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STOCKHOLDERS OF F. GUANZON AND SONS INC V.

REGISTER OF DEEDS OF MANILA, 6 SCRA 373


(1962)
FACTS: The stockholders of F. Guanzon & Sons Inc, executed a certificate of liquidation of the
assets of the corporation, dissolving the corporation and distributing among themselves in
proportion to their shareholdings, the assets of said corporation, including real properties in
Manila.
1. When the certificate of liquidation was presented to respondent Register of Deeds, it was
denied on the ground that the court had not granted the dissolution of the corporation
2. Petitioners contend that the certificate of liquidation is not a conveyance or transfer but
merely a distribution of the assets of the corporation which has ceased to exist for having
been dissolved.
3. On the other hand, the respondent maintained that the certificate of liquidation
represents a transfer of said assets from the corporation to the stockholders.

ISSUE: WON the certificate in question involves a distribution of the assets of the corporation

HELD: No. The act of liquidation made by the stockholders of the corporation its assets is not and
cannot be considered a partition of community property, but rather a transfer or conveyance of
the title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation,
as well as the distribution of assets of the corporation, is to transfer their title from the corporation
to the stockholders in proportion to their shareholdings, the transfer cannot be effected without
the corresponding deed of conveyance from the corporation to the stockholders. It is therefore,
fair and logical to consider the certificate of liquidation as one in the nature of a transfer or
conveyance.





























DEE V. SECURITIES AND EXCHANGE COMMISSION, 199 SCRA 238 (1991)
FACTS: Naga Telephone Company, Inc. (Natelco) was organized in 1954, the authorized capital
was P100,000.00. In 1974, Natelco decided to increase its authorized capital to P3 million. As
required by the Public Service Act, Natelco filed an application for the approval of the
increased authorized capital with the then Board of Communications.
1. Pursuant to the approval given by the then Board of Communications, Natelco filed its
Amended Articles of Incorporation with the SEC When the amended articles were filed
with the SEC, the original authorized capital of P100,000.00 was already paid. Of the
increased capital of P2,900,000.00 the subscribers subscribed to P580,000.00 of which
P145,000 was fully paid.
2. The capital stock of Natelco was divided into 213,000 common shares and 87,000
preferred shares, both at a par value of P10.00 per shares. On 12 April 1977, Natelco
entered into a contract with Communication Services, Inc. (CSI) for the "manufacture,
supply, delivery and installation" of telephone equipment. Natelco issued 24,000 shares of
common stocks to CSI on the same date as part of the down payment. Subsequently,
another 12,000 shares of common stocks were issued to CSI. In both instances, no prior
authorization from the Board of Communications (now NTC) was secured pursuant to the
conditions imposed by the decision in BOC case.
3. The stockholders of the Natelco held their annual stockholders' meeting to elect their
seven directors to their Board of Directors, for the year 1979-1980. In this election
petitioner Dee was unseated as Chairman of the Board and President of the
Corporation, but was elected as one of the directors, together with his wife. In the
election CSI was able to gain control of Natelco when the latter's legal counsel, Atty.
Luciano Maggay won a seat in the Board with the help of CSI. In the reorganization Atty.
Maggay became president.
4. Dee having been unseated in the election, filed a petition in the SEC, questioning the
validity of the elections of 19 May 1979 upon the main ground that there was no valid list
of stockholders through which the right to vote could be determined.
5. SEC issued a temporary restraining order placing Dee and the other officers of the 1978-
1979 Natelco Board in hold-over capacity. The SEC restraining order was elevated to the
Supreme Court where the enforcement of the SEC restraining order was restrained.
Maggay, et. al. replaced the hold-over officers.
6. During the tenure of the Maggay Board, from 22 June 1979 to 10 March 1980, it did not
reform the contract of 12 April 1977, and entered into another contract with CSI for the
supply and installation of additional equipment but also issued to CSI 113,800 shares of
common stock. Subsequently, the Supreme Court dismissed the earlier case upon the
ground that the same was premature and the Commission should be allowed to
conduct its hearing on the controversy. The dismissal of the petition resulted in the
unseating of the Maggay group from the board of directors of Natelco in a "hold-over"
capacity. In the course of the proceedings in SEC Case 1748, SEC issued an order,
declaring: (1) that CSI is a stockholder of Natelco and, therefore, entitled to vote; (2) that
unexplained 16,858 shares of Natelco appear to have been issued in excess to CSI which
should not be allowed to vote; (3) that 82 shareholders with their corresponding number
of shares shall be allowed to vote; and (4) consequently, ordering the holding of special
stockholder' meeting to elect the new members of the Board of Directors for Natelco
based on the findings made in the order as to who are entitled to vote.
4. Meanwhile, Antonio Villasenor filed a civil case with CFI Camarines Sur, against Luciano
Maggay, Nildo I. Ramos, Desirerio Saavedra, Augusto Federis, Ernesto Miguel, Justino de
Jesus St., Vicente Tordilla, Pedro Lopez Dee and Julio Lopez Dee. Villasenor claimed that
he was an assignee of an option to repurchase 36,000 shares of common stocks of
Natelco under a Deed of Assignment executed in his favor. The Maggay group allegedly
refused to allow the repurchase of said stocks when Villasenor offered to CSI the
repurchase of said stocks by tendering payment of its price. The complaint therefore,
prayed for the allowance to repurchase the aforesaid stocks and that the holding of the
22 May 1982 election of directors and officers of Natelco be enjoined. A

ISSUE: WON the issuance of 113,800 shares of Natelco to CSI, made during the pendency of SEC
Case 1748 in the Securities and Exchange Commission was valid

HELD: Yes. The issuance of 113,800 shares of Natelco stock to CSI made during the pendency of
SEC Case 1748 in the Securities and Exchange Commission was valid. The findings of the SEC En
Banc as to the issuance of the 113,800 shares of stock was stated as follows: "But the issuance of
113,800 shares was pursuant to a Board Resolution and stockholders' approval prior to 19 May
1979 when CSI was not yet in control of the Board or of the voting shares. There is distinction
between an order to issue shares on or before 19 May 1979 and actual issuance of the shares
after 19 May 1979. The actual issuance, it is true, came during the period when CSI was in control
of voting shares and the Board (if they were in fact in control) - but only pursuant to the original
Board and stockholders' orders, not on the initiative to the new Board, elected 19 May 1979,
which petitioners are questioning. The Commission en banc finds it difficult to see how the one
who gave the orders can turn around and impugn the implementation of the orders he had
previously given. The reformation of the contract is understandable for Natelco lacked the
corporate funds to purchase the CSI equipment.... Appellant had raise the issue whether the
issuance of 113,800 shares of stock during the incumbency of the Maggay Board which was
allegedly CSI controlled, and while the case was sub judice, amounted to unfair and undue
advantage. This does not merit consideration in the absence of additional evidence to support
the proposition." In effect, therefore, the stockholders of Natelco approved the issuance of stock
to CSI.

ISSUE: WON Natelco stockholders have a right of preemption to the 113,800 shares in question;
else, whether the Maggay Board, in issuing said shares without notifying Natelco stockholders,
violated their right of pre-emption to the unissued shares

HELD: The issuance of the 113,800 stocks is not invalid even assuming that it was made without
notice to the stockholders as claimed by Dee, et. al.. The power to issue shares of stocks in a
corporation is lodged in the board of directors and no stockholders meeting is required to
consider it because additional issuance of shares of stocks does not need approval of the
stockholders. Consequently, no pre-emptive right of Natelco stockholders was violated by the
issuance of the 113,800 shares to CSI.


















REPUBLIC PLANTERS BANK V. AGANA, 269 SCRA 1 (1997)
FACTS: The Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from
the Republic Planters Bank in the amount of P120,000.
1. As part of the proceeds of the loan, preferred shares of stocks were issued to RFRDC
through its officers then, Adalia F. Robes and one Carlos F. Robes. Instead of giving the
legal tender totalling to the full amount of the loan, which is P120,000 the Bank lent such
amount partially in the form of money and partially in the form of stock certificates
numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of
Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in
favor of Adalia F. Robes.
2. Said certificates of stock bear the following terms and conditions: "The Preferred Stock
shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the
right to receive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such
preferred shares may be redeemed, by the system of drawing lots, at any time after 2
years from the date of issue at the option of the Corporation."
3. RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their
alleged rights to collect dividends under the preferred shares in question and to have the
bank redeem the same under the terms and conditions of the stock certificates.
4. The bank filed a Motion to Dismiss 3 private respondents' Complaint on the following
grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action;
(2) that the action was unenforceable under substantive law; and (3) that the action was
barred by the statute of limitations and/or laches. The bank's Motion to Dismiss was
denied by the trial court.
5. The trial court rendered the decision in favor of RFRDC and Robes; ordering the bank to
pay RFRDC and Robes the face value of the stock certificates as redemption price, plus
1% quarterly interest thereon until full payment.

ISSUE: What is the nature of preferred shares?

HELD: A preferred share of stock, on one hand, is one which entitles the holder thereof to certain
preferences over the holders of common stock. The preferences are designed to induce persons
to subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The most
common forms may be classified into two: (1) preferred shares as to assets; and (2) preferred
shares as to dividends. The former is a share which gives the holder thereof preference in the
distribution of the assets of the corporation in case of liquidation; the latter is a share the holder
of which is entitled to receive dividends on said share to the extent agreed upon before any
dividends at all are paid to the holders of common stock. There is no guaranty, however, that
the share will receive any dividends. Under the old Corp Law in force at the time the contract
between the petitioner and the private respondents was entered into, it was provided that "no
corporation shall make or declare any dividend except from the surplus profits arising from its
business, or distribute its capital stock or property other than actual profits among its members or
stockholders until after the payment of its debts and the termination of its existence by limitation
or lawful dissolution."

Similarly, the present Corp Code provides that the board of directors of a stock corporation may
declare dividends only out of unrestricted retained earnings. The Sec 43 Corp Code substituted
the phrase "unrestricted retained earnings," which may be a more precise term, in place of
"surplus profits arising from its business" in the former law. Thus, the declaration of dividends is
dependent upon the availability of surplus profit or unrestricted retained earnings, as the case
may be. Preferences granted to preferred stockholders, moreover, do not give them a lien upon
the property of the corporation nor make them creditors of the corporation, the right of the
former being always subordinate to the latter. Dividends are thus payable only when there are
profits earned by the corporation and as a general rule, even if there are existing profits, the
board of directors has the discretion to determine whether or not dividends are to be
declared. Shareholders, both common and preferred, are considered risk takers who invest
capital in the business and who can look only to what is left after corporate debts and liabilities
are fully paid.

ISSUE: What are redeemable shares?

HELD: Redeemable shares, on the other hand, are shares usually preferred, which by their terms
are redeemable at a fixed date, or at the option of either issuing corporation, or the stockholder,
or both at a certain redemption price.

A redemption by the corporation of its stock is, in a sense,
a repurchase of it for cancellation. The present Code allows redemption of shares even if there
are no unrestricted retained earnings on the books of the corporation. This is a new provision
which in effect qualifies the general rule that the corporation cannot purchase its own shares
except out of current retained earnings. However, while redeemable shares may be redeemed
regardless of the existence of unrestricted retained earnings, this is subject to the condition that
the corporation has, after such redemption, assets in its books to cover debts and liabilities
inclusive of capital stock. Redemption, therefore, may not be made where the corporation is
insolvent or if such redemption will cause insolvency or inability of the corporation to meet its
debts as they mature.

ISSUE: WON the bank can be compelled to redeem the preferred shares issued to RFRDC and
Robes

HELD: While the stock certificate does allow redemption, the option to do so was clearly vested
in the bank. The redemption therefore is clearly the type known as "optional". Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with the corporation
and the stockholder is without right to either compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine
in statutory construction that the word "may" denotes discretion, and cannot be construed as
having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank
made a finding that the Bank has been suffering from chronic reserve deficiency, and that such
finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central
Bank, to the President and Acting Chairman of the Board of the bank prohibiting the latter from
redeeming any preferred share, on the ground that said redemption would reduce the assets of
the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was
prohibited for a just and valid reason. The directive issued by the Central Bank Governor was
obviously meant to preserve the status quo, and to prevent the financial ruin of a banking
institution that would have resulted in adverse repercussions, not only to its depositors and
creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a
right granted by law to a corporate entity, may thus be considered as an exercise of police
power.

ISSUE: WON RFRDC and Robes are entitled to the payment of certain rate of interest on the
stocks as a matter of right without necessity of a prior declaration of dividend

HELD: Both Sec 16 Corp Law and Sec 43 Corp Code prohibit the issuance of any stock dividend
without the approval of stockholders, representing not less than 2/3 of the outstanding capital
stock at a regular or special meeting duly called for the purpose. These provisions underscore
the fact that payment of dividends to a stockholder is not a matter of right but a matter of
consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to
pay interest before dividends are paid to common stockholders, is legal only when construed as
requiring payment of interest as dividends from net earnings or surplus only. In compelling the
bank to redeem the shares and to pay the corresponding dividends, the Trial committed grave
abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and
conditions specified in the stock certificate, as well as the clear mandate of the law.















































LU V. LU YM SR, 643 SCRA 23 (2011)
FACTS: The 3 consolidated cases stemmed from the complaint for declaration of nullity of share
issue, receivership and dissolution filed in 2000 before RTC Cebu against Paterno Lu Ym and Sons
and Ludo and Luym Devt Corp (LLDC)
1. RTC ruled in favor of David Lu et al by annulling the issuance of shares of stock
subscribed and paid by Lu Ym father and sons at less than par value and ordering the
dissolution and asset liquidation of LLDC.

ISSUE: WON the value of the subject matter cannot be estimated

HELD: Respondents claim has merit. The 600,000 shares of stock were indeed properties in
litigation. They were the subject matter of the complaint, and the relief prayed for entailed the
nullification of the transfer thereof and their return to LLDC. David et al are merely minority
shareholders of the corporation who claimed to have been prejudiced by the sale of the shares
of stock to respondent. Thus, to the extent of the damage or injury they allegedly have suffered
from this sale of the shares of stock, the action they filed can be characterized as one capable
of pecuniary estimation.

It bears noting that petitioners are not claiming to own said shares. The mention of the real value
of the shares of stock over which petitioners interpose a claim of right to recovery is merely
narrative or descriptive in order to emphasize the inequitable price at which the transfer was
effected.

Whatever property, real or personal, that would be distributed to the stockholders would be a
mere consequence of the main action. In the end, in the event that LLDC is dissolved, petitioners
David Lu would not be getting the value of the 600,000 shares but only the value of their minority
number of shares, which are theirs to begin with.

CONCURRING, J. BERSAMIN:
Under the trust fund doctrine, the capital stock, properties and other assets of a corporation are
regarded as held in trust for the corporate creditors, who, being preferred in the distribution of
the corporate assets, must be paid first before any corporate assets may be distributed among
the stockholders. In the event of the dissolution of LLDC, petitioners would only get the value of
their minority number of shares, not the value of the 600,000 shares. Indeed, a basic concept in
corporate law is that a shareholders interest in corporate property, if it exists at all, is indirect,
remote, conjectural, consequential and collateral. A share of stock, although representing a
proportionate interest in the properties of the corporation, does not vest its holder with any legal
right or title to the properties, such holders interest in the properties being equitable or
beneficial in nature. A shareholder is in no legal sense the owner of corporate properties, which
are owned by the corporation as a distinct legal person.












EDWARD J. NELL CO V. PACIFIC FARMS INC, 15 SCRA 415 (1965)
FACTS: Petitioner Edward J. Nell Co obtained a judgment against Insular Farms for the unpaid
balance of the price of a pump it sold to the latter.
1. A writ of execution was then issued but was returned unsatisfied since Insular Farms had
no leviable property.
2. Petitioner then filed an action against respondent Pacific Farms for the collection of the
judgment aforementioned on the theory that respondent was the alter ego of Insular
Farms.

ISSUE: WON respondent Pacific Farms is liable for the unpaid obligation of Insular Farms

HELD: No. generally when one corporation sells or otherwise transfers all of its assets to another
corporation, the latter is not liable for the debts or liabilities of the transferor, except: (1) where
the purchaser has expressly or impliedly agreed to assume such debts; (2) where the transaction
amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation
is merely a continuation of the selling corporation; and (4) where the transaction is entered into
fraudulently to escape liability for such debts.

CAB: There is neither proof nor allegation that Pacific Farms had expressly or impliedly agreed to
assume the debt of Insular Farms or that it is a continuation of Insular Farms, or that the sale of
either the shares of stock or assets of Insular Farms to respondent has been entered into
fraudulently in order to escape liability for the debt of Insular Farms in favor of petitioner. In fact,
the sale took place 6 months before the rendition of the judgment. Moreover, respondent
purchased the shares of stock of Insular Farms as the highest bidder in an auction sale held at
the instance of a bank which said shares have been pledged as security for an obligation of
Insular Farms in favor of said bank.

Neither is it claimed that these transactions have resulted in the consolidation or merger of
Insular Farms and Pacific Farms. On the contrary, petitioners theory to the effect that
respondent is the alter ego of Insular Farms negates such consolidation or merger, for a
corporation cannot be its own alter ego.





















JIAO V. NLRC, 670 SCRA 184 (2012)
FACTS: Petitioners are regular employees of Philippine Banking Corp (PHILBANK), each with at
least 10 years of service in the company.
1. In 2000, PHILBANK merged with GLOBAL BANK, with the former as the surviving
corporation and the latter as the absorbed corporation but the bank operated under
the name GLOBAL BANK.
2. As a result of the merger, the petitioners positions became redundant. A Special
Separation Program (SSP) was implemented and petitioners were granted a separation
package. Petitioners availed of SSP.
3. Subsequently, respondent METROBANK acquired the assets and liabilities of GLOBAL
BANK through a Deed of Assignment.
4. Petitioners filed an action against GLOBANK BANK and METROBANK, alleging that under
the old gratuity plan, they were entitled to 150% of one months salary for every year of
service they rendered.
5. In their answer, GLOBAL BANK contended that petitioners are no longer entitled to the
additional gratuity pay since the same had been included in their separation pay. For its
part, METROBANK denied any liability since there was an absence of employee
relationship with petitioners.

ISSUE: WON METROBANK can be held liable for petitioners claims

HELD: No. As a rule, a corporation that purchases the assets of another will not be liable for the
debts of the selling corporation, provided the former acted in good faith and paid adequate
consideration for such assets, except when any of the following circumstances is present: (1)
where the purchaser has expressly or impliedly agreed to assume such debts; (2) where the
transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing
corporation is merely a continuation of the selling corporation; and (4) where the transaction is
entered into fraudulently to escape liability for such debts.

CAB: Under the Deed of Assignment between GLOBAL BANK and METROBANK, the letter
accepted the formers assets in exchange of assuming its liabilities: deposit liabilities, interbank
loans payable, managers checks and demand drafts outstanding, accrued taxes, interests and
other expenses, and deferred credits and other liabilities.

The liabilities enumerated can be characterized as those pertaining to GLOBAL BANKs banking
operations. They do not include GLOBAL BANKs liabilities to pay separation pay to its former
employees. This must be so because it is understood that the same liabilities ended when the
petitioners were paid the amounts embodied in their respective acceptance letters and
quitclaims. Hence, this obligation could not have been passed on to METROBANK.













VILLA REY TRANSIT INC V. FERRER, 25 SCRA 845 (1968)
FACTS: Prior to 1959, Jose Villarama was an operator of a bus transportation, Villa Rey Transit. He
sold 2 certificates of public convenience to Pangasinan Transportation Co (Pantranco) for
P350,000 on the condition that Villarama shall not apply for any TPU service identical or
competing with the buyer for 10 years
1. Barely 3 months later, a corporation called Villa Rey Transit Inc (VRTI) was organized;
Natividad (Jose Villaramas wife) was one of the incorporators and the rest was
subscribed by the brother and sister-in-law of Villarama. Nativad was the treasurer of the
corporation
2. In less than a month after its registration with SEC, VRTI bought 5 certificates of public
convenience, 49 buses, and equipment from one Valentin Fernando
3. The very same day the aforementioned contract of sale was executed, the parties
immediately applied with PSC for its approval, with a prayer for the issuance of a
provisional authority in favor of the vendee corporation to operate the service therein
involved
4. The sheriff levied on 2 of the five certificates pursuant to a writ of execution issued by CFI
Pangasinan in favor of Ferrer against Fernando
5. VRTI then filed a complaint for the annulment of the sheriffs shale of the 2 certificates of
public convenience in favor of Ferrer and the subsequent sale to Pantranco
6. Pantranco, on its part, filed a third-party complaint against Jose Villarama alleging that
Villarama and VRTI are one and the same; that VIllarama and/or VRTI are disqualified
from operating the two certificates by virtue of the agreement between Villarama and
Pantranco

ISSUE: WON VRTI is liable for the claims against Villarama

HELD: Yes. Based on the facts, the preponderance of evidence shows that VRTI is an alter ego of
Jose Villarama and that the restricted clause in the contract between Villarama and Pantranco
is also enforceable and binding against VRTI. For the rule is that a seller or promisor may not
make use of a corporate entity as a means to evading the obligation of his covenant. Where
the corporation is substantially the alter ego of the covenantor to the restrictive agreement, it
can be enjoined from competing with the covenantee.

CAB: Although Villarama was not an incorporator or stockholder of VRTI, the finances of the
corporation which are under the control and management of the treasurer, were nonetheless
manipulated and disbursed as if they were the private funds of Villarama in such a way that
Villarama appeared to be the actual owner-treasurer of the business without regard to the rights
of the stockholders.















SAN TEODORO DEVT ENTERPRISES INC V. SSS, 8 SCRA 96 (1963)
FACTS: San Teodoro Sawmill Co Inc, originally a limited partnership registered as Chua Lam & Co
doing business as San Teodoro Sawmill, received a letter from SSS notifying it that it falls under the
compulsory coverage of Social Security Law
1. Petitioner corporation contended that it was exempt from the compulsory coverage
because it was only incorporated on January 2, 1957 and was separate and distinct from
Chua Lam & Co
2. SSS maintained that San Teodoro Devt Enterprises was only a continuation of the original
entity Chua Lam & Co and as such, within the purview of the compulsory coverage of
the Social Security Law

ISSUE: WON petitioner is covered by the Social Security Law

HELD: Yes. On the strength of the foregoing facts, the Social Security Commission found that the
dissolution of the partnership and the organization of the corporation were effected in such
sequence as to insure the smooth and orderly transfer of the business from the partnership to the
corporation without interruption in the function of the business; that the entire business of the
partnership, including the materials and equipment used in connection therewith, were
transferred to the corporation ostensibly for a valuable consideration; and that even the name
of the corporation was the same as the tradename of the partnership, and apparently their
employees are also the same. All these, the Commission said, coupled with the fact that four out
of the five members of the partnership do not only own the controlling stock of the corporation
but also hold positions having to do with the management and control of the corporation,
indicated in a conclusive manner that there was merely a change in the juridical personality of
the entity operating the business, so that it may be said that the substance of the juridical person
owning and operating the business remain the same even if its legal personality was changed.



























ASSOCIATED BANK V. CA, 291 SCRA 511 (1998)
FACTS: Associated Banking Corp and Citizens Bank &Trust Co merged into one banking
corporation known as Associated Citizens Bank, the surviving bank. Subsequently, it changed its
name to Associated Bank by virtue of the amended AOI.
1. Private respondent Sarmiento executed a promissory note in favor of Associated Bank.
For failure to pay, petitioner bank filed a collection suit against Sarmiento
2. Sarmiento denied all allegations, contending that the promissory note was executed in
favor of Citizens Bank & Trust Co

ISSUE: WON Associated Bank, the surviving corporation, may enforce the promissory note made
by the private respondent in favor of CBTC, the absorbed company, after the merger
agreement had been signed

HELD: Yes. In the merger of two or more existing corporations, one of the combining corporations
survives and continues the combined business, while the rest are dissolved and all their rights,
properties and liabilities are acquired by the surviving corporation. Although there is a
dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of
their assets, because the surviving corporation automatically acquires all their rights, privileges
and powers, as well as their liabilities.

The merger, however, does not become effective upon the mere agreement of the constituent
corporations. The procedure to be followed is prescribed under the Corp Code. Sec 79 Corp
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 the constituent 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 Sec 79, the Agreement of Merger, 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."

CAB: The records do not show when the SEC approved the merger. 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.








SUNDOWNER DEVELOPMENT CORP V. DRILON, 180 SCRA 14 (1989)
FACTS: Mabuhay Hotel Inc was leasing the hotel premises belonging to Santiago Syjuco Inc.
however, due to nonpayment of rentals, Syjuco filed an ejectment suit against Mabuhay.
1. Mabuhay Hotel Inc offered to settle the case by surrendering the premises to Syjuco and
to sell its assets and personal property to any interested party
2. Subsequently, Syjuco leased the property to petitioner Sundowner
3. The employees of Mabuhay Hotel sought labor rights against Sundowner, and the
Secretary of Labor directed petitioner to absorb the old employees of Mabuhay Hotel
which had completely ceased operations.

ISSUE: WON the purchaser of the assets of an employer corporation can be considered a
successor employer of the latters employees

HELD: No. The rule is that unless expressly assumed, labor contracts such as employment
contracts and collective bargaining agreements are not enforceable against a transferee of an
enterprise, labor contracts being in personam, thus binding only between the parties. A labor
contract merely creates an action in personam and does not create any real right which should
be respected by third parties. This conclusion draws its force from the right of an employer to
select his employees and to decide when to engage them, and the same can only be restricted
by law through the exercise of police power.

As a general rule, there is no law requiring a bona fide purchaser of assets of an on-going
concern to absorb in its employees the employees of the latter.

However, although the purchaser of the assets or enterprise is not legally bound to absorb in its
employ the employers of the seller of such assets or enterprise, the parties are liable to the
employees if the transaction between the parties is colored or clothed with bad faith.

CAB: Contrary to the claim of public respondent that the transaction between petitioner and
Mabuhay Hotel was attended in bad faith, the Court finds no cogent basis for such contention.
Thus, the absorption of the employees of Mabuhay may not be imposed on petitioner.

It I is undisputed that when Mabuhay surrendered the leased premises to Syjyco and asked
Syjuco to offer the same to other lessees it was Syjuco who found petitioner and persuaded the
latter to lease said premises. Mabuhay had nothing to do with the negotiation and
consummation of the lease contract between petitioner and Syjuco. There being no employer-
employee relationship between petitioner and the Mabuhay employees, petitioner cannot be
compelled to absorbed the employees of Mabuhay and to pay them back wages.














MDII SUPERVISORS AND CONFIDENTIAL EMPLOYEES ASSOCIATION V. PRESIDENTIAL ASSISTANT ON
LEGAL AFFAIRS, 79 SCRA 40 (1977)
FACTS:

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