court finds justification in modifying the earlier Order allowing the further
presentation of evidence. It appearing that the subject contract between the parties is an
executed, rather than an executory, contract the statute of frauds therefore finds no
application here.
xxxx
As to defendants Motion to Serve Written Interrogatories, this court finds that resort to such
a discovery mechanism while laudable is premature as defendant has yet to file its Answer.
As the case now stands, the issues are not yet joined and the disputed facts are not clear.[14]
Undaunted, Global filed a petition for certiorari with prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction under Rule 65 of the Rules of Court
before the CA, contending that the RTC abused its discretion and acted in excess of its
jurisdiction.[15]
On May 5, 2006, the CA rendered a Decision,[16] the dispositive portion of which reads:
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Orders
dated June 18, 2002 and November 27, 2002 of the Regional Trial Court of Makati City,
Branch 146, in Civil Case No. 01-1278 are hereby AFFIRMED.
SO ORDERED.[17]
A motion for reconsideration was filed by Global. On July 10, 2006, the CA issued a
Resolution[18] denying the motion for reconsideration for lack of merit.

Hence, this petition.
Global presents the following issues for resolution: (1) whether a special civil action for
certiorari is the proper remedy for a denial of a motion to dismiss; and (2) whether Global is
estopped from questioning Surecomps capacity to sue.[19]
The petition is bereft of merit.
I
An order denying a motion to dismiss is an interlocutory order which neither terminates
nor finally disposes of a case as it leaves something to be done by the court before the case is
finally decided on the merits. As such, the general rule is that the denial of a motion to
dismiss cannot be questioned in a special civil action for certiorari which is a remedy
designed to correct errors of jurisdiction and not errors of judgment.[20]
To justify the grant of the extraordinary remedy of certiorari, the denial of the motion to
dismiss must have been tainted with grave abuse of discretion. By "grave abuse of
discretion" is meant such capricious and whimsical exercise of judgment that is equivalent
to lack of jurisdiction. The abuse of discretion must be grave as where the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and
must be so patent and gross as to amount to an evasion of positive duty or to a virtual
refusal to perform the duty enjoined by or to act all in contemplation of law.[21]
In the instant case, Global did not properly substantiate its claim of arbitrariness on the part
of the trial court judge that issued the assailed orders denying the motion to dismiss. In a
petition for certiorari, absent such showing of arbitrariness, capriciousness, or ill motive in
the disposition of the trial judge in the case, we are constrained to uphold the courts ruling,
especially because its decision was upheld by the CA.
II
The determination of a corporations capacity is a factual question that requires the
elicitation of a preponderant set of facts.[22] As a rule, unlicensed foreign non-resident
corporations doing business in the Philippines cannot file suits in the Philippines.[23] This
is mandated under Section 133 of the Corporation Code, which reads:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines, but such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized under Philippine
laws.
A corporation has a legal status only within the state or territory in which it was organized.
For this reason, a corporation organized in another country has no personality to file suits in
the Philippines. In order to subject a foreign corporation doing business in the country to
the jurisdiction of our courts, it must acquire a license from the Securities and Exchange
Commission and appoint an agent for service of process. Without such license, it cannot
institute a suit in the Philippines.[24]
The exception to this rule is the doctrine of estoppel. Global is estopped from challenging
Surecomps capacity to sue.
A foreign corporation doing business in the Philippines without license may sue in
Philippine courts a Filipino citizen or a Philippine entity that had contracted with and
benefited from it.[25] A party is estopped from challenging the personality of a corporation
after having acknowledged the same by entering into a contract with it.[26] The principle is
applied to prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where such person has
received the benefits of the contract. [27]
Due to Globals merger with ABC and because it is the surviving corporation, it is as if it was
the one which entered into contract with Surecomp. In the merger of two existing
corporations, one of the corporations survives and continues the business, while the other is
dissolved, and all its rights, properties, and liabilities are acquired by the surviving
corporation.[28] This is particularly true in this case. Based on the findings of fact of the
RTC, as affirmed by the CA, under the terms of the merger or consolidation, Global
assumed all the liabilities and obligations of ABC as if it had incurred such liabilities or
obligations itself. In the same way, Global also has the right to exercise all defenses, rights,
privileges, and counter-claims of every kind and nature which ABC may have or invoke
under the law. These findings of fact were never contested by Global in any of its pleadings
filed before this Court.
WHEREFORE, in view of the foregoing, the Decision dated May 5, 2006 and the Resolution
dated July 10, 2006 of the Court of Appeals in CA-G.R. SP No. 75524 are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.